What changed in this filing

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Item 1. Financial Statements

2026-05-15 compared with 2025-11-12 · 1561 added, 1756 removed, 442 unchanged (88% of the section changed)

1 – Financial Statements.

ENTERTAINMENT, INC.

Digital Ally, Inc.)

CONSOLIDATED BALANCE SHEETS

30, 2025 AND DECEMBER 31, 2024

September 30, 2025

December 31, 2024

Current assets:

Cash and cash equivalents

Accounts receivable-trade, less allowance for doubtful accounts of $ 110,982 – September 30, 2025 and $ 200,668 – December 31, 2024

Subscriptions receivable, net of $ 22,644 allowance – September 30, 2025 and $ 25,000 – December 31, 2024

Cash and cash

Accounts receivable-trade,

less allowance for doubtful accounts of $ 10,262 – March 31, 2026 and $ 10,262 – December 31, 2025

Subscriptions receivables,

net of $ 75,000 allowance – March 31, 2026 and $ 75,000 – December 31, 2025

Other receivables

Notes receivable

Inventories, net

Prepaid expenses

Assets of revenue-cycle

management business held-for-sale

Total current assets

2 unchanged sentences

Operating lease right of use assets, net

Subscriptions receivable – long-term

Liabilities and Equity (Deficit)

Subscriptions receivables – long term

Notes receivable - long term

Assets of revenue-cycle management business

held-for-sale

Liabilities and Equity

Current liabilities:

1 unchanged sentence

Accrued expenses

Current portion of operating lease obligations

Deferred revenue – current

Notes payable – related party – current portion

Debt obligations – current

Current portion of operating

lease obligations

Deferred revenue –

Debt obligations –

Warrant derivative liabilities

Income taxes payable

Liabilities of revenue-cycle

management business held for sale

Total current liabilities

Long-term liabilities:

Debt obligations – long term

Operating lease obligation – long term

Deferred revenue – long term

Notes payable – related party – long-term portion

Debt obligations –

Operating lease obligation

Deferred revenue –

Notes payable – related

party – long term

Liabilities of revenue-cycle

management business held for sale

Total liabilities

Commitments and contingencies (Note 13)

Stockholders’ Equity (Deficit):

Preferred stock, $ 0.001 par value per share, 10,000,000 shares authorized;

none issued or outstanding – September 30, 2025 and December 31, 2024

Common stock, $ 0.001 par value;

200,000,000 shares authorized;

Stockholders’ Equity:

Preferred stock, $ 0.001

par value per share, 10,000,000 shares authorized;

none issued or outstanding – March 31, 2026 and December 31, 2025

Common stock, $ 0.001

13,333,333 authorized;

shares issued:

1,727,421 – September 30, 2025 and 3,204 – December 31, 2024

526,860 – March 31, 2026 and 138,004

– December 31, 2025

Additional paid in capital

Noncontrolling interest in consolidated subsidiary

( 1,080,153 )

Noncontrolling interest

in consolidated subsidiary

( 1,885,802 )

2 unchanged sentences

( 144,184,436 )

Total equity (deficit)

( 9,013,430 )

Total liabilities and equity (deficit)

Notes to Unaudited Condensed Consolidated Financial Statements.

Total equity:

Total liabilities and equity

accompanying notes are an integral part of these financial statements.

ENTERTAINMENT, INC.

Digital Ally, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED

30, 2025 AND 2024

THE THREE MONTHS ENDED

September 30,

the nine months ended

September 30,

For the Three Months Ended March 31,

Service and other

3 unchanged sentences

Total cost of revenue

Gross profit (loss)

Selling, general and administrative expenses:

Research and development expense

Selling, advertising and promotional expense

General and administrative expense

Goodwill and intangible asset impairment charge

Research and development

Selling, advertising and

promotional expense

General and administrative

Total selling, general and administrative expenses

1 unchanged sentence

( 1,296,987 )

( 7,382,299 )

( 6,191,535 )

( 14,935,492 )

Other income (expense):

Interest income

Interest expense and debt discount amortization

( 2,505,536 )

Loss on extinguishment of debt

Change in fair value of warrant derivative liabilities

Interest expense

Gain on extinguishment of debt – related

Change in fair value of derivative liabilities

Gain on extinguishment of liabilities

Gain on sale of intangibles

Gain on sale of property, plant and equipment

Total other income (expense)

Loss before income tax benefit

( 5,470,712 )

( 1,185,464 )

( 14,424,531 )

Income tax benefit

( 5,470,712 )

( 1,185,464 )

( 14,424,531 )

Net (income) loss attributable to noncontrolling interests of consolidated subsidiary

Net loss attributable to common stockholders

$ ( 1,021,867 )

$ ( 3,470,506 )

Total other income (expense) from continuing

Income (loss) before income tax benefit (provision)

from continuing operations

( 1,513,727 )

Income tax expense benefit (provision)

Net income (loss) from continuing operations

( 1,513,727 )

Net loss per share information:

Discontinued operations:

Income (loss) from discontinued

( 4,371,588 )

Income tax expense benefit

Net income (loss) from

discontinued operations

( 4,371,588 )

Net income (loss)

( 5,885,315 )

Net income (loss) attributable to noncontrolling

Net income (loss) attributable to common stockholders

$ ( 5,885,315 )

Net income (loss) per share attributable to

common stockholders’ information:

Continuing operations

Discontinued operations

Net income (loss) attributable

to common stockholders per share – basic

Continuing operations

Discontinued operations

Net income (loss) attributable to common stockholders

per share – diluted

Weighted average shares outstanding:

Notes to Unaudited Condensed Consolidated Financial Statements.

accompanying notes are an integral part of these financial statements.

ENTERTAINMENT, INC.

Digital Ally, Inc.)

CONSOLIDATED STATEMENTS OF EQUITY (DEFICIT)

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

Noncontrolling

2 unchanged sentences

$ ( 1,198,286 )

Stock-based compensation

Issuance of common stock

Issuance of common stock, shares

Issuance of warrants

Sale of common stock and pre-funded warrants, net of offering costs

Sale of common stock and pre-funded warrants, net of offering costs, shares

Issuance of common stock upon exercise of pre-funded warrants

Issuance of common stock upon exercise of pre-funded warrants, shares

Fair value of pre-funded warrants issued along with sale of common stock

Transition of warrant derivative liability to equity upon exercise of pre-funded warrants

Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants

Issuance of common stock upon exercise of June 2024 Series B common stock purchase

warrants, shares

Transition of warrant derivative liability to equity upon exercise of Series B warrants

Fair value of Series A warrants issued along with sale of common stock

Fair value of Series B warrants issued along with sale of common stock

Issuance of common stock upon exercise of February 2025 Series B common stock purchase warrants

Issuance of common stock upon exercise of February 2025 Series B common stock purchase

warrants, shares

Transition of warrant derivative liability to equity upon exercise of Series B warrants issued along with February 2025 sale of common stock

Transition of warrant derivative liability to equity of Series A warrants issued along with February 2025 sale of common stock

Deemed capital contribution related to modification of notes payable - related party

Equity Issuances - Senior Note with detachable warrant September 2025

Restricted common stock grant

Restricted common stock forfeitures

$ ( 137,512,928 )

$ ( 9,013,430 )

Balance, March 31, 2024

( 121,599,801 )

Stock-based compensation

Issuance of common stock

Issuance of warrants

( 2,075,300 )

Net Income (loss)

( 5,083,861 )

( 5,010,551 )

Balance, June 30, 2024

( 126,683,662 )

Stock-based compensation

Issuance of common stock upon exercise of prefunded warrants

Restricted common stock forfeitures

( 2,000,206 )

( 3,470,507 )

Balance, September 30, 2024

$ 128,971,707

$ ( 1,265,851 )

$ ( 130,154,169 )

$ ( 2,448,310 )

Balance, December 31, 2024

$ 129,697,781

$ ( 1,198,286 )

$ ( 137,512,928 )

$ ( 9,013,430 )

Stock-based compensation

Sale of common stock and pre-funded warrants, net of offering costs

Issuance of common stock upon exercise of pre-funded warrants

Fair value of pre-funded warrants issued along with sale of common stock

Transition of warrant derivative liability to equity upon exercise of pre-funded warrants

Issuance of common stock upon exercise of June 2024 Series B common stock purchase warrants

Transition of warrant derivative liability to equity upon exercise of Series B warrants

Sale of common stock and pre-funded warrants,

net of offering costs

Issuance of common stock upon exercise of pre-funded

Fair value of pre-funded warrants issued along

with sale of common stock

Transition of warrant derivative liability

to equity upon exercise of pre-funded warrants

Issuance of common stock upon exercise of June

2024 Series B common stock purchase warrants

Transition of warrant derivative liability

to equity upon exercise of Series B warrants

Issuance of common stock pursuant to equity line of credi

Issuance of common stock pursuant to equity line of credi , shares

Issuance of common stock upon conversion of convertible notes

Issuance of common stock upon

conversion of convertible notes, shares

Transition of derivative liability to equity

upon conversion

Round up of fractional shares resulting from

the reverse stock splits

Round up of fractional shares resulting from

the reverse stock splits, shares

Disposition of Nobility Healthcare

Balance, March 31, 2025

1 unchanged sentence

$ ( 1,194,675 )

Stock-based compensation

Fair value of Series A warrants issued along with sale of common stock

$ ( 133,249,457 )

( 1,340,214 )

Fair value of Series B warrants issued along with sale of common stock

( 5,406,408 )

Issuance of common stock upon exercise of February 2025 Series B common stock purchase warrants

Transition of warrant derivative liability to equity upon exercise of Series B warrants issued along with February 2025 sale of common stock

Transition of warrant derivative liability to equity of Series A warrants issued along with February 2025 sale of common stock

Deemed capital contribution related to modification of notes payable - related party

Balance, December 31, 2025

$ 148,440,056

$ ( 1,885,802 )

Balance, June 30, 2025

$ ( 144,184,436 )

3 unchanged sentences

Stock-based compensation

Equity Issuances - Senior Note with detachable warrant September 2025

Fair value of Series B warrants issued along with sale of common stock

( 1,021,867 )

Net income (loss)

( 1,021,867 )

Balance, September 30, 2025

Issuance of common stock pursuant to equity line of credi

Issuance of common stock upon conversion of

convertible notes

Transition to additional paid-in capital upon conversion of convertible notes

Round up of fractional shares resulting from

the reverse stock splits

Disposition of Nobility Healthcare

( 5,885,315 )

Balance, March 31, 2026

$ 151,906,315

2 unchanged sentences

$ ( 147,612,336 )

Notes to Unaudited Condensed Consolidated Financial Statements.

accompanying notes are an integral part of these financial statements.

ENTERTAINMENT, INC.

Digital Ally, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Cash Flows from Operating Activities:

$ ( 5,885,315 )

net income (loss) from discontinued operations, net of tax

( 4,371,588 )

Adjustments to reconcile net loss to net cash flows used in operating activities:

Net loss from continuing

( 1,513,727 )

Adjustments to reconcile

net loss to net cash flows used in operating activities:

Depreciation and amortization

Provision for doubtful accounts receivable

Provision for doubtful subscriptions receivable

Provision for inventory obsolescence

Stock based compensation

Non-cash interest expense

Gain on extinguishment of liabilities

Gain on extinguishment

of liabilities

( 2,220,097 )

Change in fair value of warrant derivative liability

Gain on extinguishment

of debt – related party

( 1,249,372 )

Provision for doubtful

accounts receivable

Provision for doubtful

lease receivable

Change in fair value of

warrant derivative liability

( 2,515,891 )

Goodwill and intangible asset impairment charge

Loss on extinguishment of debt

Loss on disposal of intangible assets

Loss on sale of property, plant and equipment

Change in operating assets and liabilities:

Provision for inventory

Change in operating assets

and liabilities:

(Increase) decrease in:

Accounts receivable – trade

Subscriptions receivable

Other receivables

Accounts receivable –

other (including related party)

Prepaid expenses

Operating lease right of use assets

( 1,011,575 )

Operating lease right of

Increase (decrease) in:

2 unchanged sentences

Accrued expenses

Accrued interest - related party

Accrued interest - related

Income taxes payable

Lease deposit

Operating lease obligations

Deferred revenue

( 1,602,811 )

Net cash used in operating activities

Net cash used in operating

activities – continuing operation

( 1,171,110 )

( 5,600,450 )

cash used in operating activities – discontinued operation

Cash Flows from Investing Activities:

Purchases of property, plant and equipment

Additions to intangible assets

Proceeds from sale of intangible assets

Cash paid for acquisition of Country Stampede

Proceeds from sale of land and building

Proceeds from sale of property, plant and equipment

Net cash provided by (used in) investing activities

Purchases of property,

plant and equipment

Purchases of intangible

Proceeds from sale of Nobility

Net cash used in investing

activities – continuing operation

cash used in investing activities – discontinued operation

Cash Flows from Financing Activities:

Net proceeds of February 2025 public equity offering with detachable warrants

Net proceeds of June 2024 private placement equity offering with detachable warrants

Net proceeds from September 2025 issuance of senior secured convertible notes with detachable warrants

Net proceeds of unsecured promissory note – entertainment segment

Payments on Senior Secured Promissory Notes – Video Solutions Segment

( 3,650,000 )

Proceeds of related party note payable

Payments of related party note payable

Principal payments on EIDL loan

Proceeds – Commercial Extension of Credit – Entertainment Segment

Payments on Commercial Extension of Credit – Entertainment Segment

Proceeds – Merchant Advances – Video Solutions Segment

Payments on Merchant Advances – Video Solutions Segment

Net proceeds from issuance

of common stock under equity line of credit

Net proceeds of February

2025 public equity offering with detachable warrants

Net proceeds of unsecured

promissory note – Entertainment segment

Payments of related party

Payments on Commercial

Extension of Credit – Entertainment segment

Payments on Senior Secured

Promissory Notes – Video Solutions segment

( 3,600,000 )

Payments on Merchant Advances

– Video Solutions segment

( 1,922,750 )

Proceeds from issuance of common shares upon exercise of Series B warrants

Proceeds – Merchant Advances – Entertainment Segment

Payments on Merchant Advances – Entertainment Segment

Principal payment on contingent consideration promissory notes

Payments on Senior Secured

Promissory Notes – Entertainment segment

Principal payment on EIDL

from issuance of common shares upon exercise of Series B warrants

Net cash provided by financing activities –

Net increase 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

continuing operation

Net cash provided by financing

activities – discontinued operation

Net increase (decrease) in cash, cash equivalents

and restricted cash

Cash and cash equivalents,

beginning of period

Cash and cash equivalents,

end of period

Supplemental disclosures of cash flow information:

Cash payments for interest

Cash payments for income taxes

Supplemental disclosures of non-cash investing and financing activities:

Restricted common stock grant

Restricted common stock forfeitures

Commercial extension of credit repaid through accrued revenue – Entertainment segment

ROU and lease liability recorded on extension (termination) of lease

Assets acquired in business acquisitions

Goodwill acquired in business acquisitions

Liabilities assumed in business acquisitions

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

Deemed capital contribution related to modification of notes payable - related party

Fair value of warrants issued with sale of shares

Transition of warrant derivative liability to equity upon exercise of warrants

Fair value of detachable warrants issued with senior secured convertible notes issuance

Issuance of common stock upon exercise of pre-funded warrants

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

Notes to Unaudited Condensed Consolidated Financial Statements.

payments for interest

payments for income taxes

Supplemental disclosures of non-cash investing

and financing activities:

receivable received in connection with sale of discontinued operation

to additional paid-in capital upon conversion of convertible notes

of common stock upon conversion of convertible notes payable

Fair value of warrants

issued with sale of shares

of warrant derivative liability to equity upon exercise of warrants

Issuance costs withheld

from ELOC proceeds

of common stock upon exercise of pre-funded warrants

accompanying notes are an integral part of these financial statements.

ENTERTAINMENT, INC.

Digital Ally, Inc.)

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

and had no operations until 2004.

30, 2004, Vegas Petra, Inc.

entered into a Plan of Merger with Digital Ally, Inc., at which time the merged entity was renamed Digital

(such merged entity, the “Predecessor Registrant”).

Entertainment, Inc.

(formerly Digital Ally, Inc.) was originally incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

had no operations until 2004.

On November 30, 2004, Vegas Petra, Inc.

entered into a Plan of Merger with Digital Ally, Inc., at which

time the merged entity was renamed Digital Ally, Inc.

January 8, 2026, the Company changed its legal name from Digital Ally, Inc.

to Kustom Entertainment, Inc.

pursuant to a Certificate

of Amendment to its Articles of Incorporation filed with the Secretary of State of the State of Nevada.

The name change became

effective on January 8, 2026, and the Company began trading on the Nasdaq Capital Market (“Nasdaq”) under its new name

at the start of trading on January 8, 2026.

In connection with the name change, the Company also changed its Nasdaq trading symbol

from “DGLY” to “KUST.” The name change and symbol change did not affect the Company’s assets,

liabilities, operations, or capital structure, and stockholders were not required to take any action with respect to their stock

certificates.

The Company’s board of directors (the “Board of Directors”) also approved a conforming amendment to

the Company’s Amended and Restated Bylaws solely to reflect the new corporate name.

Unless the context otherwise requires,

references in these condensed consolidated financial statements to the “Company,” “Digital Ally,”

“Digital,” “Kustom” or similar terms refer to Kustom Entertainment, Inc.

and its consolidated

subsidiaries.

Company formed Digital Ally International, Inc.

during August 2009 to facilitate the export sales of its products.

The Company formed

Nobility Healthcare, LLC (“Nobility Healthcare”) in June 2021 to facilitate the operations of its revenue cycle management

solutions and back-office services for healthcare organizations.

in August 2009 to facilitate the export sales of its digital video imaging and storage

The Company formed TicketSmarter, Inc.

upon its acquisition of Goody

Tickets, LLC and TicketSmarter, LLC, to facilitate its global ticketing operations.

on September 1, 2021, upon its acquisition of Goody Tickets, LLC and TicketSmarter,

LLC, to facilitate its global ticketing operations.

The Company formed Kustom Entertainment, Inc.

Kustom 440, Inc.

in 2022 to create unique entertainment experiences directly for consumers.

business of the Registrant, Digital Ally, Inc.

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

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

(“TicketSmarter”), Kustom 440, Inc.

(“Kustom 440”),

Kustom Entertainment, Inc., 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, 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, as a monthly

Our entertainment sector generates product revenue through our production of live events and concerts including our annual

and Kustom 440, Inc.

in 2022 to create

and produce live entertainment experiences directly for consumers.

business of the Registrant, Kustom Entertainment, Inc.

(formerly Digital Ally, Inc.), together with its wholly owned subsidiaries Digital

Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., and Kustom 440, Inc., collectively referred to as the “Company,”

is divided into two reportable operating segments:

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

The Company previously operated a third reportable segment, the Revenue Cycle Management (“Revenue Cycle Management”) segment,

which reflected the operations of Nobility Healthcare, LLC (“Nobility Healthcare”).

Following the sale of Nobility Healthcare

on January 8, 2026, the results of this segment have been classified as discontinued operations for all periods presented and are no

longer reported as a separate segment.

The Video Solutions segment is the Company’s legacy business that produces digital video

imaging, storage products, and related security and commercial applications.

This segment includes both service and product revenues

through subscription models offering cloud-based services and warranty solutions, as well as hardware sales for video and safety solutions.

The Entertainment segment generates revenue through the production of live events and concerts, including the Company’s annual

Country Stampede music festival.

The Entertainment Segment also 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.

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.

Such required segment information

is included in Note 17.

May 6, 2025, the Company, acting pursuant to authority received at an annual meeting of its stockholders on December 17, 2024, filed

with the Secretary of State of the State of Nevada a certificate of amendment (the “Charter Amendment”) to its articles of

incorporation, as amended (the “Articles of Incorporation”), which effected a one-for-twenty reverse stock split (the “Reverse

Stock Split”) of all of the Company’s outstanding shares of common stock, par value $ 0.001 per share (the “Common Stock”).

Pursuant to the Charter Amendment, the Reverse Stock Split became effective as of 5:30 p.m.

Eastern Time on May 6, 2025.

of the Reverse Stock Split, every twenty (20) shares of Common Stock were exchanged for one (1) share of Common Stock.

The Common Stock

began trading on the Nasdaq Capital Market on a split-adjusted basis at the start of trading on May 7, 2025.

The Reverse Stock Split

did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which

remain as set forth pursuant to the Articles of Incorporation.

No fractional shares of Common Stock were issued in connection with the

Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically entitled

to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level.

Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the effective date of

the Reverse Stock Split.

All historical share and per-share amounts reflected throughout the Company’s 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 the Company’s Common Stock was not affected by the Reverse Stock

May 22, 2025, the Company, acting pursuant to authority received at a special meeting of its stockholders on May 6, 2025, filed with

the Secretary of State of the State of Nevada a certificate of amendment (the “May 22, 2025 Charter Amendment”) to its articles

of incorporation, as amended, to effect a one (1)-for-one hundred (100) share reverse split (the “May 22, 2025 Reverse Stock Split”)

of all of the Company’s outstanding shares of Common Stock, par value $ 0.001 per share.

Pursuant to the May 22, 2025 Charter Amendment,

the Reverse Stock Split became effective at 5:30 p.m.

Eastern Time on May 22, 2025.

As a result of the May 22, 2025 Reverse Stock Split,

every one hundred (100) shares of Common Stock were exchanged for one (1) share of Common Stock.

The Common Stock will begin trading

on a split-adjusted basis on Nasdaq effective with the open of the market on Friday, May 23, 2025.

The May 22, 2025 Reverse Stock Split

did not affect the total number of shares of capital stock, including the Common Stock, that the Company is authorized to issue, which

remain as set forth pursuant to the Articles of Incorporation.

No fractional shares of Common Stock were issued in connection with the

May 22, 2025 Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional shares of Common Stock were automatically

entitled to receive an additional fraction of a share of Common Stock to round up to the next whole share, at a participant level.

May 22, 2025 Reverse Stock Split also had a proportionate effect on all other options and warrants of the Company outstanding as of the

effective date of the May 22, 2025 Reverse Stock Split.

All historical share and per-share amounts reflected throughout the Company’s

condensed consolidated financial statements and other financial information in this Report have been adjusted to reflect the May 22,

2025 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 May 22, 2025 Reverse Stock Split.

This segment also acts as an intermediary between ticket buyers and sellers through the Company’s

secondary ticketing platform, TicketSmarter.com, and includes the acquisition of tickets from primary sellers for resale through various

accounting guidance on segment reporting establishes standards for reporting information regarding operating segments in annual financial

statements and requires selected information about those segments to be presented.

Such required segment information is included in Note

20, Operating Segments.

Company retroactively adjusts all historical share and per-share amounts reflected throughout the condensed consolidated financial

statements and other financial information to reflect reverse stock splits as if they had occurred as of the earliest period

The par value per share of the Company’s common stock is not affected by reverse stock splits.

Stockholders’ Equity for details regarding each reverse stock split effectuated during and subsequent to the periods

In accordance with ASC 205-20,

Discontinued Operations , a component of the entity is reported as a discontinued operation when it is disposed of, or classified as

held for sale, and represents a strategic shift having a major effect on the Company’s operations and financial results.

A component is

classified as held for sale when management with the appropriate authority commits to a plan to sell, the component is available for immediate

sale in its present condition, an active program to locate a buyer has been initiated, and the sale is probable and expected to be completed

within one year at a price reasonable in relation to current fair value.

Held-for-sale assets are measured at the lower of carrying amount or fair value less costs to sell, with depreciation

and amortization ceasing upon classification.

Results of operations of the disposal group are reported as discontinued operations, net

of tax, with prior periods retrospectively reclassified.

Assets and liabilities of the disposal group are presented separately as held

for sale on the balance sheet in the period of classification.

The Company classified Nobility Healthcare as held for sale and a discontinued operation as of December 31, 2025.

See Note 22, Discontinued Operations , for additional

The Company evaluates whether there

are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going

concern within one year after the date that the condensed consolidated financial statements are issued, in accordance with ASC 205-40,

Presentation of Financial Statements - Going Concern .

When substantial doubt is determined to exist, the Company evaluates

whether its plans intended to mitigate those conditions, when implemented, will alleviate substantial doubt.

The Company’s evaluation

is based on relevant conditions and events that are known and reasonably knowable as of the date the condensed consolidated financial

statements are issued.

The condensed consolidated financial statements have been prepared on a going-concern basis, which assumes the

realization of assets and settlement of liabilities in the ordinary course of business, and do not include any adjustments that might

result from the outcome of this uncertainty.

following is a summary of the Company’s Significant Accounting Policies:

1 unchanged sentence

unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles

in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

in the United States for interim financial information in accordance with ASC 270-10-50, Interim Reporting ,

and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete

2 unchanged sentences

a fair presentation have been included.

Operating results for the three and nine-month periods ended September 30, 2025 are not necessarily

indicative of the results that may be expected for the year ending December 31, 2025.

Operating results for the three-month period ended March 31, 2026 are not necessarily indicative

of the results that may be expected for the year ending December 31, 2026.

balance sheet as of December 31, 2025 has been derived from the audited financial statements at that date but does not include all the

3 unchanged sentences

of Consolidation :

accompanying condensed consolidated financial statements include the consolidated accounts of Digital Ally, its wholly-owned subsidiaries,

Digital Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., Kustom Entertainment, Inc., Kustom 440, Inc., and

its majority-owned subsidiary Nobility Healthcare, LLC.

All intercompany balances and transactions have been eliminated during consolidation.

accompanying condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in

the United States of America (“U.S.

GAAP”) and pursuant to the rules and regulations of the U.S.

Securities and Exchange

Commission (the “SEC”).

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned

subsidiaries, including Digital Ally International, Inc., Digital Ally Healthcare, LLC, TicketSmarter, Inc., and Kustom 440, Inc.

intercompany balances and transactions have been eliminated in consolidation.

of Estimates :

preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses

during the reporting period.

Actual results could differ from those estimates.

Management utilizes various other estimates, including

but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived assets,

the fair value of warrants and options, the fair value of notes receivable and other consideration received in connection with dispositions,

the recognition of revenue, inventory valuation reserve, allowances for doubtful accounts and other receivables, incremental borrowing

rate on leases, the valuation allowance for deferred tax assets, and other legal claims and contingencies.

The results of any changes

in accounting estimates are reflected in the financial statements in the period in which the changes become evident.

Estimates and assumptions

are reviewed periodically, and the effects of revisions are reflected in the period that they are determined to be necessary.

Value of Financial Instruments :

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

Recognition :

Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all

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revenue when a performance obligation is satisfied.

Company has two different revenue streams, product and service, represented through its three segments.

Company generates revenue from both product and service offerings across its two reportable segments.

The Company reports all revenues

on a gross basis, other than service revenues from the Company’s entertainment and revenue cycle management segments, Revenues

generated by all segments are reported net of sales taxes.

on a gross basis, except for certain service revenues within the Entertainment segment, and all revenues are reported net of sales taxes.

Solutions Segment

Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the

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As the Company’s standard payment terms are generally less than one year for product sales (although

some subscriptions for services may reach out 3-5 years), it has elected the practical expedient under ASC 606-10-32-18 to not assess

whether a contract has a significant financing component.

The Company allocates the transaction price to each distinct product based

on its relative standalone selling price.

The product price, as specified on the purchase order, is considered the stand-alone selling

price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances.

Revenue is recognized

when control of the product is transferred to the customer (i.e.

when the Company’s performance obligations is satisfied), which

typically occurs at shipment.

Further in determining whether control has been transferred, the Company considers if there is a present

right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.

Customers do not have

a right to return the product other than for warranty reasons for which they would only receive repair services or replacement products.

The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as

the amortization period of the commission asset the Company would have otherwise recognized is less than one year.

some subscriptions for services may extend three to five years), it has elected the practical expedient under ASC 606-10-32-18 to not

assess whether a contract has a significant financing component.

The Company allocates the transaction price to each distinct product

based on its relative standalone selling price.

The product price, as specified on the purchase order, is considered the stand-alone

selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances.

is recognized when control of the product is transferred to the customer (i.e., when the Company’s performance obligation is satisfied),

which typically occurs at shipment.

In determining whether control has been transferred, the Company considers if there is a present

right to payment and legal title, along with whether risks and rewards of ownership have transferred to the customer.

Customers do not

have a right to return the product other than for warranty reasons, for which they would only receive repair services or replacement

The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred

as the amortization period of the commission asset the Company would have otherwise recognized is less than one year.

and other revenue is comprised of revenues from extended warranties, repair services, cloud revenue, and software revenue.

recognized upon shipment of the product and acceptance of the service or materials by the end customer for repair services.

extended warranty, cloud service or other software-based products is over the term of the contract warranty or service period.

A time-elapsed

method is used to measure progress because the Company transfers control evenly over the contractual period.

Accordingly, the fixed consideration

related to these revenues is generally recognized on a straight-line basis over the contract term, as long as the other revenue recognition

criteria have been met.

extended warranty, cloud service, or other software-based products is recognized over the term of the contract warranty or service period.

A time-elapsed method is used to measure progress because the Company transfers control evenly over the contractual period.

the fixed consideration related to these revenues is generally recognized on a straight-line basis over the contract term, as long as

the other revenue recognition criteria have been met.

Company’s multiple performance obligations may include future body-worn camera devices to be delivered at defined points within

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contract to future deliverables using management’s best estimate of selling price.

Cycle Management

Company reports revenue cycle management revenues on a net basis, as its primary source of revenue is its end-to-end service fees which

is generally determined as a percentage of the invoice amounts collected.

These service fees are reported as monthly revenue upon completion

of the Company’s performance obligation to provide the agreed upon service.

Entertainment

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Payment is due at the time of sale.

revenue includes payments received in advance of performance under the contract and are reported separately as current liabilities and

non-current liabilities in the Condensed 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.

the nine months ended September 30, 2025, the Company recognized revenue of $ 4,189,321 related to its deferred revenue.

Total deferred

revenue consists of the following:

OF DEFERRED REVENUES

September 30, 2025

September 30,

Deferred revenue, current

Deferred revenue, non-current

December 31, 2024

Deferred revenue, current

Deferred revenue, non-current

returns and allowances aggregated $ 516,208 for the nine months ended September 30, 2025.

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:

preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United

States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and

disclosure of contingent assets and liabilities at the date of the condensed consolidated balance sheets and the reported amount of revenues

and expenses during the reporting period.

Actual results could differ from those estimates.

Management utilizes various other estimates,

including but not limited to, determining the estimated lives of long-lived assets, determining the potential impairment of long-lived

assets, the fair value of warrants, options, the recognition of revenue, inventory valuation reserve, allowances for doubtful accounts

and other receivables, incremental borrowing rate on leases, the valuation allowance for deferred tax assets and other legal claims and

contingencies.

The results of any changes in accounting estimates are reflected in the condensed consolidated financial statements in

the period in which the changes become evident.

Estimates and assumptions are reviewed periodically, and the effects of revisions are

reflected in the period that they are determined to be necessary.

revenue includes payments received in advance of the Company’s performance obligations and is presented as current and non-current

liabilities in the consolidated balance sheets.

Revenue is recognized as the related performance obligations are satisfied over time.

See Note 21, Deferred Revenue , for additional information regarding the composition, activity, and expected future recognition

of deferred revenue balances.

time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it.

It is the Company’s

policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are served on the Company.

carefully assessing the claim, and assuming the Company determines that it is not at fault or disagrees with the damage or relief demanded,

the Company vigorously defends any lawsuit filed against it.

The Company records a liability when losses are deemed probable and reasonably

When losses are deemed reasonably possible but not probable, the Company determines whether it is possible to provide an estimate

of the amount of the loss or range of possible losses for the claim, if material for disclosure.

In evaluating matters for accrual and

disclosure purposes, the Company takes into consideration factors such as its historical experience with matters of a similar nature,

the specific facts and circumstances asserted, the likelihood of prevailing, the availability of insurance, and the severity of any potential

The Company reevaluates and updates accruals as matters progress over time.

and cash equivalents :

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

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

at times may be in excess of the federally insured limit of $ 250,000 per bank.

The Company minimizes this risk by placing its cash deposits

with major financial institutions.

At September 30, 2025 and December 31, 2024, the uninsured balance amounted to $- 0 -.

cash of $- 0 - was included in other assets as of September 30, 2025 and 2024, respectively.

Restricted cash consists of bank deposits

that collateralize a debt obligation.

Such debt obligation was paid off as of December 31, 2024.

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

and restricted cash in the condensed consolidated statements of cash flows:

SCHEDULE OF RECONCILIATION OF CASH AND CASH EQUIVALENTS

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

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

At times, account

balances may exceed the federally insured limit of $ 250,000 per bank.

The Company minimizes this risk by placing its cash deposits with

major financial institutions.

At March 31, 2026 and December 31, 2025, the balance in excess of the federally insured limit amounted

to $ 585,934 and $ 304,653 , respectively.

receivables are carried at original invoice amount less an allowance for doubtful accounts, which is estimated in accordance with ASC

326, Financial Instruments — Credit Losses.

The Company determines the allowance for doubtful accounts by regularly evaluating

individual customer receivables and considering a customer’s financial condition, credit history, current economic conditions,

and reasonable and supportable forecasts of future conditions that may affect the collectability of the reported amount.

Trade receivables

are written off when deemed uncollectible, and recoveries of trade receivables previously written off are recorded when received.

receivable is considered past due if any portion of the receivable balance is outstanding for more than thirty (30) days beyond terms.

No interest is charged on overdue trade receivables.

and Other Intangibles :

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The excess purchase price over the fair value of net tangible assets and identifiable intangible assets acquired is recorded

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

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

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

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all of the activities within a reporting unit, whether acquired or internally generated, are available to support the value of the goodwill.

Traditionally,

goodwill impairment testing is a two-step process.

Step one involves comparing the fair value of the reporting units to its carrying

If the carrying amount of a reporting unit is greater than zero and its fair value is greater than its carrying amount, there

is no impairment.

If the reporting unit’s carrying amount is greater than the fair value, the second step must be completed to

measure the amount of impairment, if any.

Step two involves calculating an implied fair value of goodwill.

The Company has adopted ASU

2017-04 which simplifies subsequent goodwill measurement by eliminating step two from the goodwill impairment test.

As a result, the

Company compares the fair value of a reporting unit with its respective carrying value and recognizes an impairment charge for the amount

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

Company has adopted ASU 2017-04, which simplifies goodwill impairment measurement by eliminating the second step from the goodwill impairment

As a result, the Company compares the fair value of a reporting unit with its respective carrying value and recognizes an impairment

charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

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

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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 based on multiples of comparable public companies and precedent transactions.

estimates in the income and market approach include:

future levels of revenue growth, gross profit margin, EBITDA as a percentage of

revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount

of the long-term rate of growth for the business, estimation of the useful life over which cash flows will occur, and determination of

the 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, the Company estimates the fair value based on multiples of comparable public companies and precedent transactions.

Significant estimates in the income and market approach include:

future levels of revenue growth, gross profit margin, EBITDA as a percentage

of revenue, cash-free debt-free net working capital as a percentage of revenue, capital expenditures as a percentage of revenue, discount

rate, selection of guideline public companies, and revenue market multiples.

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if fair value is not available.

The Company assessed potential impairments of its long-lived assets as of an interim date of September

30, 2024 and concluded that there was an impairment which was recorded during the year ended December 31, 2024.

After completing our

2023 annual impairment test, no events or changes in circumstances were noted that required an interim goodwill impairment test until

the fiscal third quarter of 2024, when events occurred that we considered triggering events.

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 4.

Goodwill and Other

Intangible Assets for additional details on the interim impairment test, valuation methodologies, and inputs used in the fair value measurements.

The Company also assessed potential impairments of its long-lived assets as of December 31, 2024 and concluded that there was no additional

impairment as compared to its September 30, 2024 interim assessment.

After completing our annual impairment test as of December 31, 2024,

no events or changes in circumstances were noted that triggered the requirement for an interim goodwill impairment test for the nine months ended September 30, 2025.

Company completed its annual goodwill and intangible asset impairment test as of December 31, 2025 on a full quantitative basis.

on the results of the annual test, the Company concluded that no impairment existed with respect to the Video Solutions segment.

respect to the Entertainment segment, the Company recorded total impairment charges of $ 2,533,667 for the year ended December 31, 2025,

consisting of:

$ 1,428,000 of goodwill impairment;

$ 746,667 representing the full write-off of the Sponsorship Agreement Network intangible

asset, which failed the ASC 360 recoverability test;

$ 189,000 of TicketSmarter trademark impairment;

and $ 170,000 of Country Stampede

trademark impairment.

of March 31, 2026, management evaluated whether any triggering events or changes in circumstances occurred during the three months ended

March 31, 2026 that would indicate the carrying value of goodwill or long-lived assets may not be recoverable.

Based on that evaluation,

no triggering events were identified and no interim impairment test was performed.

Accordingly, no goodwill or intangible asset impairment

charges were recorded for the three months ended March 31, 2026.

Refer to Note 7, Goodwill and Other Intangible Assets , for additional

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

Legal expenses incurred in preparation of patent

application have been deferred and will be amortized over the useful life of granted patents.

applications have been deferred and will be amortized over the useful life of granted patents.

Costs incurred in preparation of applications

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value of assets and liabilities acquired in business combinations :

Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at

the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from

The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations

that use information and assumptions provided by management to valuation specialists, which consider management’s best estimates

of inputs and assumptions that a market participant would use.

The Company allocates any excess purchase price that exceeds the fair

value of the net tangible and identifiable intangible assets acquired to goodwill.

The use of alternative valuation assumptions, including

estimated growth rates, cash flows, discount rates and estimated useful lives could result in different purchase price allocations and

amortization expenses in current and future periods.

Transaction costs associated with these acquisitions are expensed as incurred through

selling, general and administrative expenses on the condensed consolidated statement of operations.

In those circumstances where an acquisition

involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments

expected to be made as of the acquisition date.

The Company re-measures this liability for each reporting period and records changes

in the fair value through operating income within the condensed consolidated statements of operations.

Derivative Liabilities:

accordance with FASB ASC 815-40, Derivatives and Hedging:

Contracts in an Entities Own Equity, entities must consider whether to classify

contracts that may be settled in its own stock, such as warrants to purchase shares of Common Stock, as equity of the entity or as an

asset or liability.

If an event that is not within the entity’s control could require net cash settlement, then the contract should

be classified as an asset or a liability rather than as equity.

We have determined that because the terms of the various warrants issued

and remain outstanding, include a provision that entitles all the warrant holders to receive cash for their warrants in the event of

a qualifying cash tender offer, while only certain of the holders of the underlying shares of Common Stock would be entitled to cash,

our warrants should be classified as liability measured at fair value, with changes in fair value each period reported in earnings.

in the price of our Common Stock may result in significant changes in the value of the derivatives and resulting gains and losses on

our condensed consolidated statement of operations.

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 the condensed consolidated financial statements.

segments are identified as components of an enterprise for which separate discrete financial information is available for evaluation

by the chief operating decision maker (the Company’s Chief Executive Officer or “CODM”) in making decisions on how

to allocate resources and assess performance.

The Company’s three operating segments are Video Solutions, Revenue Cycle Management,

and Entertainment, each of which has specific personnel responsible for that business and reports to the CODM.

Corporate expenses capture

the Company’s corporate administrative activities, is also to be reported in the segment information.

Therefore, its operations

are eliminated in consolidation and is not considered a separate business segment for financial reporting purposes.

Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed

consolidated financial statements.

See Note 17, Operating Segments, for more information.

Company accounts for business combinations using the acquisition method of accounting, under which the purchase price is allocated to

the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, with any excess recorded as

Transaction costs associated with acquisitions are expensed as incurred and included in selling, general and administrative

expenses in the consolidated statements of operations.

Inventories :

for the Video Solutions segment consist of electronic parts, circuitry boards, camera parts and ancillary parts (collectively, “components”),

work-in-process, and finished goods.

Finished goods that are manufactured and assembled by the Company are carried at the lower of cost

or net realizable value, with cost determined by standard cost methods, which approximate the first-in, first-out method.

Inventory costs

include material, labor, and manufacturing overhead.

Inventories for the Entertainment segment consist of tickets to live events, which

are carried at the lower of cost or net realizable value.

Any unsold tickets remaining in inventory after the event are fully written

Management has established inventory reserves based on estimates of excess and/or obsolete current inventory.

Manufacturing

inventory for the Video Solutions segment is reviewed for obsolescence and excess quantities on a quarterly basis, based on estimated

future use of quantities on hand, which is determined based on past usage, planned changes to products, and known trends in markets and

Changes in support plans or technology could have a significant impact on obsolescence.

support its worldwide service operations for the Video Solutions segment, the Company maintains service spare parts inventory, which

consists of both consumable and repairable spare parts.

Consumable service spare parts are used within its service business to replace

worn or damaged parts in a system during a service call and are generally classified in current inventory as its stock of this inventory

turns relatively quickly.

However, if there has been no recent usage for a consumable service spare part, but the part is still necessary

to support systems under service contracts, the part is non-current and included within non-current inventories within its consolidated

balance sheet.

Consumables are charged to cost of goods sold when issued during the service call.

these service parts age over the related product group’s post-production service life, the Company reduces the net carrying value

of its repairable spare part inventory on the consolidated balance sheet to account for the excess that builds over the service life.

The post-production service life of its systems is generally seven to twelve years, and at the end of twelve years, the carrying value

for these parts in its consolidated balance sheet is reduced to zero.

The Company also performs periodic monitoring of its installed

base for premature end-of-service-life events and expenses, through cost of sales, the remaining net carrying value of any related spare

parts inventory in the period incurred.

inventory represents advance payments made to suppliers for inventory not yet received.

The Company periodically evaluates the recoverability

of prepaid inventory balances and records an allowance when amounts are not expected to be fully realized.

plant and equipment :

plant and equipment is stated at cost net of accumulated depreciation.

Additions and improvements are capitalized while ordinary maintenance

and repair expenditures are charged to expense as incurred.

Depreciation is recorded by the straight-line method over the estimated useful

life of the asset, which ranges from three to thirty years, other than the infinite useful life of land.

Amortization expense on capitalized

leases is included with depreciation expense.

The cost and accumulated depreciation related to assets sold or retired are removed from

the accounts and any gain or loss is credited or charged to income.

Company determines if an arrangement contains a lease at inception.

For arrangements where the Company is the lessee, the Company will

evaluate whether to account for the lease as an operating or finance lease.

Operating leases are included in operating lease right-of-use

(“ROU”) assets and operating lease liabilities on the condensed consolidated balance sheet as of March 31, 2026 and December 31, 2025.

Finance leases would be included in property, plant and equipment, net, and long-term debt and finance lease obligations on the balance

The Company had operating leases for copiers, offices, and warehouse space at March 31, 2026 and December 31, 2025, but no finance

ROU assets and lease

liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the operating

lease liabilities if the operating lease does not provide an implicit rate.

Lease terms may include the option to extend when the Company

is reasonably certain that the option will be exercised.

Lease expense for operating leases is recognized on a straight-line basis over

the lease term.

Company elected to apply the short-term lease measurement and recognition exemption, under which ROU assets and lease liabilities are

not recognized for short-term leases.

Company’s Video Solutions segment products carry explicit product warranties that extend up to two years from the date of shipment.

The Company records a provision for estimated warranty costs based upon historical warranty loss experience and periodically adjusts

these provisions to reflect actual experience.

Accrued warranty costs are included in accrued expenses.

Extended warranties are offered

on selected products and when a customer purchases an extended warranty the associated proceeds are treated as contract liabilities and

recognized over the term of the extended warranty.

taxes are provided for by the liability method in which deferred tax assets are recognized for deductible temporary differences and operating

loss and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences

are the differences between the reported amounts of assets and liabilities and their tax basis.

Deferred tax assets are reduced by a

valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets

will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of

Company applies the provisions of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) No.

740 – Income Taxes, which provides a framework for accounting for uncertainty in income taxes and a comprehensive model to recognize,

measure, present, and disclose in its financial statements uncertain tax positions taken or expected to be taken on a tax return.

Company initially recognizes tax positions in the financial statements when it is more likely than not the position will be sustained

upon examination by the tax authorities.

Such tax positions are initially and subsequently measured as the largest amount of tax benefit

that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position

and all relevant facts.

Application requires numerous estimates based on available information.

The Company considers many factors when

evaluating and estimating its tax positions and tax benefits, and its recognized tax positions and tax benefits may not accurately anticipate

actual outcomes.

As it obtains additional information, the Company may need to periodically adjust its recognized tax positions and tax

These periodic adjustments may have a material impact on its condensed consolidated statements of operations.

Company’s policy is to record estimated interest and penalties related to the underpayment of income taxes as income tax expense

in the condensed consolidated statements of operations.

There was no interest expense related to the underpayment of estimated taxes

during the three months ended March 31, 2026 and 2025.

There were no penalties in the three months ended March 31, 2026 and 2025.

Company is subject to taxation in the United States and various states.

The Company’s federal and state income tax returns are

closed for examination purposes by relevant statute and by examination for 2022 and all prior tax years for federal tax purposes, and

2023 and all prior years for state tax purposes.

the three months ended March 31, 2026 and 2025, the Company recorded no income tax expense or benefit.

The Company maintains a full valuation

allowance against its net deferred tax assets as it is more likely than not that such assets will not be realized.

Accordingly, no tax

benefit has been recognized on the Company’s pretax losses for the three months ended March 31, 2026 and 2025.

and Development Expenses :

Company expenses all research and development costs as incurred, which are generally incurred by the Video Solutions segment.

costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product’s technological

feasibility has been established and ending when a product is available for general release to customers.

In most instances, the Company’s

products are released soon after technological feasibility has been established.

Costs incurred after achievement of technological feasibility

were not significant, and software development costs were expensed as incurred during the three months ended March 31, 2026 and 2025.

Derivative Liabilities and Bifurcated Embedded Derivatives :

accordance with ASC 815-40, Derivatives and Hedging:

Contracts in an Entity’s Own Equity, entities must consider whether to classify

contracts that may be settled in their own stock, such as warrants to purchase shares of common stock, as equity of the entity or as

an asset or liability.

If an event that is not within the entity’s control could require net cash settlement, then the contract

should be classified as an asset or a liability rather than as equity.

The Company has determined that because the terms of the various

warrants issued and remaining outstanding include a provision that entitles all the warrant holders to receive cash for their warrants

in the event of a qualifying cash tender offer, while only certain of the holders of the underlying shares of common stock would be entitled

to cash, its warrants should be classified as a liability measured at fair value, with changes in fair value each period reported in

addition, the Company evaluates the terms of its debt instruments for embedded features that require bifurcation under ASC 815-15,

Derivatives and Hedging:

Embedded Derivatives .

When a convertible note contains a conversion feature or other embedded derivative

that is not clearly and closely related to the host debt instrument and meets the definition of a derivative, the Company bifurcates

the embedded feature from the host instrument and records it as a separate derivative liability measured at fair value.

The host debt

instrument is recorded at its residual carrying value after the bifurcation.

The bifurcated embedded derivative and any detachable warrants

issued in connection with the same debt instrument are initially recorded at their respective fair values, with any excess of the aggregate

fair value over the proceeds allocated to the host note recognized immediately in earnings as a day-one loss.

Subsequent changes in fair

value of both the warrant derivative liabilities and bifurcated embedded derivatives are reported in earnings each period.

in the price of the Company’s common stock may result in significant changes in the value of these derivatives and resulting gains

and losses on its condensed consolidated statements of operations.

Compensation :

Company grants stock-based compensation to its employees, board of directors and certain third-party contractors.

Share-based compensation

arrangements may include the issuance of options to purchase common stock in the future or the issuance of restricted stock, which generally

are subject to vesting requirements.

The Company records stock-based compensation expense for all stock-based compensation granted based

on the grant-date fair value.

The Company recognizes these compensation costs on a straight-line basis over the requisite service period

of the award.

Company estimates the grant-date fair value of stock-based compensation using the Black-Scholes valuation model.

Assumptions used to

estimate compensation expense are determined as follows:

term is determined using the contractual term and vesting period of the award;

volatility of award grants made in the Company’s plan is measured using the weighted average of historical daily changes in

the market price of the Company’s common stock over the period equal to the expected term of the award;

dividend rate is determined based on expected dividends to be declared;

interest rate is equivalent to the implied yield on zero-coupon U.S.

Treasury bonds with a maturity equal to the expected term of

are accounted for as they occur.

accounting guidance on segment reporting establishes standards for reporting information regarding operating segments in financial statements

and requires selected information about those segments to be presented in the condensed consolidated financial statements.

Operating segments are

identified as components of an enterprise for which separate discrete financial information is available for evaluation by the chief

operating decision maker (the Company’s Chief Executive Officer, or “CODM”) in making decisions about how to allocate

resources and assess performance.

The Company’s two operating segments are Video Solutions and Entertainment, each of which has

dedicated personnel responsible for those businesses and each of which reports directly to the CODM.

Corporate expenses represent the

Company’s corporate administrative activities and are included in segment information but are not considered a separate reportable

segment for financial reporting purposes.

Company previously operated a third reportable segment, Revenue Cycle Management, which reflected the operations of Nobility Healthcare.

Following the sale of Nobility Healthcare on January 8, 2026 (effective January 1, 2026), its results have been classified as discontinued

operations for all periods presented and are no longer included in segment reporting.

Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented.

See Note 20, Operating Segments ,

for additional information.

Non-Controlling

Non-controlling

interests in the Company’s Condensed Consolidated Financial Statements represent the interest in subsidiaries held by venture partners.

The venture partners hold noncontrolling interests in the Company’s consolidated subsidiary Nobility Healthcare, LLC.

Company consolidates the financial statements of all wholly-owned and majority owned subsidiaries, the noncontrolling owners’ share

of each subsidiary’s results of operations are deducted and reported as net income attributable to noncontrolling interest in the

Condensed Consolidated Statements of Operations.

The 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.

interests in the Company’s condensed consolidated financial statements represent the ownership interests in subsidiaries not attributable,

directly or indirectly, to the Company.

The Company previously held a 51% equity interest in Nobility Healthcare, with the remaining

49% held by third-party venture partners.

Nobility Healthcare was sold on January 8, 2026, with an effective date of January 1, 2026,

and has been classified as a discontinued operation for all periods presented.

As of March 31, 2026, the Company has no non-controlling

interests in any consolidated subsidiary.

Because Nobility Healthcare represents the Company’s entire discontinued operation, the

non-controlling interest related to Nobility Healthcare is fully included within discontinued operations and is not included in income

or loss from continuing operations.

The non-controlling owners’ share of Nobility Healthcare’s results of operations is presented

within net income (loss) from discontinued operations in the condensed consolidated statements of operations.

to its classification as held for sale and discontinued operations, the Company consolidated Nobility Healthcare based on its controlling

financial interest.

Upon classification as a discontinued operation, Nobility Healthcare’s assets, liabilities, results of operations,

and the related non-controlling interest were presented separately from the Company’s continuing operations.

See Note 22, Discontinued

Operations , for additional details regarding the disposition and its impact on stockholders’ equity.

receivables (also referred to as lease receivables) are carried at the original invoice amount less the total payments received pertaining

to each individual customer’s subscription lease agreement.

These agreements generally range from three to five years and are removed

from subscription receivables upon termination of the agreement.

The Company determines an allowance for doubtful accounts by regularly

evaluating individual customer receivables and considering the customer’s financial condition, credit history, and current economic

The allowance for doubtful accounts was $ 75,000 and $ 75,000 as of March 31, 2026 and December 31, 2025, respectively.

receivable represent amounts owed to the Company under promissory notes, including notes received as consideration in connection with

the disposition of businesses.

Notes receivable are initially recorded at their estimated fair value on the date of origination, with

any resulting discount amortized to interest income over the term of the note using the effective-interest method.

The Company evaluates

notes receivable for collectibility based on the borrower’s financial condition, payment history, collateral (if any), and current

economic conditions, and records an allowance for credit losses when amounts are not expected to be fully realized.

Earn-out features embedded in notes received as consideration for the disposition of a business adjust the contractual

principal amount of the note based on the post-closing performance of the divested business.

Such adjustments are recognized as fair value

adjustments to the note receivable, with the resulting gain or loss recorded within loss from discontinued operations in the period the

adjustment is determined, in accordance with ASC 205-20, Discontinued Operations .

The Company does not separately recognize the earn-out feature as a contingent consideration arrangement.

of March 31, 2026, notes receivable consisted of a note received as partial consideration in connection with the sale of Nobility Healthcare

on January 8, 2026.

See Note 22, Discontinued Operations , for additional details.

ASC 205-20, Discontinued Operations, the results of a disposed business are reported as discontinued operations when the held-for-sale

and strategic shift criteria are met.

When a business is classified as a discontinued operation, (i) its results of operations are presented

in a single line, net of tax, in the condensed consolidated statements of operations, (ii) its assets and liabilities are classified

as held for sale in the condensed consolidated balance sheets in the period of classification, and (iii) prior-period financial statements

are retrospectively reclassified to conform to the current-period presentation.

See Note 22, Discontinued Operations , for further

details regarding the Company’s sale of Nobility Healthcare.

Accounting Standards

Adopted Accounting Standard Updates.

- ASU 2023-07, Improvements to Reportable Segment Disclosures , which requires companies

to disclose significant segment expenses provided to the chief operating decision maker (“CODM”) and a description of other

segment items.

Additionally, all existing annual disclosures must be provided on an interim basis.

This ASU is effective for annual periods

beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

This ASU is required to

be applied retrospectively to all prior periods presented in the condensed consolidated financial statements.

The Company adopted ASU

2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial

See Note 17, Operating Segments, for more information.

Company did not adopt any new accounting standards during the three months ended March 31, 2026 that had a material impact on its condensed

consolidated financial statements.

The Company’s adoption of ASU 2023-07, Improvements to Reportable Segment Disclosures, in 2024

and ASU 2023-09, Improvements to Income Tax Disclosures, in 2025 is described in the Company’s Annual Report on Form 10-K for the

year ended December 31, 2025.

Issued Accounting Pronouncements.

- ASU 2023-09, Improvements to Income Tax Disclosures, requires improved disclosures related

to the rate reconciliation and income taxes paid.

This ASU requires companies to reconcile the income tax expense attributable to continuing

operations to the U.S.

statutory federal income tax rate applied to pre-tax income from continuing operations.

Additionally, this ASU

requires companies to disclose the total amount of income taxes paid during the period.

This ASU is effective for annual periods beginning

after December 15, 2024, with early adoption permitted.

The guidance is required to be applied on a prospective basis with the option

to apply retrospectively to all prior periods presented in the consolidated financial statements.

The Company has evaluated the impact and determined there was no impact to the condensed consolidated financial statements

as of September 30, 2025.

2024-03, Disaggregation of Income Statement Expenses, requires disaggregated disclosures in the notes to the consolidated financial

statements of certain categories of expenses that are included in expense line items on the Consolidated Statement of Income.

is effective for annual periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with

early adoption permitted.

The guidance is required to be applied on a prospective basis with the option to apply retrospectively to all

prior periods presented in the consolidated financial statements.

The Company is currently evaluating the impact to the Company’s

November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures

(Subtopic 220-40), which requires public business entities to disclose disaggregated information about certain income statement expense

line items, including employee compensation, depreciation, and intangible asset amortization.

As clarified by ASU 2025-01 issued in January

2025, the ASU is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after

December 15, 2027, with early adoption permitted.

The Company does not expect the adoption of this ASU to have a material impact on its

condensed consolidated financial statements.

2024-04, Induced Conversions of Convertible Debt Instruments, clarifies the requirement for determining whether certain settlements

of convertible debt instruments should be accounted for as induced conversions or extinguishments.

This ASU is effective for annual periods

beginning after December 15, 2025.

Early adoption is permitted and can be applied either on a prospective basis or retrospective basis.

The Company is currently evaluating the impact of this ASU to the Company’s condensed consolidated financial statements, however

the Company does not anticipate this guidance having a material impact to the condensed consolidated financial statements.

November 2024, the FASB issued ASU 2024-04, Debt – Debt with Conversion and Other Options (Subtopic 470-20):

Induced Conversions

of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments

should be accounted for as induced conversions.

The ASU is effective for annual reporting periods beginning after December 15, 2025 and

interim periods within those fiscal years.

The Company adopted this ASU effective January 1, 2026 and the adoption did not have a material

impact on its condensed consolidated financial statements.

December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270):

Narrow-Scope Improvements, which clarifies when the interim

reporting requirements of ASC 270 apply and improves the navigability of the related guidance.

The Company does not expect the adoption

of this ASU to have a material impact on its condensed consolidated financial statements.

December 2025, the FASB issued ASU 2025-12, Codification Improvements, which contains 33 improvements to U.S.

GAAP across a wide range

of topics, including clarifications related to diluted earnings per share calculations when a loss from continuing operations exists.

The Company does not expect the adoption of this ASU to have a material impact on its condensed consolidated financial statements.

other recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”) are not expected to have

a significant impact on the Company’s consolidated financial statements and related disclosures.

Concern Matters and Management’s Plans

accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization

of assets and the satisfaction of liabilities in the normal course of business.

The Company incurred substantial operating losses in

the years ended December 31, 2024 and year to date September 30, 2025 primarily due to reduced gross margins caused by a combination

of competitors’ introduction of newer products with more advanced features together with significant price cutting of their products

and the recent acquisitions with much smaller margins than the video solutions segment, historically.

The Company incurred operating

losses of approximately $ 15.2 million for the year ended December 31, 2024 and $ 6.2 million during the nine months ended September 30,

2025 and it had an accumulated deficit of $ 138.8 million as of September 30, 2025.

These matters raise substantial doubt about Company’s

ability to continue as a going concern.

recent years the Company has accessed the public and private capital markets to raise funding through the issuance of debt and equity.

In that regard, the Company raised approximately $ 15.5 million during the nine months ended September 30, 2025 and $ 4.9 million in the

year ended December 31, 2024 through private placement transactions and an underwritten public offering.

In February 2025, the Company

completed an underwritten public offering for net proceeds of approximately $ 14.3 million and issued an unsecured promissory note, generating

an additional $ 600,000 in net cash proceeds.

In September 2025, the Company issued senior secured convertible notes with detachable warrants,

resulting in $ 610,000 of net cash proceeds.

These financing activities provided additional liquidity to execute the Company’s business

plans and were used to repay debt obligations, settle accounts payable, and fund operations.

Management expects to continue accessing

the capital markets until the Company achieves consistent positive cash flow from operations;

however, there can be no assurance as to

the timing or availability of such financing.

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.

the nine months ended September 30, 2025, the Company implemented a cost-reduction program and enhanced its short- and long-term liquidity

through (i) the February 2025 public equity offering, (ii) the issuance of senior secured convertible notes, and (iii) entry into a committed

equity facility (the “ELOC”).

Within the entertainment segment, the Company exited several large partnerships and sponsorships

that did not meet expected returns;

management does not expect discontinuing these arrangements to materially hinder total revenues in

2025 or thereafter.

In the video segment, the Company reduced headcount and relocated to smaller, lower-cost facilities following the

sale of its warehouse/office building.

Company has successfully recorded $ 8.93 million in deferred revenue as of September 30, 2025, which results in recurring revenue during

the period of 2025 to 2028.

The Company believes that its quality control and cost-cutting initiatives, expansion to non-law enforcement

sales channels and new product introduction will eventually restore positive operating cash flows and profitability, although it can

offer no assurances in this regard.

a result of the Company’s implementation of cost-cutting measures and liquidity generated by the recent public equity offerings,

the Company has significantly improved its financial position.

During the nine months ended September 30, 2025, the working capital deficit

improved significantly to $ 115,393 from $ 19,377,507 as of December 31, 2024, and stockholders’ equity increased to a positive $ 7,516,665

from a $ 9,013,430 deficit;

the Company nonetheless recorded a net loss attributable to common stockholders of $ 1,303,597 .

on the uncertainties described above and the corrective actions implemented by management, the Company believes its business plan including

the implementation of corrective actions mitigates the existence of substantial doubt about its ability to continue as a going concern

within one year from the date of the issuance of these condensed consolidated financial statements.

The accompanying 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.

consisted of the following at September 30, 2025 and December 31, 2024:

a significant impact on the Company’s condensed consolidated financial statements and related disclosures.

ACCOUNTS RECEIVABLE AND SUBSCRIPTION RECEIVABLES

Accounts receivable – trade,

allowance for doubtful accounts

Accounts receivable – trade, net

Subscription receivables, gross – current

allowance for doubtful accounts

Subscription receivables, net – current

Subscription receivables – long term

Total subscription receivables, net

allowance for doubtful accounts related to trade receivables was comprised of the following for the three months ended March 31, 2026

and the year ended December 31, 2025:

SCHEDULE OF ALLOWANCE FOR DOUBTFUL ACCOUNTS

Beginning balance

Provision for bad debts

Charge-offs to allowance, net of recoveries

Ending balance

NOTES RECEIVABLE

receivable were comprised of the following at March 31, 2026 and December 31, 2025:

OF NOTES RECEIVABLE AND OTHER RECEIVABLES

Notes receivable - current

Notes receivable – long-term

Total notes receivable

Receivable - On January 8, 2026, in connection with the sale of Nobility Healthcare, the Company received a promissory note from

the Buyer with an estimated fair value of $ 1,117,303 at origination as partial consideration for the disposition.

The note bears interest,

is payable in scheduled installments through 2028, and includes a contractual earn-out adjustment mechanism.

The note had a net carrying

value of $ 780,549 as of March 31, 2026, comprising $ 383,909 classified as current and $ 396,640 classified as long-term.

Discontinued Operations , for additional information regarding

the terms of the note, the earn-out mechanism, and activity during the three months ended March 31, 2026.

OTHER RECEIVABLES

Other receivables were comprised of the

following at March 31, 2026 and December 31, 2025:

SCHEDULE OF OTHER RECEIVABLES

Litigation receivables

Allowance for loss on litigation receivables

Total other receivables

Receivables - As of March 31, 2026, the Company continued to hold litigation receivables of $ 578,890 related to amounts owed pursuant

to the pending default judgment against Pharmaxx Medical, Inc., with an established allowance of $ 289,445 based on management’s

assessment that full collection is uncertain given the status of the proceedings and the defendant’s financial condition and ability

to satisfy the judgment.

The Company has engaged legal counsel and is actively pursuing recovery of these amounts.

See Note 13, Commitments

and Contingencies , for additional information regarding the Company’s legal proceedings against Pharmaxx Medical, Inc.

consisted of the following at March 31, 2026 and December 31, 2025:

SCHEDULE OF INVENTORIES

September 30,

Raw material and component parts– video solutions segment

Raw material and component parts–

Video Solutions segment

Work-in-process– Video Solutions segment

Finished goods – Video Solutions segment

Finished goods – entertainment segment

Reserve for excess and obsolete inventory– video solutions segment

Finished goods –

Entertainment segment

Reserve for excess and

obsolete inventory– Video Solutions segment

( 1,751,603 )

( 1,849,124 )

Reserve for excess and obsolete inventory – entertainment segment

for excess and obsolete inventory – Entertainment segment

Total inventories

PREPAID EXPENSES

expenses were the following at September 30, 2025 and December 31, 2024:

expenses were the following at March 31, 2026 and December 31, 2025:

SCHEDULE OF PREPAID EXPENSE

September 30,

Prepaid inventory

1 unchanged sentence

Prepaid commissions

Prepaid offering costs

Total prepaid expenses

GOODWILL AND OTHER INTANGIBLE ASSETS

assets consisted of the following as of September 30, 2025 and December 31, 2024:

assets consisted of the following as of March 31, 2026 and December 31, 2025:

SCHEDULE OF INTANGIBLE ASSETS

September 30, 2025

Accumulated amortization

Amortized intangible assets:

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

Patents and trademarks (Video Solutions

Sponsorship agreement network (Entertainment

SEO content (Entertainment segment)

Personal seat licenses (Entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

Website enhancements (Entertainment

Indefinite life intangible assets:

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (Entertainment segment)

Patents and trademarks pending (video solutions segment)

December 31, 2024

Patents and trademarks pending (Entertainment

Patents and trademarks

pending (Video Solutions segment)

Amortized intangible assets:

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

Patents and trademarks (Video Solutions

Sponsorship agreement network (Entertainment

SEO content (Entertainment segment)

Personal seat licenses (Entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

Website enhancements (Entertainment

Indefinite life intangible assets:

Goodwill (Entertainment segment)

Goodwill (Revenue cycle management segment)

Trade name and trademarks (Entertainment segment)

Patents and trademarks pending (video solutions 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.

Other intangible assets consist of sponsorship agreement network, SEO

content, personal seat licenses, website enhancements and client agreements.

These assets are recorded at cost and amortized on a straight-line

basis over their estimated useful lives.

OF INTANGIBLE ASSETS USEFUL LIFE

Intangible Asset Useful Life

Patents and trademarks (video solutions segment)

Sponsorship agreement network (entertainment segment)

intangible assets consist of sponsorship agreement network, SEO content, personal seat licenses, and website enhancements.

are recorded at cost and amortized on a straight-line basis over their estimated useful lives.

SCHEDULE OF INTANGIBLE ASSETS USEFUL LIFE

Asset Useful Life

Patents and trademarks (Video

Solutions segment)

Sponsorship agreement network (Entertainment

SEO content (Entertainment segment)

Personal seat licenses (Entertainment segment)

Website enhancements (entertainment segment)

Client agreements (revenue cycle management segments)

for the three months ended September 30, 2025 and 2024 was $ 350,535 and $ 371,772 , respectively, and $ 1,125,278 and $ 1,106,939 for the

nine months ended September 30, 2025 and 2024, respectively.

Estimated amortization for intangible assets with definite lives for the

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

Website enhancements

(Entertainment segment)

for the three months ended March 31, 2026 and 2025 was $ 20,668 and $ 340,217 , respectively.

Estimated amortization expense for intangible

assets with definite lives for the remainder of 2026 and thereafter is as follows:

SCHEDULE OF ESTIMATED AMORTIZATION FOR INTANGIBLE ASSETS

Year ending December 31:

2025 (October 1, 2025 to December 31, 2025)

ending December 31:

2031 and thereafter

impairment test

performed an annual impairment test as of December 31, 2024 for each of our reporting units with remaining goodwill.

Subsequent to completing

our annual impairment test as of December 31, 2024, no events or changes in circumstances were noted that triggered the requirement for

an interim goodwill impairment test for the nine months ended September 30, 2025.

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 20.9 % to 32.5 %.

We also 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.

combined 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 25 % 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 not to be impaired, as well.

impairment test at September 30, 2024

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 September 30, 2024 for our reporting units with remaining goodwill.

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 20.9 % to 32.5 %.

We also 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.

combined 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 25 % 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.

held goodwill of $ 5,480,966 as of September 30, 2024, related to businesses within our revenue cycle management segment.

We held goodwill

of $ 6,112,507 as of September 30, 2024, 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 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.

The remaining balance for the goodwill carrying balance related to businesses

within our revenue cycle management segment was $ 1,158,966 and within the entertainment segment was $ 5,805,507 , as of September 30, 2025

Company performed its annual goodwill and intangible asset impairment test as of December 31, 2025, which resulted in a $ 1,428,000 goodwill

impairment charge within the Entertainment segment, reducing the Entertainment segment goodwill balance to $ 4,377,507 as of March 31,

2026 and December 31, 2025.

The Video Solutions segment’s fair value was substantially in excess of its carrying value, and that segment

carries no goodwill.

See Note 6 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended

December 31, 2025 for additional information regarding the methodology, assumptions, and results of the annual impairment test.

of March 31, 2026, no events or changes in circumstances were noted that triggered the requirement for an interim goodwill impairment

test during the three months ended March 31, 2026.

Indefinite-lived

intangible assets

held indefinite-lived trade names/trademarks of $ 699,000 as of September 30, 2025 and December 31, 2024, respectively, related to businesses

within our entertainment segment.

a result of our interim impairment test as of the last day of the fiscal third quarter of 2024 management 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 year ended December 31, 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

The remaining balance for this trade name/trademark was $ 699,000 as of September 30, 2025 and December 31, 2024.

Company held indefinite-lived trade names and trademarks with an aggregate carrying value of $ 340,000 as of March 31, 2026 and December

31, 2025, consisting of the TicketSmarter trade name of $ 210,000 and the Country Stampede trade name of $ 130,000 , each related to businesses

within its Entertainment segment.

a result of the Company’s December 31, 2025 annual impairment test, the Company concluded that the carrying amounts of both trade

names exceeded their estimated fair values and recorded non-cash impairment charges totaling $ 359,000 , which are included in goodwill

and intangible asset impairment charge on its consolidated statements of operations for the year ended December 31, 2025.

recorded a $ 189,000 impairment charge related to the TicketSmarter trade name, reducing its carrying value from $ 399,000 to $ 210,000 ,

and a $ 170,000 impairment charge related to the Country Stampede trade name, reducing its carrying value from $ 300,000 to $ 130,000 .

charges were primarily driven by the Entertainment segment’s continued operating losses, declining revenue performance within the

related businesses, and the overall challenging economic environment.

addition, the Company recorded a non-cash impairment charge of $ 746,667 related to the sponsorship agreement network intangible asset

within the Entertainment segment, reducing its net carrying value to $- 0 - as of December 31, 2025.

The total goodwill and intangible

asset impairment charge recorded for the year ended December 31, 2025 was $ 2,533,667 .

assets were the following at March 31, 2026 and December 31, 2025:

SCHEDULE OF OTHER ASSETS

Prepaid commissions

Total other assets

DEBT OBLIGATIONS

obligations are comprised of the following:

obligations is comprised of the following:

SCHEDULE OF DEBT OBLIGATIONS

September 30,

Economic injury disaster loan (EIDL)

Unsecured Promissory note – Entertainment Segment

Secured convertible note

Commercial Extension of Credit- Entertainment Segment

Merchant Advances – Video Solutions Segment

Senior Secured Promissory Notes

Unamortized debt issuance costs

Economic injury disaster loan

Unsecured Promissory note – Entertainment

2025 Secured Notes

Total gross principal

Unamortized debt issuance

Debt obligations

current maturities of debt obligations

Debt obligations, long-term

obligations mature on an annual basis as follows as of September 30, 2025:

SCHEDULE OF MATURITY OF DEBT OBLIGATIONS

(October 1, 2025 to December 31, 2025)

current maturities

of debt obligations

Debt obligations,

Future principal payments on debt obligations as of March 31, 2026 are as follows:

OF FUTURE PRINCIPAL PAYMENTS ON DEBT OBLIGATIONS

Carrying Value

2026 (April 1, 2026 to December

2030 and thereafter

11 unchanged sentences

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

The outstanding balance of the EIDL note

was $ 140,210 as of March 31, 2026 and $ 141,083 as of December 31, 2025.

Promissory Note

February 1, 2025, the Company’s Entertainment Segment entered into a $ 600,000 unsecured promissory note with a third party.

promissory note bears an interest rate of 10.0 % per annum, compounded monthly.

Payments of principal and interest were originally due

on May 5, 2025 , however the parties agreed to extend the term for payments of principal and interest to begin July 1, 2025 .

Commercial Extension of Credit

January 22, 2024, the Company’s Entertainment segment entered an extension of credit in the form of a loan to use in marketing

and operating its business in accordance with the Ticket Solution Agreement.

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

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 Company paid the

remaining balance in full during the nine months ended September 30, 2025.

The outstanding balance as of September 30, 2025 and December

31, 2024 was $- 0 - and $ 100,000 , 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 .

The advance is, for the most part, secured

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

The Company will repay an aggregate of

$ 1,512,000 to the lender.

The loan bears interest at 2.9 % per week.

the year ended December 31, 2024, the Company made repayments totaling $ 1,551,250 and received additional proceeds of $ 1,144,000 and

recorded additional discount of $ 980,000 .

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

during the year ended December 31, 2024.

The refinancing was deemed to be an extinguishment of debt and a loss on extinguishment of debt

was recorded during the year ended December 31, 2024 of $ 68,827 .

of December 31, 2024 the outstanding principal balance was $ 1,922,750 which was paid in full during the nine months ended September 30,

The remaining balance is $- 0 - as of September 30, 2025.

Purchase Agreement and Senior Secured Promissory Notes

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) 404 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

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.

senior secured promissory 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 senior secured promissory 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 senior secured promissory notes in cash with a 125% redemption

The Purchasers may also require the Company to redeem all or any portion of the senior secured promissory notes in cash upon

a Change of Control, as defined in the senior secured promissory notes, at the prices set forth therein.

Upon a Bankruptcy Event of Default

(as defined in the senior secured promissory 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 senior

secured promissory 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 senior secured promissory 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 senior secured promissory

notes outstanding.

The Company may also prepay the senior secured promissory notes in whole or in part at any time or from time to time.

The senior secured promissory notes also contain customary representations and warranties and covenants of each of the parties.

to certain exceptions, the senior secured promissory notes are secured by a first lien and continuing security interest in and to the

Collateral (as defined in the senior secured promissory notes).

net proceeds of the private placement on November 7, 2024 was $ 2,669,250 (after $ 330,750 deduction of costs of the offering).

allocated the net proceeds from the private placement of the senior secured promissory notes and the commitment shares based upon their

relative fair values as of the date of issuance as follows:

SCHEDULE OF ALLOCATED NET PROCEEDS FROM PRIVATE PLACEMENT OF SENIOR SECURED PROMISSORY NOTES AND COMMITMENT SHARES

Allocated to the following:

Senior secured promissory notes

Commitment shares

Company paid the senior secured promissory notes off in full on February 13, 2025 with funds generated by the February 2025 public equity

offering (See Note 12).

Following is an analysis of the senior secured promissory notes balance:

SCHEDULE OF SENIOR SECURED PROMISSORY NOTES BALANCE

Balance, as of December 31, 2023

Issuance of senior secured promissory notes, at par

Discount recognized at issuance date

( 1,470,205 )

Amortization of discount

February 1, 2025, the Company’s Entertainment segment entered into a $ 600,000 unsecured promissory note with a third party, bearing

interest at 10.0 % per annum, compounded monthly.

The outstanding principal balance was $ 515,000 as of March 31, 2026 and $ 525,000 as

of December 31, 2025.

During the three months ended March 31, 2026, the Company made principal payments of $ 10,000 .

Senior Secured Convertible Note and Committed Equity Financing

September 2025 and December 2025, the Company issued senior secured convertible notes (the “2025 Secured Notes”) with an

aggregate original principal amount of $ 1,070,000 , together with detachable common stock purchase warrants to purchase an aggregate of

41,581 shares of common stock at an exercise price of $ 31.86 per share.

The 2025 Secured Notes bore interest at 8 % per annum and were

convertible at the holder’s option at a conversion price equal to a 10 % discount to the five-day volume-weighted average price

of the Company’s common stock preceding conversion, subject to customary adjustments.

The 2025 Secured Notes were senior secured

obligations, secured by substantially all of the Company’s assets and guaranteed by certain subsidiaries.

Because the conversion

price was variable and did not meet the fixed-for-fixed requirement under ASC 815-40, the conversion feature was bifurcated from the

host debt instrument and accounted for as a derivative liability at fair value.

The detachable warrants were classified as equity instruments

upon issuance and assigned $ 0 fair value as described further in Note 15, Common Stock Purchase Warrants .

See Note 10, Fair

Value Measurement , for information regarding Level 3 derivative activity, and see the Company’s Annual Report on Form 10-K

for the year ended December 31, 2025 for additional information regarding the original issuance terms of the 2025 Secured Notes.

the three months ended March 31, 2026, the holders of the 2025 Secured Notes elected to convert the entire $ 1,070,000 outstanding principal

balance into 111,608 shares of the Company’s common stock in accordance with the conversion terms of the notes.

In connection with

the conversions, (i) $35,889 of debt discount was amortized to non-cash interest expense through the dates of conversion, (ii) the remaining

unamortized debt discount of $854,827 was eliminated against additional paid-in capital at conversion in accordance with ASC 470-20,

(iii) the bifurcated conversion feature derivative liability, with an aggregate fair value of $1,142,191 as of the dates of conversion

(reflecting a $289,516 loss on remeasurement during the three months ended March 31, 2026, recognized in change in fair value of derivative

liabilities), was reclassified from derivative liabilities to additional paid-in capital, and (iv) $112 of par value was recorded with

respect to the 111,608 shares issued upon conversion.

No cash consideration was exchanged in connection with the conversions.

is an analysis of the 2025 Secured Notes net carrying balance:

SCHEDULE OF SENIOR NOTES BALANCE

Balance, as of December 31,

Amortization of discount

Principal payment

( 3,600,000 )

Balance, as of September 30, 2025

Secured Convertible Note and Committed Equity Financing

September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Purchaser”),

pursuant to which the Company issued Senior Secured Convertible Notes (the “September 2025 Notes”)with an aggregate original

principal amount of $ 806,451 and detachable common stock purchase warrants to purchase 476,569 shares of the Company’s common stock

at an exercise price of $ 2.124 per share.

The September 2025 Notes were issued at a 7 % original issue discount, providing gross proceeds

of $ 750,000 , and bear interest at 8 % per annum.

September 2025 Notes are convertible at the investor’s option at any time at a conversion price equal to a 10 % discount to the

five-day volume-weighted average price (VWAP) preceding conversion, subject to customary anti-dilution and price-based adjustment provisions.

The Company may, subject to certain conditions, redeem all or a portion of the Notes at 110 % of the outstanding principal amount.

closing of $250,000 in additional September 2025 Notes and Detachable Warrants may occur upon the effectiveness of a resale registration

September 2025 Notes are senior secured obligations, ranking senior to all existing and future indebtedness of the Company, except for

specified subsidiaries that provide either a second-priority or no security interest.

The Notes are secured by substantially all of the

Company’s assets and guaranteed by certain subsidiaries.

In connection with the transaction, the Company also entered into a Registration

Rights Agreement and a Leak-Out Agreement with customary terms and conditions.

Company allocated the proceeds between the debt and equity components of the September 2025 Notes based on their relative fair values,

recorded a debt discount for the value of the warrants, conversion feature, and original issue discount, and recognized a derivative

liability for the variable conversion feature.

The debt discount will be amortized to interest expense over the term of the September

2025 Notes using the effective-interest method, and the derivative liability will be remeasured at each reporting date, with changes

in fair value recognized in earnings.

net proceeds of the private placement on September 15, 2025 was $ 610,000 (after $ 140,000 deduction for the costs of the offering).

Company allocated the net proceeds from the private placement of the September 2025 Notes and the detachable warrants based upon their

relative fair values as of the date of issuance as follows:

SCHEDULE OF ALLOCATED NET PROCEEDS FROM PRIVATE PLACEMENT OF DETACHABLE WARRANTS

Allocated to the following:

Senior secured promissory notes

Detachable warrants

Equity Financing (ELOC)

September 15, 2025 (the “Closing Date”), the Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase

Agreement”) with an institutional investor (the “ELOC Investor”), providing a committed equity financing facility of

up to $ 25 million (the “Total Commitment”) over a 36-month term.

Under the agreement, and subject to certain conditions and

limitations, the Company may, at its sole discretion, direct the ELOC Investor to purchase shares of its common stock (“Purchase

Shares”) from time to time during the term of the facility.

with the execution of the ELOC Purchase Agreement, the Company entered into a Registration Rights Agreement (the “ELOC Registration

Rights Agreement”) with the investor, pursuant to which the Company agreed to file one or more registration statements under the

Securities Act of 1933, as amended, to register the resale of shares issuable under the facility.

The initial registration statement

must be declared effective before any sales under the facility may occur.

effectiveness of the registration statement and satisfaction of other customary conditions (the “Commencement Date”), the

Company may, from time to time and at its discretion, deliver written purchase notices (“ELOC Purchase Notices”) directing

the ELOC Investor to purchase shares of common stock.

The purchase price per share will be equal to 92 % of the lowest daily trading price

of the Company’s common stock during the three-trading-day valuation period following each ELOC Purchase Notice.

Each purchase

is subject to specified volume and timing restrictions, including that an ELOC Purchase Notice may not be delivered within twenty-four

(24) hours of a prior purchase.

ELOC Investor may not beneficially own more than 4.99% of the Company’s outstanding common stock at any time.

Under Nasdaq Capital

Market rules, the Company may not issue to the ELOC Investor a number of shares exceeding 19.99% of the Company’s outstanding common

stock as of the execution date (the “Exchange Cap”) unless shareholder approval is obtained or certain pricing exceptions

consideration for the ELOC Investor’s commitment, the Company agreed to pay a 3% commitment fee, payable through a combination

of (i) shares of common stock valued based on the five-day VWAP following the effectiveness of the resale registration statement and

(ii) cash funded from up to 30% of proceeds from future financings, including drawdowns under the ELOC facility .

The Company also reimbursed

the investor $ 30,000 for legal expenses.

ELOC Purchase Agreement includes customary restrictions on entering into other variable-rate transactions during its 36-month term and

prohibits the investor from engaging in short sales or hedging transactions involving the Company’s common stock.

may be terminated upon the earlier of (i) the first day of the month following the 36-month anniversary of the Closing Date, (ii) the

aggregate purchase price of $ 25 million having been reached, or (iii) other termination events specified in the agreement.

may also terminate the facility at any time after commencement upon five (5) trading days’ written notice.

of September 30, 2025, the Company has not received shareholder approval of the transactions, nor has the underlying Registration Statement

been declared effective and therefore the Company has not sold any shares under the ELOC facility.

The Company will record the related

commitment fee and transaction costs as deferred equity issuance costs within Additional Paid-In Capital, to be amortized against proceeds

from future ELOC drawdowns at such time as the Company has received shareholder approval of the transactions and the underlying Registration

Statement has been declared effective.

The Company intends to use any future proceeds from sales under the ELOC facility for general

corporate and working capital purposes.

Conversion of principal to common stock

Balance, as of March

a result of the conversions described above, no balance remained outstanding under the 2025 Secured Notes as of March 31, 2026.

15, Common Stock Purchase Warrants , for additional information regarding the 41,581 detachable warrants issued in connection with

the 2025 Secured Notes.

FAIR VALUE MEASUREMENT

accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”), the Company utilizes the

market approach to measure fair value for its financial assets and liabilities.

The market approach uses prices and other relevant information

generated by market transactions involving identical or comparable assets, liabilities or a group of assets or liabilities, such as a

accordance with ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), the Company measures certain financial

assets and liabilities at fair value.

Fair value is defined as the price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants at the measurement date.

The Company applies the income approach to

measure the fair value of its derivative liabilities, using option pricing models that incorporate observable market data and management’s

estimates of significant unobservable inputs.

820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

4 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 September 30, 2025 and December 31, 2024:

basis as of March 31, 2026 and December 31, 2025:

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

September 30, 2025

Warrant derivative liabilities

December 31, 2024

Warrant derivative liabilities

following table represents the change in Level 3 tier value measurements for the nine months ended September 30, 2025:

derivative liabilities

3 Rollforward

Company’s Level 3 liabilities consist of (i) the bifurcated conversion feature associated with the 2025 Senior Secured Convertible

Notes (the “2025 Secured Notes”), which was fully extinguished upon conversion during the three months ended March 31, 2026,

and (ii) 184 warrants originally issued in 2023, which remained outstanding as of March 31, 2026 and had a fair value of $ 169 at each

The following table summarizes changes in Level 3 liabilities during the three months ended March 31, 2026:

SCHEDULE OF FAIR VALUE MEASUREMENTS CHANGE IN LEVEL 3 INPUTS

Derivative Liabilities

Balance, December 31, 2025

Issuance of pre-funded warrant derivative liabilities in February 2025 public equity offering

Issuance/Activation of Series A Warrants issued in connection with the February 2025 public equity offering

Issuance/Activation of Series B Warrants issued in connection with the February 2025 public equity offering

Transition of warrant derivative liability to equity due to exercise of pre-funded warrant derivative liabilities in February 2025 public equity offering

Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in June 2024 Private Placement

( 1,989,806 )

Transition of warrant derivative liability to equity due to exercise of Series B common stock purchase warrants issued in February 2025 Public Equity Offering

( 5,406,320 )

Transition of warrant derivative liability to equity due to elimination of net cash settlement provisions relative to the Series A common stock purchase warrants issued in February 2025 Public Equity Offering

Change in fair value of warrant derivative liabilities

Change in fair value recognized in earnings

Transition of derivative liability to additional paid-in capital upon conversion of 2025 Secured Notes

( 1,142,191 )

Balance, September 30, 2025

Balance, March 31,

net $ 289,355

change in fair value recognized in earnings during the three months ended March 31, 2026 is included in change in fair value of

derivative liabilities in the condensed consolidated statement of operations, and consists of a loss of $ 289,516

on the bifurcated conversion feature of the 2025 Secured Notes, partially offset by a gain of $ 161

on the remaining 2023 warrants resulting from the decline in fair value over the period.

Upon conversion of the 2025 Secured Notes

during the three months ended March 31, 2026, the bifurcated conversion feature derivative liability with an aggregate fair value of

at the dates of conversion was reclassified to additional paid-in capital.

The total credit to additional paid-in capital from the

conversion entry of $ 1,357,253 , as reflected in the condensed consolidated statements of stockholders’ equity, additionally includes

the unamortized debt discount and other non-cash components of the conversion.

See Note 9, Debt Obligations , and the

condensed consolidated statements of stockholders’ equity for additional information.

were no transfers between Level 1, Level 2, or Level 3 of the fair value hierarchy during the three months ended March 31, 2026.

Non-Recurring

Fair Value Measurements

January 8, 2026, the Company recognized a Level 3 non-recurring fair value measurement in connection with the disposition of Nobility

As part of the consideration, the Company received a note receivable from the buyer, which was initially recorded at its

estimated fair value of $ 1,117,303 .

The fair value measurement reflected the Company’s estimate of the present value of expected

cash flows under the note, including a discount rate reflecting the credit risk of the counterparty and the expected timing of receipts.

Subsequent to initial recognition, the note receivable is carried at amortized cost, with interest accretion recognized in interest income

over the term of the note.

See Note 3, Notes Receivables , and Note 22, Discontinued Operations , for

additional information.

ACCRUED EXPENSES

expenses consisted of the following at September 30, 2025 and December 31, 2024:

expenses consisted of the following at March 31, 2026 and December 31, 2025:

SCHEDULE OF ACCRUED EXPENSES

September 30,

Accrued warranty expense

Accrued payroll and related fringes

Accrued sales returns and allowances

Accrued sales taxes

Accrued interest - related party

Accrued payroll and related

Accrued taxes

Accrued interest

Accrued board of directors’ fees

Customer deposits

accrued expenses

effective tax rate for the three and nine months ended September 30, 2025, and 2024 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, 2025, primarily because of the recent operating

Company incurred operating losses in recent years, and it continues to be in a three-year cumulative loss position at September 30, 2025.

General accrued expense

Total accrued expenses

effective tax rate for the three months ended March 31, 2026, and 2025 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 March 31, 2026, primarily because of the recent operating losses.

Company incurred operating losses in recent years and it continues to be in a three-year cumulative loss position at March 31, 2026.

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

1 unchanged sentence

Therefore, it determined to

fully reserve its deferred tax assets at September 30, 2025.

fully reserve its deferred tax assets at March 31, 2026.

The Company expects to continue to maintain a full valuation allowance until

5 unchanged sentences

portion related to deductions for stock option exercises, an increase in shareholders’ equity.

of September 30, 2025, the Company had the following estimated Federal net operating loss carry-forwards available to offset future taxable

SCHEDULE OF FEDERAL NET OPERATING LOSS CARRY FORWARDS

of March 31, 2026 and December 31, 2025, the Company had the following estimated Federal net operating loss carry-forwards available

to offset future taxable income:

OF FEDERAL NET OPERATING LOSS CARRY FORWARDS

Tax years generated:

2017 and before

2018 and after

Federal net operating loss carry-forwards available

Federal net operating

loss carry-forwards available

$ 168,405,000

6 unchanged sentences

In addition, the Company had research and development

tax credit carry-forwards totaling $ 1,796,111 available as of September 30, 2025, which expire between 2025 and 2040.

tax credit carry-forwards totaling $ 1,685,000 available as of March 31, 2026, which expire between 2026 and 2037 .

Company’s 2022 federal tax return was recently examined by the Internal Revenue Service resulting in no proposed adjustments.

COMMITMENTS AND CONTINGENCIES

time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us.

It is our policy not to disclose

the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us.

After carefully assessing

the claim, and assuming we determine that we are not at fault or we disagree with the damage or relief demanded, we vigorously defend

any lawsuit filed against us.

We record a liability when losses are deemed probable and reasonably estimable.

When losses are deemed

reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of

possible losses for the claim, if material for disclosure.

In evaluating matters for accrual and disclosure purposes, we take into consideration

factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood

of our prevailing, the availability of insurance, and the severity of any potential loss.

We reevaluate and update accruals as matters

progress over time.

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

(“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.

lease expense under the Company’s operating leases related to continuing operations was approximately $ 68,596 during the three

months ended March 31, 2026.

The following sets forth the operating lease right-of-use assets and liabilities associated with continuing

operations as of March 31, 2026:

OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right of use assets

Prepayment of rent

Total operating lease right of use asset

Operating lease obligations-current portion

Operating lease obligations-less current portion

Total operating lease obligations

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

OF FUTURE MINIMUM LEASE PAYMENTS

Year ending December 31:

2026 (April 1, 2026 through December 31, 2026)

2030 and thereafter

Total undiscounted minimum future lease payments

Imputed interest

Total operating lease liability

the three months ended March 31, 2026, the Company incurred capital expenditures of $ 159,657 , consisting primarily of purchases of property,

plant and equipment.

The Company does not currently have any material commitments for capital expenditures beyond normal course of business

time to time, the Company is notified that the Company may be a party to a lawsuit or that a claim is being made against them.

its policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the

After carefully assessing the claim, and assuming the Company determines that they are not at fault or disagrees with the damage

or relief demanded, they vigorously defend any lawsuit filed against them.

The Company records a liability when losses are deemed probable

and reasonably estimable.

When losses are deemed reasonably possible but not probable, they determine whether it is possible to provide

an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure.

In evaluating matters for

accrual and disclosure purposes, they take into consideration factors such as its historical experience with matters of a similar nature,

the specific facts and circumstances asserted, the likelihood of its prevailing, the availability of insurance, and the severity of any

potential loss.

The Company reevaluates and update accruals as matters progress over time.

McAuley, Inc.

of March 31, 2026, the Company holds an unsatisfied judgment of $ 3,999,984 against Culp McAuley, Brandon Culp, and Campbell McAuley,

jointly and severally.

The Company continues to explore available sources of assets from the judgment debtors;

however, collection of

the judgment remains uncertain and no assurance can be given that any amounts will be recovered.

The Company recorded a loss of $ 1,959,396

on this matter during the year ended December 31, 2024, which, together with losses recorded in prior years, reduced the Company’s

cumulative net exposure to zero as of December 31, 2024.

No additional losses were recorded on this matter during the three months ended

March 31, 2026, and the Company’s net exposure remained zero as of March 31, 2026.

The Company’s 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.

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

March 2024, the Company filed a complaint against Larry Roberts in the Superior Court of the State of California, County of Orange, Case

30-2024-01385012-CU-FR-CJC.

The lawsuit arises from the defendant’s alleged theft and misapplication of funds that were intended

for the purchase of goods on behalf of the Company.

The Company seeks monetary damages based on certain conduct by the defendant.

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.

Discovery is ongoing.

A jury trial has been scheduled for October 19, 2026.

of September 30, 2025 and December 31, 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 could be the entire

balance of the judgment.

The Company has recorded an additional loss of $ 1,959,396 on this matter as of December 31, 2024 which together

with the previously recorded losses in prior years, reduces the Company’s net exposure to zero at September 30, 2025 and December

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 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

Bid Price Requirement – On 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

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

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.

Stockholders’ Equity Standard - On January 2, 2025, the Company received a notice (the “Notice”) from the staff

of the Listing Qualifications department (the “Staff”) of Nasdaq, which indicated that the Company was not in compliance

with Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Requirement”), as the Company’s stockholders’

equity of ($ 2,448,310 ) , as reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30,

2024, was below the required minimum of $ 2.5 million, and the Company did not meet either the alternative compliance standards relating

to market value of listed securities of at least $ 35 million or net income from continuing operations of at least $ 500,000 in the most

recently completed fiscal year or in two of the last three most recently completed fiscal years.

Nasdaq listing rules and as specified in the Notice, the Company has 45 calendar days from the date of the Notice to submit to the Staff

a plan to regain compliance with the Stockholders’ Equity Requirement.

If the Company’s plan to regain compliance is accepted,

Nasdaq may grant an extension of up to 180 calendar days from the date of the Notice for the Company to evidence compliance.

Company submitted its plan to Nasdaq to regain compliance with the Stockholders’ Equity Requirement on February 17, 2025.

can be no assurance that the Company’s plan will be accepted or that if it is, that the Company will be able to regain compliance

with the Stockholders’ Equity Requirement.

the Company does not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq,

Nasdaq will provide notice that the Common Stock will be subject to delisting from the Nasdaq Capital Market.

At that time, the Company

may appeal any such delisting determination to a Nasdaq hearings panel.

Bid Price Requirement - On March 6, 2025, the Company received notice (the “March 6 Letter”) from the Nasdaq Staff that

the Staff had determined that as of March 5, 2025, the Company’s securities had a closing bid price of $ 0.10 or less for ten consecutive

trading days triggering application of Listing Rule 5810(c)(3)(A)(iii) which states in part:

if during any compliance period specified

in Rule 5810(c)(3)(A), a company’s security has a closing bid price of $ 0.10 or less for ten consecutive trading days, the Listing

Qualifications Department shall issue a Staff Delisting Determination under Rule 5810 with respect to that security (the “Low Priced

Stocks Rule”).

As a result, the Staff determined to delist the Company’s securities from Nasdaq, unless the Company timely

requests an appeal of the Staff’s determination to a Hearings Panel (the “Panel”), pursuant to the procedures set forth

in the Nasdaq Listing Rule 5800 Series.

The Company must request a hearing no later than 4:00 p.m.

Eastern Time on March 13, 2025.

Company timely requested a hearing before the Panel to appeal the March 6 Letter and to address all outstanding matters, including compliance

with the Minimum Bid Price Requirement, the Low-Priced Stocks Rule and the Stockholders’ Equity Requirement, which hearing date

has not been set as of the date of this Form 10-K.

While the appeal process is pending, the suspension of trading of the Company’s

Common Stock, will be stayed and the Common Stock will continue to trade on the Nasdaq Capital Market until the hearing process concludes,

and the Panel issues a written decision.

The Company held its hearing with the Panel as scheduled on April 17, 2025.

May 1, 2025, the Panel rendered its decision which granted the Company’s request for continued listing on the Nasdaq Exchange.

Such decision is subject to the following conditions:

or before May 2, 2025, the Company shall file Form 10-K for 2024 in compliance with Listing Rule 5250(c)(1).

or before May 20, 2025, the Company must file a public disclosure describing any transactions undertaken by the Company to increase

its equity and provide an indication of its equity following those transactions.

addition, on or before May 20, 2025, the Company must provide the Panel with an update on its fundraising plans, and updated income

projections for the next 12 months, with all underlying assumptions clearly stated.

or before June 6, 2025, the Company shall demonstrate compliance with the Minimum Bid Price Requirement.

prior to September 2, 2025, the Company becomes non-compliant with any Listing Rule, the Company will be delisted.

Company continues to work diligently to regain and maintain compliance with the Minimum Bid Price Requirement and Stockholders’

Equity Requirement as promptly as possible.

In that regard, management believes that it has achieved compliance with the Stockholders’

Equity Requirement as reported in the accompanying Statement of Stockholders’ Equity (Deficit) as of September 30, 2025.

management believes that it has achieved compliance with the Minimum Bid Price Requirement prior to June 6, 2025, as required by the

Management believes that it has met all other requirements as requested by the Panel.

There are no assurances however, that the

Company will be able to meet and maintain all such conditions required by the Panel.

October 17, 2025, the Company received notice from Nasdaq that notified the Company that it had regained full compliance with the Minimum

Bid Price Requirement and Stockholders’ Equity Requirement.

The Nasdaq has now placed the Company under a one-year Discretionary

Panel Monitor.

Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance

with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules.

one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.

The Company is not able to provide

an estimate of the likelihood of success at this time.

The matter remains open.

Medical, Inc.

Company filed a complaint against Pharmaxx Medical, Inc.

in the Superior Court of the State of California, County of Riverside, Case

CVSW2300198, alleging breach of contract arising from the failure to deliver pharmaceutical gloves.

After the court struck the defendant’s

answer, the Company submitted the default package to obtain a default judgment against the defendant.

The default package remains pending

with the court.

As of March 31, 2026, the Company has recorded a litigation receivable of $ 578,890 related to this matter, against which

an allowance of $ 289,445 has been established.

See Note 4, Other Receivables.

Insurance Funding Corp.

— Johnson County Collection Case

Company is a defendant in a collection case filed in the District Court of Johnson County, Kansas limited actions department.

a collection lawsuit claiming the Company owed money for insurance premium funding on a cancelled policy totaling $ 165,890.08 .

disputed it owed the money as they cancelled the insurance policy through their insurance broker.

An answer was filed denying the claim.

The matter remains open.

440 — Former Consultant

former consultant has filed a claim against Kustom 440, Inc., a wholly owned subsidiary of the Company, seeking to compel payment under

an alleged consulting agreement.

The Company is currently engaged in settlement negotiations.

The matter remains open.

Capital Corp.

of March 31, 2026, the Company is subject to a contingent obligation to pay 4% of future Gross Proceeds raised under its Equity Line

of Credit through February 14, 2028, pursuant to a Settlement Agreement entered into with Aegis Capital Corp.

January 2026.

The Settlement Agreement resolved a lawsuit filed by Aegis in the U.S.

District Court for the Southern District of New

York alleging breach of a right of first refusal, and the lawsuit was subsequently dismissed without prejudice.

The Company made aggregate

payments of $ 215,284 on this matter during the three months ended March 31, 2026, which are capitalized as Prepaid Offering Costs and

amortized to Additional Paid-In Capital proportionally with draws under the Equity Line of Credit.

The Company’s estimate with

respect to the maximum reasonably possible future obligation is approximately $ 900,000 , based upon the remaining undrawn commitment of

the facility.

However, this obligation is strictly contingent upon the Company’s discretionary future use of the facility and is

subject to significant judgment and a variety of assumptions and known and unknown uncertainties.

As a result, actual future payments

may vary significantly from the current estimate.

Performance Commitments

January 2026, Kustom 440, Inc., a wholly owned subsidiary of the Company, entered into a performance agreement with a headlining artist

for the 2026 Country Stampede music festival scheduled for June 27, 2026.

The agreement provides for a flat performance guarantee of

$750,000, payable in installments consisting of a deposit of $187,500 paid upon execution, a second deposit of $187,500 due no later

than May 27, 2026, and a remaining balance of $375,000 payable following the performance.

The agreement does not provide for cancellation

except in the event of force majeure or material breach by either party.

As of March 31, 2026, the Company has paid the initial deposit

of $187,500, which is recorded within prepaid expenses on the condensed consolidated balance sheet.

The remaining $562,500 of contractual

payment obligations under this agreement (consisting of $187,500 due by May 27, 2026 and $375,000 due following the June 27, 2026 performance)

represents a non-cancellable commitment of the Company as of March 31, 2026.

STOCK-BASED COMPENSATION

Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 32,450 and $ 101,467

for the nine months ended September 30, 2025 and 2024, respectively.

of September 30, 2025, 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 $ 48,971

and $ 13,824 for the three months ended March 31, 2026 and 2025, respectively.

of March 31, 2026, 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.”

The Company registers all shares of common stock that are issuable under its Plans with the SEC.

A total of 4 shares remain available

for awards under the various Plans as of March 31, 2026.

option grants.

6 unchanged sentences

stock that are issuable under its Plans with the SEC.

A total of 69 shares remained available for awards under the various Plans 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.

in the various Plans during the nine months ended September 30, 2025 and 2024 is reflected in the following table:

in the various Plans during the three months ended March 31, 2026 and 2025 is reflected in the following table:

SCHEDULE OF STOCK OPTIONS OUTSTANDING

1 unchanged sentence

Outstanding at January 1, 2026

Outstanding at September 30, 2025

Exercisable at September 30, 2025

( 1,354,200 )

Outstanding at March

Exercisable at March

Exercise Price

Outstanding at January 1, 2025

Outstanding at September 30, 2024

Exercisable at September 30, 2024

Outstanding at March

Exercisable at March

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

The total estimated grant

date fair value stock options issued during the three months ended March 31, 2026 was $ 236,634 .

Following are certain estimates and assumptions

utilized as of the issuance date to determine the grant-date fair value of the stock options issued during 2026:

OF STOCK BASED COMPENSATION VALUATION ASSUMPTIONS

Volatility – range

Risk-free rate

Contractual term

Exercise price

Common stock issuable under the options

Plans allow for the cashless exercise of stock options.

2 unchanged sentences

There were no shares surrendered pursuant to cashless exercises

during the nine months ended September 30, 2025 and 2024.

September 30, 2025 and December 31, 2024, the aggregate intrinsic value of options outstanding was approximately $- 0 - and $- 0 -, respectively,

and the aggregate intrinsic value of options exercisable was approximately $- 0 - and $- 0 -, respectively.

during the three months ended March 31, 2026 and 2025.

expense totaled $ 44,085 and $- 0 - for stock options during the three months ended March 31, 2026 and 2025, respectively.

As of March 31,

2026 and 2025, no outstanding or exercisable options had intrinsic value, as all exercise prices exceeded the market price of the Company’s

common stock on those dates.

At March 31, 2026 and December 31, 2025, the aggregate intrinsic value of options outstanding was approximately

$- 0 - and $- 0 -, respectively, and the aggregate intrinsic value of options exercisable was approximately $- 0 - and $- 0 -, respectively.

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 September 30, 2025:

options under the Company’s option plans as of March 31, 2026:

SCHEDULE OF SHARES AUTHORIZED UNDER STOCK OPTION PLANS BY EXERCISE PRICE RANGE

Outstanding options

Weighted average

Exercisable options

Weighted average

Exercise price

contractual life

$ 0.01 to $ 39.999

$ 40,000 to $ 69,999

$ 70,000 to $ 99,999

$ 100,000 to $ 129,999

$ 130,000 to $ 159,999

stock grants.

3 unchanged sentences

Restricted stock awards typically vest over one to four years corresponding

to the anniversaries of the grant date.

to anniversaries of the grant date.

Under the Plans, unvested shares of restricted stock awards may be forfeited upon the termination

3 unchanged sentences

and the right to receive cash dividends.

summary of all restricted stock activity under the equity compensation plans for the nine months ended September 30, 2025 and 2024 is

SCHEDULE OF RESTRICTED STOCK ACTIVITY

summary of all restricted stock activity under the equity compensation plans for the three months ended March 31, 2026 and 2025 is as

OF RESTRICTED STOCK ACTIVITY

Nonvested balance, January 1,

Nonvested balance, September 30, 2025

balance, January 1, 2024

balance, September 30, 2024

Nonvested balance,

March 31, 2026

Nonvested balance, January 1,

Nonvested balance,

March 31, 2025

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

As of September 30, 2025, there was $ 26,084 representing total unrecognized compensation costs related to all remaining non-vested restricted

stock grants, which will be amortized over the next thirty-one months in accordance with their respective vesting scale.

As of March 31, 2026, there was $ 14,026 of total unrecognized compensation costs related to all remaining non-vested restricted stock

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

nonvested balance of restricted stock vests as follows:

SCHEDULE OF NON-VESTED BALANCE OF RESTRICTED STOCK

2025 (October 1, 2025 to December 31, 2025)

2026 (April 1, 2026 to December

COMMON STOCK PURCHASE WARRANTS

following table summarizes information about shares issuable under warrants outstanding during the nine months ended September 30, 2025

following table summarizes information about shares issuable under warrants outstanding during the three months ended March 31, 2026

SCHEDULE OF WARRANT ACTIVITY

1 unchanged sentence

Balance, January 1, 2026

Issuance February 2025 – Prefunded Warrants

Issuance/activation of February 2025 – Series A Warrants

Issuance of September 2025 – Detachable Warrants

Issuance/activation of February 2025 – Series B Warrants

Exercise February 2025 – Prefunded Warrants

Exercised June 2024 - Series B warrants

Exercised February 2025 – Series B Warrants

( 1,669,320 )

Terminated/Cancelled

Balance, September 30, 2025

Balance, March 31,

exercise price

Balance, January 1, 2025

Issuance February 2025

– Prefunded Warrants

Exercise February 2025

– Prefunded Warrants

Exercise June 2024 -

Series B warrants

Terminated/Cancelled

Balance, September 30, 2024

total intrinsic value of all outstanding warrants aggregated $ 88 and $ 2,128,320 as of September 30, 2025 and December 31, 2024, respectively

and the weighted average remaining term was 45.6 and 42.6 months as of September 30, 2025 and 2024, respectively.

Balance, March 31,

total intrinsic value of all outstanding warrants aggregated $ 8 and $- 0 - as of March 31, 2026 and 2025, respectively and the weighted

average remaining term was 52.4 and 48.5 months as of March 31, 2026 and 2025, 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 September 30, 2025:

warrants to purchase shares of common stock as of March 31, 2026:

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

Outstanding and exercisable warrants

Exercise price

Number of warrants

and exercisable warrants

contractual life

2025 Detachable Purchase Warrants

September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor, pursuant to which the Company

issued Senior Secured Convertible Notes (the “September 2025 Notes”) with an aggregate original principal amount of $ 806,451

and detachable common stock purchase warrants to purchase 476,569 shares of the Company’s common stock at an exercise price of

$ 2.124 per share.

The detachable common stock purchase warrants have a term of 5 years from the date of issuance.

and December 2025 Detachable Purchase Warrants

In connection with the issuance of the 2025 Senior Secured Convertible Notes during September and December 2025 (see

Note 9, Debt Obligations ), the Company issued an aggregate

of 41,581 detachable common stock purchase warrants exercisable at $ 31.86 per share with a five-year term from the respective dates of

All 41,581 warrants remained outstanding as of March 31, 2026 and December 31, 2025.

2025 Purchase Warrants

February 13, 2025, the Company issued pre-funded units, each consisting of one-prefunded warrant (to purchase a total of 49,075 shares

of Common Stock), one Series A warrant and one Series B warrant along with the sale of units, each consisting of one share of Common

Stock, one Series A warrant and one Series B warrant.

The Series A and Series B warrants were exercisable only upon receipt of stockholder

approval to approve each of (i) certain terms in the Series A warrants and Series B warrants and the issuance of the shares of Common

Stock issuable upon the exercise of such 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, as amended, 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 warrants

and Series B warrants.

The Series A Warrants were exercisable commencing upon the date of public notice of the Stockholder Approval (the

“Warrant Stockholder Approval Date”) until five years after the Warrant Stockholder Approval Date, and the Series B Warrants

were exercisable commencing upon the Warrant Stockholder Approval Date until two and one-half years after the Warrant Stockholder Approval

Both the Series A and Series B warrants contain reset provisions that are activated upon the date Stockholder Approval is obtained.

The Company’s Shareholders approved the issuance of the Series A and B warrants at a Special Meeting of Shareholders on May 6,

2025 which serves as the Warrant Stockholder Approval Date.

The Series A and B warrant terms provide for net cash settlement outside

the control of the Company under certain circumstances.

As such, the Company is required to treat the Series A and B warrants as derivative

liabilities until such time as the circumstances which allow for settlement outside the control of the Company are terminated or no longer

Warrant derivative liabilities treatment of the Series A and B warrants to be valued at their estimated fair value at their

issuance/activation date and at each reporting date with any subsequent changes reported in the condensed 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 condensed consolidated statement of operations.

pre-funded warrants were all exercised within days of their issuance therefore their total fair value was estimated to be $ 1,803 at the

time of their exercise which remained the same as their fair value as of the date of issuance.

The following are the assumptions used

in calculating the estimated fair value of the pre-funded warrants to purchase Common Stock which were effective and exercisable upon

issuance on February 13, 2025:

February 13, 2025, the Company issued Series A warrants in connection with an underwritten public offering.

The warrants were subject

to stockholder approval and contained reset provisions, and were activated on May 6, 2025.

A total of 23,206 Series A warrants were issued,

with an aggregate fair value of $ 1,340,214 at the issuance/activation date.

The following are the assumptions used in calculating the

estimated fair value at the issuance/activation date:

SCHEDULE OF WARRANT MODIFICATION

Pre funded warrants issuance date – February 13, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

the nine months ended September 30, 2025, the pre-funded warrants to purchase 49,075 shares of Common Stock were fully exercised.

conjunction with the exercise of the pre-funded warrants, the Company transitioned the related warrant derivative liability totaling

$ 1,803 to equity as of their exercise date.

The warrant derivative liability related to the pre-funded warrants was $- 0 - as of September

Series A warrants were issued/activated on Warrant Shareholder Approval Date of May 6, 2025 and their total fair value was estimated

to be $ 1,340,214 at the time of their issuance/activation.

The following are the assumptions used in calculating the estimated fair value

of the Series A warrants to purchase Common Stock which were effective and exercisable upon the Warrant Shareholder Approval Date of

Series A warrants issuance/activation date – May 6, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

June 27, 2025, the circumstances under which the Series A warrant terms allow for settlement outside the control of the Company were

terminated and no longer applicable.

Therefore, the Company determined the fair value of the warrant liability as of that date ($ 530,101 )

and transitioned that value to equity as the Series A warrants were no longer treated as warrant derivative liabilities.

In conjunction

with change in warrant liability treatment of the Series A warrant on June 27, 2025, the Company transitioned the related warrant derivative

liability totaling $ 530,101 to equity.

The following are the assumptions used in calculating the estimated fair value of the Series A

warrants to purchase Common Stock as of transition date of June 27, 2025:

Series A warrants transition date – June 27, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

Series B warrants were issued/activated on Warrant Shareholder Approval Date of May 6, 2025 which based on the reset provisions a total

of 1,669,357 Series B were issued at a zero exercise price and their total fair value was estimated to be $ 5,406,408 .

The Series B Warrants

contain a zero-exercise price option at the holder’s election.

Under the zero-exercise price option, a holder of the Series B Warrant

has the right to receive an aggregate number of shares equal to the product of (x) the aggregate number of shares of common stock that

would be issuable upon a cash exercise of the Series B Warrant and (y) three (3.0).

As a result of this feature, we did not receive nor

did we expect to receive any cash proceeds from the exercise of the Series B Warrants because it is highly unlikely that a Series B Warrant

holder would elect to pay an exercise price in cash to receive one share of common stock when they could elect the alternate cashless

exercise option and pay no exercise price to receive more shares of common stock than they would receive if they did pay an exercise

The following are the assumptions used in calculating the estimated fair value of the Series B warrants to purchase Common Stock

which were effective and exercisable upon the Warrant Shareholder Approval Date of May 6, 2025:

Series B warrants issuance/activation date – May 6, 2025

A warrants issuance/activation date – May 6, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Remaining contractual

Exercise price

Common stock issuable under the warrants

the 1,669,357 total Series B warrants issued on May 6, 2025 a total of 1,669,320 warrants valued at $ 5,406,320 were immediately exercised

by their holders and transitioned to equity during the three and nine months ended September 30, 2025.

There remain 37 Series B warrants

issued and outstanding at September 30, 2025 which were valued at $ 88 .

On June 27, 2025, the circumstances allowing for net cash settlement outside the Company’s control were terminated,

and the Series A warrants were reclassified to equity at their then-current fair value of $ 530,101 .

The $ 810,113 decline in fair value

from $ 1,340,214 to $ 530,101 was recognized as a gain in the consolidated statement of operations during the year ended December 31, 2025.

The following are the assumptions used at the transition date:

A warrants transition date – June 27, 2025

contractual term

stock issuable under the warrants

of March 31, 2026, all 23,206 Series A warrants remain outstanding.

Purchase Warrants

June 25, 2024, the Company issued Series A and prefunded warrants to purchase a total of 88,411 shares of Common Stock along with the

sale of Common Stock.

The Company also issued Series B Warrants that will be issuable and exercisable at any time or times on or after

the date that relevant stockholder approval is obtained in addition to the Series A warrants that are not included in outstanding warrants

until such time as relevant stockholder approval is obtained.

Both the Series A and Series B warrants have reset provisions that are

activated upon the date relevant 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

condensed 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 condensed consolidated statement of operations.

Series B warrants issued in this transaction become issuable and exercisable on the date that relevant stockholder approval is obtained,

Relevant stockholder approval was obtained on December 17, 2024 which activated the Series A and B warrants.

Both the Series

A and Series B warrants also contain price and warrant reset provisions that were activated upon the date of relevant stockholder approval.

The reset provisions increased the number of common shares issuable under the Series A warrant from 59,761 to 298,805 shares and the

exercise price per Series A warrant was reduced from $ 50.20 to $ 10.04 per share effective December 17, 2024.

In addition, the Series

B warrants became effective and exercisable upon relevant stockholder approval on December 17, 2024 which resulted in 238,339 common

shares issuable under the Series B warrants with an exercise price of $ 0.001 per share effective December 17, 2024.

The Company recognized

the full Series B warrant derivative liability value of $ 2,865,727 as of the date of relevant stockholder approval when it became effective

and exercisable of which $ 454,150 was recorded in equity and $ 2,411,577 was charged as a loss in the consolidated statement of operations

for the year ended December 31, 2024.

The following are the assumptions used in calculating the estimated fair value of the detachable

Series B warrants to purchase Common Stock which became effective and exercisable upon relevant stockholder approval on December 17,

2024 and on December 31, 2024:

Series B issuance date - December 17, 2024

Series B - December 31, 2024

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

Common stock issuable under the warrants

the year ended December 31, 2024, prefunded warrants to purchase 28,650 shares of Common Stock were fully exercised.

No pre-funded warrants

were exercised during the three months ended September 30, 2025.

In conjunction with the exercise of the Series B warrants, the Company

transitioned the related warrant derivative liability totaling $ 584,955 to equity as of their exercise date in 2024.

The warrant derivative

liability related to the remaining unexercised Series B warrants was $ 1,989,806 as of December 31, 2024.

The change in fair value of

the Series B warrant derivative liability from their issuance date through December 31, 2024 totaled $ 290,965 which was included as a

loss in the condensed consolidated statement of operations for the year ended December 31, 2024.

the nine months ended September 30, 2025, Series B warrants to purchase 1,897 shares of Common Stock were fully exercised.

In conjunction

with the exercise of the Series B warrants, the Company transitioned the related warrant derivative liability totaling $ 1,989,806 to

equity as of their exercise date.

The warrant derivative liability related to the Series B warrants was $- 0 - as of September 30, 2025,

as they are now fully exercised.

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

derivative liability relative to the prefunded warrants and Series A warrants as of their date of issuance and as of December 31, 2024

and September 30, 2025:

date assumptions

December 31, 2024

September 30, 2025

Company has 202 Series A warrants outstanding as of March 31, 2026 and December 31, 2025, originally issued in June 2024 in connection

with an underwritten public offering.

The Series A warrants are classified as derivative liabilities due to net cash settlement provisions

outside the Company’s control, with an exercise price of $ 15,060.00 per share.

The change in fair value of the Series A warrant

derivative liability was $ 144 and $ 2,360,140 for the three months ended March 31, 2026 and 2025, respectively, included as a gain in

the consolidated statements of operations.

The following are the assumptions used in calculating the estimated fair value of the Series

Volatility – range

72.1 - 101.1 %

Risk-free rate

4.25 – 5.46 %

Remaining contractual term

0.1 - 5.0 years

Remaining contractual

Exercise price

Common stock issuable under the warrants

Company recognized the fair value of the Series A warrants of $ 1,998,074 as a warrant derivative liability as of the date of issuance.

There have been no Series A warrants exercised through September 30, 2025.

The fair value of the warrant derivative liability related

to the Series A warrants was $ 1,853 and $ 2,408,598 as of September 30, 2025 and December 31, 2024, respectively.

The change in fair value

of the Series A warrant derivative liability from December 31, 2024 to September 30, 2025 totaled $ 2,406,745 which was included as a

gain in the condensed consolidated statements of operations for the nine months ended September 30, 2025.

Purchase Warrants

April 5, 2023, the Company issued warrants to purchase a total of 562 shares of Common Stock.

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 condensed 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 condensed consolidated

statement of operations.

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 September 30, 2025 and as of December 31, 2024:

December 31, 2024

September 30, 2025

Volatility – range

Risk-free rate

Remaining contractual term

Exercise price

11,000.00 – 15,000.00

Common stock issuable under the warrants

On April 5, 2023, the Company issued warrants to purchase 40 shares of common stock, which are classified as derivative

liabilities due to net cash settlement provisions outside the Company’s control and are marked to market at each reporting date.

warrants remained outstanding as of March 31, 2026 and December 31, 2025, with exercise prices ranging from $ 165,000.00 to $ 225,000.00

per share and a remaining contractual term of approximately 2.0 years.

The aggregate fair value declined from $ 169 at December 31, 2025

to $ 8 at March 31, 2026, with the $ 161 change recognized as a gain in the consolidated statement of operations.

See Note 10, Fair Value

Measurement, for additional Level 3 derivative liability activity.

16 - STOCKHOLDERS’ EQUITY

Secured Convertible Note and Committed Equity Financing

September 15, 2025, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Purchaser”),

pursuant to which the Company issued Senior Secured Convertible Notes with an aggregate original principal amount of $ 806,451 and Warrants

to purchase 476,569 shares of the Company’s common stock at an exercise price of $ 2.124 per share.

The Notes were issued at a 7 %

original issue discount, providing gross proceeds of $ 750,000 , and bear interest at 8 % per annum.

net proceeds of the private placement on September 15, 2025 was $ 610,000 (after $ 140,000 deduction of costs of the offering).

allocated the net proceeds from the private placement of the senior secured promissory notes and the detachable warrants based upon their

relative fair values as of the date of issuance as follows:

SCHEDULE OF NET PROCEEDS FROM THE PRIVATE PLACEMENT

Allocated to the following:

Senior secured promissory notes

Detachable warrants

January 8, 2026, the Company, acting pursuant to a resolution of its Board of Directors, filed with the Secretary of State of the State

of Nevada a certificate of amendment (the “January 8, 2026 Charter Amendment”) to its Articles of Incorporation, as amended,

to effect a one (1)-for-three (3) share reverse split (the “January 8, 2026 Reverse Stock Split”) of all of the Company’s

outstanding shares of common stock, par value $ 0.001 per share.

Pursuant to the January 8, 2026 Charter Amendment, the Reverse Stock

Split became effective on January 8, 2026.

As a result of the January 8, 2026 Reverse Stock Split, every three (3) shares of common stock

were exchanged for one (1) share of common stock.

The common stock began trading on a split-adjusted basis on Nasdaq effective with the

open of the market on January 9, 2026.

The January 8, 2026 Reverse Stock Split had a proportionate effect on the total number of shares

of capital stock, including the common stock, that the Company is authorized to issue, which resulted in a reduction of authorized common

shares from 200,000,000 to 66,666,667 as set forth pursuant to the Articles of Incorporation.

No fractional shares of common stock were

issued in connection with the January 8, 2026 Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional shares

of common stock were automatically entitled to receive an additional fraction of a share of common stock to round up to the next whole

share, at a participant level.

The January 8, 2026 Reverse Stock Split also had a proportionate effect on all other options and warrants

of the Company outstanding as of the effective date of the January 8, 2026 Reverse Stock Split.

All historical share and per-share amounts

reflected throughout these condensed consolidated financial statements have been adjusted to reflect the January 8, 2026 Reverse Stock

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

April 22, 2026, the Company, acting pursuant to a resolution of its Board of Directors adopted on April 5, 2026, filed with the Secretary

of State of the State of Nevada a certificate of amendment (the “April 22, 2026 Charter Amendment”) to its Articles of Incorporation,

as amended, to effect a one (1)-for-five (5) share reverse split (the “April 22, 2026 Reverse Stock Split”) of all of the

Company’s outstanding shares of common stock, par value $ 0.001 per share.

Pursuant to the April 22, 2026 Charter Amendment, the

Reverse Stock Split became effective on April 22, 2026.

As a result of the April 22, 2026 Reverse Stock Split, every five (5) shares

of common stock were exchanged for one (1) share of common stock, reducing the number of outstanding shares of common stock from 2,633,063

to 526,860 , subject to adjustment for the rounding up of fractional shares.

The common stock began trading on a split-adjusted basis

on Nasdaq effective with the open of the market on April 22, 2026.

The record date for determining the holders of common stock entitled

to receive shares of common stock following the effectiveness of the April 22, 2026 Reverse Stock Split was April 7, 2026.

22, 2026 Reverse Stock Split was implemented to increase the per-share trading price of the common stock for the purpose of ensuring

a share price high enough to comply with the Minimum Bid Price Requirement for continued listing on Nasdaq.

The April 22, 2026 Reverse

Stock Split had a proportionate effect on the total number of shares of capital stock, including the common stock, that the Company is

authorized to issue, which resulted in a reduction of authorized common shares from 66,666,667 to 13,333,333 as set forth pursuant to

the Articles of Incorporation.

The number of authorized shares of preferred stock was not affected.

No fractional shares of common stock

were issued in connection with the April 22, 2026 Reverse Stock Split.

Stockholders who otherwise were entitled to receive fractional

shares of common stock were automatically entitled to receive an additional fraction of a share of common stock to round up to the next

whole share, at a participant level.

The April 22, 2026 Reverse Stock Split also had a proportionate effect on all other options and

warrants of the Company outstanding as of the effective date of the April 22, 2026 Reverse Stock Split.

All historical share and per-share

amounts reflected throughout these condensed consolidated financial statements have been adjusted to reflect the April 22, 2026 Reverse

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

Equity Financing (ELOC)

September 15, 2025 (the “Closing Date”), the Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase

Agreement”) with an institutional investor (the “ELOC Investor”), providing a committed equity financing facility of

up to $ 25 million (the “Total Commitment”) over a 36-month term.

Under the agreement, and subject to certain conditions and

limitations, the Company may, at its sole discretion, direct the ELOC Investor to purchase shares of its common stock (“Purchase

Shares”) from time to time during the term of the facility.

September 15, 2025, the Company entered into a Common Stock Purchase Agreement (the “ELOC Purchase Agreement”) with an institutional

investor (the “ELOC Investor”), providing a committed equity financing facility of up to $ 25 million (the “Total Commitment”)

over a 36-month term.

Under the agreement, and subject to certain conditions and limitations, the Company may, at its sole discretion,

direct the ELOC Investor to purchase shares of its common stock (“Purchase Shares”) from time to time during the term of

the facility.

During the three months ended March 31, 2026, the Company issued 277,000 shares of common stock to the ELOC Investor

under the ELOC Purchase Agreement for aggregate gross proceeds of $ 2,306,533 , of which $ 1,726,662 was received in cash and $ 579,871 of

transaction fees and commitment fee offsets withheld at the source by the ELOC Investor.

In connection with the ELOC Purchase Agreement, the Company agreed to pay a total commitment fee of 3 % of the $ 25

million facility, or $ 750,000 , which was to be satisfied through the issuance of common shares and/or through deductions from future cash

proceeds from ELOC draws.

During 2025, the Company issued 22,802 shares of common stock valued at $ 227,792 in partial satisfaction of

the commitment fee, based on the closing market price of the Company’s common stock on the respective issuance dates.

The remaining $ 522,208

commitment fee balance was satisfied during the three months ended March 31, 2026 through deductions from cash proceeds otherwise payable

to the Company in connection with ELOC share issuances during the quarter, fully satisfying the $ 750,000 commitment fee obligation.

Senior Secured Convertible Notes Conversion

During the three months ended March

31, 2026, the holders of the 2025 Senior Secured Convertible Notes elected to convert the entire $ 1,070,000 outstanding principal balance

into 111,608 shares of the Company’s common stock at a conversion price equal to a 10 % discount to the five-day volume-weighted average

price of the Company’s common stock preceding each conversion.

Because the conversion price was variable and did not meet the fixed-for-fixed

requirement, the conversion feature embedded in the notes was bifurcated from the host debt instrument and accounted for as a derivative

liability measured at fair value, with changes in fair value recognized in earnings.

Upon each conversion, the bifurcated derivative liability

and the unamortized debt discount were reclassified to additional paid-in capital.

The aggregate impact of the conversions was an increase

to additional paid-in capital of $ 1,357,253 .

Following the conversions, no balance remains outstanding under the 2025 Senior Secured Convertible

The bifurcated conversion feature derivative liability had a fair value of $ 852,675 as of December 31, 2025 and was

fully extinguished upon conversion during the three months ended March 31, 2026.

Total derivative liabilities were $ 852,844 as of December

31, 2025 and $ 8 as of March 31, 2026.

See Note 9, Debt Obligations ,

for the original terms of the 2025 Senior Secured Convertible Notes and the conversion mechanics;

Note 10, Fair Value Measurement ,

for the valuation methodology, inputs, and the rollforward of the Level 3 derivative liability balance;

and Note 15, Common Stock Purchase

Warrants , for additional information regarding the Company’s outstanding warrants classified as derivative liabilities.

Healthcare Disposition

In connection with the disposition of Nobility Healthcare on January 8, 2026 (effective January 1, 2026), the Company

recorded aggregate adjustments of $ 4,343,217 directly to equity, presented on the “Disposition of Nobility Healthcare” line

in the condensed consolidated statements of stockholders’ equity.

These adjustments consisted of the $ 1,885,802 derecognition of the non-controlling

interest in Nobility Healthcare and a $ 2,457,415 release of a historical consolidation adjustment to accumulated deficit.

has no remaining non-controlling interests as of March 31, 2026.

These equity adjustments had no impact on the Company’s consolidated

statement of operations or cash flows for the three months ended March 31, 2026, and do not constitute a restatement of any prior-period

financial statement.

See Note 22, Discontinued Operations ,

for additional information regarding the disposition and the components of these equity adjustments.

2025 Public Equity Offering

February 13, 2025, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp.

(the “Underwriter”) for the sale and issuance of (i) 3,925 units at a public offering price per unit of $ 300.00 with each

Unit consisting of one share of Common Stock, one Series A warrant to purchase one share of Common Stock at an exercise price of $ 375.00

per share and one Series B warrant to purchase one share of Common Stock at an exercise price of $ 600.00 and (ii) 46,075 pre-funded units

at a public offering price of $ 298.00 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.

The pre-funded

warrants were immediately exercisable and may be exercised at any time until all of the pre-funded warrants are exercised in full.

Series A and Series B warrants are 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 public notice of Stockholder Approval until five years after such date, and the Series B Warrants will be exercisable commencing

upon the date of public notice of Stockholder Approval until two and one-half years after such date.

offering closed on February 14, 2025.

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.

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.

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.

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 warrants), as applicable, less the underwriting discount, and the

purchase price to be paid per over-allotment Series A and Series B warrants will be $ 0.00001 .

On February 14, 2025, the Underwriter exercised

its over-allotment option with respect to 3,000 pre-funded warrants/common shares, 7,500 Series A warrants and 7,500 Series B warrants.

Settlement occurred on April 17, 2025.

Capital Corp.

served as 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.

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

aggregate net proceeds to the Company from the offering including the underwriters exercise of their overallotment option were approximately

$ 14,308,300 , after deducting underwriter’s fees and the payment of other offering expenses associated with the offering payable

by the Company.

Issuance of Restricted Common Stock

January 2024, the board of directors approved the grant of 27 shares of Common Stock to officers of the Company.

Such shares will generally

vest over a period of one to five years on their respective anniversary dates in January through January 2028, provided that each grantee

remains an officer or employee on such dates.

Additionally, the board of directors approved the grant of 13 restricted common shares

to certain new employees of the Company.

Such shares will generally vest over a period of one 1 to two years on their respective anniversary

dates from January through January 2026, provided that each grantee remains an employee of the company on such dates.

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 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 60 units and pre-funded units (collectively, the “June Units”)

at a purchase price of $ 5020.00 per unit (less $ 0.001 per pre-funded unit).

Each June Unit consists of (i) one share of Common Stock

(or one pre-funded warrant to purchase one share of Common Stock (the “Pre-Funded Warrants”)), (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 and in accordance with the terms therein (the “Series B Warrant”,

and together with the Series A Warrant, the “Warrants”).

Purchase Agreement and Senior Secured Promissory Notes

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

pursuant to which the Company agreed to issue and sell to such investors, in a private placement transaction, (i) senior secured promissory

notes in aggregate principal amount of $ 3,600,000 , and (ii) 404 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.

net proceeds of the private placement on November 7, 2024 was $ 2,669,250 (after $ 330,750 deduction of costs of the offering).

allocated the net proceeds from the private placement of the senior secured promissory notes and the commitment shares based upon their

relative fair values as of the date of issuance as follows:

Allocated to the following:

Senior secured promissory notes

Commitment shares

of Restricted Stock

the nine months ended September 30, 2025 and 2024, the Company cancelled - 0 - and 1 shares due to termination of employees, respectively.

of Prefunded Warrants

the three months ended September 30, 2025, prefunded warrants to purchase 49,075 shares of Common Stock that were issued in conjunction

with the February 2025 public equity offering of Common Stock, were fully exercised at an exercise price of $ 0.001 per share.

the three months ended September 30, 2025, Series B warrants to purchase 1,897 shares of Common Stock that were issued in conjunction

with the June 2024 public equity offering of Common Stock, were fully exercised for total proceeds of $ 3,793 .

In conjunction with the

exercise of the Series B warrants, the Company transitioned the related warrant derivative liability totaling $ 1,989,806 to equity as

of their exercise date.

February 14, 2025, the Company closed an underwritten public offering consisting of 262 units and 3,272 pre-funded units, generating

aggregate net proceeds of $ 14,308,300 after underwriter fees and expenses.

Each unit and pre-funded unit included Series A and Series

the three months ended March 31, 2026, the Company recognized stock-based compensation expense of $ 48,971 , which was recorded as an increase

to additional paid-in capital.

Notifications

October 17, 2025, the Company received notice from Nasdaq that it had regained full compliance with Nasdaq Listing Rule 5550(a)(2) (the

“Minimum Bid Price Requirement”) and Nasdaq Listing Rule 5550(b)(1) (the “Stockholders’ Equity Requirement”).

Nasdaq placed the Company under a one-year discretionary panel monitor (the “Discretionary Panel Monitor”).

Under the Discretionary

Panel Monitor, the Company is not permitted to request additional time to regain compliance with any deficiencies that occur within the

one-year period regarding noncompliance with the periodic filing or Bid Price Requirement.

Such one-year period expires on July 31, 2026

with regard to the periodic filing rules and September 2, 2026 regarding the Bid Price Requirement.

As of March 31, 2026, the Company

remained subject to the Discretionary Panel Monitor.

The Company is not aware of any current noncompliance with the periodic filing rules

or Bid Price Requirement.

Noncontrolling

Company has 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 condensed consolidated statement

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

We reported net

(loss) income attributable to noncontrolling interests of consolidated subsidiary of $ ( 58,525 ) and $ 2,000,206 for the three months ended

September 30, 2025 and 2024, respectively and $ ( 118,133 ) and $ 1,939,143 for the nine months ended September 30, 2025 and 2024, respectively.

information regarding the noncontrolling interest in Nobility Healthcare, see Note 1, Nature of Business and Summary of Significant

Accounting Policies and Note 22, Discontinued Operations .

RELATED PARTY TRANSACTIONS

with Managing Member of Nobility Healthcare

Company accrued reimbursable expenses payable to Nobility, LLC totaling $ 42,082 and $ 245,716 as of September 30, 2025 and December 31,

2024, respectively.

Total management fees accrued and payable in accordance with the operating agreement totaled $ 20,933 and $ 38,625

as of September 30, 2025 and December 31, 2024, respectively.

The company recorded management fee expense of $ 30,255 and $ 22,403 for

the nine months ended September 30, 2025 and 2024, respectively.

with Related Party of TicketSmarter

September 22, 2023, a trust, the beneficiaries of which are an officer of TicketSmarter’s and his spouse, made a loan in the amount

of $ 2,325,000 to TicketSmarter to support TicketSmarter’s operations.

On October 2, 2023 an additional $ 375,000 was advanced to

Ticketsmarter.

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

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

As of December 31, 2024

the entire TicketSmarter Related Party note balance totaled $ 2,700,000 , and was classified as current, with an accrued interest balance

of $ 488,711 .

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 condensed

consolidated statement of operations.

Additionally, these negotiations relieved TicketSmarter of numerous future obligations following

fiscal year 2023.

August 19, 2024, the parties agreed to amend the note whereby the repayment dates were extended to begin on January 2, 2025 and continue

at $ 54,000 for 50 consecutive weeks plus interest.

The parties did not change any other provisions or terms of the note.

The amendment

was determined to be a modification of the note rather than an extinguishment and reissuance of a new note.

Payments totaling $ 22,000

have been made through September 30, 2025.

March 20, 2025, the parties agreed to a second modification of the TicketSmarter Related Party Note.

The modification eliminated all

accrued interest totaling $ 582,203 as of the date of the second modification, reduced the interest rate from 13.25 % per annum to 8 % per

annum, and extended and reduced the repayment amount from $ 54,000 per week to $ 11,000 per week beginning April 1, 2025.

The modification

was deemed to be an extinguishment of debt resulting in a gain on extinguishment of note payable – related party of $ 1,249,372

during the three months ended March 31, 2025.

At the time of the modification, management considered the officer’s lack Company-wide

policy making authority and de-minimis beneficial ownership in the Company to determine that in its estimation the officer did not act

in his capacity as an equity holder in the Company when negotiating the March 20, 2025 debt modification.

June 4, 2025, the parties agreed to a third modification of the TicketSmarter Related Party Note.

The modification reduced the outstanding

principal amount from $ 2,678,000 to $ 2,000,000 , eliminated all accrued interest totaling $ 43,515 as of the date of the third modification,

the interest rate remained at 8 % per annum, and extended and reduced the repayment amount from $ 11,000 per week to $ 9,600 per week beginning

January 1, 2026.

The modification was deemed to be an extinguishment of debt resulting in a gain on extinguishment of note payable –

related party of $ 622,622 during the three and nine months ended September 30, 2025.

the time of the June 4, 2025 modification, management considered the repetitive nature of the modifications as an indication that the

Officer was acting more in his capacity as an equity holder than as a creditor.

In addition, management reconsidered the accounting treatment

for the March 20, 2025 modification and changed its estimate whereby, the officer was more likely than not acting in his capacity as

an equity holder in the Company when negotiating the March 20, 2025 debt modification, as well.

As a result, the Company determined to

treat the $ 622,622 gain on the June 4, 2025 modification as a deemed contribution of capital rather than a gain recognized in the condensed

consolidated statement of operations.

In addition, the Company reconsidered the accounting treatment for the $ 1,249,372 gain on the March

20, 2025 modification and determined to treat it as a deemed contribution of capital rather than a gain recognized in the condensed consolidated

statement of operations.

Therefore the $ 1,249,372 gain on the March 20, 2025 modification was reversed during the quarter ended June

30, 2025 and recorded as a deemed contribution of capital rather than a gain recognized in the condensed consolidated statement of operations.

Related Party Note

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

In addition, on October 24, 2024, Digital Ally’s Chief Executive Officer, made an additional loan in the amount of $ 40,000 to the

Company to support its operations.

These transactions were recorded as related party notes payable (the “Company Related Party

The Company Related Party Notes bear interest at prime rate ( 8.00 % as of September 30, 2025 and December 31, 2024) per

annum with repayment due on demand.

The Company paid off the Company Related Party Notes in full during the nine months ended September

As of December 31, 2024, the entire Company Related Party note of $ 140,000 , is classified as current, with an accrued interest

balance of $ 3,465 .

The Company Related Party Notes balance is $- 0 - and $ 140,000 and an accrued interest balance of $- 0 - and $ 3,465 as

of September 30, 2025 and December 31, 2024, respectively.

Distribution Agreement

June 11, 2025 the Company entered into an exclusive global Master Distribution Agreement with Redwood Scientific Technologies, (“Redwood”)

granting the Company the rights to distribute Redwood’s nicotine cessation products, including TBX-Free and TBX Vape-Free.

strategic partnership positions Digital Ally as the commercialization partner for products aimed at helping Americans overcome addiction

to cigarettes and vape devices.

Redwood is preparing to validate the efficacy of these products as it prepares to submit its products

for clinical trials utilizing a double-blind, randomized scientific study to support the efficacy of such products No sales or marketing

of the product will occur until the clinical study concludes and the efficacy is evaluated and confirmed.

There can be no assurance whether

and when the clinical study will be concluded and what the ultimate results will be.

agreement provides the Company with comprehensive rights to Redwood’s technologies, brands, trademarks, manufacturing processes,

vendor relationships, and additional assets.

The two key products, TBX-Free and TBX Vape-Free, are designed to address significant health

TBX-Free targets traditional cigarette smokers, while TBX Vape-Free is the first-of-its-kind oral thin-film solution specifically

designed for vape users, addressing a critical gap in addiction treatment options.

Company paid $ 50,000 on July 8, 2025 to enter into the global Master Distribution Agreement with Redwood which included warrants to acquire

a minority ownership position in Redwood for a period of 5 years.

The Company’s CEO and CFO are minority beneficial shareholders

There have been no other transactions during the three and nine months ended September 30, 2025, between the Company and

GAIN ON EXTINGUISHMENT OF LIABILITIES

Company recorded gains on the extinguishment of liabilities for the three months ended September 30, 2025 and 2024 of $ 13,275 , and $ 9,385 ,

respectively, and $ 2,243,991 , and $ 691,730 for the nine months ended September 30, 2025 and 2024, respectively.

The gains reflect income

related to the video solutions and entertainment segment’s ability to negotiate down payables and other contract obligations during

the three months ended September 30, 2025 utilizing funds generated by the closing of the February 2025 public equity offering on February

The discount received was recognized as a gain on extinguishment of liabilities in the condensed consolidated statement of

operations for the three and nine months ended September 30, 2024.

gain on extinguishment of liabilities was $ 691,730 for the nine months ended September 30, 2024, reflects income related to the entertainment

segment’s ability to negotiate down payables and other contract obligations during the period.

The Company utilized funds from

the related party note payable to resolve numerous outstanding payables at a discounted rate, the discount received was recognized as

a gain on extinguishment of liabilities in the condensed consolidated statement of operations for the nine months ended September 30,

NET LOSS PER SHARE

calculations of the weighted average number of shares outstanding and loss per share outstanding for the three and nine months ended

September 30, 2025 and 2024 are as follows:

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

Three Months Ended

September 30,

Nine months ended

September 30,

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

$ ( 1,021,867 )

$ ( 3,470,506 )

payable – related party is comprised of the following:

SCHEDULE OF NOTE PAYABLE RELATED PARTY

Note payable – related

Unamortized discount

( 1,588,302 )

( 1,599,890 )

Denominator for basic loss per share – weighted average shares outstanding

Dilutive effect of shares issuable under stock options outstanding

Dilutive effect of shares issuable under common stock purchase warrants

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

Net loss per share:

Debt obligations

current maturities

of note payable-related party

Note payable -related

party, long-term

interest – related party was $ 0 and $ 0 at March 31, 2026 and December 31, 2025, respectively.

obligations mature during the twelve-month periods following March 31, 2026 as follows:

OF MATURITY DEBT OBLIGATIONS

Carrying Value

( 1,588,302 )

note payable to the Goodman Trust (the “Goodman Trust”), the beneficiaries of which are the Chief Executive Officer of TicketSmarter,

(“TicketSmarter”) and his spouse, originated in September and October 2023 when the Goodman Trust advanced a total of

$ 2,700,000 to TicketSmarter to resolve outstanding payables at discounted rates.

The officer serves as CEO of TicketSmarter but has no

role at the parent company and is not an officer or director of Kustom Entertainment, Inc.

note was amended four times between August 2024 and June 2025.

Pursuant to the June 4, 2025 amendment, all payments under the note were

subordinated to the Company’s $ 3,000,000 intercompany line of credit with TicketSmarter, and repayment of the Goodman Trust note

is not expected to commence until approximately January 2037.

Following the amendments, the outstanding principal balance is $ 2,000,000 ,

bearing interest at 8 % per annum, payable in weekly installments of $ 9,600 beginning January 2037.

note was recorded at a fair value of $ 372,548 at the June 4, 2025 modification date, representing the present value of the deferred cash

flows discounted at 13.25 %, with the resulting debt discount of $ 1,627,452 being amortized to non-cash interest expense using the effective

interest method over the remaining term of the note through 2041.

the three months ended March 31, 2026, the Company recognized $ 11,587 of non-cash interest expense related to amortization of the debt

discount, and no cash interest was paid.

The unamortized discount balance was $ 1,588,302 as of March 31, 2026, compared to $ 1,599,890

as of December 31, 2025.

the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 for additional information regarding the original

loan, the four amendments to the note, and the fair value determinations.

Related Party Note

August 2024 and October 2024, the Company’s Chief Executive Officer made loans to the Company totaling $ 140,000 ($ 100,000 and $ 40,000 ,

respectively) to support its operations.

These loans bore interest at prime rate ( 8.00 % at December 31, 2024) and were repayable on demand.

The Company repaid these notes in full during the three months ended March 31, 2025, and the repayment is reflected within financing

activities in the comparative condensed consolidated statement of cash flows.

No balance was outstanding as of March 31, 2026 or December

GAIN ON EXTINGUISHMENT OF LIABILITIES

Company recorded gains on the extinguishment of liabilities for the three months ended March 31, 2026 and 2025 of $ 63,259 and $ 2,220,097 ,

respectively.

gain recognized during the three months ended March 31, 2026 reflects discounts received by the Company in connection with the negotiated

settlement of outstanding payables during the period.

gain recognized during the three months ended March 31, 2025 reflects discounts received by the Company’s Entertainment segment

in connection with the negotiated settlement of outstanding payables and contract liabilities during the period, funded by proceeds from

the February 2025 underwritten public equity offering.

See Note 16, Stockholders’ Equity , for additional information regarding

the February 2025 offering.

NET INCOME (LOSS) PER SHARE

calculation of the weighted average number of shares outstanding and income (loss) per share outstanding for the three months ended March

31, 2026 and 2025 are as follows:

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

Numerator for basic and diluted

income (loss) per share – Net income (loss) attributable to common stockholders – continuing operations

$ ( 1,513,727 )

Numerator for basic and

diluted income (loss) per share – Net income (loss) attributable to common stockholders – discontinued operations (net

of noncontrolling interests)

$ ( 4,371,588 )

loss per share is based upon the weighted average number of shares of Common Stock outstanding during the period.

For the three and nine

months ended September 30, 2025 and 2024, all shares issuable upon the exercise of outstanding stock options and warrants were antidilutive,

and, therefore, not included in the computation of diluted loss per share.

COUNTRY STAMPEDE ACQUISITION

March 1, 2024, Kustom 440, entered into an Asset Purchase Agreement (the “Acquisition Agreement”) with JC Entertainment,

LLC, a Kansas limited liability company (“JC Entertainment”).

Pursuant to the Acquisition Agreement, Kustom 440 acquired

certain assets associated with a music entertainment event (“Country Stampede”), including all intellectual property arising

out of and relating to Country Stampede (“Country Stampede Intellectual Property”) and certain contracts in which JC Entertainment

is a party to host and operate the 2024 Country Stampede (the “Assumed Contracts”, and together with the Country Stampede

Intellectual Property, the “Purchased Assets”).

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 all claims, liabilities, costs, suits, or the like relating

to such refund request.

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

S-X dated May 21, 2020 and has concluded that this acquisition was not significant.

Accordingly, the presentation of the assets acquired,

historical financial statements under Rule 3-05 and related pro forma information under Article 11 of Regulation S-X, respectively, are

not required to be presented.

Under the acquisition method, the purchase price of the Country Stampede Acquisition has been allocated

to the acquired tangible and identifiable intangible assets and assumed liabilities based on their estimated fair values at the time

of the Country Stampede Acquisition.

This allocation involves a number of assumptions, estimates, and judgments that could materially

affect the timing or amounts recognized in our condensed consolidated financial statements.

The Country Stampede Acquisition was structured

as an asset purchase;

however the parties agreed to coordinate the election to invoke IRS Section 338(h)(10) in relation to this transaction

for tax purposes.

Therefore, the excess purchase price over the fair value of net tangible assets acquired was recorded as goodwill,

which will be amortized over 15 years for income tax filing purposes.

Likewise, the other acquired assets were stepped up to fair value

and is deductible for income tax purposes.

The results of operations of acquired businesses are included in the condensed consolidated

statement of operations from the acquisition date.

purchase price of the Country Stampede Acquisition was allocated to tangible assets, goodwill, identifiable intangible assets, and assumed

liabilities based on their preliminary estimated fair values at the time of the acquisition.

The Company retained the services of an

independent valuation firm to determine the fair value of these identifiable intangible assets.

The Company has finalized the estimated

fair value of assets acquired, and liabilities assumed in the Country Stampede Acquisition which are as follows:

SCHEDULE OF PRELIMINARY FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ACQUISITION

March 1, 2024

Assets acquired (provisional):

Tangible assets acquired

Identifiable intangible assets acquired (Trademarks and trade names)

Liabilities assumed

Net assets acquired and liabilities assumed

Consideration:

Cash paid at Country Stampede Acquisition date

Cash paid subsequent to closing

Total Country Stampede Acquisition purchase price

the measurement period (which is the period required to obtain all necessary information that existed at the acquisition date, or to

conclude that such information is unavailable, not to exceed one year), additional assets or liabilities may be recognized, or there

could be changes to the amounts of assets or liabilities previously recognized on a preliminary basis, if new information is obtained

about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of these

assets or liabilities as of that date.

There were no additional assets or liabilities recognized during the measurement period that ended

March 1, 2025, the amounts of assets or liabilities previously recognized on a preliminary basis are now final.

Denominator for basic income (loss) per share

– weighted average shares outstanding

Dilutive effect of shares

issuable upon conversion of convertible debt and the exercise of stock options and warrants outstanding

for diluted income (loss) per share – adjusted weighted average shares outstanding

Net income (loss) per share:

Continuing operations

Discontinued operations

Continuing operations

Discontinued operations

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

Diluted income

(loss) per share gives effect to all potentially dilutive securities outstanding during the period.

For the three months ended March

31, 2026 and 2025, all shares issuable upon conversion of convertible debt and the exercise of outstanding stock options and warrants

were antidilutive and, therefore, were not included in the computation of diluted income (loss) per share.

OPERATING SEGMENTS

Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed

consolidated financial statements.

Segment financial information is prepared in accordance with GAAP and our significant accounting policies

Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Company’s condensed consolidated financial statements.

Segment financial information is prepared in accordance with U.S.

GAAP and its significant accounting policies

described in Note 1.

Resources are allocated and performance is assessed using segment operating income by our Chief Executive Officer,

whom we have determined to be our Chief Operating Decision Maker (“CODM”).

Our CODM utilizes segment operating income when

making decisions about allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting

In addition, our CODM uses operating income, including comparison of actual results to budget and forecast, in assessing the

performance of each segment and in evaluating product pricing, distribution strategies and marketing investments.

Our CODM reviews balance

sheet information at a consolidated level.

We compute segment operating income based on net sales revenue, less cost of goods sold, SG&A,

asset impairment charges and restructuring charges.

The SG&A used to compute each segment’s operating income is directly associated

with the segment.

We do not allocate non-operating income and expense, including interest or income taxes, to operating segments.

operate in three strategic business segments.

The Video Solutions Segment encompasses our law, commercial, and shield divisions.

segment includes both service and product revenues through our subscription models offering cloud and warranty solutions, and hardware

Resources are allocated and performance is assessed using segment operating income by its Chief Executive Officer,

whom the Company has determined to be its CODM.

The Company’s CODM utilizes segment operating income when making decisions about

allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes.

the Company’s CODM uses operating income, including comparison of actual results to budget and forecast, in assessing the performance

of each segment and in evaluating product pricing, distribution strategies and marketing investments.

The Company’s CODM reviews

balance sheet information at a consolidated level.

The Company computes segment operating income based on net sales revenue, less cost

of goods sold, SG&A, asset impairment charges and restructuring charges.

The SG&A used to compute each segment’s operating

income is directly associated with the segment.

The Company does not allocate non-operating income and expense, including interest or

income taxes, to operating segments.

Company operates in two reportable business segments.

The Video Solutions segment encompasses its law, commercial, and shield divisions.

This segment includes both service and product revenues through its subscription models offering cloud and warranty solutions, and hardware

sales for video and health safety solutions.

The Revenue Cycle Management Segment provides working capital and back-office services to

a variety of healthcare organizations throughout the country, as a monthly service fee.

The 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.

The Entertainment segment includes the Company’s ticketing and live-event operations

and generates both service and product revenues through its TicketSmarter platform and related entertainment brands, acting as an intermediary

between ticket buyers and sellers and also purchasing ticket inventory from primary sources for resale through various channels.

Company’s former Revenue Cycle Management segment, which included Nobility Healthcare, is presented as discontinued operations

in the accompanying condensed consolidated financial statements for all periods presented and is therefore excluded from the segment

information discussed herein.

The Company completed the disposition of Nobility Healthcare on January 8, 2026.

See Note 22, Discontinued

Operations , for additional information.

Company’s corporate administration activities are reported in the corporate line item.

1 unchanged sentence

related to certain corporate officers and support staff, certain accounting staff, expense related to the Company’s Board of Directors,

stock option expense for options granted to corporate administration employees, certain consulting expenses, investor relations activities,

and a portion of the Company’s legal, auditing and professional fee expenses.

Corporate identifiable assets primarily consist of

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 three months ended September 30, 2025,

stock-based compensation expense for awards granted to corporate administration employees, certain consulting expenses, investor relations

activities, and a portion of the Company’s legal, auditing and professional fee expenses.

Identifiable assets are those assets

used by each segment in its operations.

Corporate identifiable assets primarily consist of cash, goodwill, property, plant and equipment,

accounts receivable, inventories, and other assets not directly attributable to the Video Solutions or Entertainment operating segments.

Information - The Company generates revenue solely from domestic customers within the United States.

All of the Company’s

long-lived assets are located within the United States.

Accordingly, no geographic segment information is presented.

financial information for the Company’s reportable business segments is provided for the three months ended March 31, 2026, and

SCHEDULE OF SEGMENT REPORTING

Video Solutions

Entertainment

cycle Management

Corporate and other

Three months ended September 30, 2025

Video Solutions

months ended March 31, 2026

Entertainment

cycle Management

Corporate and other

Net revenues:

6 unchanged sentences

Goodwill and intangible asset impairment charge

General and administrative expense

Total segment operating income (loss)

$ ( 626,250 )

$ ( 795,026 )

( 1,121,782 )

Non-operating (expenses) income:

Interest income

Interest expense

Change in fair value of derivative liabilities

Gain on the extinguishment of liabilities

Gain on extinguishment of debt – related party

Gain on sale of property, plant and equipment

Gain on sale of intangibles

Other non-operating income (loss)

Total non-operating income (loss)

Income before income tax benefit (provision)

$ ( 963,342 )

Depreciation and amortization expense

Total identifiable assets, net of

Video Solutions

Entertainment

cycle Management

Corporate and other

Three months ended September 30, 2024

Video Solutions

Entertainment

cycle Management

Corporate and other

Net revenues:

Total segment net revenues

Less significant segment expenses:

Cost of Revenue - Product

Cost of Revenue – Service and other

Research and development expense

Selling, advertising and promotional expense

Goodwill and intangible asset impairment charge

General and administrative expense

General and administrative

Total segment operating income (loss)

2 unchanged sentences

$ ( 1,296,987 )

$ ( 7,382,299 )

Non-operating (expenses) income:

1 unchanged sentence

Interest expense

Gain on extinguishment of

debt – related party

Change in fair value of derivative liabilities

Other Other income (expense)

Gain on the extinguishment of debt

Loss on extinguishment of debt

Gain on sale of property, plant and equipment

Total non-operating income (loss)

Loss before income tax benefit (provision)

Gain on the extinguishment

of liabilities

Other non-operating income

Total non-operating income

Income before income

tax benefit (provision)

$ ( 1,513,727 )

Depreciation and amortization expense

Total identifiable assets, net of eliminations

financial information for the Company’s reportable business segments is provided for the nine months ended September 30, 2025,

Video Solutions

Entertainment

cycle Management

Corporate and other

Nine months ended September 30, 2025

Video Solutions

Depreciation and amortization

Total identifiable assets,

months ended March 31, 2025

Entertainment

cycle Management

Corporate and other

Net revenues:

Total segment net revenues

Less significant segment expenses:

Less significant segment expense

Cost of Revenue - Product

2 unchanged sentences

Selling, advertising and promotional expense

General and administrative expense

Total segment operating income (loss)

General and administrative

Total segment operating

income (loss)

$ ( 304,578 )

4 unchanged sentences

Interest expense

Gain on extinguishment of debt – related

Change in fair value of derivative liabilities

Gain on the extinguishment of liabilities

Gain on extinguishment of debt – related party

Other non-operating income (loss)

Total non-operating income (loss)

Income before income tax benefit (provision)

$ ( 1,185,464 )

Depreciation and amortization expense

Total identifiable assets, net of eliminations

Video Solutions

Other non-operating income

Total non-operating income

Income before income

tax benefit (provision)

Depreciation and amortization

Total identifiable assets,

identifiable assets as of March 31, 2025 included amounts related to the discontinued Revenue Cycle Management segment (Nobility Healthcare),

which were included in the “Corporate and other” category.

Following the disposition of Nobility Healthcare on January 8,

2026, no discontinued operations assets are included in identifiable assets as of March 31, 2026.

See Note 22, Discontinued Operations ,

for additional information.

segments recorded non-cash items affecting gross profit and operating income (loss) through the establishment of inventory reserves based

on estimates of excess and/or obsolete current and non-current inventory.

The Company recorded a reserve for excess and obsolete inventory

in the Video Solutions segment of $ 1,751,603 and $ 1,849,124 , and a reserve for the Entertainment segment of $ 71,223 and $ 69,817 , as of

March 31, 2026 and December 31, 2025, respectively.

segment net revenues reported above represent sales to external customers.

Segment gross profit represents net revenues less cost of

Segment operating income (loss), which is used in management’s evaluation of segment performance, represents net revenues,

less cost of revenues, less all operating expenses.

DEFERRED REVENUE

Company recognizes deferred revenue when consideration is received or receivable in advance of the satisfaction of the related performance

Deferred revenue is presented as a current liability to the extent the associated performance obligations are expected to

be satisfied within twelve months of the balance sheet date, and as a non-current liability for the portion expected to be satisfied

Deferred revenue balances arise from the following sources across the Company’s operating segments:

Solutions Segment - Deferred revenue within the Video Solutions segment consists principally of extended warranty contracts, prepaid

cloud-based evidence management and storage subscriptions marketed under the EVO Web and FleetVu platforms, and prepaid installation

Extended warranty and cloud subscription arrangements generally have contractual terms ranging from three to five years.

associated with these arrangements is recognized on a straight-line basis over the respective contract term as the performance obligations

are satisfied.

Entertainment

cycle Management

Corporate and other

Nine months ended September 30, 2024

Video Solutions

Segment - Deferred revenue within the Entertainment segment consists of advance ticket sales associated with the annual Country Stampede

music festival.

Amounts received from consumers for Country Stampede tickets in advance of the festival date are deferred until the performance

obligation is satisfied upon completion of the festival, which generally occurs in the second quarter of the fiscal year.

the three months ended March 31, 2026, the Company recognized $ 914,277 of revenue that was included in the deferred revenue balance as

of December 31, 2025.

Deferred revenue activity for the three months ended March 31, 2026 and the year ended December 31, 2025 was as

SCHEDULE OF DEFERRED REVENUES

Additions/Reclass

Deferred revenue, current

Deferred revenue, non-current

Additions/Reclass

Deferred revenue, current

Deferred revenue, non-current

following table presents the deferred revenue balance as of March 31, 2026, disaggregated by type and operating segment:

OF DEFERRED REVENUE BALANCE DISAGGREGATED BY TYPE AND OPERATING SEGMENT

Entertainment

cycle Management

Corporate and other

Net revenues:

Total segment net revenues

Less significant segment expenses:

Cost of Revenue - Product

Cost of Revenue – Service and other

Cost of Revenue

Research and development expense

Selling, advertising and promotional expense

Goodwill and intangible asset impairment charge

General and administrative expense

( 3,260,740 )

Total segment operating income (loss)

$ ( 1,909,246 )

$ ( 3,987,415 )

Extended warranty contracts

Cloud subscription and evidence management

Prepaid installation services

Advance ticket sales

- Country Stampede

Total deferred revenue

of March 31, 2026, the Company expects to recognize the remaining deferred revenue balance as follows:

REMAINING DEFERRED REVENUE BALANCE

2030 and thereafter

(1) Represents

the twelve-month period from April 1, 2026 through March 31, 2027.

(2) Represents

the nine-month period from April 1, 2027 through December 31, 2027.

DISCONTINUED OPERATIONS

January 8, 2026, Digital Ally Healthcare, Inc., a wholly-owned subsidiary of the Company, completed the sale of its 51 %

membership interest ( 51,000

Units) in Nobility Healthcare to Nobility LLC (the “Buyer”),

an affiliate of the holders of the remaining 49 %

interest, effective January 1, 2026.

The transaction had an effective date of January 1, 2026 for accounting purposes.

Total consideration

stated in the Unit Purchase Agreement was $ 1,450,000 ,

consisting of $ 100,000

in cash paid at closing, $ 209,501

in closing credits applied against pre-existing intercompany

balances, and a promissory note issued by the Buyer with a face value of $ 1,140,499 ,

recorded at its estimated fair value of $ 1,117,303

on the date of disposition using an effective interest rate

The sale resulted in loss of control and deconsolidation of Nobility Healthcare, and Nobility Healthcare has been presented

as a discontinued operation for all periods presented.

the three months ended March 31, 2026, the Company recognized a total loss from discontinued operations of $ 4,371,588 , comprising three

a $ 1,556,254 loss on sale, calculated as the difference between the carrying value of Nobility Healthcare’s net assets and

the consideration exchanged at disposition;

a $ 2,457,415 loss on deconsolidation, representing the write-off of parent-level investment

basis and intercompany balances upon loss of control;

and a $ 357,919 earn-out adjustment to the carrying value of the note receivable,

reflecting a provisional reduction in the contractual principal balance based on post-closing performance of the divested business.

$ 1,556,254 loss on sale was calculated as follows:

OF LOSS ON SALE

Cash received at closing

Initial fair value of promissory note received

Derecognition of non-controlling interest carrying amount

( 1,885,802 )

Net consideration

Carrying amount of Nobility Healthcare’s net assets at disposition (1)

$ ( 1,556,254 )

(1) Amounts may not

sum due to rounding

The $ 2,457,415 loss on deconsolidation

represents the derecognition of parent-level investment basis and intercompany ba lances

that no longer eliminate in consolidation upon loss of control.

These amounts were eliminated in consolidation in prior periods and were

not reflected in prior-period consolidated net income.

$ 357,919 adjustment to the carrying value of the note receivable based on post-closing performance was recognized in connection with

the quarterly earn-out mechanism provided under the promissory note, which applies during the twelve-month measurement period following

the January 8, 2026 issue date.

The adjustment equals 50% of the difference between the annualized cash-basis revenue of Nobility Healthcare

during the measurement period and the $ 5,421,383 baseline 2025 revenue, applied to reduce or increase the outstanding principal of the

Based on preliminary Q1 2026 cash-basis revenue data received from Nobility Healthcare, the Company recorded a provisional principal

reduction of $ 347,220 , reducing the face amount of the note from $ 1,140,499 to $ 793,279 , together with a $ 10,699 adjustment to the unamortized

discount on the note.

The aggregate provisional adjustment of $ 357,919 was recognized within loss from discontinued operations, reducing

the net carrying value of the note from $ 1,138,468 immediately before the adjustment to $ 780,549 at March 31, 2026 (comprising $ 383,909

classified as current and $ 396,640 classified as long-term).

The formal measurement statement is contractually due approximately ten

business days prior to the first installment payment scheduled for July 28, 2026, and the provisional adjustment may be revised upon

receipt of the formal measurement statement.

in the note receivable for the three months ended March 31, 2026 consisted of the following:

OF NOTE RECEIVABLE

Initial fair value at origination (January 8, 2026)

Accretion of original issue discount

Provisional earn-out reduction to principal

Adjustment to unamortized discount on the note

Net carrying value at March 31, 2026

assets and liabilities of Nobility Healthcare were classified as held for sale as of December 31, 2025, in accordance with ASC 205-20.

Following the disposition on January 8, 2026, no held-for-sale assets or liabilities remain as of March 31, 2026.

The following table

summarizes the major classes of assets and liabilities of Nobility Healthcare that were classified as held for sale as of December 31,

SCHEDULE OF ASSETS AND LIABILITIES AS

DISCONTINUED OPERATIONS

Cash and cash equivalents

Accounts receivable, net

Prepaid expenses

Current assets of revenue-cycle

management business held-for-sale

Property, plant, and equipment, net

Goodwill and other intangible assets, net

Operating lease right

of use assets, net

Non-current assets of revenue-cycle

management business held-for-sale

assets held-for-sale

Accounts payable

Accrued expenses

Operating lease obligation

Current liabilities of

revenue-cycle management business held-for-sale

Operating lease obligation

Long-term liabilities of

revenue-cycle management business held-for-sale

liabilities held-for-sale

following table presents the results of Nobility Healthcare included in ‘Income (loss) from discontinued operations, net of tax’

for the three months ended March 31, 2026 and 2025.

Following the sale of Nobility Healthcare on January 8, 2026 (effective January 1,

2026), no operating results from Nobility Healthcare are included for the three months ended March 31, 2026.

The loss from discontinued

operations for the three months ended March 31, 2026 reflects the loss on disposal and provisional earn-out adjustment described above.

INCOME LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

Cost of revenue

Operating expenses

Income from operations

Loss on disposal of Nobility Healthcare

( 4,013,669 )

Non-operating (expenses) income:

Interest income

Interest expense

Provisional earn-out

Other income (expense)

Income tax expense

Net income (loss) from

discontinued operations

$ ( 4,371,588 )

Change in fair value of derivative liabilities

Other Other income (expense)

Gain on the extinguishment of liabilities

Loss on extinguishment of debt

Gain on sale of intangibles

Gain on sale of property, plant and equipment

Total non-operating income (loss)

Loss before income tax benefit (provision)

following table summarizes the cash flows of Nobility Healthcare included in the Company’s condensed consolidated statements of

cash flows within discontinued operations for the three months ended March 31, 2026 and 2025.

For the three months ended March 31, 2026, no operating cash flows from Nobility Healthcare are reported, as the

Company disposed of Nobility Healthcare on January 8, 2026 (effective January 1, 2026), and the loss from discontinued operations for

the period reflects primarily non-cash disposition items.

CASH FLOW CLASSIFIED AS DISCONTINUES OPERATIONS

Cash Flows from Operating Activities:

$ ( 4,371,588 )

Depreciation and amortization expense

Total identifiable assets, net of eliminations

segment net revenues reported above represent sales to external customers.

Segment gross profit represents net revenues less cost of

Segment operating income, which is used in management’s evaluation of segment performance, represents net revenues, less

cost of revenues, less all operating expenses.

Identifiable assets are those assets used by each segment in its operations.

assets primarily consist of cash, property, plant and equipment, accounts receivable, inventories, and other assets.

Adjustments to reconcile

net loss to net cash flows used in operating activities:

Depreciation and amortization

Loss on disposal of

Nobility Healthcare

Provisional earn-out

Provision for doubtful

accounts receivable

Change in operating

assets and liabilities:

(Increase) decrease

Accounts receivable

Prepaid expenses

Operating lease right

of use assets

Increase (decrease)

Accounts payable

Accrued expenses

Income taxes payable

Deferred revenue

lease obligations

cash used in operating activities – discontinued operation

Cash Flows from Investing Activities:

Purchases of leasehold

from improvement allowance

cash used in investing activities – discontinued operation

Cash Flows from Financing Activities:

of contingent consideration promissory notes

Net cash used in financing

activities – discontinued operation

Net decrease in cash, cash equivalents and

restricted cash

Cash and cash equivalents,

beginning of period

Cash and cash equivalents,

end of period

SUBSEQUENT EVENTS

Notifications

October 17, 2025, the Company received notice from Nasdaq that notified the Company that it had regained full compliance with the Minimum

Bid Price Requirement and Stockholders’ Equity Requirement.

The Nasdaq has now placed the Company under a one-year Discretionary

Panel Monitor.

Under the Discretionary Panel Monitor, the Company will not be permitted to request additional time to regain compliance

with any deficiencies that occur within the one-year period regarding noncompliance with the Periodic Filing or Bid Price Rules.

one-year period expires on July 31, 2026 with regard to the Periodic Filing Rules and September 2, 2026 regarding the Bid Price Rules.

Meeting (scheduled)

Company’s annual meeting of stockholders was originally scheduled to occur on November 3, 2025, however it has been postponed pending resolution of the US Government

shutdown including the re-opening of the Securities and Exchange Commission.

The Company’s annual meeting of stockholders will be

held for the following

elect four directors.

ratify the appointment of Victor Mokuolu CPA PLLC as our independent registered public accounting firm;

approve the transactions contemplated by the securities purchase agreement, entered into as of September 15, 2025, by and between the

Company and a certain institutional investor, including, the issuance of 20 % or more of our outstanding shares of our Common Stock, par

value $ 0.001 per share (“Common Stock”) upon (i) conversion of the senior secured convertible notes due September 15, 2026,

and (ii) exercise of the Common Stock Purchase Warrants dated September 15, 2025.

approve the transactions contemplated by the Common Stock purchase agreement, entered into as of September 15, 2025 (the “ELOC

Purchase Agreement”), by and between the Company and a certain institutional investor, including, the issuance of 20 % or more of

our outstanding shares of Common Stock pursuant to the ELOC Purchase Agreement.

approve the amendment to the 2022 Digital Ally, Inc.

Stock Option and Restricted Stock Plan which increases the number of shares reserved

for issuance under such Plan by 375,000 shares of Common Stock;

approve a non-binding advisory proposal to approve the compensation paid to the Company’s named executive officers;

approve a non-binding advisory proposal on the frequency of the stockholder advisory vote on executive compensation;

consider and act upon such other business as may properly come before the Annual Meeting or any adjournment thereof.

Issuance of restricted common stock

7, 2025, the Company issued an aggregate of 171,015 shares of the Company’s common stock to the ELOC Investor (see Note 5) as part

of the 3 % commitment fee owed under the ELOC Purchase Agreement.

The shares were issued in book-entry form as Rule 144 restricted stock

however the Company is expected to file a Registration Statement on Form S-1 to register these shares.

this issuance, the Company’s total shares outstanding increased from 1,727,421 to 1,898,436 .

On April 22, 2026, subsequent to the March 31, 2026 balance sheet date, the Company effected a one-for-five reverse

stock split of its outstanding shares of common stock, reducing the number of outstanding shares from 2,633,063 to 526,860 .

and per-share amounts reflected throughout these condensed consolidated financial statements have been retrospectively adjusted to reflect

the reverse stock split as if it had occurred as of the earliest period presented.

See Note 16, Stockholders’ Equity ,

for additional information.

Sale of Legacy Video Solutions Segment

On April 17, 2026, the Company and Cycurion, Inc.

CYCU) entered into a revised, non-binding Memorandum of

Understanding (the “MOU”) establishing terms for the sale of the Company’s legacy Video Solutions segment to Cycurion for an

aggregate purchase price of $ 5,500,000 , consisting of cash, a secured promissory note, common stock purchase warrants, and a performance-based

earn-out and clawback mechanism.

The parties anticipate closing on or prior to June 30, 2026, subject to completion of definitive documentation,

customary closing conditions, and any necessary regulatory approvals.

There can be no assurance that the transaction will close on the

anticipated timeline or at all.

Committed Equity Financing (ELOC)

to March 31, 2026, the Company exercised its right to direct the ELOC Investor to purchase a total of 50,000 shares of its common stock.

Such ELOC exercises generated gross proceeds of $ 165,140 (net proceeds of $ 161,012 ) to the Company.

As of the date of this filing, the

$ 750,000 commitment fee has been fully satisfied.

There remains approximately $ 22.5 million available under the ELOC Purchase Agreement

for future exercises.

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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