Financial Analysis

NOTE 15. COMMITMENTS AND CONTINGENCIES Litigation. From 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. It is its policy not to disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. 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. Culp McAuley, Inc. et al. On 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 …

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NOTE 10. DEBT OBLIGATIONS Debt obligations is comprised of the following: SCHEDULE OF DEBT OBLIGATIONS December 31, 2025 December 31, 2024 Economic injury disaster loan (EIDL) $ 141,083 $ 144,495 Unsecured Promissory note Entertainment Segment 525,000 2025 Secured Notes 1,070,000 Commercial Extension of Credit- Entertainment Segment 100,000 Merchant Cash Advances Video Solutions Segment 1,922,750 Senior Secured Promissory Notes-Issued November 2024 3,600,000 Total gross principal 1,736,083 5,767,245 Unamortized debt issuance costs (890,716 ) (664,719 ) Debt obligations 845,367 5,102,526 Less: current maturities of debt obligations 707,826 4,961,443 Debt obligations, long-term $ 137,541 $ 141,083 Debt obligations mature on an annual basis as follows as of December 31, 2025: SCHEDULE OF MATURITY OF DEBT OBLIGATIONS Gross Principal Unamortized Discount Net Carrying Value 2026 $ 1,598,542 $ (890,716 ) $ 707,826 2027 3,677 - 3,677 2028 3,817 - 3,817 2029 3,963 - 3,963 2030 and thereafter 126,084 - 126,084 Total $ 1,736,083 $ (890,716 ) $ 845,367 2020 Small Business Administration Notes . On May 12, 2020, the Company received $ 150,000 in loan funding from the SBA under the Economic Injury Disaster Loan (EIDL) program administered by the SBA, which program was expanded pursuant to the recently enacted CARES Act. The EIDL is evidenced by a secured promissory note, dated May 8, 2020, in the original principal amount of $ 150,000 with the SBA, the lender. Under the terms of the note i …

DebtDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 16. STOCK-BASED COMPENSATION The Company recorded pre-tax compensation expense related to the grant of stock options and restricted stock issued of $ 39,622 and $ 128,519 for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, the Company has adopted various stock option and restricted stock plans which are referred to as the Plans. The Company registers all shares of common stock that are issuable under its Plans with the SEC. A total of 125,021 shares remain available for awards under the various Plans as of December 31, 2025. Stock option grants. The Company believes that award of stock options better align the interests of our employees with those of its stockholders. Option awards have been granted with an exercise price equal to the market price of its stock at the date of grant with such option awards which generally vest based on the completion of continuous service and have ten-year contractual terms. These option awards typically provide for accelerated vesting if there is a change in control (as defined in the Plans). The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model. Activity involving the award of stock options during the years ended December 31, 2025 and 2024 is reflected in the following table: SCHEDULE OF STOCK OPTIONS OUTSTANDING Options Number of Shares Weighted Average Exercise Price Outstanding at January 1, 2025 9 $ 270,840 Granted Exercised Forfeited Outs …

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NOTE 11. FAIR VALUE MEASUREMENT In 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 business. ASC 820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: Level 1 Quoted prices in active markets for identical assets and liabilities Level 2 Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities) Level 3 Significant unobservable inputs (including the Companys own assumptions in determining the fair value) The following table represents the Companys hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025 and December 31, 2024: SCHEDULE OF FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON RECURRING BASIS December 31, 2025 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ $ $ 852,844 $ 852,844 $ $ $ 852,844 $ 852,844 December 31, 2024 Level 1 Level 2 Level 3 Total Liabilities: Warrant derivative liabilities $ $ $ 4,554,640 $ 4,554,640 $ $ $ 4,554,640 $ 4,554,6 …

FairValueDisclosuresTextBlock · excerpt; the full note is in the filing

NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consisted of the following as of December 31, 2025 and December 31, 2024: SCHEDULE OF INTANGIBLE ASSETS December 31, 2025 Gross value Accumulated amortization Accumulated impairment Net carrying value Amortized intangible assets: Patents and trademarks (video solutions segment) $ 224,851 $ 187,350 $ $ 37,501 Sponsorship agreement network (entertainment segment) 5,600,000 4,853,333 746,667 SEO content (entertainment segment) 600,000 600,000 Personal seat licenses (entertainment segment) 117,339 16,949 100,390 Website enhancements (entertainment segment) 54,908 23,383 31,525 6,597,098 5,681,015 746,667 169,416 Indefinite life intangible assets: Goodwill (Entertainment segment) 6,112,507 1,735,000 4,377,507 Trade name and trademarks (entertainment segment) 900,000 560,000 340,000 Patents and trademarks pending (video solutions segment) 144,710 144,710 Total $ 13,754,315 $ 5,681,015 $ 3,041,667 $ 5,031,633 December 31, 2024 Gross value Accumulated amortization Accumulated impairment Net carrying value Amortized intangible assets: Patents and trademarks (video solutions segment) $ 483,521 $ 377,459 $ $ 106,062 Sponsorship agreement network (entertainment segment) 5,600,000 3,733,333 1,866,667 SEO content (entertainment segment) 600,000 500,000 100,000 Personal seat licenses (entertainment segment) 117,339 13,037 104,302 Software 23,653 23,653 Website enhancements (entertainment segment) 35,900 9,833 26,067 6,860,413 4, …

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NOTE 13. INCOME TAXES The components of income tax provision (benefit) for the years ended December 31, 2025 and 2024 are as follows: SCHEDULE OF COMPONENTS OF INCOME TAX PROVISION (BENEFIT) 2025 2024 Current taxes: Federal $ $ State Total current taxes Deferred tax provision (benefit) Income tax provision (benefit) $ $ Allocated to: Continuing operations $ $ Discontinued operations Total $ $ A reconciliation of the income tax (provision) benefit at the statutory rate of 21% for the years ended December 31, 2025, and 2024 to the Companys effective tax rate is as follows: SCHEDULE OF RECONCILIATION OF INCOME TAX (PROVISION) BENEFIT 2025 2024 U.S. Statutory tax rate 21.0 % 21.0 % State taxes, net of Federal benefit 6.0 % 6.0 % Change in valuation reserve on deferred tax assets (28.0 )% (21.6 )% Non allowable expenses and excludable income (0.3 )% % Expiring net operating loss and tax credit carryforwards (2.2 )% % Other, net 3.5 % (5.4 )% Income tax (provision) benefit % % The effective tax rate for the years ended December 31, 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 December 31, 2025, primarily because of the current year operating losses. Significant components of the Companys deferred tax assets (liabilities) as of December 31, 2025 and 2024 are …

IncomeTaxDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 14. OPERATING LEASE On May 8, 2025, the Company entered into an operating lease with a third party for a warehouse and office used by the Entertainment segment. The lease has a five 5 -year term expiring in May 2030 and provides for base monthly rent of $ 16,035 , subject to annual increases of 2.5%, with May 2025 rent prorated. The Company prepaid one year of rent, real estate taxes, and insurance totaling $ 247,105 , which is applied to the first and final six months of the lease term, and also provided a $ 20,000 security deposit. The lease is structured as a triple-net lease, under which the Company is responsible for all real estate taxes, insurance, utilities, and other operating costs associated with the premises; real estate taxes for the period from lease commencement through December 31, 2025 were approximately $ 3,748 per month and insurance costs were approximately $ 432 per month, both subject to annual adjustment. The lease includes renewal options and an option to purchase the property after the 33rd month of the lease term. As of December 31, 2025, the remaining lease term was approximately 52 months. In October 2023, the Company entered into an operating lease with a third party for copiers used for office and warehouse purposes. The lease originally provided for 48 monthly payments of $ 1,786 with a scheduled maturity in October 2027 and included an option to purchase the equipment at fair market value at maturity. The lease was terminated effective Dec …

LesseeOperatingLeasesTextBlock · excerpt; the full note is in the filing

New Accounting Standards Recently 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 consolidated financial statements. The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Companys consolidated financial statements. See Note 22, Operating Segments, for more information. 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 became effective for the Companys consolidated financial statements as of and for the year ended December 31, 2025. The guidance is required to be applied on a prospective …

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NOTE 19. RELATED PARTY TRANSACTIONS Transactions with Related Party of TicketSmarter Note payable related party is comprised of the following: SCHEDULE OF NOTE PAYABLE RELATED PARTY December 31, 2025 December 31, 2024 Note payable related party $ 2,000,000 $ 2,840,000 Unamortized discount (1,599,890 ) Debt obligations 400,110 2,840,000 Less: current maturities of note payable-related party 2,840,000 Note payable -related party, long-term $ 400,110 $ Accrued interest related party was $ 0 and $ 492,176 at December 31, 2025 and 2024, respectively. Debt obligations mature on an annual basis as follows as of December 31, 2025: SCHEDULE OF MATURITY DEBT OBLIGATIONS Gross Principal Unamortized Discount Net Carrying Value 2026 $ $ $ 2027 2028 2029 2030 and thereafter 2,000,000 (1,599,890 ) 400,110 Total $ 2,000,000 $ (1,599,890 ) $ 400,110 Original Loan and Amendments On September 22, 2023 and October 2, 2023, a trust (the Goodman Trust), the beneficiaries of which are an officer of TicketSmarter, Inc. (TicketSmarter) and his spouse, advanced a total of $ 2,700,000 to TicketSmarter to resolve outstanding payables at discounted rates. The officer serves as CEO of TicketSmarter and continues in that capacity as of December 31, 2025. The officer has no role at the parent company and is not an officer or director of Kustom Entertainment, Inc. The note originally bore interest at 13.25 % per annum with weekly principal payments of $ 54,000 beginning January 2, 2024. The proceeds were use …

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NOTE 22. OPERATING SEGMENTS The Company adopted ASU 2023-07 in 2024 and applied the amendment retrospectively to all periods presented in the Companys consolidated financial statements. Segment financial information is prepared in accordance with GAAP and its significant accounting policies described in Note 1. Resources are allocated and performance is assessed using segment operating income by its Chief Executive Officer, whom the Company have determined to be its Chief Operating Decision Maker (CODM). The Companys CODM utilizes segment operating income when making decisions about allocating capital and personnel to the segments, predominantly in the annual budget and quarterly forecasting processes. In addition, the Companys 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 Companys 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 segments operating income is directly associated with the segment. The Company does not allocate non-operating income and expense, including interest or income taxes, to operating segments. As a result of the sale of its Revenue Cycle Management segment, the Company n …

SegmentReportingDisclosureTextBlock · excerpt; the full note is in the filing

NOTE 18 - STOCKHOLDERS EQUITY 2025 Senior Secured Convertible Notes In September and December 2025, the Company issued Senior Secured Convertible Notes with detachable warrants in two closings. For a full description of the terms, proceeds allocation, and warrant valuation, see Note 10, Debt Obligations, and Note 17, Common Stock Purchase Warrants. Committed Equity Financing (ELOC) On 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. There have been no draws under the ELOC facility as of December 31, 2025. In connection with the ELOC Purchase Agreement, the Company agreed to pay a total commitment fee of 3 % of the $ 25 million facility or a total of $ 750,000 . In that regard, the Company issued a total of 114,010 common shares valued at $ 227,792 during 2025. The remaining commitment fee of $ 522,208 will be paid through the issuance of additional common shares or through deductions from future cash proceeds from ELOC draws under the facility. February 2025 Public Equity Offering On February …

StockholdersEquityNoteDisclosureTextBlock · excerpt; the full note is in the filing

Note 25. SUBSEQUENT EVENTS Committed Equity Financing (ELOC) Subsequent to December 31, 2025, the Company has exercised its right to direct the ELOC Investor to purchase a total of 1,385,000 shares of its common stock. Such ELOC exercises generated gross proceeds of $ 2,306,532 (net proceeds of $ 1,726,661 ) to the Company. As of the date of this filing, the $ 750,000 commitment fee has been fully satisfied. There remains approximately $ 22,693,468 available under the ELOC Purchase Agreement for future exercises. 2025 Senior Secured Convertible Notes Subsequent to December 31, 2025, the institutional investor exercised its right to convert $ 1,070,000 of the outstanding balance of the Senior Secured Convertible Notes into 558,041 shares of the Companys common stock. There are no remaining balances under the Senior Secured Convertible Notes after consideration of such conversions. Corporate Name Change Effective as of 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 on January 8, 2026. The name change became effective on January 8, 2026, and the Company began trading on the Nasdaq Capital Market under its new corporate name at the start of trading on January 8, 2026, concurrently with the change of its Nasdaq trading symbol from DGLY to KUST. The name change and trading symbol change did not af …

SubsequentEventsTextBlock · excerpt; the full note is in the filing