Kustom Entertainment (Nasdaq: KUST) exits video business in $6.1M Cycurion deal

Rhea-AI Filing Summary

Kustom Entertainment, Inc. completed a $6.1 million divestiture of its legacy video solutions business to Cycurion, Inc., closing on August 3, 2026. Consideration includes $1,250,000 in cash, a $4,250,000 secured promissory note bearing 7% interest over three years, a symmetrical earn‑out and clawback of up to $1,000,000 tied to 2026–2027 revenue targets, and Cycurion Series H Convertible Preferred Stock with $600,000 stated value, paying 12.0% cumulative dividends and convertible at $1.45 per share subject to a 9.99% beneficial ownership cap.

The sale transfers substantially all video‑solutions assets and specified liabilities, completing Kustom’s shift to a pure‑play live entertainment and ticketing platform focused on large‑scale music festivals and proprietary ticketing technology. Pro forma as of March 31, 2026, total assets are $16.37 million and stockholders’ equity is $9.26 million, with continuing operations centered on live events and ticketing rather than hardware and software video solutions.

Filing Explained

Closing delivered $1.25 million cash, a $4.25 million secured note, and Cycurion preferred stock, so immediate cash is only one component.

The Form 8-K reports that Kustom completed the video-solutions asset sale on August 3, 2026. The disclosed consideration is $1.25 million in cash, a $4.25 million secured note, contingent earn-out or clawback amounts, and $600,000 of Cycurion preferred stock.

The release calls the preferred equity “non-dilutive” capital for Kustom shareholders, but the filing gives it an option to convert into Cycurion common stock and requires dividends to be paid in Cycurion common stock. The filing therefore describes a completed transfer and issued buyer securities, not an identified issuance of KUST common stock for the sale.

The pro forma balance sheet models $2.47 million of cash, $4.63 million of notes receivable, and a $305,000 preliminary fair value for the Cycurion preferred stock as of March 31, 2026; these are different from immediate cash proceeds. Separately, the ELOC amendment makes the purchase maximum subject to the investor’s beneficial-ownership limitation and permits Kustom to direct additional purchases if the investor sells during the valuation period, so that provision establishes conditional capacity rather than a reported issuance.

8-K Event Classification

4 items: 1.01, 2.01, 8.01, 9.01

4 items

Item 1.01 Entry into a Material Definitive Agreement Business

The company signed a significant contract such as a merger agreement, credit facility, or major partnership.

Item 2.01 Completion of Acquisition or Disposition of Assets Financial

The company completed a significant acquisition or sale of business assets.

Item 8.01 Other Events Other

Voluntary disclosure of events the company deems important to shareholders but not covered by other items.

Item 9.01 Financial Statements and Exhibits Exhibits

Financial statements, pro forma financial information, and exhibit attachments filed with this report.

Key Figures

Divestiture value: $6.1 million Cash consideration: $1,250,000 Secured promissory note: $4,250,000 +5 more

8 metrics

Divestiture value $6.1 million Aggregate consideration for sale of legacy video solutions business to Cycurion

Cash consideration $1,250,000 Cash paid to Kustom, including $250,000 non-refundable extension payment

Secured promissory note $4,250,000 Principal of 7% three-year secured note issued by Cycurion

Earn-out and clawback cap $1,000,000 Maximum aggregate earn-out or purchase price reduction based on 2026–2027 revenue

Series H stated value $600,000 Aggregate stated value of Cycurion Series H Convertible Preferred Stock issued

Series H dividend rate 12.0% per annum Cumulative dividend on Series H Preferred, payable quarterly in Cycurion common stock

Series H conversion price $1.45 per share Conversion price of Series H Preferred into Cycurion common stock

Pro forma total assets $16,366,122 Kustom pro forma total assets as of March 31, 2026 after the divestiture

Key Terms

earn-out and clawback arrangement, beneficial ownership limitation, leak-out agreement, warrant derivative liabilities, +1 more

5 terms

earn-out and clawback arrangement financial

"A symmetrical earn-out and clawback arrangement based on the post-closing revenue"

beneficial ownership limitation financial

"convertible at the holder’s option at $1.45 per share, subject to a 9.99% beneficial ownership limitation"

A beneficial ownership limitation is a rule that caps the percentage of a company’s shares an investor can be treated as owning or controlling for voting, regulatory or tax purposes. It matters to investors because it can restrict how many shares a person or group can buy or vote, affect takeover chances, and influence share liquidity and value — like a speed limit that prevents any single driver from taking over the whole road.

leak-out agreement financial

"entered into a leak-out agreement, dated August 3, 2026, which governs the disposition of shares"

A leak-out agreement is a contract that lets a company share sensitive, non-public information with a limited set of outsiders under strict rules, effectively permitting a controlled ‘leak’ rather than broad disclosure. For investors this matters because it can speed up deal discussions or partner searches while setting who sees critical information, influencing the fairness of a process, potential stock-price reactions, and the risk of confidential information reaching the market prematurely.

warrant derivative liabilities financial

"Change in fair value of warrant derivative liabilities"

Warrant derivative liabilities are financial claims that give someone the right to buy a company’s stock under terms that require the company to settle in cash or otherwise behave like a bet whose value moves with the share price. They show up on the balance sheet as a liability because the company may owe cash if the warrants are exercised or revalued, and changes in their value flow through earnings. Investors care because these instruments can create earnings volatility and potential cash outflows, and they signal future dilution risk to shareholders similar to having a standing IOU tied to the stock price.

unaudited pro forma condensed consolidated financial statements financial

"The unaudited pro forma condensed consolidated balance sheet of the Company"

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FAQ

What business did Kustom Entertainment (KUST) sell to Cycurion and for how much?

Kustom Entertainment sold substantially all assets of its legacy video solutions business to Cycurion in a transaction described as totaling $6.1 million, marking a full exit from video hardware, camera products, platforms, software and related services.

What are the main consideration components in the KUST–Cycurion divestiture?

The deal consideration includes $1,250,000 cash, a $4,250,000 secured promissory note, a symmetrical earn‑out and clawback of up to $1,000,000, and Cycurion Series H Convertible Preferred Stock with $600,000 stated value and a 12.0% cumulative dividend.

How does the secured promissory note from Cycurion to Kustom Entertainment (KUST) work?

Cycurion issued Kustom a $4,250,000 secured promissory note bearing 7% annual interest for three years, with interest‑only payments for six months followed by 30 monthly principal‑and‑interest installments. The note is secured by the acquired assets and can be prepaid without penalty.

What are the key terms of the Series H Preferred Stock KUST received from Cycurion?

Kustom received Cycurion Series H Preferred with $600,000 stated value, a 12.0% cumulative dividend payable in Cycurion stock, and a $1.45 conversion price. Conversion is subject to anti‑dilution protections and a 9.99% beneficial ownership limitation, plus liquidation preference and registration rights.

How did the divestiture affect Kustom Entertainment’s (KUST) pro forma balance sheet?

Pro forma as of March 31, 2026, Kustom shows $16,366,122 in total assets and $9,262,476 in stockholders’ equity. Adjustments reflect removal of video‑solutions assets and liabilities and recognition of $1,250,000 cash, the $4,250,000 note, and the Cycurion Series H investment.

What is Kustom Entertainment’s (KUST) strategic focus after the Cycurion transaction?

After closing, Kustom focuses entirely on live entertainment and ticketing, including expanding its Country Stampede festival to 35,000 fans per show in 2027, building a pipeline of over 20 planned live event days, and rolling out its proprietary end‑to‑end ticketing platform.

What do the pro forma results show for Kustom Entertainment (KUST) after the sale?

On a pro forma basis, 2025 revenue is $8,653,398 with a continuing‑operations net loss of $5,352,352. For the quarter ended March 31, 2026, revenue is $3,205,757 and the continuing‑operations net loss is $1,246,682, reflecting a smaller, focused live‑entertainment business.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 4, 2026 (August 3, 2026)

KUSTOM ENTERTAINMENT, INC.

(Exact Name of Registrant as Specified in Charter)

Nevada		001-33899		20-0064269
(State or other Jurisdiction		(Commission		(IRS Employer
of Incorporation)		File Number)		Identification No.)

6366 College Blvd., Overland Park, KS 66211

(Address of Principal Executive Offices) (Zip Code)

(913) 814-7774

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 par value per share		KUST		The Nasdaq Capital Market LLC

Item 1.01. Entry into a Material Definitive Agreement.

Acquisition

As previously disclosed, on June 24, 2026, Kustom Entertainment, Inc. (the “Company”), entered into an Asset Purchase Agreement (the “Agreement”) with Cycurion, Inc., a Delaware corporation (“Buyer”, together with the Company, the “Parties”), as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (the “Amendment”, and together with the “Acquisition Agreement”). The transaction closed on August 3, 2026. Pursuant to the Acquisition Agreement, the Company sold to Buyer all assets of the Company relating to the video-solutions division, including the development, sale, licensing, support and servicing of video hardware, camera products, platforms, software and software solutions (the “Business”). The Company delivered to Buyer all of the Company’s right, title and interest in all assets, claims, rights and interests used primarily in or held for the use of the Business (the “Acquired Assets”). In consideration for the sale, assignment and delivery of the Acquired Assets and in consideration of the other agreements contained in Acquisition Agreement, Buyer will pay to the Company an aggregate consideration consisting of: (i) a cash payment of One Million Two Hundred Fifty Thousand Dollars ($1,250,000.00), (ii) a Secured Promissory Note in the original principal amount of Four Million Two Hundred Fifty Thousand Dollars ($4,250,000), (iii) contingent cash consideration of up to One Million Dollars ($1,000,000) payable solely upon satisfaction of the applicable earnout conditions set forth herein and in the Earnout Agreement (as defined in the Acquisition Agreement), and (iv) shares of Buyer’s Series H Convertible Preferred Stock having an aggregate stated value of Six Hundred Thousand Dollars ($600,000), issued pursuant to the Amendment in replacement of the warrants originally contemplated by the Agreement, which were cancelled.

In connection with the Acquisition Agreement, the Parties entered into a secured promissory note (the “Note”), pursuant to which the Buyer issued to the Company a Note in the original principal amount of $4,250,000 in partial consideration for the acquisition. The Note is secured in accordance with the terms of the Security Agreement described below.

The Parties entered into a security agreement, dated August 3, 2026 (the “Security Agreement”) pursuant to which the Company was granted a security interest in the Acquired Assets of the Company as security for the obligations under the Note.

The Parties also entered into a registration rights agreement, dated August 3, 2026 (the “Registration Rights Agreement”), pursuant to which Seller agreed to register for resale the shares of common stock issuable upon conversion of the Series H Preferred Stock (the “Series H Preferred Stock”), subject to the terms thereof. Seller agreed to file and maintain an effective registration statement covering such shares in accordance with the requirements set forth in the Registration Rights Agreement.

The Parties also entered into an earnout and clawback agreement, dated August 3, 2026 (the “Earnout and Clawback Agreement), which establishes the Company’s right to receive contingent earnout payments of up to $1,000,000 based upon the future performance of the Business and providing for certain clawback provisions and adjustment mechanisms.

The Parties also entered into a leak-out agreement, dated August 3, 2026, (the “Leak-Out Agreement”), which governs the disposition of shares of common stock issued upon conversion of the Series H Preferred Stock or payment of dividends thereon. The Leak-Out Agreement generally limits sales by the Company and its affiliates during the applicable leak-out period based on a percentage of daily trading volume.

The foregoing description of the Note, the Security Agreement and the Registration Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the full texts of the Note, the Security Agreement and the Registration Rights Agreement, the forms of which are filed as Exhibits 10.1, 10.2, and 10.3, to this Current Report on Form 8-K and is incorporated herein by reference.

Common Stock Purchase Agreement Amendment

On August 3, 2026, the Company entered into the Second Amendment to Common Stock Purchase Agreement (the “Amendment”), dated as of September 15, 2025, as amended (the “Purchase Agreement”), with a certain investor (the “Investor”), pursuant to which the definition of ELOC Purchase Maximum Amount was amended to mean a number of shares equal to the Beneficial Ownership Limitation (as defined in the Purchase Agreement); provided however, if the Investor sells shares of Common Stock during the ELOC Purchase Valuation Period, then the Company may direct the Investor to purchase additional shares of Common Stock subject to the Beneficial Ownership Limitation.

The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the Amendment, the form of which is filed as Exhibits 10.4, to this Current Report on Form 8-K and is incorporated herein by reference.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On August 3, 2026, the Company completed the disposition of substantially all of the Acquired Assets pursuant to the Acquisition Agreement described in Item 1.01 above, which description is incorporated herein by reference.

Accordingly, pro forma financial information required by Item 9.01 of Form 8-K with respect to the disposition is included as Exhibit 99.1, to this Current Report on Form 8-K.

Item 8.01 Other Events

On August 3, 2026, the Company issued a press release announcing the completion of the transaction, a copy of which is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits.

(b) Pro Forma Financial Information.

The unaudited pro forma condensed consolidated balance sheet of the Company as of March 31, 2026, and the unaudited pro forma condensed consolidated statements of operations for the three months ended March 30, 2026 and for the year ended December 31, 2025, are attached hereto as Exhibit 99.2 and incorporated herein by reference. These unaudited pro forma financial statements give effect to the sale to Cycurion on the basis, and subject to the assumptions, set forth in accordance with Article 11 of Regulation S-X.

(d) Exhibits

See the Exhibit Index below, which is incorporated by reference herein.

Exhibit No.		Description
10.1		Secured Promissory Note, dated August 3, 2026.
10.2		Security Agreement, dated August 3, 2026, by and between Kustom Entertainment, Inc. and Cycurion, Inc.
10.3		Registration Rights Agreement, dated August 3, 2026, by and between Kustom Entertainment, Inc. and Cycurion, Inc.
10.4		Form of Second Amendment to Common Stock Purchase Agreement between Kustom Entertainment, Inc. and a certain Purchaser, dated August 3, 2026.
99.1		Press Release dated August 4, 2026.
99.2		Unaudited Pro Forma Financial Information of Kustom Entertainment, Inc.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 4, 2026
Kustom Entertainment, Inc.
By:	/s/ Stanton E. Ross
Name:	Stanton E. Ross
Title:	Chairman, President and Chief Executive Officer

Exhibit 99.1

FOR IMMEDIATE RELEASE

Kustom Entertainment Closes $6.1 Million Divestiture of Legacy Video Solutions Business to Cycurion

Completes strategic transformation into a pure-play live entertainment and ticketing technology company; Secures $1.25M upfront cash, $4.25M secured promissory note, and $600,000 in 12% yielding Preferred Equity.

OVERLAND PARK, KS – August 4, 2026 – Kustom Entertainment, Inc. (Nasdaq: KUST) (“Kustom” or the “Company”), an emerging force in live music festival production and proprietary ticketing operations, today announced the successful closing of its previously announced divestiture of its legacy video solutions business assets to Cycurion, Inc. (Nasdaq: CYCU) (“Cycurion”).

The transaction was completed on August 3, 2026, in accordance with the amended terms executed under the Amendment No. 1 and Forbearance / Extension Agreement to the Asset Purchase Agreement.

With the closing of this $6.1 million transaction, Kustom successfully completes its strategic pivot to become a pure-play live entertainment powerhouse. The Company will now focus 100% of its corporate resources and capital on expanding its premier festival footprint, advancing its proprietary ticketing technology platforms, and accelerating revenue growth under the ticker symbol “KUST”.

Key Transaction Terms & Financial Summary

The closed divestiture transaction includes the following final terms:

	●	$1.25 Million Upfront Cash Consideration: Includes the $250,000 non-refundable cash payment delivered at amendment signing, providing immediate balance sheet liquidity.
	●	$4.25 Million Secured Promissory Note: A 36-month note bearing 7.0% annual interest, delivering recurring debt service cash flow to Kustom.

● $600,000 High-Yield Series H Preferred Stock: Issued by Cycurion in lieu of previously structured warrants, featuring:

	○	12.0% Annual Cumulative Dividend: Payable quarterly in shares of Cycurion common stock.
	○	$1.45 Conversion Price: Convertible into common stock with customary anti-dilution protections.
	○	Institutional Protections: Includes senior liquidation preferences, class voting rights, and registration rights.

Executive Leadership Perspective

“Closing this divestiture marks a historic milestone for Kustom Entertainment,” said Stanton E. Ross, CEO of Kustom Entertainment. “By finalizing this upgraded $6.1 million agreement with Cycurion, we have strengthened our balance sheet, eliminated legacy operational overhead, and secured non-dilutive, yield-bearing capital for our shareholders.

“More importantly, this transaction marks the official completion of our transition into a pure-play live entertainment engine. With our legacy video division successfully transferred, we now have the ideal platform to rapidly expand our business—both organically and through targeted strategic acquisitions. Our team is laser-focused on scaling our live event experiences, deepening venue partnerships, and executing on our high-margin ticketing software roadmap across the $100 billion live event industry.”

Strategic Focus on the $100 Billion Live Entertainment Market

With the divestiture closed, Kustom operates a streamlined, high-margin structure built to capture market share across large-scale live music and festival operations:

	●	Country Stampede Expansion: Following the 30th Anniversary of its flagship Country Stampede Music Festival in June 2026, Kustom is expanding the event to Gilley’s Park City in Park City, KS (Wichita metro area) for 2027—doubling capacity to 35,000 fans per show.
	●	Event Pipeline: Country Stampede serves as the anchor for more than 20 planned live event days across 2026 and 2027.
	●	Proprietary Ticketing Platform: Kustom continues to roll out its end-to-end ticketing technology, capturing transactional economics across the full live event lifecycle.

About Kustom Entertainment, Inc.

Kustom Entertainment, Inc. (Nasdaq: KUST) is an emerging leader in live event production and entertainment ticketing technology. The Company specializes in large-scale music festivals and end-to-end event management solutions. By leveraging proprietary ticketing platforms and premier venue partnerships, Kustom is dedicated to driving high-margin monetization across the entire live event lifecycle—from the initial ticket sale to the final encore. For more information, visit www.kustom440.com.

Forward-Looking Statements

Statements made in this press release that are not descriptions of historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on management’s current expectations and assumptions. These statements are identified by words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar expressions. Forward-looking statements involve known and unknown risks and uncertainties that could cause actual results to differ materially, including: (i) the risk that integration or transition operations encounter unexpected challenges; (ii) the risk that the Company’s stock price may fluctuate or decline; (iii) the risk that disruptions from the transaction will harm the Company’s business, including current plans and operations; (iv) the diversion of management’s time and attention from ordinary course business operations; (v) market demand for live event ticketing platforms; (vi) general economic conditions; and, the risks described in the Company’s annual and quarterly filings with the U.S. Securities and Exchange Commission. Kustom undertakes no duty to update these forward-looking statements except as required by law.

Media & Investor Contacts

Stanton E. Ross, CEO

Kustom Entertainment, Inc.

Phone: (913) 456-KUST (5878)

Email: info@kustoment.com

Websites: www.kustoment.com | www.kustom440.com | www.countrystampede.com

Exhibit 99.2

Unaudited Pro Forma Condensed Consolidated Financial Statements

On August 3, 2026, Kustom Entertainment, Inc. (the “Company,” formerly Digital Ally, Inc.) closed an Asset Purchase Agreement (the “Agreement”) with Cycurion, Inc., a Delaware corporation (“Cycurion”), whereby the Company agreed to sell and convey certain assets, and transfer certain liabilities, of its video solutions business (the “Video Solutions Business”), which develops, sells, licenses, supports and services video hardware, camera products, software and related solutions for law enforcement, public safety and commercial customers, to Cycurion. The transaction was structured as a sale of specific assets and an assumption of specified liabilities rather than a sale of a subsidiary; accordingly, no legal entity or equity interest was transferred. The Agreement was entered into on June 24, 2026, and was amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (the “Amendment”), and the transaction closed on August 3, 2026, with an effective date of June 30, 2026.

Under the Agreement, as amended, the Company agreed to sell and Cycurion agreed to purchase the Acquired Assets (as defined in the Agreement), and Cycurion agreed to assume certain specified liabilities, for the consideration and on the terms and conditions provided for in the Agreement, as amended. The transfer of the Acquired Assets and the assumption of the assumed liabilities are deemed to occur as of 11:59 p.m., New York time, on June 30, 2026. The Agreement, as amended, provides for the following consideration and principal terms:

●	A cash payment of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) paid to the Company, inclusive of the $250,000 non-refundable extension payment received on July 27, 2026 upon execution of the Amendment, which was credited against the aggregate purchase price at Closing.
●	A secured promissory note issued by the Buyer in the principal amount of Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) (the “Note”), bearing interest at 7% per annum, , for a term of three (3) years, with interest-only payments during the first six months followed by thirty (30) monthly installments of principal and interest, maturing three years from closing. The Note is secured by the assets acquired in the transaction and may be prepaid without penalty.
●	A symmetrical earn-out and clawback arrangement based on the post-closing revenue of the Video Solutions Business for the fiscal years ending December 31, 2026 and December 31, 2027. The Company may receive earn-out payments if revenue exceeds the applicable annual target ($5,500,000 for 2026 and $5,800,000 for 2027), and may be subject to a clawback (a reduction of the purchase price) if revenue falls more than 20% below target. The earn-out and clawback are each capped at $500,000 per year and $1,000,000 in the aggregate.
●	Series H Preferred Stock of Cycurion with an aggregate stated value of $600,000, issued pursuant to the Amendment in replacement of the two million (2,000,000) warrants originally contemplated by the Agreement, which were cancelled. The Series H Preferred Stock accrues cumulative dividends of 12.0% per annum payable quarterly in shares of Cycurion common stock, and is convertible at the holder’s option at $1.45 per share, subject to anti-dilution adjustments and a 9.99% beneficial ownership limitation. The Series H Preferred Stock carries a liquidation preference of stated value plus accrued dividends, class voting protections, registration rights for the underlying common shares, and a twelve (12) month leak-out on resales.

The following unaudited pro forma condensed consolidated financial statements (“Unaudited Pro Forma Statements”) and explanatory notes are based on the Company’s historical condensed consolidated financial statements adjusted to give effect to the sale of the Video Solutions Business. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2026 and for the year ended December 31, 2025 have been prepared with the assumption that the sale of the Video Solutions Business occurred as of January 1, 2025. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2026 has been prepared with the assumption that the sale of the Video Solutions Business was completed as of the balance sheet date. The Unaudited Pro Forma Statements have been prepared by the Company based on assumptions deemed appropriate by the Company’s management. An explanation of pro forma adjustments is set forth in the notes hereto.

The Unaudited Pro Forma Statements are presented for illustrative purposes only and do not necessarily reflect what the Company’s financial condition or results of operations would have been had the sale of the Video Solutions Business occurred on the date indicated. Additionally, the Unaudited Pro Forma Statements do not purport to project the future financial condition or results of operations of the Company.

The Unaudited Pro Forma Statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, as well as the Company’s unaudited condensed consolidated financial statements and notes thereto included in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2026.

KUSTOM ENTERTAINMENT, INC.

(formerly Digital Ally, Inc.)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2026

(unaudited)

		Historical Kustom Entertainment, Inc.				Disposition of Video Solutions Business (a)				Other Adjustments (b)				Pro Forma Kustom Entertainment, Inc.
ASSETS
Current Assets:
Cash and cash equivalents		$	1,224,321			$	—			$	1,250,000			$	2,474,321
Accounts receivable			326,278				(243,230	)			—				83,048
Subscriptions receivable			3,035,465				(3,035,465	)			—				—
Other receivables			292,601				—				—				292,601
Notes receivable			383,909				—				4,250,000				4,633,909
Inventories, net			2,148,228				(2,023,259	)			—				124,969
Prepaid expenses			1,987,805				(339,729	)			—				1,648,076
Total current assets			9,398,607				(5,641,683	)			5,500,000				9,256,924
Property plant and equipment, net			519,516				(74,479	)			—				445,037
Goodwill and other intangible assets, net			5,029,035				(169,309	)			—				4,859,726
Operating lease right of use assets, net			1,041,420				(129,014	)			—				912,406
Subscriptions receivables – long term			2,456,719				(2,456,719	)			—				—
Notes receivable - long term			396,640				—				—				396,640
Investment in Series H Preferred Stock of Cycurion			—				—				305,000				305,000
Other assets			291,930				(101,541	)			—				190,389
Total assets		$	19,133,867			$	(8,572,745	)		$	5,805,000			$	16,366,122
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	4,284,867			$	(292,994	)		$	—			$	3,991,873
Accrued expenses			536,526				(201,073	)			—				335,453
Current portion of operating lease Obligations			248,841				(79,578	)			—				169,263
Deferred revenue – current portion			3,862,440				(3,055,291	)			—				807,149
Debt obligations – current portion			518,575				—				—				518,575
Warrant derivative liabilities			8				—				—				8
Income taxes payable			10,441				—				—				10,441
Total current liabilities			9,461,698				(3,628,936	)			—				5,832,762
Long-term liabilities:
Debt obligations – long-term			136,635				—				—				136,635
Operating lease obligation – long-term			771,987				(49,436	)			—				722,551
Deferred revenue – long term			4,057,343				(4,057,343	)			—				—
Notes payable – related party – long-term portion			411,698				—				—				411,698
Total liabilities			14,839,361				(7,735,715	)			—				7,103,646
Stockholders’ equity:
Common stock, $0.001 par value			527				—				—				527
Additional paid-in-capital			151,906,315				—				—				151,906,315
Noncontrolling interest in consolidated Subsidiary			—				—				—				—
Accumulated deficit			(147,612,336	)			(837,030	)			5,805,000				(142,644,366	)
Total stockholders’ equity			4,294,506				(837,030	)			5,805,000				9,262,476
Total liabilities and stockholders’ equity		$	19,133,867			$	(8,572,745	)		$	5,805,000			$	16,366,122

See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.

KUSTOM ENTERTAINMENT, INC.

(formerly Digital Ally, Inc.)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2026

(unaudited)

		Historical Kustom Entertainment, Inc,				Disposition of Video Solutions Business (a)				Other Adjustments (b)				Pro Forma Kustom Entertainment, Inc,
Revenue:
Product		$	562,226			$	(226,120	)		$	—			$	336,106
Service and other			3,752,010				(882,359	)			—				2,869,651
Total revenue			4,314,236				(1,108,479	)			—				3,205,757
Cost of revenue:
Product			782,248				(401,591	)			—				380,657
Service and other			2,927,941				(321,358	)			—				2,606,583
Total cost of revenue			3,710,189				(722,949	)			—				2,987,240
Gross profit			604,047				(385,530	)			—				218,517
Selling, general and administrative expenses:
Research and development expense			143,089				(143,089	)			—				—
Selling, advertising and promotional expense			274,411				(131,036	)			—				143,375
General and administrative expense			1,483,534				(378,450	)			—				1,105,084
Total selling, general and administrative expenses			1,901,034				(652,575	)			—				1,248,459
											—
Operating income (loss)			(1,296,987	)			267,045				—				(1,029,942	)
Other income (expense):
Interest income			76,806				—				—				76,806
Interest expense			(67,450	)			—				—				(67,450	)
Other income (loss)			—				—				—				—
Change in fair value of warrant derivative liabilities			(289,355	)			—				—				(289,355	)
Gain on extinguishment of liabilities			63,259				—				—				63,259
Total other income (expense) from continuing operations			(216,740	)			—				—				(216,740	)
Income (loss) before income tax benefit (provision) from continuing operations			(1,513,727	)			267,045				—				(1,246,682	)
Income tax expense benefit (provision)			—				—				—				—
Net income (loss) from continuing operations			(1,513,727	)			267,045				—				(1,246,682	)
Discontinued operations:
Income (loss) from discontinued operations			(4,371,588	)			—				—				(4,371,588	)
Income tax expense benefit (provision)			—				—				—				—
Net income (loss) from discontinued operations			(4,371,588	)			—				—				(4,371,588	)
Net income (loss)			(5,885,315	)			267,045				—				(5,618,270	)
Net income (loss) attributable to common stockholders		$	(5,885,315	)		$	267,045			$	—			$	(5,618,270	)
Net income (loss) per share attributable to common stockholders’ information:
Net loss per share information:
Basic:
Continuing operations		$	(3.44	)			—				—			$	(2.84	)
Discontinued operations		$	(9.95	)			—				—			$	(9.95	)
Net income (loss) attributable to common stockholders per share – basic		$	(13.39	)			—				—			$	(12.79	)
							—				—
Diluted:							—				—
Continuing operations		$	(3.44	)			—				—			$	(2.84	)
Discontinued operations		$	(9.95	)			—				—			$	(9.95	)
Net income (loss) attributable to common stockholders per share – diluted		$	(13.39	)			—				—			$	(12.79	)
Weighted average shares outstanding:
Basic			439,556				—				—				439,556
Diluted			439,556				—				—				439,556

See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.

KUSTOM ENTERTAINMENT, INC.

(formerly Digital Ally, Inc.)

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2025

(unaudited)

		Historical Kustom Entertainment, Inc,				Disposition of Video Solutions Business (a)				Other Adjustments (b)				Pro Forma Kustom Entertainment, Inc,
Revenue:
Product		$	4,337,276			$	(1,184,079	)		$	—			$	3,153,197
Service and other			9,416,879				(3,916,678	)			—				5,500,201
Total revenue			13,754,155				(5,100,757	)			—				8,653,398
Cost of revenue:
Product			6,333,622				(1,523,613	)			—				4,810,009
Service and other			6,071,478				(1,259,293	)			—				4,812,185
Total cost of revenue			12,405,100				(2,782,906	)			—				9,622,194
Gross profit			1,349,055				(2,317,851	)			—				(968,796	)
Selling, general and administrative expenses:
Research and development expense			551,447				(551,447	)			—				—
Selling, advertising and promotional expense			721,690				(426,048	)			—				295,642
General and administrative expense			8,424,672				(1,943,934	)							6,480,738
Goodwill and intangible asset impairment charge			2,533,667				—				—				2,533,667
Total selling, general and administrative expenses			12,231,476				(2,921,429	)			—				9,310,047
Operating loss			(10,882,421	)			603,578				—				(10,278,843	)
Other income (expense):
Interest income			116,545				—				—				116,545
Interest expense			(1,102,352	)			—				—				(1,102,352	)
Other income			346,024				—				—				346,024
Change in fair value of warrant derivative liabilities			3,331,616				—				—				3,331,616
Gain on extinguishment of liabilities			2,234,658				—				—				2,234,658
Total other income (expense) from continuing operations			4,926,491				—				—				4,926,491
Loss before income tax benefit (provision) from continuing operations			(5,955,930	)			603,578				—				(5,352,352	)
Income tax expense benefit (provision)			—				—				—				—
Net loss from continuing operations			(5,955,930	)			603,578				—				(5,352,352	)
Discontinued operations:
Loss from discontinued operations			(1,403,094	)			—				—				(1,403,094	)
Income tax expense benefit (provision)			—				—				—				—
Net loss from discontinued operations			(1,403,094	)			—				—				(1,403,094	)
Net loss			(7,359,024	)			603,578				—				(6,755,446	)
Net income attributable to noncontrolling interests			687,516				—				—				687,516
Net loss attributable to common stockholders		$	(6,671,508	)		$	603,578			$	—			$	(6,067,930	)
Net loss per share attributable to common stockholders’ information:
Net loss per share information:
Basic:
Continuing operations		$	(15.38	)			—				—			$	(13.82	)
Discontinued operations		$	(1.85	)			—				—			$	(1.85	)
Net loss attributable to common stockholders per share – basic		$	(17.23	)			—				—			$	(15.67	)
Diluted:
Continuing operations		$	(15.38	)			—				—			$	(13.82	)
Discontinued operations		$	(1.85	)			—				—			$	(1.85	)
Net loss attributable to common stockholders per share – diluted		$	(17.23	)			—				—			$	(15.67	)
Weighted average shares outstanding:
Basic			387,144				—				—				387,144
Diluted			387,144				—				—				387,144

See Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.

KUSTOM ENTERTAINMENT, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 Description of the Transaction and Basis of Presentation

On August 3, 2026, Kustom Entertainment, Inc. (the “Company,” formerly Digital Ally, Inc.) completed the sale of substantially all of the operating assets comprising its Video Solutions business (the “Video Solutions Business”) to Cycurion, Inc. (the “Buyer”), pursuant to an Asset Purchase Agreement dated June 24, 2026 (the “Agreement”), as amended by Amendment No. 1 and Forbearance / Extension Agreement dated July 23, 2026 (the “Amendment”), subject to the assumption of certain Video Solutions Business operating liabilities as defined in the Agreement. The transfer of the Video Solutions Business was deemed effective as of 11:59 p.m. New York time on June 30, 2026.

Under the Agreement, as amended, the Company sold, and the Buyer purchased the assets of the Video Solutions Business for the consideration and on the terms and conditions provided for in the Agreement, as amended. The Agreement, as amended, provided for the following consideration and principal terms:

	●	A cash payment of One Million Two Hundred Fifty Thousand Dollars ($1,250,000) paid to the Company, inclusive of the $250,000 non-refundable extension payment received on July 27, 2026 upon execution of the Amendment, which was credited against the aggregate purchase price at Closing.
	●	A secured promissory note issued by the Buyer in the principal amount of Four Million Two Hundred Fifty Thousand Dollars ($4,250,000) (the “Note”), bearing interest at 7% per annum, , for a term of three (3) years, with interest-only payments during the first six months followed by thirty (30) monthly installments of principal and interest, maturing three years from closing. The Note is secured by the assets acquired in the transaction and may be prepaid without penalty.
	●	A symmetrical earn-out and clawback arrangement based on the post-closing revenue of the Video Solutions Business for the fiscal years ending December 31, 2026 and December 31, 2027. The Company may receive earn-out payments if revenue exceeds the applicable annual target ($5,500,000 for 2026 and $5,800,000 for 2027), and may be subject to a clawback (a reduction of the purchase price) if revenue falls more than 20% below target. The earn-out and clawback are each capped at $500,000 per year and $1,000,000 in the aggregate.
	●	Series H Preferred Stock of Cycurion with an aggregate stated value of $600,000, issued pursuant to the Amendment in replacement of the two million (2,000,000) warrants originally contemplated by the Agreement, which were cancelled. The Series H Preferred Stock accrues cumulative dividends of 12.0% per annum payable quarterly in shares of Cycurion common stock, and is convertible at the holder’s option at $1.45 per share, subject to anti-dilution adjustments and a 9.99% beneficial ownership limitation. The Series H Preferred Stock carries a liquidation preference of stated value plus accrued dividends, class voting protections, registration rights for the underlying common shares, and a twelve (12) month leak-out on resales.

Note 2 Pro Forma Adjustments

The pro forma adjustments included in the Unaudited Pro Forma Condensed Consolidated Statements of Operations, including certain adjustments that were made to the historical presentation of the Company as follows:

	(a)	Adjustments to reflect the disposition of the Company’s Video Solutions Business pursuant to the terms of the Agreement. Such adjustments include the sale of all operating assets comprising the Video Solutions Business subject to the assumption of certain Video Solutions Business operating liabilities as defined in the Agreement.
	(b)	Represents the consideration received by the Company pursuant to the Agreement including i) $1,250,000 cash, inclusive of the $250,000 extension payment received upon execution of the Amendment and credited against the purchase price at closing, ii) a secured promissory note issued by the Buyer in the principal amount of $4,250,000 to the Company, bearing 7% interest, with interest-only payments for the first six months followed by thirty monthly installments of principal and interest, maturing three years from closing, iii) a symmetrical earn-out and clawback arrangement based on the Video Solutions Business’s revenue for fiscal years 2026 and 2027, capped at $1,000,000 in the aggregate in either direction, and iv) Series H preferred stock of the buyer with an aggregate stated value of $600,000, issued pursuant to the Amendment in replacement of the warrants originally contemplated by the Agreement, recorded at an estimated fair value of approximately $305,000 as of March 31,2026, which is preliminary and subject to remeasurement based on market inputs as of the issuance date.

Filing Exhibits & Attachments

10 documents

Press Releases

• EX-99.1 EX-99.1 23.3 KB
• EX-99.2 EX-99.2 375.3 KB
• EX-99 GRAPHIC 28.5 KB

Agreements & Contracts

• EX-10.1 EX-10.1 51.4 KB
• EX-10.2 EX-10.2 291.5 KB
• EX-10.3 EX-10.3 119.0 KB
• EX-10.4 EX-10.4 15.2 KB

Other Documents

• EX-101 XBRL SCHEMA FILE 2.9 KB
• EX-101 XBRL LABEL FILE 33.4 KB
• EX-101 XBRL PRESENTATION FILE 21.8 KB