NOTE 13. COMMITMENTS AND CONTINGENCIES

Lease Commitments:

Total lease expense under the Company’s operating leases related to continuing operations was approximately $65,227 and $130,454 for the three and six months ended June 30, 2026, respectively. The following sets forth the operating lease right-of-use assets and liabilities associated with continuing operations as of June 30, 2026:

 SCHEDULE OF OPERATING LEASES RIGHT OF USE ASSETS AND LIABILITIES

Operating lease right-of-use assets and lease obligations of the Video Solutions business are included within assets and liabilities of the Video Solutions business held for sale in the condensed consolidated balance sheets. See Note 22, Discontinued Operations.

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

 SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS

During the six months ended June 30, 2026, the Company incurred capital expenditures of $182,047, 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 activity.

Litigation.

From 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 actually served on the Company. After carefully assessing the claim, and assuming the Company determines that it is not at fault or disagrees with the damages or relief demanded, the Company vigorously defends any lawsuit filed against it. The Company records a liability when losses are deemed probable and reasonably estimable. 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 its prevailing, the availability of insurance, and the severity of any potential loss. The Company reevaluates and updates accruals as matters progress over time.

Culp McAuley, Inc. et al.

As of June 30, 2026, the Company holds an unsatisfied judgment of $3,999,984 against Culp McAuley, Brandon Culp, and Campbell McAuley, jointly and severally. Collection of the judgment remains uncertain, and the Company’s net exposure remained zero as of June 30, 2026, with no additional losses recorded during the three and six months ended June 30, 2026. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 for additional information.

Larry Roberts

As previously disclosed, in March 2024 the Company filed a complaint against Larry Roberts in the Superior Court of the State of California, County of Orange (Case No. 30-2024-01385012-CU-FR-CJC), arising from the defendant’s alleged theft and misapplication of funds intended for the purchase of goods on behalf of the Company. Discovery is ongoing, and a jury trial has been scheduled for October 19, 2026. The Company is not able to provide an estimate of the likelihood of success at this time. The matter remains open.

Pharmaxx Medical, Inc.

The Company filed a complaint against Pharmaxx Medical, Inc. in the Superior Court of the State of California, County of Riverside, Case No. CVSW2300198, alleging breach of contract arising from the failure to deliver pharmaceutical gloves. On July 7, 2026, subsequent to the end of the reporting period, the court entered a default judgment in favor of the Company in the aggregate amount of $1,120,004, consisting of damages of $851,482, prejudgment interest of $267,805, and costs of $717, against Pharmaxx Medical, Inc. and Pharmaxx Inc., jointly and severally. As of June 30, 2026, the Company had recorded a litigation receivable of $578,890 related to this matter, against which an allowance of $289,445 has been established, which are unchanged from December 31, 2025. Entry of the default judgment established the Company’s legal right to the amounts awarded but did not change the Company’s assessment of the collectibility of the receivable, which is based on the defendant’s financial condition. Collection of the judgment remains uncertain and no assurance can be given that any amounts will be recovered. Accordingly, no gain has been recognized in respect of the amounts awarded in excess of the previously recorded litigation receivable. See Note 4, Other Receivables, and Note 23, Subsequent Events.

First Insurance Funding Corp. — Johnson County Collection Case

The Company is a defendant in a collection case filed in the District Court of Johnson County, Kansas, limited actions department, claiming the Company owed money for insurance premium funding on a cancelled policy totaling $165,890. The Company disputes that it owes the money, as it cancelled the insurance policy through its insurance broker. An answer was filed denying the claim. The matter remains open.

Kustom 440 — Former Consultant

A former consultant filed a claim against Kustom 440, Inc., a wholly owned subsidiary of the Company, seeking payment under a consulting agreement. On August 6, 2026, subsequent to the end of the reporting period, the parties entered into a settlement agreement resolving the matter. The Company recorded a charge of $984,000 in the three months ended June 30, 2026 in respect of the settlement, comprising $600,000 payable in cash and $384,000 representing the fair value of 300,000 shares of the Company’s common stock issuable to the plaintiff.

Aegis Capital Corp.

As of June 30, 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. in January 2026, which 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; the lawsuit was subsequently dismissed without prejudice. The Company made aggregate payments of $201,867 on this matter during the six months ended June 30, 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 of the maximum reasonably possible future obligation is approximately $814,000, based upon the remaining undrawn commitment of the facility as of June 30, 2026. However, this obligation is 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.