NOTE 3 – DISCONTINUED OPERATIONS

In mid-2025, the Company began performing a strategic review of its Duos Technologies, Inc. business. During the second quarter of 2026, the Duos Technologies, Inc. business qualified as discontinued operations based on formal approvals by the Company’s Board of Directors related to the divestiture process that resulted from the strategic review. The divestiture of Duos Technologies, Inc. enables the Company to continue its progress on improving the profitability of its overall portfolio, while also streamlining and focusing its resources on the edge data center, colocation and technology solutions businesses that align with the Company’s mission of providing technology and colocation solutions for the rapidly growing data center market. The divestiture of the Duos Technologies, Inc. business was completed on August 5, 2026, subsequent to the end of the reporting period (see Note 18), and represents a strategic shift to exit the rail technology industry, which will have a major effect on the Company’s operations and financial results.

The Duos Technologies, Inc. business was the Company’s founding and legacy business, historically conducted as the Technologies segment, and was engaged in the design, development, deployment and support of machine vision and artificial intelligence technologies for the inspection of moving railcars, principally the Railcar Inspection Portal, together with related technology systems and support services. For much of the Company’s history, this business represented the substantial majority of its operations, revenues and workforce. The divestiture represents the Company’s complete exit from the rail technology industry — a distinct major line of business — and the redeployment of the Company’s capital and management resources toward its data center infrastructure businesses, including edge data centers and colocation services serving customers with power requirements of between 1 MW and up to 20 MW, and technology solutions for data center and digital infrastructure projects. Accordingly, the disposal represents a strategic shift that has, and will continue to have, a major effect on the Company’s operations and financial results in accordance with ASC 205-20.

The divestiture is expected to have a major effect on the Company’s operations. It eliminates the Technologies segment in its entirety, including the associated engineering, manufacturing, installation and support activities and related facilities, and results in a substantial reduction in the Company’s staff, as the workforce dedicated to the rail technology business transferred with Duos Technologies, Inc. upon the closing of the transaction. Certain employees remain on the Company’s payroll solely on a transitional basis through December 31, 2026 under an employee leasing agreement, with all allocated employment costs reimbursed by the purchaser, and the officers and directors of Duos Technologies, Inc. affiliated with the Company resigned from their positions with that entity at closing, other than Mr. Goldfarb, who resigned as President of DTI but remains as Chairman of DTI (see Note 18). This reduction in staff, together with the earlier transfer of personnel supporting the wind down of the Asset Management Agreement, substantially lowers the Company’s ongoing compensation and related overhead costs.

The divestiture is expected to have a significant impact on the Company’s financial results. The divested rail technology business generated declining revenues and recurring operating losses in recent periods. Its classification as discontinued operations removes these results from continuing operations and provides a clearer presentation of the financial results of the Company’s continuing business. In connection with the August 5, 2026 closing, the Company funded $3.5 million of target cash into Duos Technologies, Inc. and received a $5.4 million promissory note. This note equals the $3.5 million plus the net equity of Duos Technologies, Inc. on the sale date. The Company expects to recognize the resulting gain or loss on disposal during the third quarter of 2026. The Company will also provide transitional services to the buyer through December 31, 2026 on a cost-reimbursement basis. 

As of June 30, 2026, the entire Duos Technologies, Inc. business, formerly reported as the Company’s Technologies segment, has been accounted for as held for sale and as discontinued operations. Accordingly, the Company has classified these assets and liabilities as held for sale in the accompanying Condensed Consolidated Balance Sheet (Unaudited) and the Duos Technologies, Inc. operating results, net of tax, as discontinued operations in the accompanying Condensed Consolidated Statements of Operations (Unaudited) for all periods presented.

In applying ASC 205-20 the Company adjusted the prior comparative period discontinued operations results to exclude corporate overhead that previously had been allocated to the discontinued operations.

The following table summarizes the major components of the “Loss from discontinued operations” included in the Condensed Consolidated Statements of Operations: 

The following table provides the major components of assets and liabilities held for sale on the Condensed Consolidated Balance Sheets: