NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Duos Technologies Group, Inc. (the "Company"), through its operating subsidiaries, is a technology company providing technology and colocation solutions for the rapidly growing data center market, including modular edge data centers and related hosting and colocation services, infrastructure procurement, logistics and deployment services, and power and energy consulting services. During the periods presented, the Company’s operating subsidiaries were Duos Technologies, Inc. ("DTI"), Duos Edge AI, Inc. ("Edge"), Duos Energy Corporation ("Duos Energy"), and Duos Technology Solutions, Inc. ("Duos Technology Solutions") (collectively with Duos Technologies Group, Inc., the "Company"). As described below and in Note 3 and Note 18, effective August 5, 2026, the Company completed the transfer of all the issued and outstanding shares of DTI to new ownership. The results of the DTI business are presented as discontinued operations for all periods presented. Following the divestiture, the Company’s continuing operations are conducted principally through Duos Edge AI, Inc. and Duos Technology Solutions, Inc., which focus on providing technology and colocation solutions for the data center market, serving data centers with power requirements of between 1 MW and up to 20 MW, with Duos Energy Corporation continuing to support the wind-down of the Asset Management Agreement described below.

The Company’s solutions include the deployment of distributed computing infrastructure and related hosting, colocation, and managed services designed to support real-time data processing and artificial intelligence workloads at “the edge”. The Company has many years of experience, supported by its specialized and experienced personnel, in deploying and managing these capabilities in remote locations, or “at the edge,” where real-time processing and localized computing resources are required. 

The Company’s operations are organized around the development and delivery of digital infrastructure and technology-enabled services that support data processing, automation, and operational efficiency for commercial, industrial, and public sector customers.

The Company’s principal business activities include:

In 2024, the Company’s management team determined that it would be in the best interests of the Company and its shareholders to leverage the skills and expertise that had been built up since 2023 to expand into new markets. The Company formed a new subsidiary in July 2024 called Duos Edge AI, Inc. ("Edge") to develop and deploy modular edge data centers that provide high-speed processing of data and applications with a focus on reducing latency in response times to end-users. The Company has many years of experience via its expert staff in bringing these types of capabilities to remote locations, also known as "the edge." Edge processing can be an extremely efficient and lower cost alternative to traditional large-scale data centers. The initial strategy for Edge was to serve rural communities, also known as Tier 3 and 4 markets, and install edge data centers in these locations, thereby providing access to high-speed communications and advanced processing capabilities as a substitute for solutions where large amounts of data are "backhauled" using "the Cloud." Following extensive market engagement, the Company expanded its offerings in this area to encompass serving data centers with power requirements of between 1 MW and up to 20 MW. These data centers could be built using either specialized Edge systems (“PODs”) or by adapting existing data centers for high-power, high-performance computing. The Company has been identifying specific suitable locations and recently closed the purchase of its first “brick and mortar data center in Columbus, Georgia.

Also, in late 2024, the Company formed another subsidiary, Duos Energy Corporation ("Duos Energy"), for the purpose of providing consulting services and solutions for the rapidly growing demand for electrical power outside of traditional utilities. In conjunction with this, the Company engaged with Fortress Investment Group ("FIG") to assist in FIG’s purchase of approximately 850 megawatts of electrical generation capacity (consisting of 30 mobile gas turbine generators) and associated equipment to support their installation and operation ("balance-of-plant") from Atlas Corporation, APR Energy Holdings Limited and a number of its wholly-owned affiliates (collectively, "APR"). Chuck Ferry, our then Chief Executive Officer, was formerly the CEO of APR from 2018 to 2020. The transaction closed on December 31, 2024, at which time the purchaser, Sawgrass Buyer LLC, an entity formed and owned by FIG (subsequently renamed New APR Energy, LLC ("New APR")), entered into an Asset Management Agreement ("AMA") with the Company, under which a substantial portion of Company staff provided management, sales and operations services to New APR. At closing, the Company also received a 5%, non-voting ownership interest in Sawgrass APR Holdings, LLC ("Sawgrass Parent"), the ultimate parent company of New APR. The AMA was amended after one year to establish a reciprocal services arrangement under which New APR may also provide certain administrative, technical and supportive services to the Company, with residual billings under the arrangement occurring in the first and second quarters of 2026. In connection with the amended AMA, the staff supporting the arrangement were transferred out of the Company and a majority of all related staffing expenses were eliminated. In the second quarter of 2026, substantially all of New APR’s assets were sold to a third party, and the Company realized the value of its 5% ownership interest in Sawgrass Parent in the amount of approximately $60 million, consisting of approximately $50.4 million of cash distributions received and approximately $10.0 million withheld to satisfy potential indemnification and other obligations, which will be distributed to the Company following the holdback period (see Note 8).

Under the AMA, Duos Energy managed the deployment and operations of a fleet of mobile gas turbines and "balance-of-plant" inventory, providing management, sales and operations functions to New APR. In exchange for its services, the Company received an initial cash payment from New APR and common units in Sawgrass Parent. While the Company had board representation in Sawgrass Parent, its common units were non-voting and the Company did not control the board of directors of Sawgrass Parent.

Prior to New APR’s sale of its assets, the Company’s interest in Sawgrass Parent was evaluated under the variable interest entity ("VIE") guidance. Sawgrass Parent was deemed to be a VIE; however, because the Company did not have the power to direct the activities that most significantly impacted Sawgrass Parent’s economic performance, the Company was not the primary beneficiary and did not consolidate Sawgrass Parent. Because the Company had significant influence over Sawgrass Parent, it accounted for its 5% non-voting interest as an equity method investment by analogy under ASC 323-30. The common units received represented non-cash consideration within the scope of ASC 606, and the initial carrying value of the equity method investment as of December 31, 2024 of $7.2 million was measured at the fair value of the common units received for future services to be performed under the AMA, with a corresponding $7.2 million recorded as deferred revenue. On May 26, 2026, substantially all of New APR’s assets were sold to a third party. In connection with the transaction, the Company received net proceeds of approximately $50.4 million attributable to its ownership interest, and an additional approximately $10.0 million of the Company’s pro rata share of the proceeds was withheld to satisfy potential indemnification and other obligations under the asset purchase agreement, which is recorded as a holdback receivable – related parties on the accompanying consolidated balance sheet. Any amounts remaining at the end of the 12-month holdback period will be distributed to the Company. Following these transactions, the carrying amount of the Company’s investment in Sawgrass Parent was $0 as of June 30, 2026. See Note 8 for additional information.

In 2025, the Company’s operations evolved to focus on scalable, recurring revenue models associated with infrastructure hosting, managed services, infrastructure-related services, and long-term service agreements, particularly in connection with its edge computing platform and digital infrastructure projects.

In 2026, the Company formed another subsidiary, Duos Technology Solutions, Inc., with the express purpose of providing infrastructure related services, including procurement, logistics coordination, vendor management and deployment support for data center and digital infrastructure projects.

Digital Infrastructure and Edge Data Centers

Through its subsidiary Duos Edge, the Company is engaged in the development and deployment of modular edge data centers designed to provide localized computing capacity for artificial intelligence workloads, data processing, and latency-sensitive applications.

These facilities are intended to support enterprise, telecommunications, and public sector customers, particularly in regional and underserved markets. The Company’s edge data center platform is designed to generate recurring revenues through hosting, colocation, and managed infrastructure services.

The Company has committed capital and operational resources toward the expansion of this platform, which management expects to represent a significant component of its future business activities.

Technology Solutions and Infrastructure Services

In 2025, the Company expanded its operations through the establishment of a Technology Solutions business vertical, now conducted through Duos Technology Solutions, Inc. This business provides manufacturer-agnostic infrastructure-related services, including procurement, logistics coordination, vendor management, integration, and deployment support for data center and digital infrastructure projects.

These services complement the Company’s edge data center platform and support both internal deployments and third-party customer engagements.

The Technology Solutions business has experienced rapid growth in customer orders since its formation and became the Company’s largest source of revenue from continuing operations during the second quarter of 2026. Management believes this business represents a significant opportunity for continued revenue expansion. Demand is being driven by sustained investment in data center construction and modernization, particularly in connection with the adoption of artificial intelligence, which industry sources project will require substantial ongoing capital investment in servers, networking, power and related infrastructure over the next several years. Growth in customer prepayments and contract liabilities during 2026 reflects the expanding volume of customer orders in this business. Because the business is order-driven, the timing of revenue recognition depends on the fulfillment of customer orders and quarterly revenues may be uneven.

Services and Consulting

Through Duos Energy Corporation, the Company provided consulting and advisory services related to energy procurement, power infrastructure, and grid interconnection, as well as asset management services.

These services were delivered principally under the AMA, which commenced in January 2025 and was amended after one year, with residual billings occurring in the first and second quarters of 2026, as described above. Certain of the power and energy infrastructure skills and expertise developed through these activities remain within the Company and could represent a future area of business. These capabilities are currently being applied to support the Company’s data center expansion initiatives described above, including the evaluation of power requirements and energy infrastructure for its data center deployments.

Discontinued Operations

On August 5, 2026, effective June 30, 2026, the Company entered into a definitive Stock Transfer Agreement providing for the sale of its Duos Technologies, Inc. ("DTI") business, which was previously reported as the Company’s Technologies segment. The divestiture was completed on August 5, 2026 (the "Closing Date"), whereby Sandbank Acosta, LLC, a Florida limited liability company (the "Purchaser"), acquired all of the issued and outstanding shares of capital stock of DTI. The transaction is considered a related-party transaction because Adrian Goldfarb, the Company’s Interim Chief Financial Officer, is also a 50% owner of the Purchaser. The Company and the Purchaser also entered into a transition services agreement (the “TSA”) and an employee leasing agreement on the Closing Date (see Note 3 and Note 18).

The Company is presenting the financial results of the Duos Technologies, Inc. business as discontinued operations for all periods presented within the accompanying condensed consolidated statements of operations and cash flows. The accompanying condensed consolidated balance sheets as of June 30, 2026 and December 31, 2025 reflect the DTI assets and liabilities as held for sale.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or for any other future period. These unaudited consolidated financial statements and the unaudited condensed notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2026. 

Principles of Consolidation

The consolidated financial statements include Duos Technologies Group, Inc. and its wholly owned subsidiaries, Duos Technologies, Inc. (presented as discontinued operations and was sold subsequent to year end, See Note 18), Duos Edge AI, Inc., Duos Energy Corporation, and Duos Technology Solutions, Inc. (collectively the “Company”). All inter-company transactions and balances are eliminated in consolidation.

Reclassification

The Company reclassified certain prior period balances to confirm to current period presentation related to Discontinued Operations. See Note 3 Discontinued Operations.

Use of Estimates 

The preparation of 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 disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The most significant estimates in the accompanying consolidated financial statements include the valuation of intangible assets for impairment analysis, allowance on accounts receivable, holdback receivable and notes receivable, estimated useful life of long-lived assets, valuation of deferred tax assets, valuation of other long-lived assets, valuation of inventory, valuation of right of use assets and corresponding lease liabilities, valuation of warrants issued with debt and stock, valuation of stock-based awards and the valuation of a minority interest in Sawgrass Parent. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The Company “as lessor” entered into a master capital lease agreement with Region 16 Education Service Center for the lease of a 500kW generator. The lease commenced on June 1, 2025, and includes 84 monthly payments of $4,035.38, with a $1 buyout option at the end of the lease term. In accordance with ASC 842, the lease has been classified as a sales-type finance lease. The present value of the lease payments was calculated using an implied annual interest rate of 5.29%, which equates to the present value of the lease payments and buyout to the fair value of the generator at inception of $282,772. The resulting lease receivable and interest income are recognized over the lease term based on the amortization schedule derived from this rate.

Concentrations

Cash Concentrations

Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. We have not experienced any losses related to these balances. As of June 30, 2026, the Company had balances in two financial institutions which combined exceeded federally insured limits by approximately $111,600,000. Any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company’s  consolidated financial condition, results of operation and cash flows.

Significant Customers and Concentration of Credit Risk

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable, as follows:

For the six months ended June 30, 2026, two customers accounted for 43% (related party), and 10% (related party) of revenues. For the six months ended June 30, 2025, two customers accounted for 79% (related party) and 21% (related party) revenues.

At June 30, 2026, three customers accounted for 23%, 18%, and 16% of accounts receivable. At December 31, 2025, one customer, a related party, accounted for 90% of accounts receivable. Much of the credit risk is mitigated due to historical timely payments of our customers.

Geographic Concentration

For the six months ended June 30, 2026, and June 30, 2025, no revenue from continuing operations was generated from any customer outside of the United States.

Significant Vendors and Concentration of Credit Risk

In some instances, the Company relies on a limited pool of vendors for key components related to the manufacturing of its subsystems. These vendors are primarily focused on data center hosting, camera, server and lighting technologies integral to the Company’s solution. Where possible, the Company seeks multiple vendors for key components to mitigate vendor concentration risk.

Fair Value of Financial Instruments and Fair Value Measurements

The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

ASC 820 defines fair value 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. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

These inputs are prioritized below: 

The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The estimated fair value of certain financial instruments, including accounts receivable, holdback receivables, prepaid expenses, accounts payable, accrued expenses and notes payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

Investments

The Company may invest excess cash in highly liquid, investment-grade financial debt instruments. These investments are classified as trading securities and are recorded at fair value. Changes in fair value, including realized and unrealized gains and losses, are recognized in earnings within other income (expense).

The Company’s investment portfolio is intended to preserve liquidity and provide a return on excess cash. Investments are evaluated on an ongoing basis to ensure they continue to meet trading classification criteria. Because the investments are classified as trading, no amounts are recorded in other comprehensive income.

Accounts Receivable

The Company follows ASC 326, "Financial Instruments - Credit Losses" for accounts receivable. In accordance with ASC 326, an allowance for credit losses is maintained for estimated forward-looking losses resulting from the possible inability of customers to make required payments (current expected losses). The amount of the allowance is determined principally on the basis of past collection experience and known financial factors regarding specific customers.

Accounts receivable are stated at estimated net realizable value. Accounts receivable are comprised of balances due from customers net of estimated allowances for credit losses. In determining the collections on the accounts, historical trends are evaluated, and specific customer issues are reviewed to arrive at appropriate allowances. The Company reviews its accounts to estimate losses resulting from the inability of its customers to make required payments. Any required allowance is based on specific analysis of past due accounts and also considers historical trends of write-offs. Past due status is based on how recently payments have been received from customers.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient permitting entities to assume that current economic conditions as of the reporting date remain unchanged over the remaining life of current accounts receivable and current contract assets arising from ASC 606 transactions. The Company adopted ASU 2025—05 effective January 1, 2026 and elected the practical expedient, under which expected credit losses are estimated using historical loss experience adjusted for current conditions. Adoption of this guidance did not have a material impact on the Company’s contract assets, current receivables, allowance for credit losses, or consolidated financial statements.

Inventory

Inventory consists primarily of consumables and long-lead-time components used in the production and deployment of the Company’s technology solutions. Inventory is stated at the lower of cost or net realizable value, with cost determined primarily using the first in first out method. Inventory that is determined to be obsolete or otherwise not recoverable is written down to its estimated net realizable value. The Company has no obsolete inventory at this time.

The Company generally classifies inventory as a current asset when it expects the inventory to be sold, consumed in production, or utilized in connection with customer maintenance agreements during its normal operating cycle, which is typically approximately 24 months. Inventory that is not expected to be sold or utilized within the applicable operating cycle may be classified as non-current inventory.

Management evaluates inventory for potential obsolescence and impairment based on historical utilization and sales trends, anticipated customer demand, demand forecasts, the expected timing of future projects and maintenance requirements, and prevailing market conditions. This assessment involves management judgment and estimates regarding future inventory utilization. As of the reporting date, the Company had no inventory classified as non-current and no inventory identified as slow-moving or obsolete requiring a material write-down related to current operations.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided by the straight-line method over the estimated economic life of the property and equipment (three to fifteen years). When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of operations. Leasehold improvements are expensed over the shorter of the term of our lease or their useful lives.

Patents and Trademarks

Patents and trademarks which are stated at amortized cost, relate to the development of modular data center infrastructure and are being amortized over 17 years.

Long-Lived Assets

The Company evaluates the recoverability of its property, equipment, and other long-lived assets, including finite-lived intangible assets, in accordance with FASB ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets”, which requires recognition of impairment of long-lived assets in the event there are indicators of impairment and the net book values of such assets exceed the estimated future undiscounted cash flows attributable to such assets or the business to which such intangible assets relate. This guidance requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Equity Method Investments

If an investment qualifies for the equity method of accounting, the Company’s investment is recorded initially at cost and subsequently adjusted for equity in net income (loss) and cash contributions and distributions. The net income or loss of an unconsolidated equity method investment is allocated to its investors in accordance with the provisions of the operating agreement of the entity. The allocation provisions in these agreements may differ from the ownership interest held by each investor. Differences, if any, between the carrying amount of our investment in the respective equity method investee and the Company’s share of the underlying equity of such equity method investee are amortized over the respective lives of the underlying assets as applicable. These items are reported as a single line item in the consolidated statements of operations as income or loss from investments in unconsolidated equity method investees. Investments are reviewed for changes in circumstance or the occurrence of events that suggest an other-than-temporary event where our investment may not be recoverable.

On December 31, 2024, the Company entered into an Asset Management Agreement (the “AMA”), with New APR, an entity formed by affiliates of FIG. Under the AMA, Duos Energy managed the deployment and operations of a fleet of mobile gas turbines and balance-of-plant inventory, providing management, sales and operations functions to New APR in connection with the assets. In exchange for services to be performed under the AMA, the Company received an initial cash payment and common units in Sawgrass Parent. While the Company has board representation in Sawgrass Parent, its common units are non-voting and the Company does not control the board of directors of Sawgrass Parent.

Where the Company has an interest in a Variable Interest Entity (“VIE”) it will consolidate any VIE in which the Company has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (1) the power to direct the activities of the VIE that most significantly impact its economic performance; and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could be significant to the VIE. If both characteristics are met, the Company is considered to be the primary beneficiary and therefore will consolidate that VIE into the consolidated financial statements.

Investments in partnerships, unincorporated joint ventures and LLCs that maintain specific ownership accounts for each investor are excluded from the scope of ASC 323-10. However, ASC 323-30 provides guidance on applying the criteria for equity method accounting to investments in partnerships, unincorporated joint ventures and LLCs. When an investor in a partnership, unincorporated joint venture or LLC has the ability to exercise significant influence over that investment, it should apply the equity method (ASC 323-10) by analogy (ASC 323-30-25-1).

Sawgrass Parent was deemed to be a VIE, and the Company held a 5% interest in Sawgrass Parent and an interest in the subsidiary New APR through the AMA, both of which were considered variable interests. However, the Company was not the primary beneficiary, as it did not possess the ability to direct the activities that most significantly impacted the economic performance of Sawgrass Parent. Accordingly, the Company did not consolidate Sawgrass Parent. Because the Company had significant influence over Sawgrass Parent, it accounted for its investment as an equity method investment until the investment was realized upon the sale of substantially all of New APR’s assets in May 2026, at which point the carrying amount of the investment was reduced to $0 (see Note 8).

On December 31, 2024, the Company entered into an Asset Management Agreement (the "AMA") with New APR. The Company also concluded that the arrangement with Sawgrass Parent was within the scope of ASC 606, Revenue from contracts with customers, and the common units issued to the Company by Sawgrass Parent represented non-cash consideration. The initial carrying value of the equity method investment as of December 31, 2024 of $7.2 million was measured equal to the fair value of the common units received for future services to be performed under the AMA, and the Company recorded $7.2 million of deferred revenue for services to be performed under the AMA. Revenue recognition started January 1, 2025. During the three months ended June 30, 2026, New APR completed the sale of substantially all of its operating assets. Following the transaction, Sawgrass Parent continues to exist as a holding company while it completes the wind-up of its remaining affairs. In connection with the sale, Sawgrass Parent made cash distributions to its members, including the Company. The Company received distributions of approximately $50.4 million during the three months ended June 30, 2026, and recognized a gain on sale of investments of $53,173,803, with an additional $10,013,872 of the Company’s pro rata share of proceeds held back to satisfy potential indemnification and other obligations, recorded as a holdback receivable – related parties. As of June 30, 2026, the carrying amount of the Company’s investment in Sawgrass Parent was $0. The Company recognized revenue of $3,616,500 related to the AMA non-cash consideration during the six months ended June 30, 2026, including the accelerated recognition of the remaining deferred revenue balance following the sale, and deferred revenue associated with the non-cash consideration was $0 as of June 30, 2026.

The Company assesses its equity method investment for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. No impairment losses on this equity method investment were recognized during the six months ended June 30, 2026 or 2025. See further disclosure of accounting policies related to this equity method investment above under “Use of Estimates.”

Product Warranties

The Company does not provide product warranties to its customers. Accordingly, no warranty liability was recorded as of June 30, 2026 or December 31, 2025.

Loan Costs

Loan costs paid to lenders, or third parties are recorded as debt discounts to the related loans and amortized to interest expense over the loan term.

Sales Returns

The Company generally does not provide customers with a right of return and has historically experienced no sales returns.

Revenue Recognition

The Company follows Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), that affects the timing of when certain types of revenues will be recognized. The basic principles in ASC 606 include the following: a contract with a customer creates distinct contract assets and performance obligations, satisfaction of a performance obligation creates revenue, and a performance obligation is satisfied upon transfer of control to a good or service to a customer.

Revenue is recognized by evaluating our revenue contracts with customers based on the five-step model under ASC 606:

The Company generates revenue from three sources:

 Technology Solutions

Integrated infrastructure solutions, including procurement, logistics, and deployment support services was introduced as a business vertical in 2025. Technology Solutions provides infrastructure-related services, including manufacturer-agnostic sourcing of equipment, logistics coordination, supply chain management, and fulfillment services in support of digital infrastructure and data center deployments. These services are designed to complement the Company’s edge data center platform and address customer requirements for supply chain efficiency, reduced lead times, and execution support.

Services and Consulting Services

The Company’s consulting services business generates revenues under contracts with customers from professional services (consulting advising), which are of short-term duration and are recognized when services are completed. Historically, consulting services also included related party revenues under the AMA, which was revised after one year.

Through the AMA, the Company provides technical support services through our consulting services business. They are provided on both an as-needed and extended-term basis and may include providing both parts and labor. Maintenance and technical support provided outside of a maintenance contract are on an “as-requested” basis, and revenue is recognized over time as the services are provided. Revenue for maintenance and technical support provided on an extended-term basis is recognized over time ratably over the term of the contract. Historically, this also included related party revenue under the AMA, which began on January 1, 2025 and was amended and wound down after one year, related to the installation and maintenance of certain assets deployed by New APR. AMA-related revenue was recognized through the second quarter of 2026, including the accelerated recognition of the remaining AMA-related deferred revenue following the sale of substantially all of New APR’s assets, and no further revenue is expected under the AMA.

Hosting

The Company generates hosting revenue from deploying and operating edge data centers, which provide customers with dedicated cabinet space monthly. The revenue from hosting consists of fixed monthly fees per cabinet, recognized as revenue ratably over the contractual hosting term, as the Company provides continuous access to the hosted infrastructure and related services.

The Company will generate future Hosting revenue by also renting GPUs as a service through a Master Service Agreement. These revenues will come from a single customer. The revenue from GPUs as a service will be recognized gross of operator’s costs as the Company has been identified as principal to the service agreement. Revenue will be recognized using a time-based and usage-based measure, over the contractual hosting and rental term.

Multiple Performance Obligations and Allocation of Transaction Price

Arrangements with customers may involve multiple performance obligations, which may include technical support, consulting services, hosting and related infrastructure services, and technology solutions deliverables. Maintenance or support services may be provided on an extended-term basis or on an as-needed basis after other performance obligations are completed. Revenue recognition for a multiple performance obligations arrangement is as follows:

Each performance obligation is accounted for separately when each has value to the customer on a standalone basis and there is Company specific objective evidence of the selling price of each deliverable. For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative selling prices as determined by the price of the items when sold separately. Once the selling price is allocated, the revenue for each performance obligation is recognized using the applicable criteria under GAAP as discussed above for performance obligations sold in single performance obligation arrangements. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. The Company sells its various services and software and hardware products at established prices on a standalone basis which provides Company specific objective evidence of selling price for purposes of performance obligations related to selling price allocation. All elements in multiple performance obligations arrangements with Company customers qualify as separate units of account for revenue recognition purposes.

Cost of Revenues

Cost of revenues consists primarily of expenses related to our three lines of business: Consulting, Hosting and Technology Solutions. These costs include inventory, shipping, certain fixed labor and overhead, and allocated depreciation and amortization, as applicable to each line of business.

Advertising

The Company expenses the cost of advertising. During the six months ended June 30, 2026 and 2025, there were no advertising costs.

Stock Based Compensation

The Company accounts for employee and non-employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including stock options, restricted stock units, and employee stock purchases based on estimated fair values. The stock-based compensation carries a graded vesting feature subject to the condition of time of employment service with awarded stock-based compensation tranches vesting evenly upon the anniversary date of the award.

The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula. In accordance with ASC 718-10-35-8, the Company elected to recognize the fair value of the stock award using the graded vesting method as time of employment service is the criteria for vesting. The Company’s determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding a number of highly subjective variables.

For restricted stock awards, fair value is measured at the closing market price of the Company’s common stock on the grant date. That value is then recognized over the requisite vesting period. The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk-free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

The Company accounts for forfeitures as they occur.

Income Taxes

The Company accounts for income taxes in accordance with the Financial Accounting Standards Board FASB Accounting Standards Codification (“ASC”) 740, Income Taxes, which requires the recognition of deferred income taxes for differences between the basis of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

For the three and six months ended June 30, 2026, the Company recorded income tax expense from continuing operations of approximately $4.9 million as shown in the financial statements. The effective income tax rate differs from the U.S. federal statutory rate primarily due to the tax effects associated with the gain recognized on the Company’s investment in Sawgrass Parent, the related utilization of net operating loss carryforwards and release of valuation allowance, state income taxes, stock-based compensation and other permanent differences. For the three and six months ended June 30, 2025, the Company recorded an effective income tax rate of approximately 0% due to a full valuation allowance maintained against substantially all of its net deferred tax assets. The Company also maintained a full valuation allowance against substantially all of its net deferred tax assets as of December 31, 2025, 2024 and 2023.

During the three and six months ended June 30, 2026, the Company released approximately $3.7 million of valuation allowance related to deferred tax assets. At June 30, 2026, the Company continued to maintain a valuation allowance against deferred tax assets that are not expected to be realized based on the weight of available evidence. The Company will continue to evaluate the realizability of its deferred tax assets during the year ending December 31, 2026.

Total income tax expense was approximately $4.9 (4,984,170) million for the three and six months ended June 30, 2026, respectively. No comparable income tax expense was recorded for the three and six months ended June 30, 2025.

Any penalties and interest assessed by income taxing authorities are included in operating expenses.

The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they were filed. Tax years 2023, 2024 and 2025 remain open for potential audit.

As discussed in Note 18, Subsequent Events, the Company completed or entered into a transaction for the sale of a subsidiary subsequent to June 30, 2026. The tax effects of the transaction were not recognized as of June 30, 2026 and are expected to be recognized during the three months ending September 30, 2026. Based on management’s current assessment, the resulting tax benefit is expected to substantially offset the Company’s estimated income tax liability for the year ending December 31, 2026. The ultimate tax effect remains subject to completion of the Company’s tax analysis and year-end provision process.

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise or conversion of stock options, stock warrants, convertible debt instruments, convertible preferred stock or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. (See Note 11).

Leases

The Company follows ASC 842 “Leases”. This guidance requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities for most operating leases. In addition, this guidance requires that lessors separate lease and non-lease components in a contract in accordance with the revenue guidance in ASC 606.

The Company made an accounting policy election to not recognize short-term leases with terms of twelve months or less on the balance sheet and instead recognize the lease payments in expense as incurred. The Company has also elected to account for real estate leases that contain both lease and non-lease components as a single lease component.

Leases that are clearly insignificant will not be accounted for under ASC 842 and instead the Company will recognize lease payments in expense as incurred.

At the inception of a contract the Company assesses whether the contract is, or contains, a lease.

The Company’s assessment is based on:

(1) whether the contract involves the use of a distinct identified asset,

(2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and

(3) whether we have the right to direct the use of the asset.

Operating ROU assets represent the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at the lease commencement date to determine the present value of future payments. The lease term includes all periods covered by renewal and termination options where the Company is reasonably certain to exercise the renewal options or not to exercise the termination options. Operating lease expense is recognized on a straight-line basis over the lease term and is included in general and administration expenses in the consolidated statements of operations.

The Company accounts for leases as a lessor in accordance with ASC 842-30. Under ASC 842-30, leases are classified as either operating, sales-type or finance leases based on the terms and characteristics of the lease agreement. The Company is the lessor in a master capital lease agreement entered into during the second quarter of 2025 with Region 16 Education Service Center. Under the terms of the agreement, Region 16 is leasing a 500kW generator for a period of 84 months beginning June 1, 2025. Monthly lease payments are $4,035.38, with a $1 buyout option at the end of the lease term. The lease meets the criteria for classification as a sale-type finance lease under ASC 842 due to the presence of a bargain purchase option and the lease term covering a substantial portion of the asset’s useful life. At lease inception, the Company reclassified the generator from property and equipment and recognized a lease receivable equal to the present value of the lease payments. The present value of the lease payments was calculated to be $282,772, which approximates the fair value of the generator. The implied annual interest rate used to calculate the present value was 5.29%, determined using the internal rate of return (IRR) method. This rate reflects the financing component embedded in the lease payments. Over the lease term, the Company recognizes interest income on the lease receivable and reduces the receivable as payments are received. The final $1 payment at the end of the lease term will transfer ownership of the generator to Region 16. The Company believes this lease arrangement is appropriately accounted for under ASC 842 and reflects the economic substance of the transaction.

Recent Accounting Pronouncements

From time to time, the FASB or other standards setting bodies will issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of an Accounting Standards Update (“ASU”).

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires entities to provide more detailed disaggregation of expenses in the income statement, focusing on the nature of the expenses rather than their function. The new disclosures will require entities to separately present expenses for significant line items, including but not limited to, depreciation, amortization, and employee compensation. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This pronouncement is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company does not expect the adoption of this new guidance to have a material impact on the consolidated financial statements.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles: Goodwill and Other‒Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software (ASU 2025-06). The guidance modernizes the recognition and disclosure framework for internal-use software costs by removing all references to software development project stages so that the guidance is neutral to different software development methods. This ASU is effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods, and can be applied using a prospective, retrospective or modified transition approach with early adoption permitted. The Company is evaluating the impact of adopting ASU 2025-06.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.