Duos Technologies (DUOT) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The financial statements for Q2 2025 show increased revenue and gross margin from a new asset management agreement, but a net loss persists due to high operating expenses, while capital raising boosted equity Consolidated Balance Sheets Total assets decreased to $31.1 million, liabilities to $26.4 million, while stockholders' equity rose to $4.7 million by June 30, 2025, driven by capital raises Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $4,776 | $8,087 | | Total Assets | $31,134 | $34,959 | | Total Current Liabilities | $13,072 | $16,090 | | Total Liabilities | $26,401 | $32,697 | | Total Stockholders' Equity | $4,733 | $2,261 | Consolidated Statements of Operations Q2 2025 revenues surged to $5.7 million, yielding a $1.5 million gross margin, but net loss increased to $3.5 million due to higher G&A expenses, while H1 net loss narrowed to $5.6 million Statement of Operations Summary (in thousands) | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $5,736 | $1,510 | $10,688 | $2,581 | | Gross Margin | $1,519 | $(215) | $2,833 | $(120) | | Loss from Operations | $(3,441) | $(3,216) | $(5,230) | $(5,977) | | Net Loss | $(3,518) | $(3,204) | $(5,598) | $(5,956) | | Net Loss Per Share | $(0.30) | $(0.43) | $(0.48) | $(0.81) | Statements of Changes in Stockholders' Equity Stockholders' equity increased to $4.7 million by June 30, 2025, primarily due to ATM common stock issuances, option exercises, and restricted stock compensation, partially offset by net loss - Key activities impacting equity in the first six months of 2025 include the issuance of 871,828 shares of common stock for cash under the ATM program, raising approximately $5.8 million in gross proceeds[16][17] - The company recorded significant non-cash compensation from restricted stock awards, totaling 1,961,898 shares in Q1 and additional compensation in Q2[16][17] - Conversion of Series D and Series E preferred stock resulted in the issuance of 100,000 and 383,143 shares of common stock, respectively[16][17] Consolidated Statements of Cash Flows H1 2025 saw $7.9 million cash used in operations and $1.4 million in investing, offset by $4.5 million from financing, resulting in a $4.8 million net cash decrease Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,876) | $(3,941) | | Net cash used in investing activities | $(1,388) | $(889) | | Net cash provided by financing activities | $4,472 | $2,895 | | Net decrease in cash | $(4,792) | $(1,936) | | Cash, end of period | $1,474 | $506 | Condensed Notes to the Consolidated Financial Statements Notes detail accounting policies, strategic expansion into Edge Data Centers and Energy, the Asset Management Agreement, liquidity, debt, equity, segment reporting, and subsequent events NOTE 1 – Nature of Operations and Summary of Significant Accounting Policies The company expanded into edge data centers and power generation services, notably through an Asset Management Agreement with New APR Energy, receiving a 5% equity interest in its parent - The company expanded its business in 2024 by forming Duos Edge AI to provide edge data centers and Duos Energy Corporation to offer power solutions[23][24] - Duos entered into a two-year Asset Management Agreement (AMA) with New APR Energy, LLC to manage a fleet of mobile gas turbines. In exchange, Duos received cash and a 5% non-voting ownership interest in New APR's parent company, Sawgrass Parent[24][25] - The 5% interest in Sawgrass Parent is treated as an Equity Method Investment valued at $7.2 million, which was recorded as non-cash consideration for future services under the AMA[27][28][29] NOTE 2 – Liquidity Despite a $5.6 million net loss and $8.3 million working capital deficit, management asserts no going concern doubt due to successful capital raises and anticipated cash flow from the Asset Management Agreement - For the six months ended June 30, 2025, the company had a net loss of $5,597,694 and a working capital deficit of $8,296,491[109] - The company has actively raised capital, including proceeds from its At-The-Market (ATM) offering program in 2024 and 2025[110] - Subsequent to the quarter's end, the company priced a public offering with net proceeds of approximately $37.1 million, which is expected to bolster its balance sheet[110] NOTE 7 – Debt Total debt as of June 30, 2025, includes $1.1 million in related-party secured promissory notes, with $1.0 million repaid in H1 2025 Notes Payable, Related Parties (net) | Date | Amount | | :--- | :--- | | June 30, 2025 | $1,085,139 | | December 31, 2024 | $1,758,396 | - The company made early payments of $1,000,000 on the related-party notes during the six months ended June 30, 2025[140] NOTE 9 – Stockholders' Equity This note details H1 2025 common stock issuances via ATM, services, ESPP, option exercises, preferred stock conversions, and restricted stock grants to the executive team - In H1 2025, the company issued 871,828 shares of common stock through its ATM program for gross proceeds of $5,790,814[180][190] - On January 1, 2025, 1,841,898 shares of restricted stock with a three-year cliff vest were granted to the executive leadership team[178] - During H1 2025, 300 shares of Series D Preferred Stock were converted into 100,000 common shares, and 1,000 shares of Series E Preferred Stock were converted into 383,143 common shares[158][170] NOTE 11 – Segment Reporting Effective January 1, 2025, the company operates in three segments, with Asset Management being the largest revenue contributor ($8.7 million) and only profitable segment in H1 2025 Segment Performance - Six Months Ended June 30, 2025 (in thousands) | Segment | Net Revenues | Income (Loss) from Operations | | :--- | :--- | :--- | | Technologies | $2,005 | $(5,369) | | Data Center Hosting & Related Services | $8 | $(833) | | Asset Management Services | $8,675 | $3,041 | | Corporate and Unallocated | $— | $(2,069) | | Consolidated | $10,688 | $(5,230) | NOTE 15 – Subsequent Events Post-quarter, the company raised $37.1 million net from a public offering, repaid related-party debt, and terminated its ATM agreement - On July 30, 2025, the company priced a public offering of common stock for net proceeds of approximately $37.1 million, which closed on August 1, 2025[258] - On August 6, 2025, the company fully repaid the outstanding principal and interest of $1,388,356 on its notes with 21 April Fund LP and 21 April Fund Ltd[259] - The At-The-Market (ATM) Issuance Sales Agreement was terminated on August 13, 2025, after raising total gross proceeds of $12,472,036 under the program[260] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic diversification into Edge Data Centers and Power Generation, significant revenue growth from the Asset Management Agreement, increased operating expenses, and improved liquidity from recent capital raises Overview and Plan of Operation The company is strategically diversifying beyond its RIP product into high-growth markets via new subsidiaries, Duos Edge AI for Edge Data Centers and Duos Energy for power generation - The company's growth strategy involves expanding its technology base through organic development, partnerships, and potential acquisitions[266] - Strategic expansion in 2024 led to the creation of Duos Edge AI for Edge Data Centers and Duos Energy Corporation for power generation services[268][269] Results of Operations Q2 2025 revenue surged 280% to $5.7 million, driven by the AMA, resulting in a $1.5 million gross margin, but G&A expenses led to a $3.5 million net loss, while H1 net loss narrowed Q2 2025 vs Q2 2024 Revenue (in thousands) | Revenue Source | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Technology systems | $41 | $265 | -84% | | Services and consulting | $5,687 | $1,245 | 357% | | Hosting | $8 | $0 | 100% | | Total revenues | $5,736 | $1,511 | 280% | - The significant increase in services revenue in Q2 2025 was primarily driven by the new Asset Management Agreement (AMA) with New APR, which generated $3.9 million in direct revenue and $0.9 million from amortization of deferred revenue[279] - Gross margin for Q2 2025 improved to $1.5 million from a loss of $0.2 million in Q2 2024, largely due to high-margin revenue from the AMA[284] - The net loss for H1 2025 decreased by 6% to $5.6 million from $6.0 million in H1 2024, while net loss per share improved to $0.48 from $0.81[301] Liquidity and Capital Resources Despite an $8.3 million working capital deficit and negative operating cash flow, recent capital raises, including a $37.1 million public offering, ensure sufficient liquidity for the next twelve months Cash Flow Summary - H1 2025 vs H1 2024 (in thousands) | Cash Flow Activity | H1 2025 | H1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(7,876) | $(3,941) | | Net cash used in investing activities | $(1,388) | $(889) | | Net cash provided by financing activities | $4,472 | $2,895 | - The company successfully raised capital through its ATM program and a public offering that closed on August 1, 2025, with net proceeds of approximately $37.1 million[311] - Management has determined that despite historical losses and a working capital deficit, there is no substantial doubt about the company's ability to continue as a going concern for at least twelve months from the report's issuance date[313] Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to the company as a smaller reporting company - Not applicable[340] Controls and Procedures As of June 30, 2025, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective[341] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[342] PART II – OTHER INFORMATION Legal Proceedings The company is not involved in any litigation expected to materially adversely affect its financial condition or results of operations - The company reports no pending or threatened legal proceedings that could have a material adverse effect[345] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes from the risk factors disclosed in the Annual Report on Form 10-K filed on March 31, 2025[346] Other Information On August 13, 2025, the company terminated its ATM Issuance Sales Agreement, having raised $12,472,036 in gross proceeds with no termination penalties - The At-The-Market (ATM) Sales Agreement was terminated effective August 13, 2025[349] - Total gross proceeds raised under the ATM agreement amounted to $12,472,036[349] Exhibits This section lists exhibits filed with Form 10-Q, including CEO/CFO certifications and Inline XBRL data files