DUOS TECHNOLOGIES GROUP INC

Previous wording

This quarterly report on Form 10-Q and other reports filed by Duos Technologies Group, Inc., and its operating subsidiaries, Duos Technologies, Inc. (“Duos”) and Duos Edge AI, Inc. (“Edge”) (Duos Technologies Group, Inc., Duos and Edge, collectively the “Company” “we”, “our”, and “us”) from time to time with the Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” “aim,” “project,” “target,” “will,” “may,” “should,” “forecast” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements typically address the Company’s expected future business and financial performance and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ materially from those anticipated, believed, estimated, expected, intended, or planned.

Current wording

This quarterly report on Form 10-Q and other reports filed by Duos Technologies Group, Inc., and its operating subsidiaries, Duos Technologies, Inc. (“Duos”), Duos Edge AI, Inc. (“Edge”) and Duos Energy Corporation (“Energy”) (Duos Technologies Group, Inc., Duos and Edge, collectively the “Company” “we”, “our”, and “us”) from time to time with the Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” “aim,” “project,” “target,” “will,” “may,” “should,” “forecast” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements typically address the Company’s expected future business and financial performance and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ materially from those anticipated, believed, estimated, expected, intended, or planned.

Previous wording

The Company, operating under its brand name duostech, develops and deploys technology systems with focus on inspecting and evaluating moving vehicles. Its technology focus is within the Vision Technology market sector and, more specifically, the Machine Vision subsector. Machine Vision companies provide imaging-based automatic inspection and analysis for process control for industry with potential expansion into other markets. Duos has developed key technologies over the past several years in software, industry specific hardware and artificial intelligence and has demonstrated industrial strength usability of its systems supporting rail, logistics and intermodal businesses that streamline operations, improve safety and reduce costs. Our team includes engineering subject matter expertise in hardware, software, and information technology as well as industry specific applications of artificial intelligence also referred to as Expert Artificial Intelligence. We also have specific industry experts in the rail industry on staff and as consultants.

Current wording

The Company, operating under its brand name duostech, develops and deploys technology systems with focus on inspecting and evaluating moving vehicles. Its technology focus is within the Vision Technology market sector and, more specifically, the Machine Vision subsector. Machine Vision companies provide imaging-based automatic inspection and analysis for process control for industry with potential expansion into other markets. Duos has developed key technologies over the past several years in software, industry specific hardware and artificial intelligence and has demonstrated industrial strength usability of its systems supporting rail, logistics and intermodal businesses that streamline operations, improve safety and reduce costs. Our team includes engineering subject matter expertise in hardware, software, and information technology as well as industry specific applications of artificial intelligence also referred to as Expert Artificial Intelligence. We also have specific industry experts in the rail industry on staff and as consultants. Duos is currently developing industry solutions for its target markets which will address rail, trucking, aviation and other vehicle-based processes.

Previous wording

Duos is currently developing industry solutions for its target markets which will address rail, trucking, aviation and other vehicle-based processes. In addition, the Company has begun to evaluate using its patented technology and considerable experience in deploying information technology (IT) investments for the provision of Edge Data Centers, enabling local, high-speed processing in rural and underserved areas. The Company has recently announced that effective early in the third quarter, it will be expanding into the market for the provision of bespoke Edge Data Centers (EDCs) for remote education and healthcare facilities as well as other applications where high-speed, local processing is required. In order to facilitate this, the Company formed a new subsidiary, Duos Edge AI to pursue this market and has invested approximately $1,200,000 in acquiring assets to begin marketing the solution to defined markets starting in the third quarter.

Current wording

In addition, the Company has begun using its patented technology and considerable experience in deploying information technology (IT) investments for the provision of Edge Data Centers, enabling local, high-speed processing in rural and underserved areas. The Company has recently announced that effective early in the third quarter of 2024, it will be expanding into the market for the provision of bespoke Edge Data Centers (EDCs) for remote education and healthcare facilities as well as other applications where high-speed, local processing is required. In order to facilitate this, the Company formed a new subsidiary, Duos Edge AI to pursue this market and has invested approximately $1,500,000 in acquiring assets to begin marketing the solution to defined markets. Additionally, Duos has formed a third subsidiary, Duos Energy Corporation which began operations in the second half of 2024. The new subsidiary is focused on the burgeoning market for energy to power data centers and is currently engaged in some consulting for organizations looking to acquire power generation assets. It is also expected to engage in operations work in this space up to and including the build out of data center power plants.

Previous wording

Duos’ legacy offering, the Railcar Inspection Portal (RIP), will continue to be the main revenue driver for the consolidated business. The RIP provides both freight and transit railroad customers and select government agencies the ability to conduct fully remote railcar inspections of trains while they are moving at full speed. The RIP utilizes a variety of sophisticated optical, laser and speed sensors to scan each passing railcar to create a high-resolution image-set of the top, sides and undercarriage. These images are then processed with our edge data center using artificial intelligence (AI) algorithms to identify safety and security defects on each railcar. The algorithms are developed in conjunction with industrial application experts, in this case resident Railcar Mechanical Engineers, to provide specific guidance in the analysis (“human in the loop”). Within seconds of the railcar passing through the RIP, a detailed report is sent to the customer where they are able to take action on identified issues. This solution has the potential to transform the railroad industry immediately, increasing safety, improving efficiency and reducing costs. The Company has already deployed this system with several Class 1 railroads and anticipates an increased demand from transit and other railroad customers along with selected government agencies that operate and/or manage rail traffic. The Company has deployed RIPs in Canada, Mexico and the United States and anticipates expanding this solution into Europe, Asia and the Middle East in coming years. The Company has recently secured two strategic patents for the overall concept and applied technology for rail car scanning and the Company is expecting further patent awards in the coming months for other related technologies.

Current wording

Duos’ legacy offering, the Railcar Inspection Portal (RIP), will continue to be the main revenue driver for the consolidated business. The RIP provides both freight and transit railroad customers and select government agencies the ability to conduct fully remote railcar inspections of trains while they are moving at full speed. The RIP utilizes a variety of sophisticated optical, laser and speed sensors to scan each passing railcar to create a high-resolution image-set of the top, sides and undercarriage. These images are then processed with our edge data center using artificial intelligence (AI) algorithms to identify safety and security defects on each railcar. The algorithms are developed in conjunction with industrial application experts, in this case resident Railcar Mechanical Engineers, to provide specific guidance in the analysis (“human in the loop”). Within seconds of the railcar passing through the RIP, a detailed report is sent to the customer where they are able to take action on identified issues. This solution has the potential to transform the railroad industry immediately, increasing safety, improving efficiency and reducing costs. The Company has already deployed this system with several Class 1 railroads and anticipates an increased demand from transit and other railroad customers along with selected government agencies that operate and/or manage rail traffic. The Company has deployed RIPs in Canada, Mexico and the United States and anticipates expanding this solution into Europe, Asia and the Middle East in coming years. The Company has recently secured two strategic patents for the overall concept and applied technology for railcar scanning and the Company is expecting further patent awards in the coming months for other related technologies.

Previous wording

The increase in the services portion of our revenues stems from the addition of new AI and subscription customers that were not present in the same quarter last year as well as increases in service contract revenue due to higher service contract prices. The Company expects growth with new revenue from existing customers, including services revenue as the result of new maintenance contracts being established on installations coming on-line during 2024. The Company anticipates revenue growth from new and existing customers related to the subscription offering starting in the second half of 2024. The Company also anticipates renewals of existing and backlog contracts and a shift to the next generation of technology systems which are currently being manufactured and expect to be completed during early 2025.

Current wording

The increase in overall revenues for the quarter ended September 30, 2024, compared to the quarter ended September 30, 2023, is driven largely by an equitable adjustment related to our two high-speed Railcar Inspection Portals project, which falls within our technology systems business segment. This adjustment added $1.4 million to the contract’s total value, with a substantial portion recognized in the third quarter. We believe that the customer is approaching the completion of the local site preparation and is preparing for field installation later this year. Additionally, the Company continues to see opportunities for expansion of its programs with existing customers. In spite of the timing delays that continue to impact the quarterly results, management remains confident in the long-term potential of the RIP product. The increase in the services portion of our revenues stems from the addition of new AI and subscription customers that were not present in the same quarter last year as well as increases in service contract revenue due to higher service contract prices. We also generated $505,982 in services and consulting revenue from power consulting work, which was new to this quarter. The Company expects growth with new revenue from existing customers, including services revenue as the result of new maintenance contracts being established on installations coming on-line during 2025. The Company anticipates revenue growth from new and existing customers related to the subscription offering starting in the back end of 2024 and into 2025. The Company also anticipates renewals of existing and backlog contracts and a shift to the next generation of technology systems which are currently being manufactured and expect to be completed during early 2025.

Previous wording

During the three months ended June 30, 2024, the cost of revenues on technology systems decreased compared to the equivalent period in 2023. This reduction is primarily due to the Company continuing the production and manufacturing phase of our two high-speed Railcar Inspection Portals during the second quarter of 2023. By the second quarter of 2024, we are approaching the end of the manufacturing cycle and beginning preparations for field installation later in the year, and thereby contributing to the decrease in cost of revenues year-over-year. Additionally, the Company records certain fixed, operating and servicing costs for both technology systems and services and consulting. These fixed costs, in part, contribute to the cost of revenues declining at a slower rate than that of revenue. While we expect that macro-economic factors will continue to drive prices, the Company continues to manage its costs and, where possible, pass through increased costs to customers in the form of higher prices, although this is not assured.

Current wording

During the three months ended September 30, 2024, the cost of revenues on technology systems increased compared to the equivalent period in 2023. This increase is primarily due to the Company continuing the procurement and production of the Canopies for our two high-speed Railcar Inspection Portals during the third quarter of 2024. We are approaching the end of the manufacturing cycle and beginning preparations for field installation later in the year. Additionally, the Company records certain fixed, operating and servicing costs for both technology systems and services and consulting. While we expect that macro-economic factors will continue to drive prices, the Company continues to manage its costs and, where possible, pass through increased costs to customers in the form of higher prices, although this is not assured. The cost of revenues for services and consulting increased in the three months ended September 30, 2024, compared to the same period last year. This increase is primarily due to $548,121 in amortization expense of the intangible asset related to a nonmonetary transaction, which was not present in the corresponding period of 2023. The Company also generated $505,982 in services and consulting revenue from power consulting work, which was provided at cost, further increasing the cost of revenue for services and consulting, which was also not present in the corresponding period of 2023.

Previous wording

Gross margin decreased for the second quarter of 2024 as compared to the same period in 2023. As noted above, the decrease in margin was a direct result of the timing of business activity related to the manufacturing of two high-speed, transit-focused Railcar Inspection Portals. Those same project revenues and subsequent margin contributions were not present during the second quarter of 2024. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Current wording

Gross margin increased for the third quarter of 2024 as compared to the same period in 2023. The increase in margin was primarily due to the equitable adjustment associated with our two high-speed, transit-focused Railcar Inspection Portals. These same project revenues and subsequent margin contributions were absent during the third quarter of 2023. The Company also generated $505,982 in services and consulting revenue from power consulting work, which was provided at cost, further diluting the overall gross margin. These same project revenues and subsequent margin impacts were absent during the third quarter of 2023. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Previous wording

During the three months ended June 30, 2024, the Company experienced a decrease in overall operating expenses compared to the same period in 2023. There was a significant uptick in sales and marketing costs, primarily due to an expansion in staff after strengthening our commercial team in the latter half of 2023 in preparation for entering new markets. Conversely, research and development expenses fell by 27% owing to reduced personnel and scaled-back testing of prospective technologies. Moreover, general and administrative expenses decreased by 26% due to a reduction in personnel and a smaller bonus pool payout compared to the same period in 2023. Overall, the Company continues to focus on stabilizing operating expenses while meeting the increased needs of our customers. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Current wording

During the three months ended September 30, 2024, the Company experienced a decrease in overall operating expenses compared to the same period in 2023. There was a significant uptick in sales and marketing costs, primarily due to an expansion in staff after strengthening our commercial team in the latter half of 2023 in preparation for entering new markets. Conversely, research and development expenses fell by 12% owing to reduced personnel and scaled-back testing of prospective technologies. Moreover, general and administrative expenses decreased by 18% due to a reduction in personnel, a reduction in Stock Compensation and a reduction in legal and consulting spend compared to the same period in 2023. Overall, the Company continues to focus on stabilizing operating expenses while meeting the increased needs of our customers.

Previous wording

The loss from operations for the three months ended June 30, 2024 and 2023 was $3,216,416 and $3,148,250, respectively. The increase in loss from operations was primarily the result of lower revenues recorded in the quarter as a consequence of delays in going to field for the two high-speed RIPs for a passenger transit client offset by a planned reduction in expenses which resulted in a lower percentage increase in operating loss compared to a larger percentage decrease in revenue recorded during the quarter.

Current wording

The loss from operations for the three months ended September 30, 2024 and 2023 was $1,920,280 and $2,970,977, respectively. The decrease in loss from operations was primarily the result of higher revenues recorded in the quarter related to the two high-speed RIPs for a passenger transit client accompanied by a planned reduction in expenses which resulted in an overall decrease in operating loss compared to the same quarter in 2023.

Previous wording

Other income for the three months ended June 30, 2024 was $13,395 and $162,080 for the comparative period in 2023. The decrease in other income is attributed to the sale of assets related to the Integrated Correctional Automation System (iCAS) in June of 2023, there was no such transaction in 2024. Interest expense for the three months ended June 30, 2024 was $1,150 and $3,230 for the comparative period in 2023.

Current wording

Other income for the three months ended September 30, 2024, was $518,617 and $23,241 for the comparative period in 2023. The significant increase in other income is primarily due to a gain from the fair value adjustment of the warrant liability and gain on extinguishment of warrant liabilities resulting from the exercise of the warrants. There was no such transaction in 2023. Interest expense for the three months ended September 30, 2024, was $116,396 and $1,406 for the comparative period in 2023. The increase in interest expense is primarily due to the amortization of the debt discount on the $2.2 million note and the associated monthly interest expense in 2024; this note had not been entered into in 2023.

Previous wording

The net loss for the three months ended June 30, 2024 and 2023 was $3,204,171 and $2,989,400, respectively. The 7% increase in net loss was mostly attributed to the decrease in revenues as described above from timing delays. Net loss per common share was $0.43 and $0.42 for the three months ended June 30, 2024 and 2023, respectively.

Current wording

The net loss for the three months ended September 30, 2024 and 2023 was $1,401,663 and $2,947,736, respectively. The 53% decrease in net loss was mostly attributed to the increase in revenues as described above. Net loss per common share was $0.18 and $0.41 for the three months ended September 30, 2024 and 2023, respectively.

Previous wording

The decrease in overall revenues for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, is primarily attributed to delays outside of the Company’s control with deployment of our two high-speed Railcar Inspection Portals, which are recorded in the technology systems portion of our business. Although these systems were largely ready for deployment in 2023, customer delays at the deployment site prevented installation even though these two high-speed Railcar Inspection Portals were deep into their production and manufacturing phases, which did not allow us to record the next phase of recognition. We believe that the customer is approaching the completion of the local site preparation and is preparing for field installation later this year. Additionally, the Company continues to see opportunities for expansion of its programs with existing customers. In spite of the timing delays that continue to impact the quarterly results, management remains confident in the long-term potential of the RIP product.

Current wording

The decrease in overall revenues for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, is primarily attributed to delays outside of the Company’s control with deployment of our two high-speed Railcar Inspection Portals, which are recorded in the technology systems portion of our business. Although these systems were largely ready for deployment in 2023, customer delays at the deployment site prevented installation even though these two high-speed Railcar Inspection Portals were deep into their production and manufacturing phases, which did not allow us to record the next phase of recognition. The Company was able to contract an equitable adjustment related to our two high-speed Railcar Inspection Portals project in the third quarter of 2024. This adjustment added $1.4 million to the contract’s total value, with a substantial portion recognized in the third quarter of 2024. We believe that the customer is approaching the completion of the local site preparation and is preparing for field installation later this year. Additionally, the Company continues to see opportunities for expansion of its programs with existing customers. In spite of the timing delays that continue to impact results, management remains confident in the long-term potential of the RIP product. The increase in the services portion of our revenues stems from the addition of new AI and subscription customers that were not present in the same quarter last year as well as increases in service contract revenue due to higher service contract prices. We also generated $505,982 in services and consulting revenue from power consulting work, which was new to this period. The Company expects growth with new revenue from existing customers, including services revenue as the result of new maintenance contracts being established on installations coming on-line during 2025. The Company anticipates revenue growth from new and existing customers related to the subscription offering starting in the back end of 2024 and into 2025. The Company also anticipates renewals of existing and backlog contracts and a shift to the next generation of technology systems which are currently being manufactured and expect to be completed during early 2025.

Previous wording

During the six months ended June 30, 2024, the cost of revenues on technology systems decreased compared to the equivalent period in 2023. This reduction is primarily due to the Company continuing the production and manufacturing phase of our two high-speed Railcar Inspection Portals during the same period of 2023. By the second quarter of 2024, we are approaching the end of the manufacturing cycle and beginning preparations for field installation later in the year, and thereby contributing to the decrease in cost of revenues year-over-year. Additionally, the Company records certain fixed, operating and servicing costs for both technology systems and services and consulting. These fixed costs, in part, contribute to the cost of revenues declining at a slower rate than that of revenue. While we expect that macro-economic factors will continue to drive prices, the Company continues to manage its costs and, where possible, pass through increased costs to customers in the form of higher prices, although this is not assured.

Current wording

During the nine months ended September 30, 2024, the cost of revenues on technology systems decreased compared to the equivalent period in 2023. This reduction is primarily due to the Company continuing the production and manufacturing phase of our two high-speed Railcar Inspection Portals during the same period of 2023. By the third quarter of 2024, we are approaching the end of the manufacturing cycle and beginning preparations for field installation later in the year, and thereby contributing to the decrease in cost of revenues year-over-year related to technology systems. Additionally, the Company records certain fixed, operating and servicing costs for both technology systems and services and consulting. While we expect that macro-economic factors will continue to drive prices, the Company continues to manage its costs and, where possible, pass through increased costs to customers in the form of higher prices, although this is not assured. The cost of revenues for services and consulting increased in the nine months ended September 30, 2024, compared to the same period last year. This increase is primarily due to $1,021,190 in amortization expense of the intangible asset related to a nonmonetary transaction, which was not present in the corresponding period of 2023. The Company also generated $505,982 in services and consulting revenue from power consulting work, which was provided at cost, further increasing the cost of revenue for services and consulting, which was also not present in the corresponding period of 2023.

Previous wording

Gross margin decreased during the six months ended June 30, 2024, as compared to the same period in 2023 largely in line with the decline in revenue. As noted above, the decrease in margin was a direct result of the timing of business activity related to the manufacturing of two high-speed, transit-focused Railcar Inspection Portals. Those same project revenues and subsequent margin contributions were not present during the first and second quarters of 2024. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Current wording

Gross margin decreased during the nine months ended September 30, 2024, as compared to the same period in 2023 largely in line with the decline in revenue. As noted above, the decrease in margin was a direct result of the timing of business activity related to the manufacturing of two high-speed, transit-focused Railcar Inspection Portals. Those same project revenues and subsequent margin contributions were not present during the first and second quarters of 2024. The Company also generated $505,982 in services and consulting revenue from power consulting work, which was provided at cost, further diluting the overall gross margin. These same project revenues and subsequent margin impacts were absent during the first nine months of 2023. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Previous wording

During the six months ended June 30, 2024, the Company experienced a modest decrease in overall operating expenses compared to the same period in 2023. There was a significant uptick in sales and marketing costs, primarily due to an expansion in staff after strengthening our commercial team in the latter half of 2023 in preparation for entering new markets. Conversely, research and development expenses fell by 18% owing to reduced personnel and scaled-back testing of prospective technologies. Moreover, general and administrative expenses decreased by 16% due to a reduction in personnel and personnel related expenses as well as a decrease in consulting expenses compared to the same period in 2023. Overall, the Company continues to focus on stabilizing operating expenses while meeting the increased needs of our customers. It should be noted that when comparing the results between two periods, the stage of completion for manufacturing and installation can factor into those comparisons and should be taken into account when analyzing those periods.

Current wording

During the nine months ended September 30, 2024, the Company experienced a decrease in overall operating expenses compared to the same period in 2023. There was a significant uptick in sales and marketing costs, primarily due to an expansion in staff after strengthening our commercial team in the latter half of 2023 in preparation for entering new markets. Conversely, research and development expenses fell by 16% owing to reduced personnel and scaled-back testing of prospective technologies. Moreover, general and administrative expenses decreased by 16% due to a reduction in personnel and personnel related expenses as well as a decrease in consulting and legal expenses compared to the same period in 2023. Overall, the Company continues to focus on stabilizing operating expenses while meeting the increased needs of our customers.

Previous wording

The loss from operations for the six months ended June 30, 2024 and 2023 was $5,977,462 and $5,295,048, respectively. The increase in loss from operations was primarily the result of lower revenues recorded in the period as a consequence of delays in going to field for the two high-speed RIPs for a passenger transit client offset by a planned reduction in expenses which resulted in a lower percentage increase in operating loss compared to a larger percentage decrease in revenue recorded during the quarter.

Current wording

The loss from operations for the nine months ended September 30, 2024 and 2023 was $7,897,742 and $8,266,025, respectively. The decrease in loss from operations was primarily the result of planned decreases in operating expenses, which offset the impact of lower revenues recorded in the period as a consequence of delays in going to field for the two high-speed RIPs for a passenger transit client.

Previous wording

The net loss for the six months ended June 30, 2024 and 2023 was $5,956,480 and $5,133,083, respectively. The 16% increase in net loss was mostly attributed to the decrease in revenues as described above from timing delays. Net loss per common share was $0.81 and $0.72 for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The net loss for the nine months ended September 30, 2024 and 2023 was $7,358,143 and $8,080,819, respectively. The 9% decrease in net loss was mostly attributed to the decrease in operating costs as described above. Net loss per common share was $0.98 and $1.12 for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

As of June 30, 2024, the Company has a working capital deficit of $2,380,096 and the Company had a net loss of $5,956,480 for the six months ended June 30, 2024.

Current wording

As of September 30, 2024, the Company has a working capital deficit of $1,600,154 and the Company had a net loss of $7,358,143 for the nine months ended September 30, 2024.

Previous wording

Net cash used in operating activities for the six months ended June 30, 2024 and 2023 was $3,940,984 and $1,923,071, respectively. The increase in net cash used in operating activities for the six months ended June 30, 2024, was the result of cash outflows to procure necessary materials and overall sales and marketing, general and administration expenses offset by cash inflows from milestone payments related to current projects. In addition, there are two material changes in assets and liabilities that increased the use of cash in operating activities, notably the cash received for the reduction in accounts receivable and decreased contract assets related to lower overall project activities reported during the year.

Current wording

Net cash used in operating activities for the nine months ended September 30, 2024 and 2023 was $6,200,147 and $5,637,072, respectively. The increase in net cash used in operating activities for the nine months ended September 30, 2024, was the result of cash outflows to procure necessary materials and overall sales and marketing, general and administration expenses offset by cash inflows from milestone payments related to current projects.

Previous wording

Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was $889,285 and $548,360, respectively, representing an increase in the purchase of various fixed assets including our three edge data centers that are currently being manufactured to be deployed in the later half of 2024; the remainder includes the purchase of computer equipment and product and software development and disbursements for patent costs.

Current wording

Net cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $1,555,544 and $898,435, respectively, representing an increase in the purchase of various fixed assets including our three edge data centers that are currently being manufactured to be deployed in the later half of 2024; the remainder includes the purchase of computer equipment and product and software development and disbursements for patent costs.

Previous wording

Net cash provided by financing activities for the six months ended June 30, 2024 and 2023 was $2,894,541 and $3,802,587, respectively. Cash flows provided by financing activities during the first six months of 2024 were primarily attributable to gross proceeds of approximately $2,995,002 from issuances of Series D and Series E Convertible Preferred Stock. Cash flows from financing activities during the first six months of 2023 were primarily attributable to the issuance of Series E Convertible Preferred shares for $4,000,000 of gross proceeds offset by repayments of certain loans related to financing of insurance costs.

Current wording

Net cash provided by financing activities for the nine months ended September 30, 2024 and 2023 was $5,959,962 and $8,681,331, respectively. Cash flows provided by financing activities during the first nine months of 2024 were primarily attributable to gross proceeds of approximately $2,995,002 from issuances of Series D and Series E Convertible Preferred Stock, along with a combined total of $1,096,532 in proceeds from the issuance of common stock via warrant exercises of $899,521 and our At-The-Market (ATM) offering program for proceeds of $197,011. Cash flows from financing activities during the first nine months of 2023 were primarily attributable to the issuance of Series E and Series F Convertible Preferred Stock for $9,000,000 of gross proceeds offset by repayments of certain loans related to financing of insurance costs.

Previous wording

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $5,956,480 for the six months ended June 30, 2024. During the same period, cash used in operating activities was $3,940,984. The working capital deficit and accumulated deficit as of June 30, 2024, were $2,380,098 and $69,560,032, respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern. This was principally due to a lack of working capital prior to underwritten offerings and private placements which were completed during 2022, 2023, and now the first and second quarters of 2024 as well.

Current wording

As reflected in the accompanying consolidated financial statements, the Company had a net loss of $7,358,143 for the nine months ended September 30, 2024. During the same period, cash used in operating activities was $6,200,147. The working capital deficit and accumulated deficit as of September 30, 2024, were $1,600,154 and $70,961,695, respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern. This was principally due to a lack of working capital prior to underwritten offerings and private placements which were completed during 2022, 2023, and now the first, second, and third quarters of 2024 as well.

Previous wording

As previously noted, the Company was successful during 2023 in raising gross proceeds of over $11,500,000 from the sale of Series E and F Preferred Stock. Additionally, in the first and second quarters of 2024, the Company raised gross proceeds of $2,995,000 from the issuance of a combination of Series D and E Preferred Stock (See Note 6). As part of its strategy, the Company will endeavor to utilize the Preferred Series E and the remainder of the Series D as additional funding mechanisms. Additionally, during the second quarter of 2024 the Company entered into an ATM Sales Agreement (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (the “Sales Agent” or “ACM”) relating to the sale of our common stock, par value $0.001 per share, pursuant to the prospectus dated May 17, 2024. In accordance with the terms of the Sales Agreement, we may offer and sell shares of our common stock bearing an aggregate offering price of up to $7,500,000 from time to time through or to ACM, acting as an agent or principal.

Current wording

As previously noted, the Company was successful during 2023 in raising gross proceeds of over $11,500,000 from the sale of Series E and F Preferred Stock. Additionally, in the first and second quarters of 2024, the Company raised gross proceeds of $2,995,000 from the issuance of a combination of Series D and E Preferred Stock (See Note 6). Additionally, during the second quarter of 2024 the Company entered into an ATM Sales Agreement (the “Sales Agreement”) with Ascendiant Capital Markets, LLC (the “Sales Agent” or “ACM”) relating to the sale of our common stock, pursuant to the prospectus dated May 17, 2024. In accordance with the terms of the Sales Agreement, we may offer and sell shares of our common stock bearing an aggregate offering price of up to $7,500,000 from time to time through or to ACM, acting as an agent or principal.

Previous wording

ATM sales commenced in the second quarter, and the Company sold $115,563 in Common Stock during the month of June using the facility and we anticipate that approximate dollar amount raised in June will continue for each of the next twelve months.

Current wording

ATM sales commenced in the second quarter, and from June through October, the Company has sold an average of $125,000 per month in Common Stock through the facility and we anticipate this monthly amount to continue over the next twelve months.

Previous wording

In addition, management has been taking and continues to take actions including, but not limited to, elimination of certain costs that do not contribute to short term revenue, and re-aligning both management and staffing with a focus on improving certain skill sets necessary to build growth and profitability and focusing product strategy on opportunities that are likely to bear results in the relatively short term. The Company believes that, as described above, it will have sufficient sources of working capital to meet its obligations over the following twelve months. In the last twelve months the Company has experienced relatively steady contracted backlog as well as seen positive signs from new commercial engagements that indicate improvements in future commercial opportunities for both one-time capital and recurring services revenues.

Current wording

In addition, management has been taking and continues to take actions including, but not limited to, elimination of certain costs that do not contribute to short term revenue, and re-aligning both management and staffing with a focus on improving certain skill sets necessary to build growth and profitability and focusing product strategy on opportunities across all three lines of business that are likely to bear results in the relatively short term. The Company believes that, as described above, it will have sufficient sources of working capital to meet its obligations over the following twelve months. In the last twelve months the Company has experienced relatively steady contracted backlog as well as seen positive signs from new commercial engagements that indicate improvements in future commercial opportunities for both one-time capital and recurring services revenues.