Company Quick10K Filing
Duos Technologies Group
Price0.53 EPS-0
Shares27 P/E-5
MCap14 P/FCF-4
Net Debt-1 EBIT-3
TEV14 TEV/EBIT-5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
S-1 2019-12-11 Public Filing
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-04-15
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-02
10-Q 2017-09-30 Filed 2017-11-20
10-Q 2017-06-30 Filed 2017-08-15
10-Q 2017-03-31 Filed 2017-05-22
10-K 2016-12-31 Filed 2017-03-30
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-04-01
10-Q 2015-09-30 Filed 2015-11-16
10-Q 2015-06-30 Filed 2015-08-19
10-Q 2015-03-31 Filed 2015-05-20
10-K 2014-12-31 Filed 2015-04-15
10-Q 2014-09-30 Filed 2014-11-19
10-Q 2014-06-30 Filed 2014-08-19
10-Q 2014-03-31 Filed 2014-05-20
10-K 2013-12-31 Filed 2014-04-15
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-12-13
10-Q 2012-03-31 Filed 2012-06-04
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-15
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-30
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-17
10-K 2009-12-31 Filed 2010-03-29
8-K 2020-09-09 Regulation FD, Exhibits
8-K 2020-08-28 Officers, Other Events, Exhibits
8-K 2020-08-13 Earnings, Regulation FD, Exhibits
8-K 2020-07-10 Officers, Other Events, Exhibits
8-K 2020-06-02
8-K 2020-05-15
8-K 2020-04-23
8-K 2020-02-21
8-K 2020-02-12
8-K 2020-02-06
8-K 2020-01-09
8-K 2019-12-09
8-K 2019-11-13
8-K 2019-09-25
8-K 2019-09-04
8-K 2019-08-14
8-K 2019-08-13
8-K 2019-07-31
8-K 2019-07-01
8-K 2019-05-21
8-K 2019-05-14
8-K 2019-04-11
8-K 2019-01-29
8-K 2018-12-19
8-K 2018-12-03
8-K 2018-11-14
8-K 2018-06-04
8-K 2018-04-09
8-K 2018-01-18

DUOT 10Q Quarterly Report

Part I Financial Information
Item 1. Financial Statements.
Note 1 - Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies
Note 2 - Liquidity
Note 3 - Software Development Costs
Note 4 - Debt
Note 5 - Line of Credit
Note 6 - Commitments and Contingencies
Note 7 - Stockholders' Equity
Note 8 - Revenue
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-10.1 duot_ex10z1.htm
EX-31.1 duot_ex31z1.htm
EX-31.2 duot_ex31z2.htm
EX-32.1 duot_ex32z1.htm
EX-32.2 duot_ex32z2.htm

Duos Technologies Group Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
10.06.02.0-2.0-6.0-10.02012201420172020
Assets, Equity
10.07.55.12.60.2-2.32012201420172020
Rev, G Profit, Net Income
1.91.00.1-0.8-1.7-2.62012201420172020
Ops, Inv, Fin

10-Q 1 duot_10q.htm QUARTERLY REPORT Quarterly Report


 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q


þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

OR

 

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ________________ to ________________ 


Commission file number 000-55497


Duos Technologies Group, Inc.

(Exact name of registrant as specified in its charter)


Florida

65-0493217

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

 

 

6622 Southpoint Drive South, Suite 310,

Jacksonville, Florida, 32216

 

(Address of principal executive offices)

 


(904) 652-1616

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001

 

DUOT

 

The Nasdaq Capital Market


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ  No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer   ¨

Accelerated filer   ¨

Non-accelerated filer     þ

Smaller reporting company  þ

 

Emerging growth company  ¨


If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No þ


As of August 11, 2020, Duos Technologies Group, Inc. had outstanding 3,526,146 shares of common stock, par value $0.001 per share.

 

 

 




TABLE OF CONTENTS


 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Qualitative and Quantitative Disclosures about Market Risk

33

 

 

 

Item 4.

Controls and Procedures

33

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

34

 

 

 

Item 1A.

Risk Factors

34

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

 

 

 

Item 3.

Defaults Upon Senior Securities

34

 

 

 

Item 4.

Mine Safety Disclosures

34

 

 

 

Item 5.

Other Information

34

 

 

 

Item 6.

Exhibits

35

 

SIGNATURES

36

 

 




PART I FINANCIAL INFORMATION


Item 1. Financial Statements.


DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash

 

$

5,374,786

 

 

$

56,249

 

Accounts receivable, net

 

 

496,807

 

 

 

2,611,608

 

Contract assets

 

 

845,810

 

 

 

1,375,920

 

Prepaid expenses and other current assets

 

 

698,158

 

 

 

716,598

 

Total Current Assets

 

 

7,415,561

 

 

 

4,760,375

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

346,979

 

 

 

260,181

 

Operating lease right of use asset

 

 

316,726

 

 

 

430,146

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Software Development Costs, net

 

 

10,000

 

 

 

20,000

 

Patents and trademarks, net

 

 

66,649

 

 

 

61,598

 

Total Other Assets

 

 

76,649

 

 

 

81,598

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

8,155,915

 

 

$

5,532,300

 


 (Continued)


See accompanying condensed notes to the unaudited consolidated financial statements.




1



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)


 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

632,043

 

 

$

2,641,437

 

Accounts payable - related parties

 

 

12,491

 

 

 

12,791

 

Notes payable - financing agreements

 

 

175,796

 

 

 

42,299

 

Notes payable - related parties, net of discounts

 

 

 

 

 

905,373

 

Line of credit

 

 

 

 

 

27,615

 

Payroll taxes payable

 

 

10,730

 

 

 

115,111

 

Accrued expenses

 

 

130,798

 

 

 

393,272

 

Current portion - financing lease agreements

 

 

84,635

 

 

 

45,072

 

Current portion-operating lease obligations

 

 

252,907

 

 

 

239,688

 

Current portion-SBA loan

 

 

627,465

 

 

 

 

Contract liabilities

 

 

3,283

 

 

 

8,661

 

Deferred revenue

 

 

493,830

 

 

 

936,428

 

Total Current Liabilities

 

 

2,423,978

 

 

 

5,367,747

 

 

 

 

 

 

 

 

 

 

Finance lease payable

 

 

149,314

 

 

 

89,026

 

Operating lease obligations

 

 

74,713

 

 

 

202,797

 

SBA loan

 

 

782,805

 

 

 

 

Total Liabilities

 

 

3,430,810

 

 

 

5,659,570

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Preferred stock:  $0.001 par value, 10,000,000 authorized, 9,485,000 shares available to be designated

 

 

 

 

 

 

 

 

Series A redeemable convertible cumulative preferred stock, $10 stated value per share, 500,000 shares designated; 0 issued and outstanding at June 30, 2020 and December 31, 2019, convertible into common stock at $6.30 per share

 

 

 

 

 

 

Series B convertible cumulative preferred stock, $1,000 stated value per share, 15,000 shares designated; 1,705 and 1,705 issued and outstanding at June 30, 2020 and December 31, 2019, convertible into common stock at $7 per share

 

 

1,705,000

 

 

 

1,705,000

 

Common stock:  $0.001 par value; 500,000,000 shares authorized, 3,527,470 and 1,982,039 shares issued, 3,526,146 and 1,980,715 shares outstanding at June 30, 2020 and December 31, 2019, respectively

 

 

3,528

 

 

 

1,982

 

Additional paid-in capital

 

 

39,527,682

 

 

 

31,063,915

 

Total stock & paid-in-capital

 

 

41,236,210

 

 

 

32,770,897

 

Accumulated deficit

 

 

(36,353,653

)

 

 

(32,740,715

)

Sub-total

 

 

4,882,557

 

 

 

30,182

 

Less:  Treasury stock (1,324 shares of common stock at June 30, 2020 and December 31, 2019)

 

 

(157,452

)

 

 

(157,452

)

Total Stockholders' Equity (Deficit)

 

 

4,725,105

 

 

 

(127,270

)

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity (Deficit)

 

$

8,155,915

 

 

$

5,532,300

 


See accompanying condensed notes to the unaudited consolidated financial statements.




2



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology systems

 

$

1,419,409

 

 

$

984,991

 

 

$

1,933,083

 

 

$

4,903,429

 

Technical support

 

 

382,124

 

 

 

280,601

 

 

 

727,311

 

 

 

602,075

 

Consulting services

 

 

2,385

 

 

 

80,213

 

 

 

134,469

 

 

 

192,382

 

AI technologies

 

 

178,224

 

 

 

 

 

 

178,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

 

1,982,142

 

 

 

1,345,805

 

 

 

2,973,087

 

 

 

5,697,886

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Technology systems

 

 

897,514

 

 

 

967,649

 

 

 

1,479,058

 

 

 

3,060,643

 

Technical support

 

 

234,754

 

 

 

156,341

 

 

 

469,030

 

 

 

261,665

 

Consulting services

 

 

 

 

 

47,415

 

 

 

72,260

 

 

 

70,334

 

AI technologies

 

 

110,499

 

 

 

 

 

 

110,499

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Cost of Revenues

 

 

1,242,767

 

 

 

1,171,405

 

 

 

2,130,847

 

 

 

3,392,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

739,375

 

 

 

174,400

 

 

 

842,240

 

 

 

2,305,244

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

149,566

 

 

 

487,738

 

 

 

555,958

 

 

 

871,160

 

Engineering

 

 

352,970

 

 

 

289,986

 

 

 

665,406

 

 

 

624,549

 

Sales & marketing

 

 

122,473

 

 

 

270,196

 

 

 

262,325

 

 

 

520,620

 

Administration

 

 

1,023,947

 

 

 

872,972

 

 

 

2,039,498

 

 

 

1,807,645

 

AI technologies

 

 

517,475

 

 

 

202,673

 

 

 

834,024

 

 

 

383,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

 

2,166,431

 

 

 

2,123,565

 

 

 

4,357,211

 

 

 

4,207,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(1,427,056

)

 

 

(1,949,165

)

 

 

(3,514,971

)

 

 

(1,902,716

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest Expense

 

 

(58,243

)

 

 

(3,692

)

 

 

(127,175

)

 

 

(6,313

)

Other income, net

 

 

19,410

 

 

 

3,066

 

 

 

29,208

 

 

 

3,407

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Income (Expense)

 

 

(38,833

)

 

 

(626

)

 

 

(97,967

)

 

 

(2,906

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(1,465,889

)

 

 

(1,949,791

)

 

 

(3,612,938

)

 

 

(1,905,622

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic & Diluted Net Loss Per Share

 

$

(0.42

)

 

$

(1.09

)

 

$

(1.16

)

 

$

(1.14

)

Weighted Average Shares-Basic & Diluted

 

 

3,526,382

 

 

 

1,788,659

 

 

 

3,106,660

 

 

 

1,665,439

 



See accompanying condensed notes to the unaudited consolidated financial statements.




3



DUOS TECHNOLOGIES GROUP, INC. SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Three Months and Six Months ended June 30, 2020 and 2019

(Unaudited)


 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in-

 

 

Accumulated

 

 

 

 

 

 

 

 

 

# of Shares

 

 

Amount

 

 

# of Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Treasury Stock

 

 

Total

 

 

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

 

Balance December 31, 2019

 

 

1,705

 

 

$

1,705,000

 

 

 

1,982,039

 

 

$

1,982

 

 

$

31,063,915

 

 

$

(32,740,715

)

 

$

(157,452

)

 

$

(127,270

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued

 

 

 

 

 

 

 

 

1,542,188

 

 

 

1,542

 

 

 

9,251,586

 

 

 

 

 

 

 

 

 

9,253,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,100

 

 

 

 

 

 

 

 

 

8,100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issuance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,001,885

)

 

 

 

 

 

 

 

 

(1,001,885

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

 

 

 

 

 

 

1,611

 

 

 

2

 

 

 

7,498

 

 

 

 

 

 

 

 

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,147,049

)

 

 

 

 

 

(2,147,049

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2020

 

 

1,705

 

 

 

1,705,000

 

 

 

3,525,838

 

 

 

3,526

 

 

 

39,329,214

 

 

 

(34,887,764

)

 

 

(157,452

)

 

 

5,992,524

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modification of employee stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

102,800

 

 

 

 

 

 

 

 

 

102,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

88,170

 

 

 

 

 

 

 

 

 

88,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

 

 

 

 

 

 

1,632

 

 

 

2

 

 

 

7,498

 

 

 

 

 

 

 

 

 

7,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,465,889

)

 

 

 

 

 

(1,465,889

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2020

 

 

1,705

 

 

$

1,705,000

 

 

 

3,527,470

 

 

$

3,528

 

 

$

39,527,682

 

 

$

(36,353,653

)

 

$

(157,452

)

 

$

4,725,105

 





See accompanying condensed notes to the unaudited consolidated financial statements.





4




DUOS TECHNOLOGIES GROUP, INC. SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)

For the Three Months and Six Months ended June 30, 2020 and 2019

(Unaudited)


 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in-

 

 

Accumulated

 

 

Treasury

 

 

 

 

 

 

# of Shares

 

 

Amount

 

 

# of Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Stock

 

 

Total

 

 

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

  

  

                       

 

Balance December 31, 2018

 

 

2,830

 

 

$

2,830,000

 

 

 

1,505,883

 

 

$

1,505

 

 

$

27,416,802

 

 

$

(30,269,833

)

 

$

(149,459

)

 $

 

(170,985

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commons stock issued for warrants exercised

 

 

 

 

 

 

 

 

214,286

 

 

 

214

 

 

 

1,649,786

 

 

 

 

 

 

 

 

 

1,650,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,892

 

 

 

 

 

 

 

 

 

21,892

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income for the three months ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,169

 

 

 

 

 

 

44,169

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance March 31, 2019

 

 

2,830

 

 

 

2,830,000

 

 

 

1,720,169

 

 

 

1,719

 

 

 

29,088,480

 

 

 

(30,225,664

)

 

 

(149,459

)

 

 

1,545,076

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commons stock issued for warrants exercised

 

 

 

 

 

 

 

 

76,634

 

 

 

77

 

 

 

513,943

 

 

 

 

 

 

 

 

 

514,020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,151

)

 

 

(1,151

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options granted to employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,241

 

 

 

 

 

 

 

 

 

6,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issuance cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,000

)

 

 

 

 

 

 

 

 

(10,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the three months ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,949,791

)

 

 

 

 

 

(1,949,791

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance June 30, 2019

 

 

2,830

 

 

$

2,830,000

 

 

 

1,796,803

 

 

$

1,796

 

 

$

29,598,664

 

 

$

(32,175,455

)

 

$

(150,610

)

 

104,395

 



See accompanying condensed notes to the unaudited consolidated financial statements.






5



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cash from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(3,612,938

)

 

$

(1,905,622

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

97,353

 

 

 

87,325

 

Stock based compensation

 

 

96,270

 

 

 

28,133

 

Modification of employee stock options

 

 

102,800

 

 

 

 

Interest expense related to debt discounts

 

 

94,627

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

2,114,802

 

 

 

(302,986

)

Contract assets

 

 

530,110

 

 

 

904,543

 

Prepaid expenses and other current assets

 

 

235,194

 

 

 

86,411

 

Operating lease right of use asset

 

 

113,419

 

 

 

(565,925

)

Accounts payable

 

 

(2,009,394

)

 

 

(519,468

)

Related payable-related party

 

 

(300

)

 

 

 

Payroll taxes payable

 

 

(104,381

)

 

 

(196,609

)

Accrued expenses

 

 

(247,474

)

 

 

15,671

 

Operating lease obligation

 

 

(114,865

)

 

 

592,402

 

Contract liabilities

 

 

(5,378

)

 

 

(1,170,197

)

Deferred revenue

 

 

(442,598

)

 

 

234,988

 

Net cash used in operating activities

 

 

(3,152,753

)

 

 

(2,711,334

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of patents/trademarks

 

 

(7,735

)

 

 

(3,000

)

Purchase of fixed assets

 

 

(171,467

)

 

 

(223,549

)

Net cash used in investing activities

 

 

(179,202

)

 

 

(226,549

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repurchase of common stock

 

 

 

 

 

(1,151

)

Repayments of line of credit

 

 

(27,615

)

 

 

(2,497

)

Issuance cost

 

 

(1,001,885

)

 

 

(10,000

)

Repayments of notes payable

 

 

(1,000,000

)

 

 

 

Repayments of insurance and equipment financing

 

 

(83,257

)

 

 

(141,105

)

Repayment of finance lease

 

 

(21,786

)

 

 

 

Proceeds from SBA loan

 

 

1,410,270

 

 

 

 

Proceeds from equipment leasing

 

 

121,637

 

 

 

 

Proceeds from common stock issued

 

 

9,253,128

 

 

 

 

Proceeds from warrants exercised

 

 

 

 

 

2,164,019

 

Net cash provided by financing activities

 

 

8,650,492

 

 

 

2,009,266

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

5,318,537

 

 

 

(928,617

)

Cash, beginning of period

 

 

56,249

 

 

 

1,209,301

 

Cash, end of period

 

 

5,374,786

 

 

 

280,684

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Interest paid

 

$

29,830

 

 

$

4,109

 

 

 

 

 

 

 

 

 

 

Supplemental Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Common stock issued for accrued BOD fees

 

$

15,000

 

 

$

 

Lease right of use asset and liability

 

$

644,245

 

 

 

 

Note issued for financing of insurance premiums

 

$

216,754

 

 

$

217,804

 


See accompanying condensed notes to the unaudited consolidated financial statements.



6



 


DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)


NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Operations


Duos Technologies Group, Inc. (the “duostech Group”), through its operating subsidiaries, Duos Technologies, Inc. (“duostech”) and TrueVue360, Inc (“TrueVue360”, duostech Group and duostech, collectively the “Company”) is primarily engaged in the design and deployment of state-of-the-art, artificial intelligence driven intelligent technologies systems. duostech converges traditional security measures with information technologies to create “actionable intelligence.” duostech’s IP is built upon two of its core technology platforms (praesidium® and centraco®), both distributed as licensed software suites, and natively embedded within engineered turnkey systems. praesidium® is a modular suite of analytics applications which process and simultaneously analyze data streams from a virtually unlimited number of conventional sensors and/or data points. Native algorithms compare analyzed data against user-defined criteria and rules in real time and automatically report any exceptions, deviations and/or anomalies. This application suite also includes a broad range of conventional operational system components and sub-systems, including an embedded feature-rich video management engine and a proprietary Alarm Management Service (AMS). This unique service provides continuous monitoring of all connected devices, processes, equipment and sub-systems, and automatically communicates to the front end-user interface, if and when an issue, event or performance anomalies are detected. centraco® is a comprehensive user interface that includes the functionalities of a Physical Security Information Management (PSIM) system as well as those of an Enterprise Information System (EIS). This multi-layered interface can be securely installed as a stand-alone application suite inside a local area network or pushed outside a wide area network using the same browser-based interface. It leverages industry standards for data security, access, and encryption as appropriate. The platform also operates as a cloud-hosted solution.


The Company provides a broad range of sophisticated intelligent technology solutions with an emphasis on security, inspection and operations for critical infrastructure within a variety of industries including transportation, retail, law enforcement, oil, gas and utilities sectors. In January 2019, the Company launched a dedicated Artificial Intelligence software platform, truevue360™, through its subsidiary TrueVue360 with the objective of focusing the Company’s advanced intelligent technologies in the areas of Artificial Intelligent, Deep Machine Learning and Advance Algorithms to further support our business growth.  Consequently, our business operations are now in three business units: intelligent technologies, AI/machine learning platforms and IT asset management.


The Company’s strategy includes expansion of its technology base through organic development efforts, strategic partnerships, and growth through accretive acquisitions. The Company provides its broad range of technology solutions with an emphasis on mission critical security, inspection and operations within the rail transportation, commercial, petrochemical, government, and banking sectors. The Company also offers professional and consulting services for large data centers.


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, 2020 are not indicative of the results that may be expected for the year ending December 31, 2020 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, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.


Reverse Stock-Split


All share and per share amounts have been presented to give retroactive effect to a 1 for 14 reverse stock-split that occurred in January 2020.



7



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Reclassifications


The Company reclassified certain operating expenses for the three and six months ended June 20, 2019 to conform to 2020 classification.  There was no net effect on the total operating expenses of such reclassification.


The following table reflects the reclassification adjustment effect in the three and six months ended June 30, 2019:



 

 

Before Reclassification

 

 

 

 

After Reclassification

 

 

 

For the Three Months Ended

 

 

 

 

For the Three Months Ended

 

 

 

June 30,

 

 

 

 

June 30,

 

 

 

2019

 

 

 

 

2019

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

$

128,506

 

 

Sales and marketing

 

$

270,196

 

Salaries, wages and contract labor

 

 

1,338,302

 

 

Engineering

 

 

289,986

 

Research and development

 

 

118,435

 

 

Research and development

 

 

487,738

 

Professional fees

 

 

17,054

 

 

AI technologies

 

 

202,673

 

General and administrative expenses

 

 

521,268

 

 

Administration

 

 

872,972

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

$

2,123,565

 

 

 

 

$

2,123,565

 


 

 

Before Reclassification

 

 

 

 

After Reclassification

 

 

 

For the Six Months Ended

 

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

 

June 30,

 

 

 

2019

 

 

 

 

2019

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

Selling and marketing expenses

 

$

238,122

 

 

Sales and marketing

 

$

520,620

 

Salaries, wages and contract labor

 

 

2,607,081

 

 

Engineering

 

 

624,549

 

Research and development

 

 

231,129

 

 

Research and development

 

 

871,160

 

Professional fees

 

 

144,973

 

 

AI technologies

 

 

383,986

 

General and administrative expenses

 

 

986,655

 

 

Administration

 

 

1,807,645

 

 

 

 

 

 

 

 

 

 

 

 

Total Operating Expenses

 

$

4,207,960

 

 

 

 

$

4,207,960

 


Principles of Consolidation


The unaudited consolidated financial statements include duostech Group and its wholly owned subsidiaries, Duos Technologies, Inc. and TrueVue360, Inc. All inter-company transactions and balances are eliminated in consolidation.




8



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


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 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 unaudited consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of intangible and other long-lived assets, estimates of net contract revenues and the total estimated costs to determine progress towards contract completion, valuation of derivatives, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, estimates of the valuation of right of use assets and corresponding lease liabilities and valuation of stock-based awards. 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. Actual results may differ from these estimates.


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, 2020, balance in one financial institution exceeded federally insured limits by approximately $4,952,107.


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, 2020, three customers accounted for 45%, 15% and 12% of revenues. For the six months ended June 30, 2019, two customers accounted for 69% and 12% of revenues.


At June 30, 2020, four customers accounted for 41%, 32%, 10% and 10% of accounts receivable. At December 31, 2019, two customers accounted for 68% and 10% of accounts receivable.


Geographic Concentration


Approximately 29% of revenue is generated from three customers outside of the United States.


Fair Value of Financial Instruments and Fair Value Measurements


We measure our financial assets and liabilities in accordance with generally accepted accounting principles. For certain of our financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. Amounts recorded for notes payable, net of discount, and loans payable also approximate fair value because current interest rates available to us for debt with similar terms and maturities are substantially the same.


We follow accounting guidance for financial assets and liabilities. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).




9



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


The guidance utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:


Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.


Level 2: Inputs, other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.


Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.


Software Development Costs


Software development costs incurred prior to establishing technological feasibility are charged to operations and included in research and development costs. The technological feasibility of a software product is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the product meets its design specifications, including functionality, features, and technical performance requirements. Software development costs incurred after establishing technological feasibility for software sold as a perpetual license, as defined within ASC 985-20 (Software – Costs of Software to be sold, Leased, or Marketed) are capitalized and amortized on a product-by-product basis when the product is available for general release to customers.


Earnings (Loss) Per Share


Basic earnings per share (EPS) are computed by dividing 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 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. At June 30, 2020, there was an aggregate of 1,588,750 outstanding warrants to purchase shares of common stock. At June 30, 2020, there was an aggregate of 311,898 shares of employee stock options to purchase shares of common stock. Also, at June 30, 2020, 243,571 common shares were issuable upon conversion of Series B convertible preferred stock, all of which were excluded from the computation of dilutive earnings per share because their inclusion would have been anti-dilutive.


Revenue Recognition


As of January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, 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 unrecognized 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 for sales of systems and services over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.


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


1.

Identify the contract with the customer;

2.

Identify the performance obligations in the contract;

3.

Determine the transaction price;

4.

Allocate the transaction price to separate performance obligations; and

5.

Recognize revenue when (or as) each performance obligations are satisfied.




10



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Accordingly, the Company now bases its revenue recognition on ASC 606-10-25-27, where control of a good or service transfers over time if the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date including a profit margin or reasonable return on capital. Control is deemed to pass to the customer instantaneously as the goods are manufactured and revenue is recognized accordingly.


In addition, the Company has adopted ASC 606-10-55-21 such that if the cost incurred is not proportionate to the progress in satisfying the performance obligation, we adjust the input method to recognize revenue only to the extent of the cost incurred. Therefore, the Company will recognize revenue at an equal amount to the cost of the goods to satisfy the performance obligation. To accurately reflect revenue recognition based on the input method, the Company has adopted the implementation guidance as set out in ASC-606-10-55-187 through 192. (see Note 9)


Segment Information


The Company operates in one reportable segment.


Stock Based Compensation


The Company accounts for 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 employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.


Determining Fair Value Under ASC 718-10


The Company estimates the fair value of stock options granted using the Black-Scholes option-pricing formula. This fair value is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. The Company’s determination of fair value using an option-pricing model is affected by the stock price as well as assumptions regarding the number of highly subjective variables.


The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee 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.


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”).

  

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.


NOTE 2 – LIQUIDITY


As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $3,612,938 for the six months ended June 30, 2020. During the same period, net cash used in operating activities was $3,152,753 The working capital surplus and accumulated deficit as of June 30, 2020 were $4,991,582 and $36,353,653 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 an underwritten offering which was completed during the first quarter of 2020 (the “2020 Offering”).




11



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Upon completion of the 2020 Offering, management raised sufficient working capital to meet its needs for the next 12-months without the need to raise further capital. Since the advent of the Covid-19 pandemic, the Company has experienced a significant slowdown in closing new projects due to cautious actions by current and potential clients.  We continue to be successful in identifying new business opportunities and are focused on re-establishing a backlog of projects. Most importantly, the Company’s success in increasing its working capital surplus after receiving proceeds from the 2020 Offering of more than $8.1 million has given us the runway required to maintain our business strategy overall.  Management has been and continues to take actions including, but not limited to, elimination of certain costs that did not contribute to short term revenue, re-aligning management 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.


Management believes that we have eliminated the substantial doubt for the Company to continue as a going concern. We are executing the plan to grow our business and achieve profitability without the requirement to raise additional capital for existing operations. In the long run, the continuation of the Company as a going concern is dependent upon the ability of the Company to continue executing the plan described above, generate sufficient revenue and to attain consistently profitable operations. Although the current global pandemic related to the Novel Coronavirus (Covid-19)  has affected our operations,  and we do believe this is  expected to be a long-term issue, the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters. We have analyzed our cash flow under “stress test” conditions and have determined that we have sufficient liquid assets on hand to maintain operations for at least 12 months from the date of this report. 


NOTE 3 – SOFTWARE DEVELOPMENT COSTS


In 2018, the Company capitalized $60,000, relating to the development of new software products. These software products were developed by a third-party and had passed the preliminary project stage prior to capitalization.  Software development costs consisted of the following at June 30, 2020 and December 31, 2019:

 

 

 

June 30,

2020

 

 

December 31, 2019

 

Software Development Costs

 

$

60,000

 

 

$

60,000

 

Less: Accumulated amortization

 

 

(50,000

)

 

 

(40,000

)

Total

 

$

10,000

 

 

$

20,000

 


Amortization expense of software development costs for the six months ended June 30, 2020 and 2019, was $10,000 and $10,000, respectively.


NOTE 4 – DEBT


Notes Payable - Financing Agreements



The Company’s notes payable relating to financing agreements classified as current liabilities consist of the following as of:


 

 

June 30, 2020

 

December 31, 2019

 

Notes Payable

 

Principal

 

 

 

Interest

 

Principal

 

 

 

Interest

 

Third Party - Insurance Note 1

 

$

8,662

 

 

 

7.31

%

 

$

28,500

 

 

 

7.31

%

 

Third Party - Insurance Note 2

 

 

41,282

 

 

 

5.26

%

 

 

 

 

 

6.36

%

 

Third Party - Insurance Note 3

 

 

1,656

 

 

 

%

 

 

13,799

 

 

 

 

 

Third Party - Insurance Note 4

 

 

124,196

 

 

 

 

 

 

 

 

 

6.36

%

 

Total

 

$

175,796

 

 

 

 

 

 

$

42,299

 

 

 

 

 

 


The Company entered into an agreement on December 23, 2019 with its insurance provider by issuing a $28,500 note payable (Insurance Note 1) for the purchase of an insurance policy, secured by that policy with an annual interest rate of 7.31% payable in monthly installments of principal and interest totaling $2,218 through October 23, 2020. The balance of Insurance Note 1 as of June 30, 2020 and December 31, 2019 was $8,662 and $28,500, respectively.




12



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


The Company entered into an agreement on April 15, 2019 in the amount of $51,940 with an annual interest rate of 6.36% payable (Insurance Note 2) with monthly installments of principal and interest totaling $5,326 through December 15, 2019 and the Company renewed the policy on April 15, 2020 in the amount of $51,379 with an annual interest rate of 5.26% payable in monthly installments of principal and interest totaling $5,263 through December 15, 2020. At June 30, 2020 and December 31, 2019, the balance of Insurance Note 2 was $41,282 and zero, respectively.


The Company entered into an agreement on September 15, 2019 in the amount of $13,799 with its insurance provider by issuing a note payable (Insurance Note 3) for the purchase of an insurance policy, secured by 5 installment payments.  At June 30, 2020 and December 31, 2019, the balance of Insurance Note 3 was $1,656 and $13,799, respectively.


The Company entered into an agreement on February 3, 2019 in the amount of $141,058 with an annual interest rate of 6.36% payable in monthly installments of principal and interest totaling $14,520 (Insurance Note 4) through December 3, 2019. The policy renewed on February 3, 2020 in the amount of $165,375 with seven monthly installments of $13,726. At June 30, 2020 and December 31, 2019, the balance of Insurance Note 4 was $124,196 and zero, respectively.


Finance Lease


The Company entered into an agreement on August 26, 2019 with an equipment leasing provider by issuing a $147,810 equipment finance lease payable, secured by a note, with an annual interest rate of 12.72% payable in monthly installments of principal and interest totaling $4,963 through August 1, 2022.  The Company entered into an additional agreement on May 22, 2020 with same equipment leasing provider by issuing a $121,637 equipment finance lease payable, secured by a note, with an annual interest rate of 9.90% payable in monthly installments of principal and interest totaling $3,919 through June 1, 2023. At June 30, 2020 and December 31, 2019, the balance of the notes was $233,949 and zero, respectively.


At June 30, 2020, future minimum lease payments due under Finance Lease is as follows:


As of December 31,

Amount

 

2020

 

$

53,331

 

2021

 

 

106,588

 

2022

 

 

86,735

 

2023

 

 

23,515

 

Total minimum financial lease payments

 

$

270,169

 

Less:  interest

 

 

(36,220

)

Total lease liability at June 30, 2020

 

$

233,949

 

Less: current portion of Finance Lease

 

 

(84,635

)

Long Term portion of Finance Lease

 

$

149,314

 


Notes Payable – Related Parties


 

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Payable To

 

 

 

 

 

 

 

Principal

 

 

Interest

 

 

Principal

 

 

Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related party

 

 

 

 

 

 

 

 

 

$

 

 

 

3%

 

 

$

267,000

 

 

 

3%

 

Related party

 

 

 

 

 

 

 

 

 

 

 

 

 

3%

 

 

 

733,000

 

 

 

3%

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

Less unamortized discounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(94,627

)

 

 

 

 

Total, net

 

 

 

 

 

 

 

 

 

$

 

 

 

 

 

 

$

905,373

 

 

 

 

 


The Company entered into an agreement with a related party on September 25, 2019 whereby the related party loaned the Company the aggregate principal amount of $267,000, pursuant to a note, repayable on June 25, 2020. The note carries an annual interest rate of 3%. In addition, the Company issued warrants permitting the related party to purchase for cash 11,920 shares of the Company’s common stock at a price of $7.70 per share. On June 22, 2020 the Company repaid this short-term note in the amount of $267,000. The balance of this note as of June 30, 2020 was zero. 




13



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


The Company entered into an agreement with a related party on September 25, 2019 whereby the related party loaned the Company the principal aggregate in the amount of $733,000, pursuant to a note, repayable on June 25, 2020. The note carries an annual interest rate of 3% per annum. In addition, the Company issued warrants permitting the related party to purchase for cash 32,724 shares of the Company’s common stock at a price of $7.70 per share. On June 22, 2020 the Company repaid this short-term note in the amount of $733,000.  The balance of this note as of June 30, 2020 was zero.


The Company determined the relative fair value between the notes and the warrants on the issue date utilizing the Bi-nominal Lattice Pricing Model for the warrants. As a result, the Company allocated $146,779 to the warrants and was recorded as a debt discount with an offset to additional paid in capital in the accompanying unaudited consolidated financial statements. The fair value pricing model used the following assumptions; stock price $7.00, warrant exercise price $7.70, expected term of 5 years, expected volatility of 86% and discount rate of 1.609%.


For the six months ended June 30, 2020, the Company recorded $94,627 for amortization of the debt discount discussed above to interest expense in the accompanying unaudited consolidated financial statements.


Notes Payable


The Company entered into an agreement on August 12, 2019 with a shareholder by executing a short-term $262,500 note repayable on November 11, 2019. This note was issued with a 5% original issue discount and the Company received a net amount of $250,000. No other consideration was given.  On November 12, 2019, the Company repaid this short-term note in the amount of $262,500.  The original issue discount of $12,500 was fully amortized in 2019.


Notes Payable – SBA Loan


 

 

 

 

 

 

 

 

June 30, 2020

 

 

December 31, 2019

 

Payable To

 

 

 

 

 

 

 

Principal

 

 

Interest

 

 

Principal

 

 

Interest*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SBA loan

 

 

 

 

 

 

 

 

 

$

1,410,270

 

 

 

1%

 

 

$

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

1,410,270

 

 

 

 

 

 

 

 

 

 

 

 

Less current portion

 

 

 

 

 

 

 

 

 

 

(627,465)

 

 

 

 

 

 

 

 

 

 

 

 

Long term portion

 

 

 

 

 

 

 

 

 

$

782,805

 

 

 

 

 

 

$

 

 

 

 

 


On April 23, 2020, the Company entered into a promissory note (the “Note”) with BBVA USA, which provides for a loan in the amount of $1,410,270 (the “Loan”) pursuant to the Paycheck Protection Program (the “PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Loan has a two-year term and bears interest at a rate of 1.00% per annum (APR 1.014%). Monthly principal and interest payments are deferred for six months after the date of disbursement. The Loan may be prepaid at any time prior to maturity with no prepayment penalties. The Company will apply for the PPP loan forgiveness as soon as the application is available.


NOTE 5 – LINE OF CREDIT


The Company assumed a line of credit with Wells Fargo Bank upon merger with ISA on April 1, 2015. The line of credit provided for borrowings up to $40,000 but is now closed to future borrowing. The balance as of June 30, 2020 and December 31, 2019, was zero and $27,615, respectively, including accrued interest. This line of credit has been paid in full as of May 5, 2020.


NOTE 6 – COMMITMENTS AND CONTINGENCIES


Delinquent Payroll Taxes Payable


As of the date hereof, the Company has paid its delinquent payroll taxes and late fees in full. At June 30, 2020 and December 31, 2019, the payroll taxes payable balance of $10,730 and $115,111 includes accrued late fees in the amount of zero and $37,210, respectively.





14



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Operating Lease Obligations


The Company has an operating lease agreement for office space of approximately 8,308 square feet that was amended on May 1, 2016 and again on April 1, 2019, increasing the office space to approximately 10,203 square feet, with the lease ending on October 31, 2021. The rent is subject to an annual escalation of 3%, beginning May 1, 2017.


The Company entered a new lease agreement of office and warehouse combination space of approximately 4,400 square feet on June 1, 2018 and ending May 31, 2021.  This additional space allows for resource growth and engineering efforts for operations before deploying to the field.  The rent is subject to an annual escalation of 3%.


The Company now has a total of office and warehouse space of approximately 14,603 square feet.


At June 30, 2020, future minimum lease payments due under Operating Leases are as follows:


As of December 31,

Amount

 

2020

 

$

141,396

 

2021

 

 

213,568

 

Total minimum financial lease payments

 

$

354,964

 

Less:  interest

 

 

(27,344

)

Total lease liability at June 30, 2020

 

$

327,620

 

Less: current portion of Operating lease obligations

 

 

(252,907

)

Long Term portion of Operating lease obligations

 

$

74,713

 


In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”), which requires all leases with a term greater than 12 months to be recognized on the balance sheet, while lease expenses would continue to be recognized in the statement of operations in a manner similar to current accounting guidance. We adopted ASU 2016-02 effective January 1, 2019, on a modified retrospective basis, without adjusting comparative periods presented. Effective January 1, 2019, the Company established a right-of-use model (ROU) asset and operating lease liability in the amount of $644,245. The right of use asset balance at June 30, 2020 was $316,726, the operating lease liability – current portion was $252,907 and the operating lease liability – long term portion was $74,713. This is the Company’s only lease whose term is greater than 12 months. The adoption of ASU 2016-02 did not materially affect our unaudited consolidated statement of operations or our unaudited consolidated statements of cash flows. We made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet and to recognize all lease payments for leases with a term greater than 12 months on a straight-line basis over the lease term in our unaudited consolidated statements of operations.


NOTE 7 – STOCKHOLDERS’ EQUITY 


Common stock issued


On February 12, 2020, Duos Technologies Group, Inc., a Florida corporation (the “Company”) entered into an underwriting agreement (the “Underwriting Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc. (“ThinkEquity”), as representative of the underwriters listed therein (the “Underwriters”), pursuant to which the Company agreed to sell to the Underwriters in a firm commitment underwritten public offering (the “Offering”) an aggregate of 1,350,000 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a public offering price of $6.00 per share. In addition, the Underwriters were granted an over-allotment option (the “Over-allotment Option”) for a period of 45 days to purchase up to an additional 202,500 shares of Common Stock. The Offering closed on February 18, 2020. The Common Stock began trading on the Nasdaq Capital Market under the symbol DUOT on February 13, 2020.


On February 20, 2020, pursuant to and in compliance with the terms and conditions of the aforementioned Underwriting Agreement and the Offering, the Underwriters provided notice that they would partially exercise the Over-allotment Option to purchase 192,188 shares of Common Stock at $6.00 per share (the “Over-Allotment Exercise”). The sale of the Over-Allotment Exercise to purchase 192,188 shares of Common Stock closed on February 21, 2020.




15



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


In total, the Company issued 1,542,188 shares of common stock in connection with these underwritten public offerings and up listing to the Nasdaq Capital Market national exchange.  The securities were issued pursuant to a Registration Statement on Form S-1 (File No. 333- 235455), as amended, which was declared effective by the United States Securities and Exchange Commission on February 12, 2020 (the “Registration Statement”). The Company received gross proceeds of approximately $9.25 million for the Offering to date, including the exercise of the Over-Allotment Exercise, prior to deducting underwriting discounts and commissions and offering expenses payable by the Company.


Stock-Based Compensation


Stock-based compensation expense recognized under ASC 718-10 for the six months ended June 30, 2020 and 2019, was $199,070 and $28,133, respectively, for stock options granted to employees and directors. This expense is included in selling, general and administrative expenses in the unaudited consolidated statements of operations. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. At June 30, 2020, the total compensation cost for stock options not yet recognized was $282,142. This cost will be recognized over the remaining vesting term of the options of approximately one year.


Employee Stock Options


A maximum of 178,572 shares were made available for grant under the 2016 Plan, as amended, and all outstanding options under the Plan provide a cashless exercise feature. The maximum number of shares was increased by shareholder approval to 321,429.  The identification of individuals entitled to receive awards, the terms of the awards, and the number of shares subject to individual awards, are determined by our Board of Directors or the Compensation Committee, at their sole discretion. The aggregate number of shares with respect to which options or stock awards may be granted under the 2016 Plan and the purchase price per share, if applicable, shall be adjusted for any increase or decrease in the number of issued shares resulting from a stock dividend, stock split, reverse stock split, recapitalization or similar event.


During the quarter, the Company’s Board of Directors granted 310,290 new stock options with strike prices ranging from $4.74 to $6.00 per share to Employees, Officers and Directors. 161,402 existing options were cancelled due to modifications to the exercise price and term.  As of June 30, 2020, and December 31, 2019, options to purchase 311,898 shares of common stock and 163,010 shares of common stock were outstanding under the 2016 Plan, respectively.


The Company has no expired employee stock options under the 2016 Plan at June 30, 2020 and 2019.


 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

 

Shares

 

 

Price

 

 

Term (Years)

 

 

Value

 

Outstanding at December 31, 2018

 

 

 

160,143

 

 

$

14.00

 

 

 

4.4

 

 

 

 

Granted

 

 

 

8,572

 

 

$

14.00

 

 

 

5.0

 

 

 

 

Forfeited

 

 

 

(14,286

)

 

$

14.00

 

 

 

 

 

 

 

Outstanding at June 30, 2019

 

 

 

154,429

 

 

$

14.00

 

 

 

3.4

 

 

 

 

Exercisable at June 30, 2019

 

 

 

145,857

 

 

$

14.00

 

 

 

3.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2019

 

 

 

163,010

 

 

$

14.00

 

 

 

3.4

 

 

 

 

Granted

 

 

 

310,290

 

 

$

5.39

 

 

 

4.8

 

 

 

 

Cancelled/forfeited

 

 

 

(161,402

)

 

$

14.00

 

 

 

 

 

 

 

Outstanding at June 30, 2020

 

 

 

311,898

 

 

$

5.46

 

 

 

4.7

 

 

 

 

Exercisable at June 30, 2020

 

 

 

162,474

 

 

$

6.08

 

 

 

4.7

 

 

 

 


On January 29, 2019, the Board of Directors appointed a new independent director and Chairman of the Compensation Committee. As a result of the appointment, the new director was granted 8,572 stock options exercisable at $14.00 per share vesting one year from the date of grant. On March 31, 2019, the President and Chief Operating Officer of Duos Technologies Inc., resigned from her positions. Due to the resignation, the individual forfeited 14,286 stock options previously granted. On August 15, 2019, the Board of Directors appointed a new independent director and Chairman of the Audit Committee. As a result of the appointment, the new director was granted 8,572 stock options exercisable at $14.00 per share vesting one year from the date of grant.



16



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


On April 1, 2020 the Board of Directors cancelled 161,402 options previously granted to existing employees and granted 310,290 options, of which 160,866 were replaced with new options carrying a $6.00 exercise price, 536 options were forfeited and a further 149,424 options were issued to existing employees, officers and directors carrying a $4.74 strike price with a vesting period ranging from 9 months to 21 months. The new stock options issued have a fair value of $370,312, with stock option compensation expense this quarter in the amount of $88,170 and a balance of unamortized stock option compensation expense of $282,142, that will be expensed over the next 1.75 years. The options that were cancelled and replaced were accounted for by valuing the original options on the day before they were cancelled and valuing the new options on the day of issuance. The inputs used were a stock price of $4.74 on the day of cancellation and $4.70 on the day of issuance, expected term of 2.5 years, expected volatility of 81%, no anticipated dividend and a dividend rate of $0.255%. The difference between the valuations were recorded as one-time option expense given that options cancelled were already vested and the replacement options were immediately vested. The one-time expense for this cancellation and issuance was $102,800. The strike price of the cancelled options was $14.00.


Warrants


The following is a summary of activity for warrants to purchase common stock for the six months ended June 30, 2020:


 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

 

 

Warrants

 

 

Price

 

 

Term (Years)

 

 

Value

 

Outstanding at December 31, 2018

 

 

1,815,182

 

 

$

9.52

 

 

 

3.9

 

 

 

 

Warrants expired, forfeited, cancelled or exercised

 

 

(327,612

)

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at June 30, 2019

 

 

1,487,570

 

 

$

8.78

 

 

 

2.8

 

 

 

 

Exercisable at June 30, 2019

 

 

1,487,570

 

 

$

8.78

 

 

 

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at December 31, 2019

 

 

1,521,250

 

 

$

8.78

 

 

 

3.0

 

 

 

 

Warrants expired, forfeited, cancelled or exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued

 

 

67,500

 

 

$

9.00

 

 

 

2.6

 

 

 

 

Outstanding at June 30, 2020

 

 

1,588,750

 

 

$

8.79

 

 

 

4.8

 

 

 

 

Exercisable at June 30, 2020

 

 

1,521,250

 

 

$

8.41

 

 

 

2.7

 

 

 

 


Warrants issued were for the underwriters of the registered direct offering completed in the first quarter of 2020. They carry a strike price of $9.00 representing 150% of the offering price of $6.00 per share and vest 6 months after completion of the offering.


NOTE 8 - REVENUE


Revenue Recognition and Contract Accounting


The Company generates revenue from four sources: (1) Technology Systems; (2) Technical Support; (3) Consulting Services and (4) AI Technology.


The Company constructs intelligent technology systems consisting of materials and labor under customer contracts. Revenues and related costs on technology systems revenue are recognized based on ASC 606-10-25-27, where control of a good or service transfers over time if the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date including a profit margin or reasonable return on capital. Control is deemed to pass to the customer instantaneously as the goods are manufactured and revenue is recognized accordingly.


In addition, the Company has adopted ASC 606-10-55-21 such that if the cost incurred is not proportionate to the progress in satisfying the performance obligation, we adjust the input method to recognize revenue only to the extent of the cost incurred. Therefore, the Company will recognize revenue at an equal amount to the cost of the goods to satisfy the performance obligation. To accurately reflect revenue recognition based on the input method, the Company has adopted the implementation guidance as set out in ASC 606-10-55-187 through 192.



17



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 



Under this method, contract revenues are recognized over the performance period of the contract in direct proportion to the costs incurred. Costs include direct material, direct labor, subcontract labor and other allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are also charged to the periods as incurred. Any recognized revenues that have not been billed to a customer are recorded as an asset in “contract assets”. Any billings of customers more than recognized revenues are recorded as a liability in “contract liabilities”. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined.


Contract Assets


Contract assets on uncompleted contracts represents costs and estimated earnings in excess of billings and/or cash received on uncompleted contracts accounted for under the input method, which recognizes revenue only to the extent of the cost incurred.

 

At June 30, 2020 and December 31, 2019, contract assets on uncompleted contracts consisted of the following:


 

 

June 30,

2020

 

 

December 31. 2019

 

Costs and estimated earnings recognized

 

$

3,663,654

 

 

$

3,700,124

 

Less: Billings or cash received

 

 

(2,817,844

)

 

 

(2,324,204

)

Contract assets

 

$

845,810

 

 

$

1,375,920

 


Contract Liabilities


Contract liabilities on uncompleted contracts represents billings and/or cash received that exceed accumulated revenues recognized on uncompleted contracts accounted for under the input method, which recognizes revenue only to the extent of the cost incurred.

 

At June 30, 2020 and December 31, 2019, contract liabilities on uncompleted contracts consisted of the following:


 

 

June 30,

2020

 

 

December 31. 2019

 

Billings and/or cash receipts on uncompleted contracts

 

$

3,283

 

 

$

35,665

 

Less: Costs and estimated earnings recognized

 

 

(—

)

 

 

(27,004

)

Contract liabilities

 

$

3,283

 

 

$

8,661

 


A contract is considered complete when all costs except insignificant items have been incurred and the installation is operating according to specifications or has been accepted by the customer.


The Company has contracts in various stages of completion. Such contracts require estimates to determine the appropriate cost and revenue recognition. Costs estimates are reviewed periodically on a contract-by-contract basis throughout the life of the contract such that adjustments to the profit resulting from revisions are made cumulative to the date of the revision. Significant management judgments and estimates, including the estimated costs to complete projects, must be made and used in connection with the revenue recognized in the accounting period. Current estimates may be revised as additional information becomes available.




18



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Technical Support


Maintenance and technical support services 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 as the services are provided. Revenue for maintenance and technical support provided on an extended-term basis is recognized ratably over the term of the contract.


For sales arrangements that do not involve multiple elements such as professional services, which are of short-term duration, revenues are recognized when services are completed.


Consulting Services


The Company’s consulting services business generates revenues under contract with customers from three sources: (1) Professional Services (consulting and auditing); (2) Software licensing with optional hardware sales; and (3) Customer Service (training and maintenance support).


For sales arrangements that do not involve performance obligations: 


(1)

Revenues for professional services, which are of short-term duration, are recognized when services are completed;

(2)

For all periods reflected in this report, software license sales have been one-time sales of a perpetual license to use our software product and the customer also has the option to purchase third-party manufactured handheld devices from us if they purchase our software license. Accordingly, the revenue is recognized upon delivery of the software and delivery of the hardware, as applicable, to the customer;

(3)

Training sales are one-time upfront short-term training sessions and are recognized after the service has been performed; and

(4)

Maintenance/support is an optional product sold to our software license customers under one-year contracts. Accordingly, maintenance payments received upfront are deferred and recognized over the contract term.


Artificial Intelligence


The Company has begun to derive revenue from applications that incorporate artificial intelligence (AI) in the form of predetermined algorithms to provide important operating information to the users of our systems.  The revenue generated from these applications of AI consists of an annual application maintenance fee which will be recognized ratably over the year, plus fees for the design, development, testing and incorporation of new algorithms into the system which will be recognized upon completion of each deliverable.


Multiple Elements


Arrangements with customers may involve multiple elements including project revenue and maintenance services in our Intelligent Technology Systems business. Maintenance will occur after the project is completed and may be provided on an extended-term basis or on an as-needed basis. In our consulting services business, multiple elements may include any of the above four sources. Training and maintenance on software products may occur after the software product sale while other services may occur before or after the software product sale and may not relate to the software product. Revenue recognition for multiple element arrangement is as follows:




19



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Each element is accounted for separately when each element has value to the customer on a standalone basis and there is Company specific objective evidence of 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 element is recognized using the applicable criteria under GAAP as discussed above for elements sold in non-multiple element 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 multiple element relative selling price allocation. The Company only sells maintenance services or spare parts based on its established rates after it has completed a system integration project for a customer. The customer is not required to purchase maintenance services. All elements in multiple element arrangements with Company customers qualify as separate units of account for revenue recognition purposes. 

 

Deferred Revenue


Deferred revenues represent billings or cash received in excess of revenue recognizable on service agreements that are not accounted for under the percentage of completion method.


Disaggregation of Revenue


The Company is following the guidance of ASC 606-10-55-296 and 297 for disaggregation of revenue. Accordingly, revenue has been disaggregated according to the nature, amount, timing and uncertainty of revenue and cash flows. We are providing qualitative and quantitative disclosures.


Qualitative:


1.

We have four distinct revenue sources:

a.

Turnkey, engineered projects;

b.

Associated maintenance and support services;

c.

Licensing and professional services related to auditing of data center assets:

d.

Predetermined algorithms to provide important operating information to the users of our systems.

2.

We currently operate in North America including the USA, Mexico and Canada.

3.

Our customers include rail transportation, commercial, petrochemical, government, banking and IT suppliers.

4.

Our contracts are fixed price and fall into two duration types:

a.

Turnkey engineered projects and professional service contracts that are less than 1 year in duration and are typically two to three months in length; and

b.

Maintenance and support contracts ranging from one to five years in length.

5.

Transfer of goods and services are over time.





20



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


Quantitative:  

For the Three Months Ended June 30, 2020


Segments

 

Rail

 

 

Commercial

 

 

Petrochemical

 

 

Government

 

 

Banking

 

 

IT Suppliers

 

 

Artificial Intelligence

 

 

Total

 

Primary Geographical Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

1,631,891

 

 

$

52,552

 

 

$

 

 

$

20,221

 

 

$

96,869

 

 

$

2,385

 

 

$

178,224

 

 

$

1,982,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Goods and Service Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnkey Projects

 

$

1,332.577

 

 

$

(2,421)

 

 

$

 

 

$

 

 

$

89,253

 

 

$

 

 

$

178,224

 

 

$

1,597,633

 

Maintenance & Support

 

 

299,314

 

 

 

54,973

 

 

 

 

 

 

20,221

 

 

 

7,616

 

 

 

 

 

 

 

 

 

382,124

 

Data Center Auditing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software License

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,385

 

 

 

 

 

 

2,385

 

 

 

$

1,631,891

 

 

$

52,552

 

 

$

 

 

$

20,221

 

 

$

96,869

 

 

$

2,385

 

 

$

178,224

 

 

$

1,982,142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred over time

 

$

1,332,577

 

 

$

(2,421)

 

 

$

 

 

$

 

 

$

89,253

 

 

$

2,385

 

 

$

178,224

 

 

$

1,600,018

 

Services transferred over time

 

 

299,314

 

 

 

54,973

 

 

 

 

 

 

20,221

 

 

 

7,616

 

 

 

 

 

 

 

 

 

382,124

 

 

 

$

1,631,891

 

 

$

52,552

 

 

$

 

 

$

20,221

 

 

$

96,869

 

 

$

2,385

 

 

$

178,224

 

 

$

1,982,142

 






21



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


For the Three Months Ended June 30, 2019


Segments

 

Rail

 

 

Commercial

 

 

Petrochemical

 

 

Government

 

 

Banking

 

 

IT Suppliers

 

 

Total

 

Primary Geographical Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

805,135

 

 

$

169,010

 

 

$

20,621

 

 

$

53,575

 

 

$

217,251

 

 

$

80,213

 

 

$

1,345,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Goods and Service Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnkey Projects

 

$

552,561

 

 

$

169,010

 

 

$

12,815

 

 

$

33,354

 

 

$

217,251

 

 

$

 

 

$

984,991

 

Maintenance & Support

 

 

252,574

 

 

 

 

 

 

7,806

 

 

 

20,221

 

 

 

 

 

 

 

 

 

280,601

 

Data Center Auditing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

80,213

 

 

 

80,213

 

Software License

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

805,135

 

 

$

169,010

 

 

$

20,621

 

 

$

53,575

 

 

$

217,251

 

 

$

80,213

 

 

$

1,345,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred over time

 

$

552,561

 

 

$

169,010

 

 

$

12,815

 

 

$

33,354

 

 

$

217,251

 

 

$

80,213

 

 

$

1,065,204

 

Services transferred over time

 

 

252,574

 

 

 

 

 

 

7,806

 

 

 

20,221

 

 

 

 

 

 

 

 

 

280,601

 

 

 

$

805,135

 

 

$

169,010

 

 

$

20,621

 

 

$

53,575

 

 

$

217,251

 

 

$

80,213

 

 

$

1,345,805

 




22



DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

 


For the Six Months Ended June 30, 2020


Segments

 

Rail

 

 

Commercial

 

 

Petrochemical

 

 

Government

 

 

Banking

 

 

IT Suppliers

 

 

Artificial Intelligence

 

 

Total

 

Primary Geographical Markets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

2,345,149

 

 

$

126,887

 

 

$

 

 

$

47,370

 

 

$

140,988

 

 

$

134,469

 

 

$

178,224

 

 

$

2,973,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Major Goods and Service Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turnkey Projects

 

$

1,813,687

 

 

$

6,202

 

 

$

 

 

$

 

 

$

113,194

 

 

$

 

 

$

178,224

 

 

$

2,111,307

 

Maintenance & Support

 

 

531,462

 

 

 

120,685

 

 

 

 

 

 

47,370

 

 

 

27,794

 

 

 

 

 

 

 

 

 

727,311

 

Data Center Auditing Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

129,699

 

 

 

 

 

 

129,699

 

Software License

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,770

 

 

 

 

 

 

4,770

 

 

 

$

2,345,149

 

 

$

126,887

 

 

$

 

 

$

47,370

 

 

$

140,988

 

 

$

134,469

 

 

$

178,224

 

 

$

2,973,087

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Timing of Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goods transferred over time

 

$

1,813,687 

 

 

$

6,202 

 

 

$

— 

 

 

$

— 

 

 

$

113,194 

 

 

$

134,469

 

 

$

178,224

 

 

$

2,245,776 

 

Services transferred over time

 

 

531,462