10-Q

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 September 30, 2016
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)	(Zip Code)

Registrant’s telephone number, including area code: (904) 296-2807

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ  No ¨

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

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company)	Smaller reporting company þ

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 November 14, 2016, Duos Technologies Group, Inc. had outstanding 66,070,698 shares of common stock, par value $0.001 per share.

Table of Contents

	PART I – FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)	1
	Consolidated Balance Sheets September 30, 2016 (unaudited) and December 31, 2015	1
	Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	2
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	3
	Condensed Notes to the Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Qualitative and Quantitative Disclosures about Market Risk	28
Item 4.	Controls and Procedures	28
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	31
Item 6.	Exhibits	31

SIGNATURES 32

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2016			2015
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	69,567		$	140,129
Accounts receivable		726,289			452,235
Costs and estimated earnings in excess of billings on uncompleted contracts		344,430			421,116
Prepaid expenses and other current assets		137,807			165,095
Total Current Assets		1,278,093			1,178,575
Property and equipment, net		73,937			72,544
OTHER ASSETS:
Patents and trademarks, net		52,832			57,006
Total Other Assets		52,832			57,006
TOTAL ASSETS	$	1,404,862		$	1,308,125
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	1,213,902		$	1,061,961
Accounts payable - related parties		36,400			30,070
Commercial insurance/office equipment financing		87,472			44,024
Notes payable - related parties		611,352			486,964
Notes payable		49,108			196,608
Convertible notes payable, including premiums		193,950			193,950
Line of credit		38,827			40,216
Payroll taxes payable		408,186			296,215
Accrued expenses		1,253,208			955,570
Billings in excess of costs and estimated earnings on uncompleted contracts		541,836			303,064
Deferred revenue		745,251			908,206
Contingent lawsuit payable		—			550,000
Total Current Liabilities		5,179,492			5,066,848
Notes payable, net of discounts		1,140,582			—
Total Liabilities		6,320,074			5,066,848
Commitments and Contingencies (Note 5)
STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value
10,000,000 authorized, none issued or outstanding		—			—
Common stock: $0.001 par value; 500,000,000 shares authorized
66,070,698 and 64,777,621 shares issued and issuable, and outstanding at
September 30, 2016 and December 31, 2015, respectively		66,071			64,778
Additional paid-in capital		18,062,451			17,127,675
Accumulated deficit		(23,043,734	)		(20,951,176	)
Total Stockholders' Deficit		(4,915,212	)		(3,758,723	)
Total Liabilities and Stockholders' Deficit	$	1,404,862		$	1,308,125

See accompanying condensed notes to the unaudited consolidated financial statements.

1

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
REVENUES:
Project	$	594,096		$	1,366,565		$	1,707,177		$	2,891,198
Maintenance and technical support		618,682			665,670			1,829,595			1,852,001
IT asset management services		154,391			209,965			481,783			209,965
Total Revenues		1,367,169			2,242,200			4,018,555			4,953,164
COST OF REVENUES:
Project		303,126			653,194			821,264			1,517,578
Maintenance and technical support		262,830			255,920			727,529			693,709
IT asset management services		79,199			94,747			254,730			94,747
Total Cost of Revenues		645,155			1,003,861			1,803,523			2,306,034
GROSS PROFIT		722,014			1,238,339			2,215,032			2,647,130
OPERATING EXPENSES:
Selling and marketing expenses		62,116			64,219			227,785			208,283
Salaries, wages and contract labor		758,685			686,081			2,583,419			1,907,934
Research and development		72,288			65,831			201,668			157,328
Professional fees		59,803			108,421			229,277			233,553
General and administrative expenses		198,715			249,363			622,851			738,531
Impairment loss		—			—			—			1,578,816
Total Operating Expenses		1,151,607			1,173,915			3,865,000			4,824,445
INCOME (LOSS) FROM OPERATIONS		(429,593	)		64,424			(1,649,968	)		(2,177,315	)
OTHER INCOME (EXPENSES):
Interest expense		(161,515	)		(273,750	)		(443,929	)		(839,962	)
Gain on settlement of accounts payable		—			—			—			3,200
Other income, net		34			2			1,340			8
Total Other Income (Expense)		(161,481	)		(273,748	)		(442,589	)		(836,754	)
NET LOSS	$	(591,074	)	$	(209,324	)	$	(2,092,558	)	$	(3,014,069	)
NET LOSS APPLICABLE TO COMMON STOCK PER COMMON SHARE:
Basic	$	(0.01	)	$	(0.00	)	$	(0.03	)	$	(0.05	)
Diluted	$	(0.01	)	$	(0.00	)	$	(0.03	)	$	(0.05	)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic		66,025,986			61,831,726			65,844,312			60,288,922
Diluted		66,025,986			61,831,726			65,844,312			60,288,922

See accompanying condensed notes to the unaudited consolidated financial statements.

2

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Nine Months Ended
	September 30,
	2016			2015
Cash from operating activities:
Net loss	$	(2,092,558	)	$	(3,014,069	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		35,262			91,372
Gain on settlement of accounts payable		—			3,200
Stock and warrants issued for services		125,036			123,775
Interest expense related to premium/debt discounts and conversion of notes payable		131,884			—
Loss on settlement of debt		—			197,123
Amortization of stock based prepaid consulting fees		418,119			17,854
Loss related to warrants exchanged for stock		630			—
Impairment loss		—			1,578,816
Changes in assets and liabilities:
Accounts receivable		(274,054	)		(852,132	)
Costs and estimated earnings on uncompleted contracts		76,686			(99,841	)
Prepaid expenses and other current assets		108,347			(133,231	)
Accounts payable		150,544			(123,693	)
Accounts payable-related party		6,330			(20,663	)
Payroll taxes payable		111,971			(285,175	)
Accrued expenses		157,638			348,818
Contingent lawsuit liability		(550,000	)		—
Billings in excess of costs and earnings on uncompleted contracts		238,772			377,905
Deferred revenue		(162,955	)		(213,298	)
Net cash used in operating activities		(1,518,348	)		(2,003,239	)
Cash flows from investing activities:
Cash acquired in acquisition		—			1,346
Purchase of patents/trademarks		(70	)		(11,470	)
Purchase of fixed assets		(32,411	)		(107,401	)
Net cash used in investing activities		(32,481	)		(117,525	)
Cash flows from financing activities:
Proceeds from borrowings under convertible notes and other debt		—			1,374,498
Proceeds from bank line of credit		—			40,214
Proceeds of advance payments-stock repurchase		140,000			—
Proceeds from related party notes		221,570			591,697
Repayments of related party notes		(97,182	)		—
Proceeds (repayments) of insurance and equipment financing		(154,621	)		43,408
Repayments of notes payable		(147,500	)		—
Proceeds of notes payable		1,518,000			—
Net cash provided by financing activities		1,480,267			2,049,817
Net decrease in cash		(70,562	)		(70,947	)
Cash, beginning of period		140,129			85,435
Cash, end of period	$	69,567		$	14,488

See accompanying condensed notes to the unaudited consolidated financial statements.

3

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED)

(Unaudited)

	For the Nine Months Ended
	September 30,
	2016		2015
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	125,687	$	33,211
Taxes paid	$	10,149	$	800
Supplemental Non-Cash Investing and Financing Activities:
Common stock issued to settle notes payable and accrued interest	$	—	$	2,215,959
Common stock issued for prepaid consulting services	$	301,100	$	—
Common stock issued to settle accounts payable	$	—	$	16,800
Common stock issued for accrued salary	$	—	$	56,482
Reclassification of put premium liability on convertible notes to paid-in capital	$	—	$	37,120
Increase in debt discount and paid-in capital for warrants issued with debt	$	509,303	$	30,722
Note issued for financing of insurance premiums	$	198,089	$	—
Debt discount associated with notes payable	$	282,000	$	—
Liabilities assumed in share exchange	$	—	$	1,186,234
Less: assets acquired in share exchange		—		(1,347	)
Net liabilities assumed		—		1,184,887
Fair value of shares exchanged		—		393,929
Increase in intangible assets	$	—	$	1,578,816

See accompanying condensed notes to the unaudited consolidated financial statements.

4

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(Unaudited)

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

Nature of Operations

Duos Technologies Group, Inc. (“Company”), through its operating subsidiary “Duos Technologies, Inc. (“duostech”) 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’s strategy includes expansion of its technology base through organic development efforts, strategic partnerships, and growth through strategic acquisitions. duostech’s primary target industry sectors include transportation, with emphasis on freight and transit railroad owners/operators, petro-chemical, utilities and healthcare.

As reported previously, Duos Technologies Group, Inc. is the result of the reverse merger between duostech and a wholly owned subsidiary of Information Systems Associates, Inc., a Florida corporation (“ISA”), which became effective as of April 1, 2015 and as a result of which duostech became a wholly owned subsidiary of the merged entity. The merger was followed by a corporate name change to Duos Technologies Group, Inc., a symbol change from IOSA to DUOT and up-listing from OTC Pink to OTCQB.

ISA’s original business of IT Asset Management (ITAM) services for large data centers is now operated as a division of the Company that continues its sales efforts through large strategic partners. ISA developed a methodology for the efficient data collection of assets contained within large data centers and was awarded a patent in 2010 for specific methods to collect and audit data.

Basis of Presentation

The accompanying unaudited condensed 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 nine months ended September 30, 2016 are not indicative of the results that may be expected for the year ending December 31, 2016 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, 2015 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2016. 

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, duostech and TrueVue 360, Inc. All inter-company transactions and balances are eliminated in consolidation.

5

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(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 consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of assets acquired and liabilities assumed in business combinations, estimates of percentage completion on projects and related revenues, valuation of stock-based compensation, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, valuation of stock-based awards and valuation of loss contingencies. 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. There were no amounts on deposit in excess of federally insured limits at September 30, 2016 and December 31, 2015.

Significant Customers and Concentration of Credit Risk

The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced any write-downs in its accounts receivable balances through September 30, 2016. A significant portion of revenues is derived from certain customer relationships. The following is a summary of customers that each represents greater than 10% of total revenues for the nine months ended September 30, 2016 and 2015, and total accounts receivable at September 30, 2016 and December 31, 2015, respectively:

2016						2015
Revenue			Accounts Receivable			Revenue			Accounts Receivable
Customer A	31	%	Customer A	—		Customer A	22	%	Customer A	27	%
Customer B	20	%	Customer B	57	%	Customer B	14	%	Customer B	—
Customer C	16	%	Customer C	14	%	Customer C	—		Customer C	—
Customer D	16	%	Customer D	—		Customer D	—		Customer D	—
Customer E	11	%	Customer E	11	%	Customer E	—		Customer E	—
Customer F	—		Customer F	—		Customer F	—		Customer F	33	%
Customer G	—		Customer G	—		Customer G	21	%	Customer G	—
Customer H	—		Customer H	—		Customer H	20	%	Customer H	—
Customer I	—		Customer I	—		Customer I	—		Customer I	24	%

Geographic Concentration

Approximately 18% of revenue is generated from 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, 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.

6

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

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).

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.

The estimated fair value of certain financial instruments, including accounts receivable and accounts payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The cost basis of notes and convertible debentures approximates fair value due to the market interest rates carried for these instruments.

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss 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 or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At September 30, 2016, outstanding warrants to purchase an aggregate of 3,600,840 shares of common stock and 1,819,418 shares of common stock issuable upon conversion of convertible debt (principal and interest) were excluded from the computation of dilutive earnings per share because the inclusion would have been anti-dilutive.

Segment Information

The Company operates in one reportable segment.

Reclassifications

Certain note amounts in the 2015 consolidated balance sheet have been reclassified within current liabilities to conform to the 2016 presentation.

Recent Issued Accounting Standards

In August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-14 Revenue from Contracts with Customers.  The ASU defers the effective date of previously issued ASU 2014-09 (the new revenue recognition standard) by one year for both public and private companies. The ASU requires public entities to apply the new revenue recognition guidance for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December 15, 2017. Both public and nonpublic entities will be permitted to apply the new revenue recognition standard as of the original effective date for public entities (annual periods beginning after December 15, 2016).  The Company plans to adopt this standard for their fiscal year beginning January 1, 2018.  The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

7

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees will need to recognize almost all leases on their balance sheet as a right of use asset and a lease liability.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2018.  The Company does not expect this ASU to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09: "Compensation – Stock Compensation (Topic 718)-Improvements to Employee Share-Based Payment Accounting" which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016.  The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

NOTE 2 – GOING CONCERN 

As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $2,092,558 for the nine months ended September 30, 2016.  During the same period, cash used in operations was $1,518,348. The working capital deficit, stockholders’ deficit and accumulated deficit as of September 30, 2016 was $3,901,399, $4,915,212 and $23,043,734, respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise additional capital and become profitable. Management embarked on a business growth strategy in 2014 to engage with private companies in or related to its market space with the intention of a merger or acquisition. In April 2015, the Company completed a reverse triangular merger whereby duostech became a wholly owned subsidiary of the Company. The two companies are now integrated and the merged company continues to grow its business in all of the markets where they have previously operated. The Company was successful on April 1, 2016 in closing long-term debt financing of $1.8 million for the purposes of settling certain current debt and payables obligations. Net proceeds after placement agency fees, legal fees, due diligence expenses and direct payments from the lender to certain creditors of the Company were $837,891.  (See Note 3)

Additionally, during the reporting period, the Company’s Board of Directors approved a new class of Preferred Stock, “Series A”.  The Articles of Amendment Designating Preferences, Rights and Limitations of the Series A were filed with State on October 31, 2016.  The Series A designated 500,000 of the Company’s 10 million “blank check” preferred stock with a stated value of $10 per share, an 8% cumulative dividend payable when and if declared by the Board and a provision to convert into the Company’s common stock at $0.18 per share.  If the holder elects to convert the Series A to common stock, the cumulative dividend amount will also be converted to common stock.  The Series A is redeemable by the holder after 3 years including all unconverted stated value and accrued dividends.  For shareholders who invested in previous private placements, the Company is offering on a case by case basis, the ability to convert the existing amount invested into an equivalent amount in the Series A on the condition that they invest an equivalent additional amount in the Series A.  The company continues in discussions with certain potential investors with a view to obtaining equity financing to invest in resources to support and accelerate our growth from anticipated orders and provide additional working capital. (See Note 9)

While no assurance can be provided, management believes that these actions provide the opportunity for the Company to continue as a going concern and to grow its business and achieve profitability. Ultimately however, the continuation of the Company as a going concern is dependent upon the ability of the Company to execute the plan described above, generate sufficient revenue and to attain profitable operations. These unaudited, consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 

8

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

NOTE 3 – DEBT

Notes Payable - Financing Agreements

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

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	2,211	9.75	%	$	21,325	9.75	%
Third Party - Insurance Note 2		19,065	10.00	%		11,277	9.75	%
Third Party - Insurance Note 3		37,943	8.05	%		—	—
Third Party - Insurance Note 4		28,253	9.24	%		11,422	8.99	%
Total	$	87,472			$	44,024

The Company entered into an agreement on December 23, 2015 with its insurance provider by executing a $21,325 note payable (Insurance Note 1) issued to purchase an insurance policy with an annual interest rate of 9.75% payable in monthly installments of principal and interest totaling $2,229 through October 23, 2016.  The note balance as of September 30, 2016 and December 31, 2015 was $2,211 and $21,325, respectively.

The Company entered into an agreement on September 15, 2015 with its insurance provider by executing an $18,823 note payable (Insurance Note 2) issued to purchase an insurance policy with an annual interest rate of 9.75% payable in monthly installments of principal and interest totaling $1,678 through July 15, 2016. The Company renewed the note payable on September 15, 2016 in the amount of $19,065 with an annual interest rate of 10% payable in monthly installments of principal and interest totaling $1,702 through June 30, 2017.  The note balance as of September 30, 2016 and December 31, 2015 was $19,065 and $11,277, and respectively.

The Company renewed an agreement on February 3, 2016 with its insurance provider by executing a $123,571 note payable (Insurance Note 3) issued to purchase an insurance policy with an annual interest rate of 8.05% payable in monthly installments of principal and interest totaling $12,818 through December 3, 2016.  At September 30, 2016 and December 31, 2015, the note payable balance was $37,943 and zero, respectively.

The Company renewed an agreement on April 1, 2016 with its insurance provider by executing a $65,000 note payable (Insurance Note 4) issued to purchase an insurance policy with an annual interest rate of 9.24% payable in monthly installments of principal and interest totaling $5,782 through February 1, 2017.  At September 30, 2016 and December 31, 2015, the note payable balance was $28,253 and $11,422, respectively, with the $11,422 balance relating to the April 1, 2015 note with the same provider with an annual interest rate of 8.99%.

Notes Payable - Related Parties

The Company’s notes payable to related parties classified as current liabilities consist of the following as of:

	September 30, 2016					December 31, 2015
Payable To	Principal		Interest*			Principal		Interest*
Related party	$	65,000		.75	%	$	65,000		.75	%
Related party		13,369		.67	%		17,651		.67	%
Related party		16,808		—			33,615		—
Related party		56,500		.67	%		36,500		.67	%
Related party		7,670		—			21,170		—
Related party		8,431		.67	%		11,131		.67	%
CFO		31,973		.67	%		7,841		—
Related party		241,346		.50	%		294,056		.50	%
CEO		58,610		.67	%		—		—
Related party		111,645		.67	%		—		—
Total	$	611,352				$	486,964

* effective interest rate per month including default penalties

9

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

On May 28, 2008, a shareholder who is indirectly invested in the Company with the Chief Executive Officer (CEO) through another entity, loaned the Company the principal amount of $65,000 accruing interest at .75% per month. There was an accrued interest balance of $47,768 and $43,381 as of September 30, 2016 and December 31, 2015, respectively. The note was repayable on or before September 15, 2008 although no demand for repayment has been received from the holder. There is no formal written agreement and the terms are documented on a letter from a former Chief Financial Officer (CFO) of the Company. The terms contain no default clauses and as of the time of this report, no demand for repayment has been made or expected. The Company intends to either negotiate a conversion of the outstanding amount to common stock or to repay the loan when sufficient working capital permits such action.

Upon the consummation of the merger on April 1, 2015, the Company assumed an Original Issue Discount (OID) promissory note with a remaining principal balance of $15,000 accruing interest at 1.5% per month. On November 30, 2015, there was an outstanding principal balance of $15,000 and an accrued interest balance of $2,651 in which the promissory note was restructured into a note due on or before December 15, 2016 for a total of $17,651 principal balance, accruing interest at .67% per month and monthly payments of $1,535 commencing January 15, 2016.  As of September 30, 2016, the outstanding balance was $13,369.

Upon the consummation of the merger on April 1, 2015, the Company assumed two promissory notes due to an entity which had previously extended credit on a revolving basis for working capital. The total principal balance was $212,693 at the time of the merger and carried total interest and extension fees of 2.5% per month. On September 30, 2015, the note and accrued interest for a total of $275,660 was exchanged for 1,002,401 common shares. The Company recorded a loss on settlement in the amount of $115,139. The same lender had extended further credit to the Company’s subsidiary, TrueVue360, Inc., which on September 30, 2015 had a principal balance of $28,040 and accrued interest balance of $9,777 totaling $37,817. The note can be extended each time for an additional 30 days’ subject to payment of a 1% extension fee in addition to the 1.5% interest cost which can be accrued. The Company agreed to convert this note to an 18-month term loan with 0% interest and monthly payments of $2,100 starting November 1, 2015. The Company also issued 501,201 5-year warrants with an exercise price of $0.28 as consideration for the conversion of the larger note and the zero interest feature of the extended payment plan.  As of September 30, 2016, the outstanding balance was $16,808.

On December 12, 2013, the wife of the CEO loaned the Company the sum of $10,000 at a monthly percentage rate of .67%. On January 29, 2015, March 3, 2015 and September 30, 2015 the wife of the CEO loaned the Company an additional $12,000, $5,000 and $9,500, respectively.  On January 24, 2016, an additional $20,000 was loaned to the Company. The total principal due at September 30, 2016 and December 31, 2015 was $56,500 and $36,500, respectively.  There was an accrued interest balance of $6,344 and $3,052 as of September 30, 2016 and December 31, 2015, respectively.  The note is repayable on demand of the holder. As of the time of this report, no such demand has been made.

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $30,378 due to the former CEO of the Company. These amounts are non-interest bearing and are due on demand. The Company pays these loans as sufficient funds become available.  At September 30, 2016, the loan had an outstanding balance of $7,670.

Upon the consummation of the merger on April 1, 2015, the Company assumed an OID promissory note with a remaining principal and accrued interest balance of $10,593. During the third quarter of 2015, interest payments of $1,500 were paid. At November 30, 2015, the principal balance of the note was $10,000, and an accrued interest balance of $1,131 at a rate of 2.5% per month was restructured into a note due on or before December 15, 2016 for a total of $11,131 principal balance, accruing interest at .67% per month and monthly payments of $968 commencing January 15, 2016.  At September, 2016, the outstanding note balance was $8,431.

Upon the consummation of the merger on April 1, 2015, the Company assumed two promissory notes with a total principal balance of $8,783 due to the Company’s CFO. During the second quarter of 2015, the CFO loaned the Company an additional $365 and the Company made payments to the CFO during the same period in the amount of $1,307. These advances do not incur any interest and will be paid by the Company when sufficient funds are available. On January 28, 2016, the CFO loaned the Company $30,000, accruing interest at .67% per month and is repayable by the Company when sufficient funds are available.  At September, 2016, the outstanding loan balance was $31,973.

10

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

On April 8, 2015, the Company received a $310,000 loan from a related party principal shareholder. The note accrues interest at the rate of 6% per annum and was repayable on or before October 31, 2015. There was accrued interest balance of $8,616 as of September 30, 2015. The Company and shareholder replaced the note with a promissory new note in the face amount of $320,166, which includes principal and accrued interest through October 31, 2015. Repayment has been fixed at eleven monthly payments of $27,750 plus one final payment of $27,006.63 (including interest of 6%) beginning on or before December 31, 2015. As of September 30, 2016, the Company is seven payments in arrears and the outstanding balance was $241,346.

On July 19, 2016, the Company received a $60,000 loan less fees of $75 for a related party loan with proceeds of $59,925 from the Company’s CEO.  The promissory note carries an annual interest rate of 7.99% with a monthly installment payment of $1,052 through July 19, 2022.   As of September 30, 2016, the outstanding balance was $58,610.

On August 11, 2016, the Company received an $111,645 loan from a related party principal shareholder.  The note accrues interest at the rate of 8% per annum and is repayable on or before February 11, 2017.  As of September 30, 2016, the outstanding balance was $111,645.

Notes Payable

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest*		Principal		Interest*
Shareholder	$	19,108		—	$	19,108		—
Shareholder		—		—		125,000		.67%
Vendor		30,000		—		52,500		—
Total	$	49,108			$	196,608

* effective interest rate per month including default penalties

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $19,108 due to an unrelated party investor and shareholder of the Company. The $19,108 is non-interest bearing and currently due, although the note holder has not made any demand for payment at this time. At the end of the reporting period, the holder, who is also a shareholder, authorized the Company to convert the outstanding amount and an equivalent amount of common stock received from a previous investment into the Series A Convertible Preferred shares described elsewhere in this report.

Upon the consummation of the merger on April 1, 2015, the Company assumed a non-interest bearing OID promissory note due to an unrelated party stockholder, subject to a forbearance agreement and due July 14, 2015. A 25% penalty is due if the balance is not paid by the due date. Furthermore, 5% of all factor payments to the Company are to be used to pay down the note. The note is secured by certain of the Company’s intellectual property. Additionally, until the loan is paid, if there is a trigger notice (loan is due or is called), the factor will pay to the stockholder all factor holdback amounts after collection of the related accounts receivable, less any factor fees. On September 21, 2015, the shareholder agreed to convert $81,250 of the $165,000 outstanding note to 506,421 shares of the Company’s common stock and the addition of the 25% penalty as stated above in the amount of $41,250, with a new note balance of $125,000, 15-month term and 8% interest. The Company recorded a loss on conversion in the amount of $55,484.  The note was repaid on April 1, 2016 including the accrued interest of $7,078. At September 30, 2016 and December 31, 2015, the accrued interest was zero and $4,578, respectively.

On August 10, 2015, the Company entered into an agreement with FacilityTeam of Ontario, Canada to settle a dispute that had arisen concerning payments for software development services. The Company agreed to pay to FacilityTeam $2,500 per month starting October 1, 2015 for 24 months and, pursuant thereto, took a charge in the third quarter of 2015 for the settlement amount of $60,000.  At September 30, 2016 and December 31, 2015, the outstanding balance was $30,000 and $52,500, respectively.

11

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

Convertible Notes, Including Premiums

	September 30, 2016						December 31, 2015
Payable To	Principal		Premium		Principal, Including Premium		Principal		Premium		Principal, Including Premium
Vendor	$	50,000	$	50,000	$	100,000	$	50,000	$	50,000	$	100,000
Vendor		46,975		46,975		93,950		46,975		46,975		93,950
Total	$	96,975	$	96,975	$	193,950	$	96,975	$	96,975	$	193,950

Upon the consummation of the merger on April 1, 2015, the Company assumed a convertible promissory note of $50,000 due to a vendor of the Company which included a premium of $50,000 relating to its treatment as stock settled debt under ASC 480. The $50,000 convertible note accrues interest at 1% per month and is convertible into the Company’s common stock at a 50% discount to the average closing bid prices for the company’s common stock for the five days immediately preceding the conversion date.  An interest payment was made on January 11, 2016 in the amount of $3,230. The outstanding note balance at September 30, 2016 and December 31, 2015 was $50,000 and $50,000, respectively and accrued interest on September 30, 2016 and December 31, 2015 was $6,011 and $4,723, respectively. As previously disclosed, on May 23, 2016, the Company filed a lawsuit against, the holder of this note and another convertible note described below. The Company owes the principal and interest due under the notes and has sought to pay principal and interest of the note which first came due but its offer was rejected. As of the date of this report, the lawsuit remains unresolved. (see Notes 5 and 9)

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $44,325 bearing interest at 1.5% per month. The note holder gave 30-day notice to the Company on May 1, 2015 for the note to be repaid in full plus any interest due. On June 30, 2015, an Addendum to Promissory Note was executed providing that the payment of $46,975, $44,325 plus accrued interest of $2,650, in connection with the Debt Purchase Agreement represents the total settlement of the Note. Also, on June 30, 2015 a current shareholder and services provider agreed to assume the new $46,975 note with the existing terms and conditions and an addendum was signed for the assumption and making the note convertible into the Company’s common stock at a 50% discount to the average price of the Company’s common stock for the five trading days preceding conversion and the new Note is non-interest bearing. The addendum was treated as a debt extinguishment. The Company recorded a premium of $46,975 since the note was convertible at a fixed rate to a fixed monetary amount equal to $93,950 pursuant to ASC 480. On September 30, 2016 and December 31, 2015, the outstanding balance on the note was $93,950 which includes the $46,975 premium and there was accrued interest on September 30, 2016 and December 31, 2015 of $10,568 and $4,228, respectively. During the previous quarter, the new holder attempted a conversion into stock of a portion of the note. The Company determined that the conversion notice was invalid in several respects and rejected the conversion. As previously disclosed, on May 23, 2016, the Company filed a lawsuit against, the holder of this note and another convertible note described above. The Company owes the principal and interest due under the notes and has sought to pay principal and interest of the note which first came due but its offer was rejected. As of the date of this report, the lawsuit remains unresolved. (see Notes 5 and 9).

Note Payable – Third Party

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Note payable	$	1,800,000		14% + 2%	$	—		—
Less unamortized discounts		659,418				—
Note payable, net	$	1,140,582			$	—

On March 31, 2016, the Company entered into a Securities Purchase Agreement with an institutional investor, which, together with the transaction documents referenced therein, provides for the terms in the following paragraph. The Company closed the Offering on April 1, 2016.

12

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

The offering amount was $1,800,000 less a 5% original issue discount. The note is a senior debt obligation secured by substantially all assets of the Company and shares of all current and future subsidiaries as well as being guaranteed by each subsidiary but is not convertible into the Company’s stock. The senior secured note also contains certain default provisions and is subject to standard covenants such as restrictions on issuing new debt. In conjunction with the note, the Company issued a warrant exercisable for 2.5 million shares of common stock exercisable for five years at an exercise price of $0.35 per share. The warrants also contain certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions as well as a potential adjustment to the exercise price based on certain events. The relative fair value of the warrants of $466,031 was recorded as a debt discount and is being amortized to interest expense over the term of the debt. The note will mature three years from the closing date and will accrue interest at the rate of 14% per annum, payable monthly. The note will accrue additional interest at the rate of 2% per annum, compounding monthly, payable annually in arrears. The Company may choose to begin amortizing the principal at any time subject to prepayment premiums. Also, the Company agreed to an amended placement agent’s fee with respect to the placement of such loan which differed from the original terms agreed with the Placement Agent as that agreement had expired (see Note 5, Placement Agency Agreement). The amendment included (a) postponement of payment of the cash fee of $5,000 to 15 days of execution of the term sheet, (b) the closing fee was fixed to $137,000 (based on a $1.8 million debt funding) and three-year warrants for 200,000 shares at an exercise price of $0.40 per share and valued at their fair value of $43,272.  Other closing expenses totaled $40,000 plus another $10,000 of legal fees previously paid.  Total cash issue costs of $192,000, the original issue discount of $90,000, the warrant relative fair value of $466,031 and warrant fair value of $43,272 were recorded as debt discounts to be amortized over the three-year term of the debt.  Net proceeds were $1,518,000 after all issue costs.  Additionally, at closing, certain previously recorded obligations of the Company totaling $690,110, as discussed below, were paid directly from the lender reducing the actual proceeds to the Company.

On April 1, 2016, in conjunction with the closing of the aforementioned Securities Purchase Agreement, the sum of $558,032 was remitted out of the proceeds in final settlement of the litigation with CW Electric.  This amount consisted of $550,000 of the agreed settlement plus $8,032 of accrued interest. This represents full and final settlement of this matter, which is now closed.

On April 1, 2016, the Company directed the sum of $132,078 to be paid out of proceeds of the Securities Purchase agreement to a shareholder who held a note secured against part of the Company’s assets.  The payment of $125,000 in principal and $7,078 of accrued interest represents full payment of the note and the noteholder no longer holds any security against the assets.

On April 1, 2016, the Company made a payment of $142,000 (part of the $182,000 discussed above) to a placement agent as compensation for arrangement of financing through the aforementioned Securities Purchase Agreement.  The payment was deducted from proceeds of that agreement.  The Company issued 200,000 three-year warrants with an exercise price of $0.40 to the agent as additional compensation.  These amounts are broadly in line with the anticipated compensation agreed within the original placement agency agreement which was terminated in December, 2015.

NOTE 4 – LINE OF CREDIT

The Company assumed a line of credit with Wells Fargo Bank upon the closing of the merger on April 1, 2015. The line of credit provided for borrowings up to $40,000, but is now closed to future borrowing. The outstanding balance under the facility as of September 30, 2016 and December 31, 2015 was $38,827 and $40,216, respectively, including accrued interest. This line of credit has no maturity date. The annual interest rate is 10%.  The former CEO of the Company personally guaranteed the repayment of the outstanding amount.

13

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Placement Agency Agreement

On July 1, 2015, duostech entered into a limited exclusive placement agent agreement in connection with the proposed offer and placement of up to $5,000,000 of securities, convertible instruments, private notes or loans (excluding a registered public offering) of the Company. The Agreement was for an initial term of 120 days. duostech paid an initial fee of $15,000 in connection with this engagement with an additional $5,000 due upon the acceptance by duostech of a valid term sheet. In the event of a transaction being concluded, the agent would have been paid 5% of senior debt that is not convertible and 8% cash plus 8% warrants of any equity based transaction. At the conclusion of the initial term no acceptable term sheet had been presented and the Company terminated the agreement on December 1, 2015. The parties agreed to continue working together without a formal agreement but with an understanding that should a term sheet be accepted and a subsequent financing be secured, Duos would honor the terms of the original agreement as described above.

On January 6, 2016, the Company entered into an agreement with an investment banker to provide general financial advisory and investment banking services. Services included, but not limited to in the agreement are to provide a valuation analysis of the Company, assist management and advise the Company with respect to its strategic planning process and business plans including an analysis of markets, positioning, financial models, organizational structure, potential strategic alliances, capital requirements, potential national listing and working closely with the Company’s management team to develop a set of long and short-term goals with special focus on enhancing corporate and shareholder value. The Agreement is for an initial term of six months. The Company shall pay a non-refundable fee accruing at the rate of $10,000 per month, for the term of the agreement. These advisory fee payments will be accrued and deferred for payment until the earlier of 1) closing of a financing described in the agreement, 2) a closing of interim funding at which point fifty percent (50%) of the outstanding monthly advisory fee will be payable on the last day of the month following closing of the interim financing or 3) the termination of the agreement.  The Company issued to the investment banker 912,000 vested shares of the Company’s common stock as of the execution date of this agreement. In addition, the Company issued warrants for the purchase of 302,000 shares of the Company’s common stock. The warrants shall have a 5-year term and an exercise price of $0.30. (See Note 7)

On January 27, 2016, the Company entered into an agreement with a consultant to provide advisory services for an initial period of six months. The consultant will assist the Company with its objective of evaluating financing and other strategic options in connection with operational expansion and respond to any opportunities that arise in regard to strategic partnerships/acquisition/joint ventures or other business relationships that may advance revenue growth and enterprise value. Upon a qualified financing of at least $1,500,000 through a party introduced by the consultant, the Company agreed to issue up to $90,000 in equity or cash at the same rate and terms as the basis of the financing. In consideration for development services thirty days from the execution of this agreement, 20,000 shares of restricted common stock of the Company will be granted to the consultant or assigns and be issued within fifteen days of the grant. Also, 30,000 additional shares shall be granted to the consultant or assigns on completion of any transactions with a potential participant. In consideration for advisory services, the non-refundable sum of $5,000 was payable upon execution of the agreement with a further $5,000 to be deferred and paid upon the completion of any transaction with a potential participant.  On May 5, 2016, the Company cancelled the agreement due to lack of performance with the consultant who was to provide advisory services for an initial period of six months.  The Company paid an initial amount of $2,500 and no further compensation will be paid.  No shares of common stock were issued in connection with this agreement.

On May 13, 2016, the Company entered into an agreement with a consultant in the business of providing services for management consulting, business advisory, shareholder information and public relations for a period of three months.  During the Term of this Agreement, the Company will pay to the Consultant the sum of $3,000 per month.  The Company may accrue monthly fees without payment to the consultant until the company closes a qualified financing other than the first month’s retainer. Upon signing, the Company issued to the Consultant 125,000 shares of the Company’s restricted common stock for a total purchase price of $100 and recorded $27,400 as a prepaid asset to be amortized over the three-month term.  The Company amortized $27,400 to expense as of September 30, 2016. As of August 14, 2016, the agreement had expired and was not renewed in writing by the parties as called for in the agreement.  The Company continues to work with the Principal on certain potential funding arrangements that were started (but not consummated) during the period in which the contract was in effect.

14

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

On September 1, 2016, the Company entered into an agreement with a registered investment broker, for the purposes of securing interim and long-term funding for the Company.  During the ninety-day term of this agreement, the Company will pay to the broker the sum of $50,000, certain travel expenses, plus 7% cash fee of the aggregate principle amount raised on a qualified financing. The Company has paid an initial amount of $6,500 to the broker and the broker has sent materials to qualified investors. As of the date of this report, the Company had not received any term sheets.

Litigation

On or about December 22, 2014, Corky Wells Electric (“CW Electric”) filed suit in the Circuit Court of Boyd County, Kentucky, against duostech demanding relief related to a promissory note issued by duostech to CW Electric on December 10, 2008 in the amount of $741,329. The suit was subsequently removed to the United States District Court for the Eastern District of Kentucky, Ashland Division. Previously, duostech entered into a “Stipulation for Settlement” on September 30, 2009 wherein CW Electric agreed to dismiss a previous lawsuit and duostech agreed to resume payments on the promissory note. In its suit, CW Electric contended that duostech breached the terms of that Stipulation for Settlement by not making the required number of payments at the times stipulated therein. CW Electric further contended that due to the breach of payment terms, under the terms of the promissory note, the outstanding amount continued to accrue interest at the rate of 18% per annum, which compounded monthly for a total of $1,411,650 due through the future final payment date.

Effective October 28, 2015, duostech and CW Electric entered into a Settlement and Release Agreement (the “Settlement Agreement”) pursuant to which the parties have agreed to settle the suit upon the payment by duostech to CW Electric of $550,000 (the “Settlement Amount”) by February 15, 2016. An agreed judgment, evidencing the Company’s agreement to pay the Settlement Amount, was signed by the parties (the “Agreed Judgment”) and such document deposited into escrow with CW Electric’s counsel. At the time of the payment of the Settlement Amount, the Agreed Judgment is to be returned to the Company for destruction.

Under the terms of the Settlement Agreement, duostech had until February 15, 2016 to pay the Settlement Amount and, if such amount was not paid by such date, then the Agreed Judgment was to be filed with the court and executed upon, with interest due at 12% per annum beginning February 15, 2016.

On February 9, 2016, duostech’s counsel informed CW Electric’s counsel that on February 5, 2016, Duos executed a term sheet with an investment fund which will, among other things, provide the funding for the settlement with C.W. Electric. At the time, Duos and the lender believed that the closing would take place during or prior to the second week in March. Consequently, Duos requested that C.W. Electric refrain from filing and/or executing on the Agreed Judgment attached to the Settlement Agreement until after the closing, as they were in the final stretches of obtaining the funding necessary to resolve this matter. CW Electric’s counsel agreed to an extension and following the filing of a respective joint motion, the District Court for the Eastern District of Kentucky entered an order of continuance until March 20, 2016 and further extended until April 20, 2016.  Payment was made in full upon the closing of the loan dated April 1, 2016.

A contingent lawsuit payable of $550,000 was reflected at March 31, 2016 and December 31, 2015 in the Company’s consolidated financial statements.  On April 1, 2016, CW has released the Company, duostech and affiliates from any action that could have been brought in the suit.

On April 27, 2016, the holder of two convertible notes issued a notice of conversion to the Company for a portion of one of the notes. The conversion notice was determined to be invalid as was a previous conversion notice issued on the other note during the quarter. A difference of opinion has arisen between the holder and the Company as to the mechanics of conversion and the Company had been in discussions to resolve those differences. On May 23, 2016, we filed a lawsuit against the holder. The suit alleges, amongst other things, that the officers and directors of Greentree that entered into the notes, failed to disclose legal facts with respect to their personal conduct in the past, which, had the Company known, would have made it unlikely that such transaction would have been consummated. The Company owes the principal and interest due under the notes and sought to pay principal and interest of the note which first came due, but the offer was rejected. On May 24, 2016, the Company learned through a third party that the holder had filed suit against the Company on May 12, 2016 for default on one of notes, but had not notified the Company or its attorneys, nor served either the Company or its attorneys. The Company was served shortly thereafter.  (See Note 9)

15

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

Delinquent Payroll Taxes Payable

As reported previously, the Company has a delinquent payroll tax payable at September 30, 2016 and December 31, 2015 in the amount of $94,470 and $244,470, respectively. The delinquent portion is included in the payroll taxes payable balance of $408,186 and $296,215, respectively, as shown on the Company’s consolidated balance sheet. The IRS has accepted the Company’s offer of a monthly installment agreement in the amount of $25,000 commencing March 28, 2016.  The monthly installment payments paid as of September 30, 2016 totals $150,000.  (See Note 9)

NOTE 6 – RELATED PARTIES

Notes, Loans and Accounts Payable

As of September 30, 2016 and December 31, 2015, there were various notes and loans payable to related parties totaling $611,352 and $486,964, respectively, with related unpaid interest of $67,563 and $50,873 respectively (see Note 3). The Company also has accounts payable-related parties due to officers for expense reimbursement and due to an affiliate for services in the total amount of $36,400 and $30,070 at September 30, 2016 and December 31, 2015, respectively.

Administrative Services Agreement

On December 1, 2002, the Company and the former parent entered into an Administrative Services Agreement whereby the former parent agreed to provide administrative and support services including but not limited to, (a) rent and general infrastructure, (b) human resource management services, and (c) accounting and financial services and other miscellaneous services. The monthly fee was subject to adjustments in accordance with the actual services rendered. There were no fees incurred with the former parent for the year ending December 31, 2015 and we will not incur any additional fees going forward. At September 30, 2016 and December 31, 2015, $11,788 and $5,173, respectively, was due to the former parent under this agreement and is included in Accounts payable - related parties as disclosed above.

NOTE 7 – STOCKHOLDERS’ DEFICIT 

Common stock issued for services and settlements

On January 6, 2016, the Company entered into an agreement with an investment banker to provide general financial advisory and investment banking services. Services included, but not limited to in the agreement are to provide a valuation analysis of the Company, assist management and advise the Company with respect to its strategic planning process and business plans including an analysis of markets, positioning, financial models, organizational structure, potential strategic alliances, capital requirements, potential national listing and working closely with the Company’s management team to develop a set of long and short-term goals with special focus on enhancing corporate and shareholder value. The Agreement is for an initial term of six months. The Company shall pay a non-refundable fee accruing at the rate of $10,000 per month, for the term of the agreement. These advisory fee payments will be accrued and deferred for payment until the earlier of 1) closing of the financing described in the agreement, 2) a closing of interim funding at which point fifty percent (50%) of the outstanding monthly advisory fee will be payable on the last day of the month following closing of the interim financing or 3) the termination of the agreement. The Company has issued to the investment banker 912,000 vested shares of the Company’s common stock as of the execution date of this agreement.  In addition, the Company has issued warrants for the purchase of 302,000 shares of the Company’s common stock. The warrants have a 5-year term and an exercise price of $0.30.  As of September 30, 2016, the Company has accrued $60,000 which is unpaid and is recorded in accrued expenses on the Company’s consolidated balance sheet.

On January 22, 2016, Warrant Holders were granted 2,100 shares of common stock in exchange for existing 5,250 warrants resulting in a loss on settlement of $630 charged to operations.

16

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

On April 1, 2016, the Company issued a warrant exercisable into 2.5 million shares with a term of five years and exercise price of $0.35 per share in conjunction with a Securities Purchase Agreement (see Note 3).  The Warrants also contain certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions as well as a potential adjustment to the exercise price based on certain events. The relative fair value of the warrants of $466,031 was recorded as a debt discount and will be amortized to interest expense over the term of the debt.

On April 1, 2016, the Company issued 200,000 three-year warrants with an exercise price of $0.40 to the placement agent as additional compensation for arrangement of financing through the Securities Purchase Agreement (see Note 3).  The fair value of the warrants of $43,272 was recorded as a discount and will be amortized to interest expense over the term of the debt.

The Company issued 253,977 shares of common stock for consulting services rendered valued at the quoted trading price on the respective grant date resulting in consulting expense of $35,000 in the nine months ended September 30, 2016.

In May 2016, the Company issued 125,000 shares of common stock for consulting services valued at the quoted trading price on the respective grant date resulting in prepaid consulting expense of $27,400 to be amortized over the three-month agreement term.

In August 2016, the Company’s Board of Directors approved a new class of Preferred Stock, “Series A”.  The Articles of Amendment Designating Preferences, Rights and Limitations of the Series A were filed with State on October 31, 2016.  The Series A authorized 500,000 of the Company’s 10 million “blank check” preferred stock with a stated value of $10 per share, an 8% cumulative dividend payable when and if declared by the Board and a provision to convert into the Company’s common stock at $0.18 per share.  If the holder elects to convert the Series A to common stock, the cumulative dividend amount will also be converted to common stock.  The Series A is redeemable by the holder after 3 years including all unconverted stated value and accrued dividends.  For shareholders who invested in previous private placements, the Company is offering on a case by case basis, the ability to convert the existing amount invested into an equivalent amount in the Series A on the condition that they invest an equivalent additional amount in the Series A.  As of September 30, 2016, several of the company’s shareholders had expressed interest in participating and the Company has received prepayments in the amount of $140,000 which have been recorded as accrued expenses, a current liability, as of September 30, 2016.  (See Note 9)

NOTE 8 – COMMON STOCK PURCHASE WARRANTS

Warrants

The following is a summary of activity for warrants to purchase common stock for the nine months ended September 30, 2016:

	September 30, 2016
	Number of Warrants			Weighted Avg. Exercise Price		Remaining Contractual Life (Years)
Outstanding at the beginning of the year		609,340		$	.54		4.25
Warrants expired		(5,250	)		6.67
Warrants issued with debt or debt modifications		3,002,000			.35		4.35
Warrants exchanged for common stock		(5,250	)		6.67
Outstanding at end of period		3,600,840			.36		4.25
Exercisable at end of period		3,600,840		$	.36		4.25

In the first quarter of 2016, 5,250 warrants were exchanged for 2,100 common shares resulting in a loss on exchange of $630 charged to operations.  During the same period, 1,500 warrants expired.

The Company has issued warrants for the purchase of 302,000 shares of the Company’s common stock, which the warrants have a 5-year term and an exercise price of $0.30.  (See Note 5)

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DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016

(Unaudited)

During the second quarter of 2016, 2,700,000 warrants were issued with the Securities Purchase Agreement and the amended Placement Agent Agreement.  During the same period, 3,750 warrants expired.  

NOTE 9 – SUBSEQUENT EVENTS

On October 11, 2016, the Company received an $8,000 prepayment from a shareholder to invest into Series A Convertible Preferred Shares pending filing of the Articles of Amendment with the state of Florida.  This is in addition to $140,000 received during the reporting period for a total of $148,000.  In accordance with the articles, the Company will repurchase an equivalent dollar amount of shares from the investor such that the aggregate proceeds from the Series A will be $296,000 or 29,600 Preferred Shares as discussed in Note 7.  The Company will record Temporary Equity in the amount of $296,000 as the transactions are finalized. The Common Stock repurchased will be held on the Company’s balance sheet.

As of October 28, 2016, the Company was current with the $25,000 monthly installment plan with the IRS.  (See Note 5)

On October 31, 2016, the Company filed Articles of Amendment Designating Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the state of Florida.  (See Note 2)

On November 4, 2016, the Company was notified by its attorneys that motions were granted against the Company in a legal matter previously disclosed concerning Greentree Financial.  The motions were “without prejudice” and the Company intends to amend both our affirmative defenses and counterclaim to set forth additional information which we intend to submit to the court by November 21, 2016.  The Company continues to seek ways to settle the matter in order to avoid protracted litigation.  (See Note 5)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

The following discussion should be read in conjunction with the consolidated financial statements and related notes contained elsewhere in this form 10-Q. Certain statements made in this discussion are “forward-looking statements” within the meaning of the private securities litigation reform act of 1995. Forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expects”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the negative of these terms or other comparable terminology and include, without limitation, statements below regarding: the Company’s ability to continue as a going concern; the Company’s intended business plans; the ability to raise working capital as needed; expectations as to market acceptance of the Company’s products; and belief as to the sufficiency of cash reserves. Because forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. these factors include, but are not limited to, the Company’s ability to continue as a going concern; the Company’s inability to raise funds to continue operations; the effect of a going concern statement by the Company’s auditors; the success of our merger with Duos Technologies, Inc. (“duostech”); the success of the merged operations; the competitive environment generally and in the Company’s specific market areas; changes in technology; the availability of and the terms of financing; changes in costs and availability of goods and services; economic conditions in general and in the Company’s specific market areas; demographic changes; changes in federal, state and /or local government law and regulations affecting the technology; changes in operating strategy or development plans; and the ability to attract and retain qualified personnel. Although the Company believes that expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The Company is under no duty to update any forward-looking statements after the date of this report to conform such statements to actual results. 

Overview

Duos Technologies Group, Inc., formerly known as Information Systems Associates, Inc. (“ISA”), was incorporated in Florida on May 31, 1994. We are headquartered in Jacksonville, Florida. Our wholly owned subsidiary, duostech is primarily engaged in the design and deployment of state-of-the-art, artificial intelligence driven intelligent technologies systems, with a focus on homeland security applications. 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.

praesidum® 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.

Our strategy includes expansion of its technology base through organic development efforts, strategic partnerships, and growth through strategic acquisitions. duostech’s primary target industry sectors include transportation, with emphasis on freight and transit railroad owners/operators, petro-chemical, utilities and healthcare.

ISA's original business for IT Asset Management (ITAM) services for large data centers is now operated as a division of our company that continues its sales efforts through large strategic partners. ISA developed a methodology for the efficient data collection of assets contained within large data centers and was awarded a patent in 2010 for specific methods to collect and audit data.

Prospects and Outlook

Over the past several years, we have made substantial investment in product research and development and achieved significant milestones in the development of our technology solutions. We have made progress in penetrating the market with our proprietary technology solutions, more particularly in the rail industry which is currently undergoing a major shift in maintenance strategies. We believe that this shift will be a significant motivating factor for using our technologies. We also continue to expand our IT professional audit services.

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Our business success in the immediate future will largely depend on the increased penetration of our target markets for our proprietary intelligent security analytical technology solutions.

Notwithstanding the above, no assurance can be provided that our product offerings will generate the market acceptance and orders that we contemplate.

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the unaudited financial statements included in this report.

Comparison for the Three months ended September 30, 2016 compared to Three months ended September 30, 2015

The following table sets forth a modified version of our unaudited Consolidated Statements of Operations that is used in the following discussions of our results of operations:

	For the Three Months Ended
	September 30,
	2016			2015			Change
REVENUES:
Project	$	594,096		$	1,366,565		$	(772,469	)
Maintenance and technical support		618,682			665,670			(46,988	)
IT asset management services		154,391			209,965			(55,574	)
Total Revenues		1,367,169			2,242,200			(875,031	)
COST OF REVENUES:
Project		303,126			653,194			(350,068	)
Maintenance and technical support		262,830			255,920			6,910
IT asset management services		79,199			94,747			(15,548	)
Total Cost of Revenues		645,155			1,003,861			(358,706	)
GROSS PROFIT		722,014			1,238,339			(516,325	)
OPERATING EXPENSES:
Selling and marketing expenses		62,116			64,219			(2,103	)
Salaries, wages and contract labor		758,685			686,081			72,604
Research and development		72,288			65,831			6,457
Professional fees		59,803			108,421			(48,618	)
General and administrative expenses		198,715			249,363			(50,648	)
Impairment loss		—			—			—
Total Operating Expenses		1,151,607			1,173,915			(22,308	)
INCOME (LOSS) FROM OPERATIONS		(429,593	)		64,424			(494,017	)
OTHER INCOME (EXPENSES):
Interest expense		(161,515	)		(273,750	)		112,235
Gain on settlement of accounts payable		—			—
Other income, net		34			2			32
Total Other Income (Expense)		(161,481	)		(273,748	)		112,267
Loss before income taxes		(591,074	)		(209,324	)		(381,750	)
Income tax		—			—			—
NET LOSS		(591,074	)		(209,324	)		(381,750	)
Preferred stock dividends		—			—			—
Net loss applicable to common stock	$	(591,074	)	$	(209,324	)	$	(381,750	)

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Revenues

Revenues were $1,367,169 and $2,242,200 for the three months ended September 30, 2016 and 2015, respectively. The decrease in revenue for 2016 of $875,031 is attributable to a combination of (a) decreased project activity during the quarter amounting to $772,469 (b) decreased activity in maintenance and technical service of $46,988 and (c) decreased activity in IT asset management services of $55,574. The decrease in revenue was mainly caused by the delays in implementation of some projects by the customers and IT asset management services which were anticipated to start during the quarter ended September 30, 2016.  The decrease in maintenance and service was anticipated and budgeted.

Cost of Revenues

Costs of revenues were $645,155 and $1,003,861 for the three months ended September 30, 2016 and 2015, respectively. The decrease in 2016 cost of revenues partially reflects the proportional decrease in project revenue as well as a decrease in IT asset management services with an offset of a small increase in maintenance and technical support expenses.   

Operating Expenses

Operating expenses for the three months ended September 30, 2016 and 2015 were $1,151,607 and $1,173,915, respectively.  The decrease in administration and general expense of $50,648 in the 2016 period is mainly due to IRS late fees assessed in the same three-month period in 2015.  The increase in salaries, wages and contract labor of $72,604 is attributable to expansion of the employee base in anticipation of new projects starting later in the fiscal year.  There was also an increase in consulting fees related to new consulting agreements to assist us with our business plan for growth. The decrease in professional fees of $48,618 is mainly due to reduced legal costs compared to the equivalent quarter in 2015 which still was impacted with fees related to the merger and related filings. There was a minor decrease in selling and marketing expense of $2,103.  The increase in research and development of $6,457 is largely due to additional investment in resources.

Income/Loss from Operations

The income/loss from operations for the three months ended September 30, 2016 and 2015 was a loss of $429,593 and income of $64,424, respectively. The overall increase of loss from operations from the 2015 to 2016 for the same three-month period is due to the decrease in revenue and additional headcount hired earlier in the year in anticipation of additional revenue growth for 2017 and beyond.

Other Income (Expense)

Interest Expense

Interest expense for the three months ended September 30, 2016 and 2015 was $161,515 and $273,750, respectively. The decrease in interest expense of $112,235 is primarily due to debt discount amortizations recorded as interest expense in 2015.

Net Loss

Net loss for the three-month period ended September 30, 2016 and 2015 was $591,074 and $209,324, respectively. The net loss increase of $381,750 was mainly due to the decrease in overall revenue and additional headcount as noted previously.  Net loss per common share was $0.01 and $0.00 for the three-month period ended September 30, 2016 and 2015, respectively. Weighted average common shares outstanding for the three-month period ended September 30, 2016 and 2015 were 66,025,986 shares and 61,831,726 shares, respectively.

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Comparison for the Nine months ended September 30, 2016 compared to Nine months ended September 30, 2015

The following table sets forth a modified version of our unaudited Consolidated Statements of Operations that is used in the following discussions of our results of operations:

	For the Nine Months Ended
	September 30,
	2016			2015			Change
REVENUES:
Project	$	1,707,177		$	2,891,198		$	(1,184,021	)
Maintenance and technical support		1,829,595			1,852,001			(22,406	)
IT asset management services		481,783			209,965			271,818
Total Revenues		4,018,555			4,953,164			(934,609	)
COST OF REVENUES:
Project		821,264			1,517,578			(696,314	)
Maintenance and technical support		727,529			693,709			33,820
IT asset management services		254,730			94,747			159,983
Total Cost of Revenues		1,803,523			2,306,034			(502,511	)
GROSS PROFIT		2,215,032			2,647,130			(432,099	)
OPERATING EXPENSES:
Selling and marketing expenses		227,785			208,283			19,502
Salaries, wages and contract labor		2,583,419			1,907,934			675,485
Research and development		201,668			157,328			44,340
Professional fees		229,277			233,553			(4,276	)
General and administrative expenses		622,851			738,531			(115,680	)
Impairment loss		—			1,578,816			(1,578,816	)
Total Operating Expenses		3,865,000			4,824,445			(959,445	)
LOSS FROM OPERATIONS		(1,649,969	)		(2,177,315	)		527,347
OTHER INCOME (EXPENSES):
Interest expense		(443,929	)		(839,962	)		396,033
Gain on settlement of accounts payable		—			3,200			(3,200	)
Other income, net		1,340			8			1,332
Total Other Income (Expense)		(442,589	)		(836,754	)		394,165
Loss before income taxes		(2,092,558	)		(3,014,069	)		921,512
Income tax		—			—			—
NET LOSS		(2,092,558	)		(3,014,069	)		921,512
Preferred stock dividends		—			—			—
Net loss applicable to common stock	$	(2,092,558	)	$	(3,014,069	)	$	921,512

Revenues

Revenues were $4,018,555 and $4,953,164 for the nine months ended September 30, 2016 and 2015, respectively. The decrease in revenue for 2016 of $934,609 is due to a combination of (a) decreased project activity for the nine-month period amounting to $1,184,021 (b) the decrease in revenue in maintenance and technical service of $22,406 and (c) offset with the increase of revenue from IT asset management services of $271,818. The decrease in project revenue was mainly caused by the delay of two projects which were anticipated to start during the quarter ended September 30, 2016.

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Cost of Revenues

Costs of revenues were $1,803,523 and $2,306,034 for the nine months ended September 30, 2016 and 2015, respectively. The decrease in 2016 cost of revenues mostly reflects the proportional decrease in project revenue.  The addition from the IT asset management services revenue added cost of revenues for that business.

Operating Expenses

Operating expenses for the nine months ended September 30, 2016 and 2015 were $3,865,000 and $4,824,445, respectively. The overall impact in the operating expenses decreasing in the 2016 period from the impairment charge of $1,578,816 recorded due to the merger in the same period of 2015.  The decrease in administration and general expense of $115,680 in the 2016 period is mainly due to expenses related to the corporate acquisition prospect we pursued in the 2015 period (which was subsequently cancelled) and with an offset as operating as a public entity and in connection with the merger completed in April 2015. The increase in salaries, wages and contract labor of $675,485 is attributable to expansion of the employee base in anticipation of new projects starting later in the fiscal year.  There was also an increase in consulting fees related to new consulting agreements to assist the company with its business plan for growth.

The decrease in professional fees of $4,276 is mainly due to less legal costs. There was an increase in selling and marketing expense of $19,502 that is attributed to increase in staff and travel expenses in anticipation of additional revenue growth.  The increase in research and development of $44,340 is largely due to additional investment in resources.

Income/Loss from Operations

The loss from operations for the nine months ended September 30, 2016 and 2015 was $1,649,969 and $2,177,315, respectively. The overall decrease from the 2015 to 2016 period is due to the impairment charge of $1,578,816 in 2015 and lower cost of revenue in 2016.

Other Income (Expense)

Interest Expense

Interest expense for the nine months ended September 30, 2016 and 2015 was $443,929 and $839,962, respectively. The decrease is primarily due to less debt discount amortizations recorded as interest expense in 2016 over the same period of 2015.

Net Loss

Net loss for the nine-month period ended September 30, 2016 and 2015 was $2,092,558 and $3,014,069, respectively. The net loss decrease of $921,511 was mainly due to the impairment charge of $1,578,816 in 2015 along with increased expenses in salaries and consulting and increase in interest expense with an offset of a decrease of general and administrative. Net loss per common share was $0.03 and $0.05 for the nine-month period ended September 30, 2016 and 2015, respectively. Weighted average common shares outstanding for the nine-month period ended September 30, 2016 and 2015 were 65,844,312 shares and 60,288,922 shares, respectively.

Capital Resources

A summary of our cash flows is as follows:

	Nine Months Ended September 30,
	2016			2015
Net cash used in operating activities	$	(1,518,348	)	$	(2,003,239	)
Net cash used in investing activities	$	(32,481	)	$	(117,525	)
Net cash provided by financing activities	$	1,480,267		$	2,049,817

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2016 Period

Operating Activities

Net cash used in operating activities was $1,518,348 for the nine months ended September 30, 2016, compared to net cash used in operating activities of $2,003,239 for the corresponding period in 2015. For the 2016 period, cash used in operating activities of $1,518,348 resulted from a net loss of $2,092,558 offset primarily by non-cash charges for stock and warrants being issued for payment of services of $125,036, amortization of prepaid consulting services of $418,119, depreciation and amortization of $35,262, interest expense related to premium/debt discounts and conversion of notes payable of $131,884 and a net negative change in assets and liabilities of $136,721.

Investing Activities

Net cash used in investing activities of $32,481 during the nine months ended September 30, 2016 was primarily for an investment in office equipment.

Financing Activities

Our net cash provided by financing activities of $1,480,267 for the nine months ended September 30, 2016 consisted primarily of proceeds of $1,518,000 from notes, related party notes proceeds of $221,570 and advanced payments from stock repurchase proceeds of $140,000, offset by repayments of insurance and equipment financing, repayments of related party notes and notes payable of $399,303.

2015 Period

Operating Activities

Net cash used in operating activities was $2,003,239 for the nine months ended September 30, 2015. Cash used in operating activities for 2015 of $2,003,239 resulted from the net loss of $3,014,069 but was offset primarily by a non-cash impairment loss of $1,578,816, amortization of stock based prepaid consulting fees of $17,854, depreciation and amortization of $91,372, stock and warrants issued for services of $123,775, loss on settlement of debt of $197,123, amortization of stock based prepaid consulting fees of $17,854, gain on settlement of accounts payable of $3,200 and net negative change in assets and liabilities of $1,001,310.

Investing Activities

Our net cash used in investing activities of $117,525 during the nine months ended September 30, 2015 was primarily the result of office equipment purchases.

Financing Activities

Our net cash provided by financing activities of $2,049,817 during the nine months ended September 30, 2015 consisted primarily of proceeds from the issuance of convertible notes payable and other debt of $1,374,498, bank line of credit of $40,214, related party notes proceeds of $591,697 and insurance and equipment financing proceeds of $43,408.

Liquidity

Since inception, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities.

As of November 11, 2016, we had cash on hand of approximately $47,000. We have approximately $131,000 in monthly lease and other mandatory payments, not including payroll and ordinary expenses which are due monthly. More recently, on March 31, 2016, we entered into a Securities Purchase Agreement with an accredited investor for non-convertible debt financing in the gross amount of $1.8 million less a 5% original issue discount.  We closed the debt financing on April 1, 2016.  Because of the growing nature of the business, we project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need an additional $1 million for the year of 2016, which may be funded through equity instruments.

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Overall, we have funded our cash needs from inception with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition, however, the recent debt transaction has lessened the overall risk in this regard. Our current level of operations require additional capital of at least $500,000. Modifications to our business plans may also require additional capital for us to operate. For example, if we have an opportunity for an accretive acquisition, it would likely require additional capital above our current need. Conversely, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

The closing of our senior secured debt financing has fulfilled part of this need.  However, ongoing interest payments to service this new debt puts an additional burden on our ongoing cash flow.  In addition, certain covenants regarding restricted issuances in the debt documents may make further capital raises more complex since without the prior written consent of the holders of a majority in aggregate principal amount of the debt then outstanding we may not incur additional debt nor issue preferred stock whose terms and rights provide the requirement or option to declare and pay a cash dividend while the debt is outstanding.

On a long-term basis, our liquidity is dependent on continuation and expansion of operations, receipt of revenues, and additional infusions of capital. Our current capital and revenues are insufficient to fund such expansion. If we choose to launch such an expansion campaign, we will require substantially more capital. The funds raised from any future offering will also be used to market our products and services as well as contribute to existing working capital needs.

The Company’s business model provides for revenues from projects and ongoing maintenance. As of the filing of this Form 10-Q, we had a backlog of orders aggregating $3,346,372 of which we anticipate recording revenues of $2,300,000 during the fourth quarter of 2016.

We believe that our current cash resources combined with ongoing recurring revenues will allow continuing operations through the end of the fiscal year.  However, there are factors that can impact our ability to continue to fund our operating needs through December 31, 2016, including

● Our ability to execute backlog of at least $2.3 million during the fourth quarter of 2016;

● Our ability to further expand sales volume with limited resources;

● Our ability to maintain product pricing as expected, particularly in light of increased competition and its unknown effects on market dynamics;

● Our ability and that of our contract manufacturers to maintain manufacturing costs and delivery times as expected; and

● Our continued need to maintain or reduce our cost structure while simultaneously expanding our business, enhancing our technical capabilities and pursing new business opportunities.

Management continues in its efforts to raise working capital. However, the Company cannot provide any assurance that these efforts will be successful, and/or that we will be able to raise the needed capital on commercially acceptable terms. If we are unable to raise additional capital through a capital raise or revenues, it may be necessary for us to take measures to reduce our cash burn, including foregoing revenue generating projects, personnel reduction and other measures.  The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Such “going concern” qualification may make it more difficult for us to raise funds. In addition, any additional equity financing is likely to be dilutive to holders of our Common Stock and debt financing, if available, may require us to be bound by significant repayment obligations and covenants that restrict our operations. These conditions raise substantial doubt about our ability to continue as a going concern.

OFF BALANCE SHEET ARRANGEMENTS

We have no-off balance sheet contractual arrangements, as that term is defined in Item 303(a)(4) of Regulation S-K.

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CRITICAL ACCOUNTING POLICIES

Revenue Recognition

Project Revenue

The Company constructs intelligent technology systems consisting of materials and labor under customer contracts. Revenues and related costs on project revenue are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, “Construction-Type and Production-Type Contracts”. Under this method, contract revenues are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. 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 “costs and estimated earnings in excess of billings on uncompleted contracts”. Any billings of customers in excess of recognized revenues are recorded as a liability in “billings in excess of costs and estimated earnings on uncompleted contracts”. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined.

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.

Maintenance and 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.

IT Asset Management Services

The Company recognizes revenue from its IT asset management business in accordance with the Securities and Exchange Commission (the “SEC”) Staff Accounting Bulletin No. 104, "Revenue Recognition" and Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 985-605-25 which addresses Revenue Recognition for the software industry. The general criteria for revenue recognition under ASC 985-605 for our Company, which sells software licenses, which do not require any significant modification or customization, is that revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable.

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

For sales arrangements that do not involve multiple elements: 

(1)

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

(2)

Throughout the date of 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;

26

(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.

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 IT Asset Management 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:

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.

Accounts Receivable

Accounts receivable are stated at realizable value. Accounts receivable are comprised of balances due from customers.  In determining the collections on the account, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances. To date, the Company has not had the need to reserve for allowances on collections.

Share-Based Compensation

Stock-based compensation is accounted for in accordance with the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the shorter of the period the employee or director is required to perform the services in exchange for the award or the vesting period. The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Pursuant to ASC Topic 505-50, for share-based payments to consultants and other third-parties, compensation expense is determined at the “measurement date”. The expense is recognized over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense based on the fair value of the award at the reporting date. 

27

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 financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of assets acquired and liabilities assumed in business combinations, estimates of percentage completion on projects and related revenues, valuation of stock-based compensation, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, valuation of stock-based awards and valuation of loss contingencies. 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information to be reported under this item is not required of smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “SEC”), and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our internal control over financial reporting is a process designed under the supervision of our Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles, or GAAP. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. With the participation of our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Report.  Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer has concluded that, as of the end of such period, our disclosure controls and procedures were not effective due to the material weakness noted below, in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 

28

Material weaknesses: due to the small size of its accounting staff, the Company did not have sufficient segregation of duties to support its internal control over financial reporting and did not have sufficient technical expertise with regard to financial reporting for publicly held companies.  We plan to rectify these weaknesses by hiring internal or external additional accounting personnel once we have the necessary resources to do so.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

29

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.

As previously reported, on May 23, 2016, we filed a lawsuit against, Greentree Financial Group, Inc., the holder of two convertible notes. The suit alleges, amongst other things, that the officers and directors of Greentree that entered into the notes, failed to disclose legal facts with respect to their personal conduct in the past, which, had the Company known, would have made it unlikely that such transaction would have been consummated. The Company owes the principal and interest due under the notes and sought to pay principal and interest of the note which first came due, but its offer was rejected.

Further, on May 24, 2016, the Company learned through a third party that the holder had filed suit against the Company on May 12 for default on one of notes, but not notified the Company or its attorneys, nor served either the Company or its attorneys. The Company has been served shortly thereafter. As previously disclosed, the holder of the two convertible notes issued a notice of conversion to the Company for a portion of one of the notes. The conversion notice was determined to be invalid as was a conversion notice issued on the other note during the previous quarter. A difference of opinions has arisen between the holder and the Company as to the mechanics of conversion and the Company had been in discussions to resolve those differences. The suit alleges that the Company failed to issue shares on receipt of a conversion notice and has elected to accelerate that note. A hearing on the two lawsuits was scheduled for October 26, 2016 (see Note 9, Subsequent Events)

As of September 30, 2016, there were no other pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

ITEM 1A. RISK FACTORS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following paragraph sets forth certain information relating to securities sold by us during the three months ended September 30, 2016.

Name or Class of Investor	Date Issued	No. of Securities	Consideration
Consultant (1)	July 1	33,333	Services for July 2016
Consultant (1)	August 1	31,250	Services for August 2016
Consultant (1)	September 1	50,000	Services for September 2016

(1)

Issued in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and Rule 506(b) promulgated there under.

(2)

Exempt under Section 3(a)(9) of the Act.

All of the securities issued in the transactions described above were issued without registration under the Securities Act in reliance upon the exemptions provided in Section 4(2) of the Securities Act. All recipients had adequate access, through their relationships with the Company and its officers and directors, to information about the Company. None of the transactions described above involved general solicitation or advertising. Each of the recipients represented that they were “accredited investors” within the meaning of Rule 501(a) of Regulation D under the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

30

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

					Filed or
Exhibit		Incorporated by Reference			Furnished
No.	Exhibit Description	Form	Date	Number	Herewith
4.1	Senior Secured Note, dated April 1, 2016, issued by Duos Technologies Group, Inc.	8-K	April 6, 2016	Exhibit 4.1
10.1	Securities Purchase Agreement, dated March 31, 2016, by and between Duos Technologies Group, Inc. and the Schedule of Buyers attached thereto	8-K	April 6, 2016	Exhibit 10-1
10-2	Security and Pledge Agreement, dated April 1, 2016, by and among Duos Technologies Group, Inc., each of the Company’s Subsidiaries named therein and GPB Debt Holdings II, LLC (in its capacity as collateral agent)	8-K	April 6, 2016	Exhibit 10-2
10-3	Guaranty, dated April 1, 2016, by and among each of Duos Technologies Group, Inc.’s Subsidiaries named therein and GPB Debt Holdings II, LLC (in its capacity as collateral agent)	8-K	April 6, 2016	Exhibit 10-3
10-4	Warrant, dated April 1, 2016, issued by Duos Technologies Group, Inc.	8-K	April 6, 2016	Exhibit 10-4
31.1	Certification of Principal Executive Officer (302)				Filed
31.2	Certification of Principal Financial Officer (302)				Filed
32.1	Certification of Principal Executive and Principal Financial Officer (906)				Filed
101.INS	XBRL Instance Document				**
101.SCH	XBRL Taxonomy Extension Schema Document				**
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document				**
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document				**
101.LAB	XBRL Taxonomy Extension Label Linkbase Document				**
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document				**

———————

**

The XBRL-related information in Exhibit 101 to this report shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of those sections.

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	DUOS TECHNOLOGIES GROUP, INC.
Date: November 14, 2016	By:	/s/ Gianni B. Arcaini
		Gianni B. Arcaini Chairman and Chief Executive Officer
Date: November 14, 2016	By:	/s/ Adrian G. Goldfarb
		Adrian G. Goldfarb Chief Financial Officer

32

EX-31.1

Exhibit 31.1

Certificate of Principal Executive Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

I, Gianni B. Arcaini, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2016 of Duos Technologies Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting) as defined in the Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2016

/s/ Gianni B. Arcaini

Gianni B. Arcaini

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certificate of Principal Financial Officer

Pursuant to Rule 13a-14(a)/15d-14(a)

I, Adrian G. Goldfarb, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended September 30, 2016 of Duos Technologies Group, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present, in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting) as defined in the Exchange Act Rules 13a - 15(f) and 15d - 15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 14, 2016

/s/ Adrian G. Goldfarb

Adrian G. Goldfarb

Chief Financial Officer 

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Duos Technologies Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gianni B. Arcaini, Chairman and Chief Executive Officer of the Company, and I, Adrian G. Goldfarb, Chief Financial Officer, certify to the best of our knowledge:

1. The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2016	/s/ Gianni B. Arcaini
	Gianni B. Arcaini
	Chairman and Chief Executive Officer

Date: November 14, 2016	/s/ Adrian G. Goldfarb
	Adrian G. Goldfarb
	Chief Financial Officer

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 14, 2016
Document And Entity Information
Entity Registrant Name	Duos Technologies Group, Inc.
Entity Central Index Key	0001396536
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer	No
Is Entity a Voluntary Filer	No
Is Entity's Reporting Status Current	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		66,070,698
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2016	Dec. 31, 2015
CURRENT ASSETS:
Cash	$ 69,567	$ 140,129
Accounts receivable	726,289	452,235
Costs and estimated earnings in excess of billings on uncompleted contracts	344,430	421,116
Prepaid expenses and other current assets	137,807	165,095
Total Current Assets	1,278,093	1,178,575
Property and equipment, net	73,937	72,544
OTHER ASSETS:
Patents and trademarks, net	52,832	57,006
Total Other Assets	52,832	57,006
TOTAL ASSETS	1,404,862	1,308,125
CURRENT LIABILITIES:
Accounts payable	1,213,902	1,061,961
Accounts payable - related parties	36,400	30,070
Commercial insurance/office equipment financing	87,472	44,024
Notes payable - related parties	611,352	486,964
Notes payable	49,108	196,608
Convertible notes payable, including premiums	193,950	193,950
Line of credit	38,827	40,216
Payroll taxes payable	408,186	296,215
Accrued expenses	1,253,208	955,570
Billings in excess of costs and estimated earnings on uncompleted contracts	541,836	303,064
Deferred revenue	745,251	908,206
Contingent lawsuit payable		550,000
Total Current Liabilities	5,179,492	5,066,848
Notes payable, net of discounts	1,140,582
Total Liabilities	6,320,074	5,066,848
Commitments and Contingencies (Note 5)
STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value 10,000,000 authorized, none issued or outstanding
Common stock: $0.001 par value; 500,000,000 shares authorized 66,070,698 and 64,777,621 shares issued and issuable, and outstanding at September 30, 2016 and December 31, 2015, respectively	66,071	64,778
Additional paid-in capital	18,062,451	17,127,675
Accumulated deficit	(23,043,734)	(20,951,176)
Total Stockholders' Deficit	(4,915,212)	(3,758,723)
Total Liabilities and Stockholders' Deficit	$ 1,404,862	$ 1,308,125

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	66,070,698	64,777,621
Common stock, shares outstanding	66,070,698	64,777,621

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUES:
Project	$ 594,096	$ 1,366,565	$ 1,707,177	$ 2,891,198
Maintenance and technical support	618,682	665,670	1,829,595	1,852,001
IT asset management services	154,391	209,965	481,783	209,965
Total Revenues	1,367,169	2,242,200	4,018,555	4,953,164
COST OF REVENUES:
Project	303,126	653,194	821,264	1,517,578
Maintenance and technical support	262,830	255,920	727,529	693,709
IT asset management services	79,199	94,747	254,730	94,747
Total Cost of Revenues	645,155	1,003,861	1,803,523	2,306,034
GROSS PROFIT	722,014	1,238,339	2,215,032	2,647,130
OPERATING EXPENSES:
Selling and marketing expenses	62,116	64,219	227,785	208,283
Salaries, wages and contract labor	758,685	686,081	2,583,419	1,907,934
Research and development	72,288	65,831	201,668	157,328
Professional fees	59,803	108,421	229,277	233,553
General and administrative expenses	198,715	249,363	622,851	738,531
Impairment loss				1,578,816
Total Operating Expenses	1,151,607	1,173,915	3,865,000	4,824,445
INCOME (LOSS) FROM OPERATIONS	(429,593)	64,424	(1,649,968)	(2,177,315)
OTHER INCOME (EXPENSES):
Interest expense	(161,515)	(273,750)	(443,929)	(839,962)
Gain on settlement of accounts payable				3,200
Other income, net	34	2	1,340	8
Total Other Income (Expense)	(161,481)	(273,748)	(442,589)	(836,754)
NET LOSS	$ (591,074)	$ (209,324)	$ (2,092,558)	$ (3,014,069)
NET LOSS APPLICABLE TO COMMON STOCK PER COMMON SHARE:
Basic	$ (0.01)	$ 0	$ (0.03)	$ (0.05)
Diluted	$ (0.01)	$ 0	$ (0.03)	$ (0.05)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic	66,025,986	61,831,726	65,844,312	60,288,922
Diluted	66,025,986	61,831,726	65,844,312	60,288,922

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash from operating activities:
Net Loss	$ (2,092,558)	$ (3,014,069)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	35,262	91,372
Gain on settlement of accounts payable		3,200
Stock and warrants issued for services	125,036	123,775
Interest expense related to premium/debt discounts and conversion of notes payable	131,884
Loss on settlement of debt		197,123
Amortization of stock based prepaid consulting fees	418,119	17,854
Loss related to warrants exchanged for stock	630
Impairment loss		1,578,816
Changes in assets and liabilities:
Accounts receivable	(274,054)	(852,132)
Costs and estimated earnings on uncompleted contracts	76,686	(99,841)
Prepaid expenses and other current assets	108,347	(133,231)
Accounts payable	150,544	(123,693)
Accounts payable-related party	6,330	(20,663)
Payroll taxes payable	111,971	(285,175)
Accrued expenses	157,638	348,818
Contingent lawsuit liability	(550,000)
Billings in excess of costs and earnings on uncompleted contracts	238,772	377,905
Deferred revenue	(162,955)	(213,298)
Net cash used in operating activities	(1,518,348)	(2,003,239)
Cash flows from investing activities:
Cash acquired in acquisition		1,346
Purchase of patents/trademarks	(70)	(11,470)
Purchase of fixed assets	(32,411)	(107,401)
Net cash used in investing activities	(32,481)	(117,525)
Cash flows from financing activities:
Proceeds from borrowings under convertible notes and other debt		1,374,498
Proceeds from bank line of credit		40,214
Proceeds of advance payments-stock repurchase	140,000
Proceeds from related party notes	221,570	591,697
Repayments of related party notes	(97,182)
Proceeds (repayments) of insurance and equipment financing	(154,621)	43,408
Repayments of notes payable	(147,500)
Proceeds of notes payable	1,518,000
Net cash provided by financing activities	1,480,267	2,049,817
Net decrease in cash	(70,562)	(70,947)
Cash, beginning of period	140,129	85,435
Cash, end of period	69,567	14,488
Supplemental Disclosure of Cash Flow Information:
Interest paid	125,687	33,211
Taxes paid	10,149	800
Supplemental Non-Cash Investing and Financing Activities:
Common stock issued to settle notes payable and accrued interest		2,215,959
Common stock issued for prepaid consulting services	301,100
Common stock issued to settle accounts payable		16,800
Common stock issued for accrued salary		56,482
Reclassification of put premium liability on convertible notes to paid-in capital		37,120
Increase in debt discount and paid-in capital for warrants issued with debt	509,303	30,722
Note issued for financing of insurance premiums	198,089
Debt discount associated with notes payable	282,000
Liabilities assumed in share exchange		1,186,234
Less: assets acquired in share exchange		(1,347)
Net liabilities assumed		1,184,887
Fair value of shares exchanged		393,929
Increase in intangible assets		$ 1,578,816

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

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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

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

Nature of Operations

Duos Technologies Group, Inc. (“Company”), through its operating subsidiary “Duos Technologies, Inc. (“duostech”) 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’s strategy includes expansion of its technology base through organic development efforts, strategic partnerships, and growth through strategic acquisitions. duostech’s primary target industry sectors include transportation, with emphasis on freight and transit railroad owners/operators, petro-chemical, utilities and healthcare.

As reported previously, Duos Technologies Group, Inc. is the result of the reverse merger between duostech and a wholly owned subsidiary of Information Systems Associates, Inc., a Florida corporation (“ISA”), which became effective as of April 1, 2015 and as a result of which duostech became a wholly owned subsidiary of the merged entity. The merger was followed by a corporate name change to Duos Technologies Group, Inc., a symbol change from IOSA to DUOT and up-listing from OTC Pink to OTCQB.

ISA’s original business of IT Asset Management (ITAM) services for large data centers is now operated as a division of the Company that continues its sales efforts through large strategic partners. ISA developed a methodology for the efficient data collection of assets contained within large data centers and was awarded a patent in 2010 for specific methods to collect and audit data.

Basis of Presentation

The accompanying unaudited condensed 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 nine months ended September 30, 2016 are not indicative of the results that may be expected for the year ending December 31, 2016 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, 2015 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2016. 

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, duostech and TrueVue 360, Inc. All inter-company transactions and balances are eliminated in consolidation.

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 consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of assets acquired and liabilities assumed in business combinations, estimates of percentage completion on projects and related revenues, valuation of stock-based compensation, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, valuation of stock-based awards and valuation of loss contingencies. 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. There were no amounts on deposit in excess of federally insured limits at September 30, 2016 and December 31, 2015.

Significant Customers and Concentration of Credit Risk

The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced any write-downs in its accounts receivable balances through September 30, 2016. A significant portion of revenues is derived from certain customer relationships. The following is a summary of customers that each represents greater than 10% of total revenues for the nine months ended September 30, 2016 and 2015, and total accounts receivable at September 30, 2016 and December 31, 2015, respectively:

2016						2015
Revenue			Accounts Receivable			Revenue			Accounts Receivable
Customer A	31	%	Customer A	—		Customer A	22	%	Customer A	27	%
Customer B	20	%	Customer B	57	%	Customer B	14	%	Customer B	—
Customer C	16	%	Customer C	14	%	Customer C	—		Customer C	—
Customer D	16	%	Customer D	—		Customer D	—		Customer D	—
Customer E	11	%	Customer E	11	%	Customer E	—		Customer E	—
Customer F	—		Customer F	—		Customer F	—		Customer F	33	%
Customer G	—		Customer G	—		Customer G	21	%	Customer G	—
Customer H	—		Customer H	—		Customer H	20	%	Customer H	—
Customer I	—		Customer I	—		Customer I	—		Customer I	24	%

Geographic Concentration

Approximately 18% of revenue is generated from 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, 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).

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.

The estimated fair value of certain financial instruments, including accounts receivable and accounts payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The cost basis of notes and convertible debentures approximates fair value due to the market interest rates carried for these instruments.

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss 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 or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At September 30, 2016, outstanding warrants to purchase an aggregate of 3,600,840 shares of common stock and 1,819,418 shares of common stock issuable upon conversion of convertible debt (principal and interest) were excluded from the computation of dilutive earnings per share because the inclusion would have been anti-dilutive.

Segment Information

The Company operates in one reportable segment.

Reclassifications

Certain note amounts in the 2015 consolidated balance sheet have been reclassified within current liabilities to conform to the 2016 presentation.

Recent Issued Accounting Standards

In August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-14 Revenue from Contracts with Customers.  The ASU defers the effective date of previously issued ASU 2014-09 (the new revenue recognition standard) by one year for both public and private companies. The ASU requires public entities to apply the new revenue recognition guidance for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December 15, 2017. Both public and nonpublic entities will be permitted to apply the new revenue recognition standard as of the original effective date for public entities (annual periods beginning after December 15, 2016).  The Company plans to adopt this standard for their fiscal year beginning January 1, 2018. The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees will need to recognize almost all leases on their balance sheet as a right of use asset and a lease liability.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2018.  The Company does not expect this ASU to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09: "Compensation – Stock Compensation (Topic 718)-Improvements to Employee Share-Based Payment Accounting" which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016.  The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

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NOTE 2 - GOING CONCERN

9 Months Ended

Sep. 30, 2016

NOTE 2 - GOING CONCERN [Abstract]

NOTE 2 - GOING CONCERN

NOTE 2 – GOING CONCERN 

As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $2,092,558 for the nine months ended September 30, 2016.  During the same period, cash used in operations was $1,518,348. The working capital deficit, stockholders’ deficit and accumulated deficit as of September 30, 2016 was $3,901,399, $4,915,212 and $23,043,734, respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on the Company’s ability to further implement its business plan, raise additional capital and become profitable. Management embarked on a business growth strategy in 2014 to engage with private companies in or related to its market space with the intention of a merger or acquisition. In April 2015, the Company completed a reverse triangular merger whereby duostech became a wholly owned subsidiary of the Company. The two companies are now integrated and the merged company continues to grow its business in all of the markets where they have previously operated. The Company was successful on April 1, 2016 in closing long-term debt financing of $1.8 million for the purposes of settling certain current debt and payables obligations. Net proceeds after placement agency fees, legal fees, due diligence expenses and direct payments from the lender to certain creditors of the Company were $837,891.  (See Note 3)

Additionally, during the reporting period, the Company’s Board of Directors approved a new class of Preferred Stock, “Series A”.  The Articles of Amendment Designating Preferences, Rights and Limitations of the Series A were filed with State on October 31, 2016.  The Series A designated 500,000 of the Company’s 10 million “blank check” preferred stock with a stated value of $10 per share, an 8% cumulative dividend payable when and if declared by the Board and a provision to convert into the Company’s common stock at $0.18 per share.  If the holder elects to convert the Series A to common stock, the cumulative dividend amount will also be converted to common stock.  The Series A is redeemable by the holder after 3 years including all unconverted stated value and accrued dividends.  For shareholders who invested in previous private placements, the Company is offering on a case by case basis, the ability to convert the existing amount invested into an equivalent amount in the Series A on the condition that they invest an equivalent additional amount in the Series A.  The company continues in discussions with certain potential investors with a view to obtaining equity financing to invest in resources to support and accelerate our growth from anticipated orders and provide additional working capital. (See Note 9)

While no assurance can be provided, management believes that these actions provide the opportunity for the Company to continue as a going concern and to grow its business and achieve profitability. Ultimately however, the continuation of the Company as a going concern is dependent upon the ability of the Company to execute the plan described above, generate sufficient revenue and to attain profitable operations. These unaudited, consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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NOTE 3 - DEBT

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

NOTE 3 - DEBT

NOTE 3 – DEBT

Notes Payable - Financing Agreements

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

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	2,211	9.75	%	$	21,325	9.75	%
Third Party - Insurance Note 2		19,065	10.00	%		11,277	9.75	%
Third Party - Insurance Note 3		37,943	8.05	%		—	—
Third Party - Insurance Note 4		28,253	9.24	%		11,422	8.99	%
Total	$	87,472			$	44,024

The Company entered into an agreement on December 23, 2015 with its insurance provider by executing a $21,325 note payable (Insurance Note 1) issued to purchase an insurance policy with an annual interest rate of 9.75% payable in monthly installments of principal and interest totaling $2,229 through October 23, 2016.  The note balance as of September 30, 2016 and December 31, 2015 was $2,211 and $21,325, respectively.

The Company entered into an agreement on September 15, 2015 with its insurance provider by executing an $18,823 note payable (Insurance Note 2) issued to purchase an insurance policy with an annual interest rate of 9.75% payable in monthly installments of principal and interest totaling $1,678 through July 15, 2016. The Company renewed the note payable on September 15, 2016 in the amount of $19,065 with an annual interest rate of 10% payable in monthly installments of principal and interest totaling $1,702 through June 30, 2017.  The note balance as of September 30, 2016 and December 31, 2015 was $19,065 and $11,277, and respectively.

The Company renewed an agreement on February 3, 2016 with its insurance provider by executing a $123,571 note payable (Insurance Note 3) issued to purchase an insurance policy with an annual interest rate of 8.05% payable in monthly installments of principal and interest totaling $12,818 through December 3, 2016.  At September 30, 2016 and December 31, 2015, the note payable balance was $37,943 and zero, respectively.

The Company renewed an agreement on April 1, 2016 with its insurance provider by executing a $65,000 note payable (Insurance Note 4) issued to purchase an insurance policy with an annual interest rate of 9.24% payable in monthly installments of principal and interest totaling $5,782 through February 1, 2017.  At September 30, 2016 and December 31, 2015, the note payable balance was $28,253 and $11,422, respectively, with the $11,422 balance relating to the April 1, 2015 note with the same provider with an annual interest rate of 8.99%.

Notes Payable - Related Parties

The Company’s notes payable to related parties classified as current liabilities consist of the following as of:

	September 30, 2016					December 31, 2015
Payable To	Principal		Interest*			Principal		Interest*
Related party	$	65,000		.75	%	$	65,000		.75	%
Related party		13,369		.67	%		17,651		.67	%
Related party		16,808		—			33,615		—
Related party		56,500		.67	%		36,500		.67	%
Related party		7,670		—			21,170		—
Related party		8,431		.67	%		11,131		.67	%
CFO		31,973		.67	%		7,841		—
Related party		241,346		.50	%		294,056		.50	%
CEO		58,610		.67	%		—		—
Related party		111,645		.67	%		—		—
Total	$	611,352				$	486,964

* effective interest rate per month including default penalties

On May 28, 2008, a shareholder who is indirectly invested in the Company with the Chief Executive Officer (CEO) through another entity, loaned the Company the principal amount of $65,000 accruing interest at .75% per month. There was an accrued interest balance of $47,768 and $43,381 as of September 30, 2016 and December 31, 2015, respectively. The note was repayable on or before September 15, 2008 although no demand for repayment has been received from the holder. There is no formal written agreement and the terms are documented on a letter from a former Chief Financial Officer (CFO) of the Company. The terms contain no default clauses and as of the time of this report, no demand for repayment has been made or expected. The Company intends to either negotiate a conversion of the outstanding amount to common stock or to repay the loan when sufficient working capital permits such action.

Upon the consummation of the merger on April 1, 2015, the Company assumed an Original Issue Discount (OID) promissory note with a remaining principal balance of $15,000 accruing interest at 1.5% per month. On November 30, 2015, there was an outstanding principal balance of $15,000 and an accrued interest balance of $2,651 in which the promissory note was restructured into a note due on or before December 15, 2016 for a total of $17,651 principal balance, accruing interest at .67% per month and monthly payments of $1,535 commencing January 15, 2016.  As of September 30, 2016, the outstanding balance was $13,369.

Upon the consummation of the merger on April 1, 2015, the Company assumed two promissory notes due to an entity which had previously extended credit on a revolving basis for working capital. The total principal balance was $212,693 at the time of the merger and carried total interest and extension fees of 2.5% per month. On September 30, 2015, the note and accrued interest for a total of $275,660 was exchanged for 1,002,401 common shares. The Company recorded a loss on settlement in the amount of $115,139. The same lender had extended further credit to the Company’s subsidiary, TrueVue360, Inc., which on September 30, 2015 had a principal balance of $28,040 and accrued interest balance of $9,777 totaling $37,817. The note can be extended each time for an additional 30 days’ subject to payment of a 1% extension fee in addition to the 1.5% interest cost which can be accrued. The Company agreed to convert this note to an 18-month term loan with 0% interest and monthly payments of $2,100 starting November 1, 2015. The Company also issued 501,201 5-year warrants with an exercise price of $0.28 as consideration for the conversion of the larger note and the zero interest feature of the extended payment plan.  As of September 30, 2016, the outstanding balance was $16,808.

On December 12, 2013, the wife of the CEO loaned the Company the sum of $10,000 at a monthly percentage rate of .67%. On January 29, 2015, March 3, 2015 and September 30, 2015 the wife of the CEO loaned the Company an additional $12,000, $5,000 and $9,500, respectively.  On January 24, 2016, an additional $20,000 was loaned to the Company. The total principal due at September 30, 2016 and December 31, 2015 was $56,500 and $36,500, respectively.  There was an accrued interest balance of $6,344 and $3,052 as of September 30, 2016 and December 31, 2015, respectively.  The note is repayable on demand of the holder. As of the time of this report, no such demand has been made.

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $30,378 due to the former CEO of the Company. These amounts are non-interest bearing and are due on demand. The Company pays these loans as sufficient funds become available.  At September 30, 2016, the loan had an outstanding balance of $7,670.

Upon the consummation of the merger on April 1, 2015, the Company assumed an OID promissory note with a remaining principal and accrued interest balance of $10,593. During the third quarter of 2015, interest payments of $1,500 were paid. At November 30, 2015, the principal balance of the note was $10,000, and an accrued interest balance of $1,131 at a rate of 2.5% per month was restructured into a note due on or before December 15, 2016 for a total of $11,131 principal balance, accruing interest at .67% per month and monthly payments of $968 commencing January 15, 2016.  At September, 2016, the outstanding note balance was $8,431.

Upon the consummation of the merger on April 1, 2015, the Company assumed two promissory notes with a total principal balance of $8,783 due to the Company’s CFO. During the second quarter of 2015, the CFO loaned the Company an additional $365 and the Company made payments to the CFO during the same period in the amount of $1,307. These advances do not incur any interest and will be paid by the Company when sufficient funds are available. On January 28, 2016, the CFO loaned the Company $30,000, accruing interest at .67% per month and is repayable by the Company when sufficient funds are available.  At September, 2016, the outstanding loan balance was $31,973.

On April 8, 2015, the Company received a $310,000 loan from a related party principal shareholder. The note accrues interest at the rate of 6% per annum and was repayable on or before October 31, 2015. There was accrued interest balance of $8,616 as of September 30, 2015. The Company and shareholder replaced the note with a promissory new note in the face amount of $320,166, which includes principal and accrued interest through October 31, 2015. Repayment has been fixed at eleven monthly payments of $27,750 plus one final payment of $27,006.63 (including interest of 6%) beginning on or before December 31, 2015. As of September 30, 2016, the Company is seven payments in arrears and the outstanding balance was $241,346.

On July 19, 2016, the Company received a $60,000 loan less fees of $75 for a related party loan with proceeds of $59,925 from the Company’s CEO.  The promissory note carries an annual interest rate of 7.99% with a monthly installment payment of $1,052 through July 19, 2022.   As of September 30, 2016, the outstanding balance was $58,610.

On August 11, 2016, the Company received an $111,645 loan from a related party principal shareholder.  The note accrues interest at the rate of 8% per annum and is repayable on or before February 11, 2017.  As of September 30, 2016, the outstanding balance was $111,645.

Notes Payable

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest*		Principal		Interest*
Shareholder	$	19,108		—	$	19,108		—
Shareholder		—		—		125,000		.67%
Vendor		30,000		—		52,500		—
Total	$	49,108			$	196,608

* effective interest rate per month including default penalties

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $19,108 due to an unrelated party investor and shareholder of the Company. The $19,108 is non-interest bearing and currently due, although the note holder has not made any demand for payment at this time. At the end of the reporting period, the holder, who is also a shareholder, authorized the Company to convert the outstanding amount and an equivalent amount of common stock received from a previous investment into the Series A Convertible Preferred shares described elsewhere in this report.

Upon the consummation of the merger on April 1, 2015, the Company assumed a non-interest bearing OID promissory note due to an unrelated party stockholder, subject to a forbearance agreement and due July 14, 2015. A 25% penalty is due if the balance is not paid by the due date. Furthermore, 5% of all factor payments to the Company are to be used to pay down the note. The note is secured by certain of the Company’s intellectual property. Additionally, until the loan is paid, if there is a trigger notice (loan is due or is called), the factor will pay to the stockholder all factor holdback amounts after collection of the related accounts receivable, less any factor fees. On September 21, 2015, the shareholder agreed to convert $81,250 of the $165,000 outstanding note to 506,421 shares of the Company’s common stock and the addition of the 25% penalty as stated above in the amount of $41,250, with a new note balance of $125,000, 15-month term and 8% interest. The Company recorded a loss on conversion in the amount of $55,484.  The note was repaid on April 1, 2016 including the accrued interest of $7,078. At September 30, 2016 and December 31, 2015, the accrued interest was zero and $4,578, respectively.

On August 10, 2015, the Company entered into an agreement with FacilityTeam of Ontario, Canada to settle a dispute that had arisen concerning payments for software development services. The Company agreed to pay to FacilityTeam $2,500 per month starting October 1, 2015 for 24 months and, pursuant thereto, took a charge in the third quarter of 2015 for the settlement amount of $60,000.  At September 30, 2016 and December 31, 2015, the outstanding balance was $30,000 and $52,500, respectively.

Convertible Notes, Including Premiums

	September 30, 2016						December 31, 2015
Payable To	Principal		Premium		Principal, Including Premium		Principal		Premium		Principal, Including Premium
Vendor	$	50,000	$	50,000	$	100,000	$	50,000	$	50,000	$	100,000
Vendor		46,975		46,975		93,950		46,975		46,975		93,950
Total	$	96,975	$	96,975	$	193,950	$	96,975	$	96,975	$	193,950

Upon the consummation of the merger on April 1, 2015, the Company assumed a convertible promissory note of $50,000 due to a vendor of the Company which included a premium of $50,000 relating to its treatment as stock settled debt under ASC 480. The $50,000 convertible note accrues interest at 1% per month and is convertible into the Company’s common stock at a 50% discount to the average closing bid prices for the company’s common stock for the five days immediately preceding the conversion date.  An interest payment was made on January 11, 2016 in the amount of $3,230. The outstanding note balance at September 30, 2016 and December 31, 2015 was $50,000 and $50,000, respectively and accrued interest on September 30, 2016 and December 31, 2015 was $6,011 and $4,723, respectively. As previously disclosed, on May 23, 2016, the Company filed a lawsuit against, the holder of this note and another convertible note described below. The Company owes the principal and interest due under the notes and has sought to pay principal and interest of the note which first came due but its offer was rejected. As of the date of this report, the lawsuit remains unresolved. (see Notes 5 and 9)

Upon the consummation of the merger on April 1, 2015, the Company assumed a promissory note with a remaining principal balance of $44,325 bearing interest at 1.5% per month. The note holder gave 30-day notice to the Company on May 1, 2015 for the note to be repaid in full plus any interest due. On June 30, 2015, an Addendum to Promissory Note was executed providing that the payment of $46,975, $44,325 plus accrued interest of $2,650, in connection with the Debt Purchase Agreement represents the total settlement of the Note. Also, on June 30, 2015 a current shareholder and services provider agreed to assume the new $46,975 note with the existing terms and conditions and an addendum was signed for the assumption and making the note convertible into the Company’s common stock at a 50% discount to the average price of the Company’s common stock for the five trading days preceding conversion and the new Note is non-interest bearing. The addendum was treated as a debt extinguishment. The Company recorded a premium of $46,975 since the note was convertible at a fixed rate to a fixed monetary amount equal to $93,950 pursuant to ASC 480. On September 30, 2016 and December 31, 2015, the outstanding balance on the note was $93,950 which includes the $46,975 premium and there was accrued interest on September 30, 2016 and December 31, 2015 of $10,568 and $4,228, respectively. During the previous quarter, the new holder attempted a conversion into stock of a portion of the note. The Company determined that the conversion notice was invalid in several respects and rejected the conversion. As previously disclosed, on May 23, 2016, the Company filed a lawsuit against, the holder of this note and another convertible note described above. The Company owes the principal and interest due under the notes and has sought to pay principal and interest of the note which first came due but its offer was rejected. As of the date of this report, the lawsuit remains unresolved. (see Notes 5 and 9).

Note Payable – Third Party

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Note payable	$	1,800,000		14% + 2%	$	—		—
Less unamortized discounts		659,418				—
Note payable, net	$	1,140,582			$	—

On March 31, 2016, the Company entered into a Securities Purchase Agreement with an institutional investor, which, together with the transaction documents referenced therein, provides for the terms in the following paragraph. The Company closed the Offering on April 1, 2016.

The offering amount was $1,800,000 less a 5% original issue discount. The note is a senior debt obligation secured by substantially all assets of the Company and shares of all current and future subsidiaries as well as being guaranteed by each subsidiary but is not convertible into the Company’s stock. The senior secured note also contains certain default provisions and is subject to standard covenants such as restrictions on issuing new debt. In conjunction with the note, the Company issued a warrant exercisable for 2.5 million shares of common stock exercisable for five years at an exercise price of $0.35 per share. The warrants also contain certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions as well as a potential adjustment to the exercise price based on certain events. The relative fair value of the warrants of $466,031 was recorded as a debt discount and is being amortized to interest expense over the term of the debt. The note will mature three years from the closing date and will accrue interest at the rate of 14% per annum, payable monthly. The note will accrue additional interest at the rate of 2% per annum, compounding monthly, payable annually in arrears. The Company may choose to begin amortizing the principal at any time subject to prepayment premiums. Also, the Company agreed to an amended placement agent’s fee with respect to the placement of such loan which differed from the original terms agreed with the Placement Agent as that agreement had expired (see Note 5, Placement Agency Agreement). The amendment included (a) postponement of payment of the cash fee of $5,000 to 15 days of execution of the term sheet, (b) the closing fee was fixed to $137,000 (based on a $1.8 million debt funding) and three-year warrants for 200,000 shares at an exercise price of $0.40 per share and valued at their fair value of $43,272.  Other closing expenses totaled $40,000 plus another $10,000 of legal fees previously paid.  Total cash issue costs of $192,000, the original issue discount of $90,000, the warrant relative fair value of $466,031 and warrant fair value of $43,272 were recorded as debt discounts to be amortized over the three-year term of the debt.  Net proceeds were $1,518,000 after all issue costs.  Additionally, at closing, certain previously recorded obligations of the Company totaling $690,110, as discussed below, were paid directly from the lender reducing the actual proceeds to the Company.

On April 1, 2016, in conjunction with the closing of the aforementioned Securities Purchase Agreement, the sum of $558,032 was remitted out of the proceeds in final settlement of the litigation with CW Electric.  This amount consisted of $550,000 of the agreed settlement plus $8,032 of accrued interest. This represents full and final settlement of this matter, which is now closed.

On April 1, 2016, the Company directed the sum of $132,078 to be paid out of proceeds of the Securities Purchase agreement to a shareholder who held a note secured against part of the Company’s assets.  The payment of $125,000 in principal and $7,078 of accrued interest represents full payment of the note and the noteholder no longer holds any security against the assets.

On April 1, 2016, the Company made a payment of $142,000 (part of the $182,000 discussed above) to a placement agent as compensation for arrangement of financing through the aforementioned Securities Purchase Agreement.  The payment was deducted from proceeds of that agreement.  The Company issued 200,000 three-year warrants with an exercise price of $0.40 to the agent as additional compensation.  These amounts are broadly in line with the anticipated compensation agreed within the original placement agency agreement which was terminated in December, 2015.

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NOTE 4 - LINE OF CREDIT

9 Months Ended

Sep. 30, 2016

NOTE 4 - LINE OF CREDIT [Abstract]

NOTE 4 - LINE OF CREDIT

NOTE 4 – LINE OF CREDIT

The Company assumed a line of credit with Wells Fargo Bank upon the closing of the merger on April 1, 2015. The line of credit provided for borrowings up to $40,000, but is now closed to future borrowing. The outstanding balance under the facility as of September 30, 2016 and December 31, 2015 was $38,827 and $40,216, respectively, including accrued interest. This line of credit has no maturity date. The annual interest rate is 10%.  The former CEO of the Company personally guaranteed the repayment of the outstanding amount.

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NOTE 5 - COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

NOTE 5 - COMMITMENTS AND CONTINGENCIES

NOTE 5 – COMMITMENTS AND CONTINGENCIES

Placement Agency Agreement

On July 1, 2015, duostech entered into a limited exclusive placement agent agreement in connection with the proposed offer and placement of up to $5,000,000 of securities, convertible instruments, private notes or loans (excluding a registered public offering) of the Company. The Agreement was for an initial term of 120 days. duostech paid an initial fee of $15,000 in connection with this engagement with an additional $5,000 due upon the acceptance by duostech of a valid term sheet. In the event of a transaction being concluded, the agent would have been paid 5% of senior debt that is not convertible and 8% cash plus 8% warrants of any equity based transaction. At the conclusion of the initial term no acceptable term sheet had been presented and the Company terminated the agreement on December 1, 2015. The parties agreed to continue working together without a formal agreement but with an understanding that should a term sheet be accepted and a subsequent financing be secured, Duos would honor the terms of the original agreement as described above.

On January 6, 2016, the Company entered into an agreement with an investment banker to provide general financial advisory and investment banking services. Services included, but not limited to in the agreement are to provide a valuation analysis of the Company, assist management and advise the Company with respect to its strategic planning process and business plans including an analysis of markets, positioning, financial models, organizational structure, potential strategic alliances, capital requirements, potential national listing and working closely with the Company’s management team to develop a set of long and short-term goals with special focus on enhancing corporate and shareholder value. The Agreement is for an initial term of six months. The Company shall pay a non-refundable fee accruing at the rate of $10,000 per month, for the term of the agreement. These advisory fee payments will be accrued and deferred for payment until the earlier of 1) closing of a financing described in the agreement, 2) a closing of interim funding at which point fifty percent (50%) of the outstanding monthly advisory fee will be payable on the last day of the month following closing of the interim financing or 3) the termination of the agreement.  The Company issued to the investment banker 912,000 vested shares of the Company’s common stock as of the execution date of this agreement. In addition, the Company issued warrants for the purchase of 302,000 shares of the Company’s common stock. The warrants shall have a 5-year term and an exercise price of $0.30. (See Note 7)

On January 27, 2016, the Company entered into an agreement with a consultant to provide advisory services for an initial period of six months. The consultant will assist the Company with its objective of evaluating financing and other strategic options in connection with operational expansion and respond to any opportunities that arise in regard to strategic partnerships/acquisition/joint ventures or other business relationships that may advance revenue growth and enterprise value. Upon a qualified financing of at least $1,500,000 through a party introduced by the consultant, the Company agreed to issue up to $90,000 in equity or cash at the same rate and terms as the basis of the financing. In consideration for development services thirty days from the execution of this agreement, 20,000 shares of restricted common stock of the Company will be granted to the consultant or assigns and be issued within fifteen days of the grant. Also, 30,000 additional shares shall be granted to the consultant or assigns on completion of any transactions with a potential participant. In consideration for advisory services, the non-refundable sum of $5,000 was payable upon execution of the agreement with a further $5,000 to be deferred and paid upon the completion of any transaction with a potential participant.  On May 5, 2016, the Company cancelled the agreement due to lack of performance with the consultant who was to provide advisory services for an initial period of six months.  The Company paid an initial amount of $2,500 and no further compensation will be paid.  No shares of common stock were issued in connection with this agreement.

On May 13, 2016, the Company entered into an agreement with a consultant in the business of providing services for management consulting, business advisory, shareholder information and public relations for a period of three months.  During the Term of this Agreement, the Company will pay to the Consultant the sum of $3,000 per month.  The Company may accrue monthly fees without payment to the consultant until the company closes a qualified financing other than the first month’s retainer. Upon signing, the Company issued to the Consultant 125,000 shares of the Company’s restricted common stock for a total purchase price of $100 and recorded $27,400 as a prepaid asset to be amortized over the three-month term.  The Company amortized $27,400 to expense as of September 30, 2016. As of August 14, 2016, the agreement had expired and was not renewed in writing by the parties as called for in the agreement.  The Company continues to work with the Principal on certain potential funding arrangements that were started (but not consummated) during the period in which the contract was in effect.

On September 1, 2016, the Company entered into an agreement with a registered investment broker, for the purposes of securing interim and long-term funding for the Company.  During the ninety-day term of this agreement, the Company will pay to the broker the sum of $50,000, certain travel expenses, plus 7% cash fee of the aggregate principle amount raised on a qualified financing. The Company has paid an initial amount of $6,500 to the broker and the broker has sent materials to qualified investors. As of the date of this report, the Company had not received any term sheets.

Litigation

On or about December 22, 2014, Corky Wells Electric (“CW Electric”) filed suit in the Circuit Court of Boyd County, Kentucky, against duostech demanding relief related to a promissory note issued by duostech to CW Electric on December 10, 2008 in the amount of $741,329. The suit was subsequently removed to the United States District Court for the Eastern District of Kentucky, Ashland Division. Previously, duostech entered into a “Stipulation for Settlement” on September 30, 2009 wherein CW Electric agreed to dismiss a previous lawsuit and duostech agreed to resume payments on the promissory note. In its suit, CW Electric contended that duostech breached the terms of that Stipulation for Settlement by not making the required number of payments at the times stipulated therein. CW Electric further contended that due to the breach of payment terms, under the terms of the promissory note, the outstanding amount continued to accrue interest at the rate of 18% per annum, which compounded monthly for a total of $1,411,650 due through the future final payment date.

Effective October 28, 2015, duostech and CW Electric entered into a Settlement and Release Agreement (the “Settlement Agreement”) pursuant to which the parties have agreed to settle the suit upon the payment by duostech to CW Electric of $550,000 (the “Settlement Amount”) by February 15, 2016. An agreed judgment, evidencing the Company’s agreement to pay the Settlement Amount, was signed by the parties (the “Agreed Judgment”) and such document deposited into escrow with CW Electric’s counsel. At the time of the payment of the Settlement Amount, the Agreed Judgment is to be returned to the Company for destruction.

Under the terms of the Settlement Agreement, duostech had until February 15, 2016 to pay the Settlement Amount and, if such amount was not paid by such date, then the Agreed Judgment was to be filed with the court and executed upon, with interest due at 12% per annum beginning February 15, 2016.

On February 9, 2016, duostech’s counsel informed CW Electric’s counsel that on February 5, 2016, Duos executed a term sheet with an investment fund which will, among other things, provide the funding for the settlement with C.W. Electric. At the time, Duos and the lender believed that the closing would take place during or prior to the second week in March. Consequently, Duos requested that C.W. Electric refrain from filing and/or executing on the Agreed Judgment attached to the Settlement Agreement until after the closing, as they were in the final stretches of obtaining the funding necessary to resolve this matter. CW Electric’s counsel agreed to an extension and following the filing of a respective joint motion, the District Court for the Eastern District of Kentucky entered an order of continuance until March 20, 2016 and further extended until April 20, 2016.  Payment was made in full upon the closing of the loan dated April 1, 2016.  

A contingent lawsuit payable of $550,000 was reflected at March 31, 2016 and December 31, 2015 in the Company’s consolidated financial statements. On April 1, 2016, CW has released the Company, duostech and affiliates from any action that could have been brought in the suit.

On April 27, 2016, the holder of two convertible notes issued a notice of conversion to the Company for a portion of one of the notes. The conversion notice was determined to be invalid as was a previous conversion notice issued on the other note during the quarter. A difference of opinion has arisen between the holder and the Company as to the mechanics of conversion and the Company had been in discussions to resolve those differences. On May 23, 2016, we filed a lawsuit against the holder. The suit alleges, amongst other things, that the officers and directors of Greentree that entered into the notes, failed to disclose legal facts with respect to their personal conduct in the past, which, had the Company known, would have made it unlikely that such transaction would have been consummated. The Company owes the principal and interest due under the notes and sought to pay principal and interest of the note which first came due, but the offer was rejected. On May 24, 2016, the Company learned through a third party that the holder had filed suit against the Company on May 12, 2016 for default on one of notes, but had not notified the Company or its attorneys, nor served either the Company or its attorneys. The Company was served shortly thereafter.  (See Note 9)

Delinquent Payroll Taxes Payable

As reported previously, the Company has a delinquent payroll tax payable at September 30, 2016 and December 31, 2015 in the amount of $94,470 and $244,470, respectively. The delinquent portion is included in the payroll taxes payable balance of $408,186 and $296,215, respectively, as shown on the Company’s consolidated balance sheet. The IRS has accepted the Company’s offer of a monthly installment agreement in the amount of $25,000 commencing March 28, 2016.  The monthly installment payments paid as of September 30, 2016 totals $150,000.  (See Note 9)

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NOTE 6 - RELATED PARTIES

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

NOTE 6 - RELATED PARTIES

NOTE 6 – RELATED PARTIES

Notes, Loans and Accounts Payable

As of September 30, 2016 and December 31, 2015, there were various notes and loans payable to related parties totaling $611,352 and $486,964, respectively, with related unpaid interest of $67,563 and $50,873 respectively (see Note 3). The Company also has accounts payable-related parties due to officers for expense reimbursement and due to an affiliate for services in the total amount of $36,400 and $30,070 at September 30, 2016 and December 31, 2015, respectively.

Administrative Services Agreement

On December 1, 2002, the Company and the former parent entered into an Administrative Services Agreement whereby the former parent agreed to provide administrative and support services including but not limited to, (a) rent and general infrastructure, (b) human resource management services, and (c) accounting and financial services and other miscellaneous services. The monthly fee was subject to adjustments in accordance with the actual services rendered. There were no fees incurred with the former parent for the year ending December 31, 2015 and we will not incur any additional fees going forward. At September 30, 2016 and December 31, 2015, $11,788 and $5,173, respectively, was due to the former parent under this agreement and is included in Accounts payable - related parties as disclosed above.

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NOTE 7 - STOCKHOLDERS' DEFICIT

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

NOTE 7 - STOCKHOLDERS' DEFICIT

NOTE 7 – STOCKHOLDERS’ DEFICIT 

Common stock issued for services and settlements

On January 6, 2016, the Company entered into an agreement with an investment banker to provide general financial advisory and investment banking services. Services included, but not limited to in the agreement are to provide a valuation analysis of the Company, assist management and advise the Company with respect to its strategic planning process and business plans including an analysis of markets, positioning, financial models, organizational structure, potential strategic alliances, capital requirements, potential national listing and working closely with the Company’s management team to develop a set of long and short-term goals with special focus on enhancing corporate and shareholder value. The Agreement is for an initial term of six months. The Company shall pay a non-refundable fee accruing at the rate of $10,000 per month, for the term of the agreement. These advisory fee payments will be accrued and deferred for payment until the earlier of 1) closing of the financing described in the agreement, 2) a closing of interim funding at which point fifty percent (50%) of the outstanding monthly advisory fee will be payable on the last day of the month following closing of the interim financing or 3) the termination of the agreement. The Company has issued to the investment banker 912,000 vested shares of the Company’s common stock as of the execution date of this agreement.  In addition, the Company has issued warrants for the purchase of 302,000 shares of the Company’s common stock. The warrants have a 5-year term and an exercise price of $0.30.  As of September 30, 2016, the Company has accrued $60,000 which is unpaid and is recorded in accrued expenses on the Company’s consolidated balance sheet.

On January 22, 2016, Warrant Holders were granted 2,100 shares of common stock in exchange for existing 5,250 warrants resulting in a loss on settlement of $630 charged to operations.

On April 1, 2016, the Company issued a warrant exercisable into 2.5 million shares with a term of five years and exercise price of $0.35 per share in conjunction with a Securities Purchase Agreement (see Note 3).  The Warrants also contain certain anti-dilution provisions that apply in connection with any stock split, stock dividend, stock combination, recapitalization or similar transactions as well as a potential adjustment to the exercise price based on certain events. The relative fair value of the warrants of $466,031 was recorded as a debt discount and will be amortized to interest expense over the term of the debt.

On April 1, 2016, the Company issued 200,000 three-year warrants with an exercise price of $0.40 to the placement agent as additional compensation for arrangement of financing through the Securities Purchase Agreement (see Note 3).  The fair value of the warrants of $43,272 was recorded as a discount and will be amortized to interest expense over the term of the debt.

The Company issued 253,977 shares of common stock for consulting services rendered valued at the quoted trading price on the respective grant date resulting in consulting expense of $35,000 in the nine months ended September 30, 2016.

In May 2016, the Company issued 125,000 shares of common stock for consulting services valued at the quoted trading price on the respective grant date resulting in prepaid consulting expense of $27,400 to be amortized over the three-month agreement term.

In August 2016, the Company’s Board of Directors approved a new class of Preferred Stock, “Series A”.  The Articles of Amendment Designating Preferences, Rights and Limitations of the Series A were filed with State on October 31, 2016.  The Series A authorized 500,000 of the Company’s 10 million “blank check” preferred stock with a stated value of $10 per share, an 8% cumulative dividend payable when and if declared by the Board and a provision to convert into the Company’s common stock at $0.18 per share.  If the holder elects to convert the Series A to common stock, the cumulative dividend amount will also be converted to common stock.  The Series A is redeemable by the holder after 3 years including all unconverted stated value and accrued dividends.  For shareholders who invested in previous private placements, the Company is offering on a case by case basis, the ability to convert the existing amount invested into an equivalent amount in the Series A on the condition that they invest an equivalent additional amount in the Series A.  As of September 30, 2016, several of the company’s shareholders had expressed interest in participating and the Company has received prepayments in the amount of $140,000 which have been recorded as accrued expenses, a current liability, as of September 30, 2016.  (See Note 9)

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NOTE 8 - COMMON STOCK PURCHASE WARRANTS

9 Months Ended

Sep. 30, 2016

Other Liabilities Disclosure [Abstract]

NOTE 8 - COMMON STOCK PURCHASE WARRANTS

NOTE 8 – COMMON STOCK PURCHASE WARRANTS

Warrants

The following is a summary of activity for warrants to purchase common stock for the nine months ended September 30, 2016:

	September 30, 2016
	Number of Warrants			Weighted Avg. Exercise Price		Remaining Contractual Life (Years)
Outstanding at the beginning of the year		609,340		$	.54		4.25
Warrants expired		(5,250	)		6.67
Warrants issued with debt or debt modifications		3,002,000			.35		4.35
Warrants exchanged for common stock		(5,250	)		6.67
Outstanding at end of period		3,600,840			.36		4.25
Exercisable at end of period		3,600,840		$	.36		4.25

In the first quarter of 2016, 5,250 warrants were exchanged for 2,100 common shares resulting in a loss on exchange of $630 charged to operations.  During the same period, 1,500 warrants expired.

The Company has issued warrants for the purchase of 302,000 shares of the Company’s common stock, which the warrants have a 5-year term and an exercise price of $0.30.  (See Note 5)

During the second quarter of 2016, 2,700,000 warrants were issued with the Securities Purchase Agreement and the amended Placement Agent Agreement.  During the same period, 3,750 warrants expired.

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NOTE 9 - SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

NOTE 9 - SUBSEQUENT EVENTS

NOTE 9 – SUBSEQUENT EVENTS

On October 11, 2016, the Company received an $8,000 prepayment from a shareholder to invest into Series A Convertible Preferred Shares pending filing of the Articles of Amendment with the state of Florida.  This is in addition to $140,000 received during the reporting period for a total of $148,000.  In accordance with the articles, the Company will repurchase an equivalent dollar amount of shares from the investor such that the aggregate proceeds from the Series A will be $296,000 or 29,600 Preferred Shares as discussed in Note 7.  The Company will record Temporary Equity in the amount of $296,000 as the transactions are finalized. The Common Stock repurchased will be held on the Company’s balance sheet.

As of October 28, 2016, the Company was current with the $25,000 monthly installment plan with the IRS. (See Note 5)

On October 31, 2016, the Company filed Articles of Amendment Designating Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the state of Florida. (See Note 2) 

On November 4, 2016, the Company was notified by its attorneys that motions were granted against the Company in a legal matter previously disclosed concerning Greentree Financial.  The motions were “without prejudice” and the Company intends to amend both our affirmative defenses and counterclaim to set forth additional information which we intend to submit to the court by November 21, 2016.  The Company continues to seek ways to settle the matter in order to avoid protracted litigation. (See Note 5)

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NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

Duos Technologies Group, Inc. (“Company”), through its operating subsidiary “Duos Technologies, Inc. (“duostech”) 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’s strategy includes expansion of its technology base through organic development efforts, strategic partnerships, and growth through strategic acquisitions. duostech’s primary target industry sectors include transportation, with emphasis on freight and transit railroad owners/operators, petro-chemical, utilities and healthcare.

As reported previously, Duos Technologies Group, Inc. is the result of the reverse merger between duostech and a wholly owned subsidiary of Information Systems Associates, Inc., a Florida corporation (“ISA”), which became effective as of April 1, 2015 and as a result of which duostech became a wholly owned subsidiary of the merged entity. The merger was followed by a corporate name change to Duos Technologies Group, Inc., a symbol change from IOSA to DUOT and up-listing from OTC Pink to OTCQB.

ISA’s original business of IT Asset Management (ITAM) services for large data centers is now operated as a division of the Company that continues its sales efforts through large strategic partners. ISA developed a methodology for the efficient data collection of assets contained within large data centers and was awarded a patent in 2010 for specific methods to collect and audit data.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed 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 nine months ended September 30, 2016 are not indicative of the results that may be expected for the year ending December 31, 2016 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, 2015 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2016. 

Principles of Consolidation

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, duostech and TrueVue 360, Inc. All inter-company transactions and balances are eliminated in consolidation.

Use of Estimates

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 consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of assets acquired and liabilities assumed in business combinations, estimates of percentage completion on projects and related revenues, valuation of stock-based compensation, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, valuation of stock-based awards and valuation of loss contingencies. 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

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. There were no amounts on deposit in excess of federally insured limits at September 30, 2016 and December 31, 2015.

Significant Customers and Concentration of Credit Risk

The Company, by policy, routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced any write-downs in its accounts receivable balances through September 30, 2016. A significant portion of revenues is derived from certain customer relationships. The following is a summary of customers that each represents greater than 10% of total revenues for the nine months ended September 30, 2016 and 2015, and total accounts receivable at September 30, 2016 and December 31, 2015, respectively:

2016						2015
Revenue			Accounts Receivable			Revenue			Accounts Receivable
Customer A	31	%	Customer A	—		Customer A	22	%	Customer A	27	%
Customer B	20	%	Customer B	57	%	Customer B	14	%	Customer B	—
Customer C	16	%	Customer C	14	%	Customer C	—		Customer C	—
Customer D	16	%	Customer D	—		Customer D	—		Customer D	—
Customer E	11	%	Customer E	11	%	Customer E	—		Customer E	—
Customer F	—		Customer F	—		Customer F	—		Customer F	33	%
Customer G	—		Customer G	—		Customer G	21	%	Customer G	—
Customer H	—		Customer H	—		Customer H	20	%	Customer H	—
Customer I	—		Customer I	—		Customer I	—		Customer I	24	%

Geographic Concentration

Approximately 18% of revenue is generated from customers outside of the United States.

Fair Value Financial Instruments and Fair Value Measurements

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, 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).

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.

The estimated fair value of certain financial instruments, including accounts receivable and accounts payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The cost basis of notes and convertible debentures approximates fair value due to the market interest rates carried for these instruments.

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss 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 or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At September 30, 2016, outstanding warrants to purchase an aggregate of 3,600,840 shares of common stock and 1,819,418 shares of common stock issuable upon conversion of convertible debt (principal and interest) were excluded from the computation of dilutive earnings per share because the inclusion would have been anti-dilutive.

Segment Information

Segment Information

The Company operates in one reportable segment.

Reclassifications

Reclassifications

Certain note amounts in the 2015 consolidated balance sheet have been reclassified within current liabilities to conform to the 2016 presentation.

Recent Issued Accounting Standards

Recent Issued Accounting Standards

In August 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-14 Revenue from Contracts with Customers.  The ASU defers the effective date of previously issued ASU 2014-09 (the new revenue recognition standard) by one year for both public and private companies. The ASU requires public entities to apply the new revenue recognition guidance for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December 15, 2017. Both public and nonpublic entities will be permitted to apply the new revenue recognition standard as of the original effective date for public entities (annual periods beginning after December 15, 2016).  The Company plans to adopt this standard for their fiscal year beginning January 1, 2018. The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02: “Leases (Topic 842)” whereby lessees will need to recognize almost all leases on their balance sheet as a right of use asset and a lease liability.  This guidance is effective for interim and annual reporting periods beginning after December 15, 2018.  The Company does not expect this ASU to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09: "Compensation – Stock Compensation (Topic 718)-Improvements to Employee Share-Based Payment Accounting" which includes multiple provisions intended to simplify various aspects of the accounting for share-based payments. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016.  The Company is in the process of analyzing the impacts of this ASU, but does not believe it will have a material impact on its consolidated financial statements.

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NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Concentration

2016						2015
Revenue			Accounts Receivable			Revenue			Accounts Receivable
Customer A	31	%	Customer A	—		Customer A	22	%	Customer A	27	%
Customer B	20	%	Customer B	57	%	Customer B	14	%	Customer B	—
Customer C	16	%	Customer C	14	%	Customer C	—		Customer C	—
Customer D	16	%	Customer D	—		Customer D	—		Customer D	—
Customer E	11	%	Customer E	11	%	Customer E	—		Customer E	—
Customer F	—		Customer F	—		Customer F	—		Customer F	33	%
Customer G	—		Customer G	—		Customer G	21	%	Customer G	—
Customer H	—		Customer H	—		Customer H	20	%	Customer H	—
Customer I	—		Customer I	—		Customer I	—		Customer I	24	%

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NOTE 3 - DEBT (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Notes Payable - Financing Agreements

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	2,211	9.75	%	$	21,325	9.75	%
Third Party - Insurance Note 2		19,065	10.00	%		11,277	9.75	%
Third Party - Insurance Note 3		37,943	8.05	%		—	—
Third Party - Insurance Note 4		28,253	9.24	%		11,422	8.99	%
Total	$	87,472			$	44,024

Notes Payable - Related Parties

	September 30, 2016					December 31, 2015
Payable To	Principal		Interest*			Principal		Interest*
Related party	$	65,000		.75	%	$	65,000		.75	%
Related party		13,369		.67	%		17,651		.67	%
Related party		16,808		—			33,615		—
Related party		56,500		.67	%		36,500		.67	%
Related party		7,670		—			21,170		—
Related party		8,431		.67	%		11,131		.67	%
CFO		31,973		.67	%		7,841		—
Related party		241,346		.50	%		294,056		.50	%
CEO		58,610		.67	%		—		—
Related party		111,645		.67	%		—		—
Total	$	611,352				$	486,964

* effective interest rate per month including default penalties

Notes Payable

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest*		Principal		Interest*
Shareholder	$	19,108		—	$	19,108		—
Shareholder		—		—		125,000		.67%
Vendor		30,000		—		52,500		—
Total	$	49,108			$	196,608

* effective interest rate per month including default penalties

Convertible Notes Payable-Net of Discounts, Including Premiums

	September 30, 2016						December 31, 2015
Payable To	Principal		Premium		Principal, Including Premium		Principal		Premium		Principal, Including Premium
Vendor	$	50,000	$	50,000	$	100,000	$	50,000	$	50,000	$	100,000
Vendor		46,975		46,975		93,950		46,975		46,975		93,950
Total	$	96,975	$	96,975	$	193,950	$	96,975	$	96,975	$	193,950

Notes Payable - Third Party

	September 30, 2016				December 31, 2015
Payable To	Principal		Interest		Principal		Interest
Note payable	$	1,800,000		14% + 2%	$	—		—
Less unamortized discounts		659,418				—
Note payable, net	$	1,140,582			$	—

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NOTE 8 - COMMON STOCK PURCHASE WARRANTS (Tables)

9 Months Ended

Sep. 30, 2016

Other Liabilities Disclosure [Abstract]

Warrants

	September 30, 2016
	Number of Warrants			Weighted Avg. Exercise Price		Remaining Contractual Life (Years)
Outstanding at the beginning of the year		609,340		$	.54		4.5
Warrants expired		(5,250	)		6.67
Warrants issued with debt or debt modifications		3,002,000			.35		4.6
Warrants exchanged for common stock		(5,250	)		6.67
Outstanding at end of period		3,600,840			.36		4.5
Exercisable at end of period		3,600,840		$	.36		4.5

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NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Credit Risk) (Details)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Revenue [Member] | Outside of the US [Member]
Concentration of Credit Risk	18.00%
Customer A [Member] | Revenue [Member]
Concentration of Credit Risk	31.00%	22.00%
Customer A [Member] | Accounts Receivable
Concentration of Credit Risk		27.00%
Customer B [Member] | Revenue [Member]
Concentration of Credit Risk	20.00%	14.00%
Customer B [Member] | Accounts Receivable
Concentration of Credit Risk	57.00%
Customer C [Member] | Revenue [Member]
Concentration of Credit Risk	16.00%
Customer C [Member] | Accounts Receivable
Concentration of Credit Risk	14.00%
Customer D [Member] | Revenue [Member]
Concentration of Credit Risk	16.00%
Customer D [Member] | Accounts Receivable
Concentration of Credit Risk
Customer E [Member] | Revenue [Member]
Concentration of Credit Risk	11.00%
Customer E [Member] | Accounts Receivable
Concentration of Credit Risk	11.00%
Customer F [Member] | Revenue [Member]
Concentration of Credit Risk
Customer F [Member] | Accounts Receivable
Concentration of Credit Risk		33.00%
Customer G [Member] | Revenue [Member]
Concentration of Credit Risk		21.00%
Customer G [Member] | Accounts Receivable
Concentration of Credit Risk
Customer H [Member] | Revenue [Member]
Concentration of Credit Risk		20.00%
Customer H [Member] | Accounts Receivable
Concentration of Credit Risk
Customer I [Member] | Revenue [Member]
Concentration of Credit Risk
Customer I [Member] | Accounts Receivable
Concentration of Credit Risk		24.00%

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NOTE 1 - NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details)	Sep. 30, 2016 shares
Note 1 - Nature Of Operations Basis Of Presentation And Summary Of Signifcant Acctg Policies Details Narratives
Number of Warrants Outstanding	3,600,840
Number of Shares upon Conversion	1,819,418

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NOTE 2 - GOING CONCERN (Narrative) (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Net loss	$ 591,074	$ 209,324	$ 2,092,558	$ 3,014,069
Net cash used in operations			1,518,348	$ 2,003,239
Working capital deficit	3,901,399		3,901,399
Stockholders' Deficit	4,915,212		4,915,212		$ 3,758,723
Accumulated deficit	23,043,734		23,043,734		$ 20,951,176
Direct payments from lender			837,891
Long-term debt financing	$ 1,800,000		$ 1,800,000
Preferred stock shares authorized	10,000,000		10,000,000		10,000,000
Preferred stock shares par value	$ 0.001		$ 0.001		$ 0.001
Series A Preferred Stock [Member]
Preferred stock shares authorized	500,000		500,000
Preferred stock shares par value	$ 10		$ 10
Percentage of accrued dividend			8.00%
Conversion of stock price per share of common stock	$ 0.18		$ 0.18
Redemption period of dividends			3 years

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NOTE 3 - DEBT (Schedule of Notes Payable - Financing Agreements) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Notes Payable, Principal	$ 87,472	$ 44,024
Third Party - Insurance Note 1 [Member]
Notes Payable, Principal	$ 2,211	$ 21,325
Notes Payable, Interest	9.75%	9.75%
Third Party - Insurance Note 2 [Member]
Notes Payable, Principal	$ 19,065	$ 11,277
Notes Payable, Interest	10.00%	9.75%
Third Party - Insurance Note 3 [Member]
Notes Payable, Principal	$ 37,943
Notes Payable, Interest	8.05%
Third Party - Insurance Note 4 [Member]
Notes Payable, Principal	$ 28,253	$ 11,422
Notes Payable, Interest	9.24%	8.99%

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NOTE 3 - DEBT (Schedule of Notes Payable - Related Parties) (Details) - USD ($)		Sep. 30, 2016	Dec. 31, 2015
Notes Payable - Related Parties, Principal Amount		$ 611,352	$ 486,964
CFO [Member]
Notes Payable - Related Parties, Principal Amount		$ 31,973	$ 7,841
Notes Payable - Related Parties, Interest Rate	[1]	0.67%
CEO [Member]
Notes Payable - Related Parties, Principal Amount		$ 58,610
Notes Payable - Related Parties, Interest Rate	[1]	0.67%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 65,000	$ 65,000
Notes Payable - Related Parties, Interest Rate	[1]	0.75%	0.75%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 13,369	$ 17,651
Notes Payable - Related Parties, Interest Rate	[1]	0.67%	0.67%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 16,808	$ 33,615
Notes Payable - Related Parties, Interest Rate	[1]
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 56,500	$ 36,500
Notes Payable - Related Parties, Interest Rate	[1]	0.67%	0.67%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 7,610	$ 21,170
Notes Payable - Related Parties, Interest Rate	[1]
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 8,431	$ 11,131
Notes Payable - Related Parties, Interest Rate	[1]	0.67%	0.67%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 241,346	$ 294,056
Notes Payable - Related Parties, Interest Rate	[1]	0.50%	0.50%
Related Party [Member]
Notes Payable - Related Parties, Principal Amount		$ 111,645
Notes Payable - Related Parties, Interest Rate	[1]	0.67%

[1] effective interest rate per month including default penalties

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NOTE 3 - DEBT (Schedule of Notes Payable - Net of Discounts) (Details) - USD ($)		Sep. 30, 2016	Dec. 31, 2015
Notes Payable-Net of Discounts, Principal Amount		$ 49,108	$ 196,608
Shareholder [Member]
Notes Payable-Net of Discounts, Principal Amount		$ 19,108	$ 19,108
Notes Payable-Net of Discounts, Interest	[1]
Shareholder [Member]
Notes Payable-Net of Discounts, Principal Amount			$ 125,000
Notes Payable-Net of Discounts, Interest	[1]		0.67%
Vendor [Member]
Notes Payable-Net of Discounts, Principal Amount		$ 30,000	$ 52,500
Notes Payable-Net of Discounts, Interest	[1]

[1] effective interest rate per month including default penalties

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NOTE 3 - DEBT (Schedule of Convertible Notes Payable) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Convertible Notes Payable, Principal Amount	$ 96,975	$ 96,975
Convertible Notes Payable, Premium	96,975	96,975
Principal, Including Premium	193,950	193,950
Vendor [Member]
Convertible Notes Payable, Principal Amount	50,000	50,000
Convertible Notes Payable, Premium	50,000	50,000
Principal, Including Premium	100,000	100,000
Vendor [Member]
Convertible Notes Payable, Principal Amount	46,975	46,975
Convertible Notes Payable, Premium	46,975	46,975
Principal, Including Premium	$ 93,950	$ 93,950

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NOTE 3 - DEBT (Schedule of Notes Payable - Third Party) (Details) - USD ($)	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Notes Payable - Third Party	$ 1,800,000
Less unamortized discounts	659,418
Note payable, net	1,140,582
Third Party [Member]
Notes Payable - Third Party	$ 1,800,000
Interest	14.00%
Interest above stated rate	2.00%

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NOTE 3 - DEBT (Narrative) (Details) - USD ($)											1 Months Ended								3 Months Ended		9 Months Ended		10 Months Ended
	Feb. 01, 2017	Dec. 03, 2016	Aug. 11, 2016	Jul. 15, 2016	Apr. 02, 2016	Jan. 11, 2016	Aug. 10, 2015	Apr. 08, 2015	Mar. 03, 2015	Dec. 12, 2013	Jul. 19, 2016	Mar. 31, 2016	Jan. 28, 2016	Jan. 24, 2016	Nov. 30, 2015	Sep. 30, 2015	Apr. 30, 2015	Jan. 29, 2015	Sep. 30, 2015	Jun. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2017	Jun. 30, 2016	Mar. 30, 2016	Feb. 03, 2016	Dec. 31, 2015	Dec. 23, 2015	Sep. 15, 2015	Apr. 02, 2015	May 28, 2008
Monthly installments of principal and interest																					$ 150,000
Interest payment						$ 3,230															125,687	$ 33,211
Debenture issued																					$ 198,089
Warrant exercise price																					$ 0.30
Warrants issued to placement agent																					3,600,840
Original issue discount																					$ 659,418
Total amount due to shareholder																					$ 36,400						30,070
Strike price																					$ 0.30
Third Party - Insurance Note 4 [Member]
Interest rate																														9.24%
Notes payable outstanding balance																					$ 28,253						11,422			$ 65,000
Third Party - Insurance Note 4 [Member] | Subsequent Event [Member]
Monthly installments of principal and interest	$ 5,782
Third Party - Insurance Note 5 [Member]
Notes payable outstanding balance																														11,422
Third Party - Insurance Note 3 [Member]
Interest rate																										8.05%
Notes payable outstanding balance																					$ 37,943					$ 123,571
Third Party - Insurance Note 3 [Member] | Subsequent Event [Member]
Monthly installments of principal and interest		$ 12,818
Third Party - Insurance Note 2 [Member]
Monthly installments of principal and interest				$ 1,678
Interest rate																					10.00%								9.75%
Notes payable outstanding balance																					$ 19,065						11,277		$ 18,823
Third Party - Insurance Note 2 [Member] | Subsequent Event [Member]
Monthly installments of principal and interest																							$ 1,702
Third Party - Insurance Note 1 [Member]
Interest rate																												9.75%
Notes payable outstanding balance																					2,211						21,325	$ 21,325
CFO [Member]
Notes payable outstanding balance																					31,973									8,783
Monthly interest rate													0.67%
Aggregate principal amount of note													$ 30,000							$ 365
Repayments of debt																				$ 1,307
CEO [Member]
Interest rate																															0.75%
Notes payable outstanding balance																															$ 65,000
Accrued interest balance																					47,768						43,381
Related party principal shareholder [Member]
Interest rate								6.00%
Maturity date								Oct. 31, 2015
Accrued interest balance																$ 8,616			$ 8,616			$ 8,616
Aggregate principal amount of note								$ 310,000
Promissory new note [Member]
Monthly installments of principal and interest																$ 27,750
Interest rate																6.00%			6.00%			6.00%
Notes payable outstanding balance																$ 320,166			$ 320,166			$ 320,166
Repayments of debt																27,007
Non-interest bearing OID promissory [Member]
Notes payable outstanding balance																					0						4,578
Loss on conversion																	$ 55,484
Repayments of debt																	$ 7,078
Debt default terms																	A 25% penalty is due if the balance is not paid by the due date. Furthermore, 5% of all factor payments to the Company are to be used to pay down the note.
Debt conversion term																	On September 21, 2015, the shareholder agreed to convert $81,250 of the $165,000 outstanding note to 506,421 shares of the Company’s common stock and the addition of the 25% penalty as stated above in the amount of $41,250, with a new note balance of $125,000, 15-month term and 8% interest.
Private Placement [Member]
Aggregate principal amount of note												$ 1,800,000
Original issue discount												5.00%
Senior secured and warrant exercisable securities, shares												2,500,000													250,000
Expiration period												5 years
Warrant exercise price												$ 0.35													$ 0.40
Fair value of the warrants												$ 466,031
Accrued interest rate												14.00%
Additional accrued interest rate												2.00%
Postponement payment												$ 5,000
Placement agents fees												137,000
Total debt funding												$ 1,800,000
Warrants issued to placement agent												200,000
Warrants issued to placement agent, fair value												$ 43,272
Payment of additional obligations at closing												690,110
Net proceeds from placement agreement												1,518,000
Debt issuance expenses												40,000
Original issue discount												90,000
Warrants compensation paid to placement agent																									$ 200,000
Legel fees												10,000
Total cash issue costs												$ 192,000
Debt Purchase Agreement [Member]
Notes payable outstanding balance																								$ 93,950			93,950
Accrued interest balance																					10,568			8,454			4,228
Premium																								$ 46,975
Vendor [Member]
Notes payable outstanding balance																					50,000						50,000
Accrued interest balance																					$ 6,011						$ 4,723
Monthly interest rate																					0.00%						1.00%
Facility Team of Ontario [Member]
Monthly installments of principal and interest							$ 2,500
Notes payable outstanding balance																					$ 30,000						$ 52,500
Settlement amount							$ 60,000
Stockholder [Member]
Notes payable outstanding balance																											52,500
Accrued interest balance																					4,578						4,578
Loss on conversion																					55,484
Shareholder [Member]
Notes payable outstanding balance																					241,346
Accrued interest balance					$ 7,078
Principal amount paid					125,000
Total amount due to shareholder					132,078
Unrelated party investor [Member]
Notes payable outstanding balance					$ 19,108
Related party principal shareholder [Member]
Interest rate			8.00%
Notes payable outstanding balance																					111,645
Maturity date			Feb. 11, 2017
Proceeds from loan			$ 111,645
Related party loan from CEO [Member]
Monthly installments of principal and interest											$ 1,052
Interest rate											7.99%
Notes payable outstanding balance											$ 59,925										58,610
Proceeds from loan											60,000
Fees on loan proceeds											$ 75
Former CEO of ISA [Member]
Notes payable outstanding balance																					7,670									$ 30,378
Wife of CEO [Member]
Interest rate										0.67%
Notes payable outstanding balance																					56,500						36,500
Accrued interest balance																					6,344						$ 3,052
Proceeds from loan									$ 5,000	$ 10,000				$ 20,000		9,500		$ 12,000
Driginal Issue Discount (OID) promissory note [Member]
Monthly installments of principal and interest															$ 1,535
Interest rate																														1.50%
Notes payable outstanding balance															$ 15,000						13,369									$ 15,000
Maturity date															Dec. 15, 2016
Accrued interest balance															$ 2,651
Monthly interest rate															0.67%
Aggregate principal amount of note															$ 17,651
Two promissory notes [Member]
Notes payable outstanding balance																275,660			275,660		16,808	275,660								$ 212,693
Loss on conversion																$ 115,139			$ 115,139			$ 115,139
Monthly interest rate																														2.50%
Shares exchanged in debt																1,002,401
TrueVue360, Inc. [Member]
Monthly installments of principal and interest																$ 2,100
Interest rate																1.50%			1.50%			1.50%
Notes payable outstanding balance																$ 28,040			$ 28,040			$ 28,040
Accrued interest balance																$ 9,777			$ 9,777			$ 9,777
Monthly interest rate																0.00%			0.00%			0.00%
Aggregate principal amount of note																$ 37,817
Warrant exercise price																$ 0.28			$ 0.28			$ 0.28
Warrants issued to placement agent																501,201			501,201			501,201
OID promissory note [Member]
Monthly installments of principal and interest															$ 968
Interest rate															2.50%
Notes payable outstanding balance															$ 10,000						$ 8,431									$ 10,593
Maturity date															Dec. 15, 2016
Accrued interest balance															$ 1,131
Interest payment																			$ 1,500
Monthly interest rate															0.67%
Aggregate principal amount of note															$ 11,131
Placement Agent [Member]
Expiration period					3 years
Payment to placement agent					$ 142,000
Warrants compensation paid to placement agent					$ 200,000
Strike price					$ 0.40
CW Electric [Member]
Accrued interest balance					$ 8,032
Remitted amount out of proceeds in final settlement					558,032
Agreed settlement amount					$ 550,000

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NOTE 4 - LINE OF CREDIT (Narrative) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015	Apr. 02, 2015
Note 4 - Line Of Credit Narrative Details
Line of Credit - Wells Fargo Bank	$ 38,827	$ 40,216	$ 40,000
Interest Rate	10.00%

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NOTE 5 - COMMITMENTS AND CONTINGENCIES (Narrative) (Details) - USD ($)						1 Months Ended			3 Months Ended		9 Months Ended
	May 05, 2016	Mar. 31, 2016	Mar. 30, 2016	Jan. 06, 2016	Jul. 02, 2015	Sep. 30, 2016	May 31, 2016	Mar. 31, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	May 13, 2016	Mar. 28, 2016	Jan. 27, 2016	Jan. 22, 2016	Dec. 31, 2015	Oct. 28, 2015	Dec. 10, 2008
Contingent lawsuit payable		$ 550,000						$ 550,000									$ 550,000	$ 550,000
Delinquent portion of payroll taxes payable						94,470			94,470		94,470						244,470
Payroll tax payable						$ 408,186			408,186		408,186						296,215
Monthly payroll installment agreement amount														$ 25,000
Monthly installment payments											150,000
Prepaid Assets amortized expenses									$ 59,803	$ 108,421	$ 229,277	$ 233,553
Agent percentage of cash fee						7.00%
Strike price						$ 0.30			$ 0.30		$ 0.30
Expiration period							3 years
Term of agreement		5 years
Percentage payable on last day of month following closing																50.00%
Initial agreement amount with broker						$ 50,000			$ 50,000		$ 50,000
Payment to broker						$ 6,500
Corky Wells Electric [Member]
Promissory note																			$ 741,329
Interest rate																			18.00%
Consultant [Member]
Monthly payroll installment agreement amount													$ 3,000
Financing from third party through consultant															$ 1,500,000
Equity to third party															$ 90,000
Restricted common stock granted to consultant						125,000			125,000		125,000				20,000
Restricted common stock granted to consultant, amount											$ 100
Prepaid Assets						$ 27,400			$ 27,400		$ 27,400
Prepaid Assets amortized period											3 months
Prepaid Assets amortized expenses											$ 27,400
Additional shares to be granted after completion of agreement															30,000
Consideration payable for advisory services, non-refundable															$ 5,000
Consideration payable upon completion of any transaction															$ 5,000
Initial amount paid to consultant	$ 2,500
Agreement with Investment Banker [Member]
Strike price				$ 0.30
Expiration period				5 years
General financial advisory and investment banking services per month				$ 10,000
Term of agreement				6 months
Percentage payable on last day of month following closing				50.00%
Shares issued to investment banker, vested shares				912,000
Warrants issued to purchase common stock				302,000
Private Placement [Member]
Value of shares authorized for issuance					$ 5,000,000
Fee for placement					$ 15,000
Agent percentage of senior debt fee					5.00%
Agent percentage of cash fee					8.00%
Agent percentage of warrant fee					8.00%
Strike price		$ 0.35	$ 0.40					$ 0.35
Expiration period			3 years
Senior secured and warrant exercisable securities, shares		2,500,000	250,000					2,500,000
Accrued interest rate								14.00%
Additional accrued interest rate		2.00%						2.00%
Payment of the cash fee					$ 5,000
Scenario, Previously Reported [Member]
Contingent lawsuit payable																	$ 1,411,650
Scenario, Previously Reported [Member] | Corky Wells Electric [Member]
Contingent lawsuit payable																		$ 1,411,650

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NOTE 6 - RELATED PARTIES (Narrative) (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Notes and loans payable to related parties	$ 611,352	$ 486,964
Unpaid interest	67,563	50,873
Due to the former parent	36,400	30,070
Administrative Services Agreement [Member]
Due to the former parent	$ 11,788	$ 5,173

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NOTE 7 - STOCKHOLDERS' DEFICIT (Narrative) (Details) - USD ($)				1 Months Ended		3 Months Ended	9 Months Ended
	Mar. 31, 2016	Mar. 30, 2016	Jan. 06, 2016	May 31, 2016	Jan. 22, 2016	Mar. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Term of agreement	5 years
Exercise price							$ 0.30
Expiration period				3 years
Warrants exchanged					5,250	5,250
Loss on settlement charged to operations						$ 630
Common stock issued in exchange of warrants					2,100
Common stock issued for services, shares				125,000			253,977
Common stock issued for services, value				$ 27,400			$ 35,000
Percentage payable on last day of month following closing					50.00%
Fair value of the warrants	$ 466,031
Preferred stock shares authorized							10,000,000	10,000,000
Preferred stock shares par value							$ 0.001	$ 0.001
Series A Preferred Stock [Member]
Preferred stock shares authorized							500,000
Preferred stock shares par value							$ 10
Percentage of accrued dividend							8.00%
Conversion of stock price per share of common stock							$ 0.18
Redemption period of dividends							3 years
Prepayments for stock							$ 140,000
Private Placement [Member]
Exercise price	$ 0.35	$ 0.40				$ 0.35
Expiration period		3 years
Warrants compensation paid to placement agent		$ 200,000
Fair value of the warrants		$ 43,272
Senior secured and warrant exercisable securities, shares	2,500,000	250,000				2,500,000
Agreement with Investment Banker [Member]
General financial advisory and investment banking services per month			$ 10,000
Term of agreement			6 months
Shares issued to investment banker, vested shares			912,000
Warrants issued to purchase common stock			302,000
Exercise price			$ 0.30
Expiration period			5 years
Percentage payable on last day of month following closing			50.00%

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NOTE 8 - COMMON STOCK PURCHASE WARRANTS (Schedule of activity of warrants) (Details) - Warrant [Member]	9 Months Ended
	Sep. 30, 2016 $ / shares shares
Number of Warrants
Outstanding at the beginning of the year | shares	609,340
Warrants expired | shares	(5,250)
Warrants issued with debt or debt modifications | shares	3,002,000
Warrants exchanged for common stock | shares	(5,250)
Outstanding at end of period | shares	3,600,840
Exercisable at end of period | shares	3,600,840
Weighted Avg. Exercise Price
Outstanding at the beginning of the year | $ / shares	$ 0.54
Warrants expired | $ / shares	6.67
Warrants issued with debt or debt modifications | $ / shares	0.35
Warrants exchanged for common stock | $ / shares	6.67
Outstanding at end of period | $ / shares	0.36
Exercisable at end of period | $ / shares	$ 0.36
Remaining Contractual Life (Years)
Outstanding at the beginning of the year	4 years 3 months
Warrants issued with debt or debt modifications	4 years 4 months 6 days
Outstanding at end of period	4 years 3 months
Exercisable at end of period	4 years 3 months

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NOTE 8 - COMMON STOCK PURCHASE WARRANTS (Narrative) (Details) - USD ($)	1 Months Ended	3 Months Ended		9 Months Ended
	Jan. 22, 2016	Jun. 30, 2016	Mar. 31, 2016	Sep. 30, 2016
Other Liabilities Disclosure [Abstract]
Expiration period				5 years
Strike price				$ 0.30
Warrants exchanged	5,250		5,250
Common shares issued			2,100
Loss on settlement charged to operations			$ 630
Warrants expired		3,750	1,500
Warrants issued to purchase common stock		$ 2,700,000		$ 302,000

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NOTE 9 - SUBSEQUENT EVENTS (Details) - USD ($)	Oct. 11, 2016	Oct. 28, 2016	Sep. 30, 2016	Mar. 28, 2016
Monthly payroll installment agreement amount				$ 25,000
Series A Preferred Stock [Member]
Prepayments for stock			$ 140,000
Subsequent Event [Member]
Monthly payroll installment agreement amount		$ 25,000
Subsequent Event [Member] | Series A Preferred Stock [Member]
Prepayment from a shareholder	$ 8,000
Shares repurchased during period	29,600
Shares repurchased during period, value	$ 296,000
Subsequent Event [Member] | Series A Preferred Stock [Member]
Temporary Equity	296,000
Prepayments for stock	$ 148,000