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 June 30, 2020
OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 000-55497

Duos Technologies Group, Inc.

(Exact name of registrant as specified in its charter)

Florida	65-0493217
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
6622 Southpoint Drive South, Suite 310, Jacksonville, Florida, 32216
(Address of principal executive offices)

(904) 652-1616

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	DUOT	The Nasdaq Capital Market

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

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

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

Large accelerated filer   ¨	Accelerated filer   ¨
Non-accelerated filer     þ	Smaller reporting company  þ
	Emerging growth company  ¨

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

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

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

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Qualitative and Quantitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35

SIGNATURES 36

PART I FINANCIAL INFORMATION

Item 1. Financial Statements.

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,		December 31,
	2020		2019
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	5,374,786	$	56,249
Accounts receivable, net		496,807		2,611,608
Contract assets		845,810		1,375,920
Prepaid expenses and other current assets		698,158		716,598
Total Current Assets		7,415,561		4,760,375
Property and equipment, net		346,979		260,181
Operating lease right of use asset		316,726		430,146
OTHER ASSETS:
Software Development Costs, net		10,000		20,000
Patents and trademarks, net		66,649		61,598
Total Other Assets		76,649		81,598
TOTAL ASSETS	$	8,155,915	$	5,532,300

 (Continued)

See accompanying condensed notes to the unaudited consolidated financial statements.

1

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

	June 30,			December 31,
	2020			2019
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	632,043		$	2,641,437
Accounts payable - related parties		12,491			12,791
Notes payable - financing agreements		175,796			42,299
Notes payable - related parties, net of discounts		—			905,373
Line of credit		—			27,615
Payroll taxes payable		10,730			115,111
Accrued expenses		130,798			393,272
Current portion - financing lease agreements		84,635			45,072
Current portion-operating lease obligations		252,907			239,688
Current portion-SBA loan		627,465			—
Contract liabilities		3,283			8,661
Deferred revenue		493,830			936,428
Total Current Liabilities		2,423,978			5,367,747
Finance lease payable		149,314			89,026
Operating lease obligations		74,713			202,797
SBA loan		782,805			—
Total Liabilities		3,430,810			5,659,570
Commitments and Contingencies (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock:  $0.001 par value, 10,000,000 authorized, 9,485,000 shares available to be designated
Series A redeemable convertible cumulative preferred stock, $10 stated value per share, 500,000 shares designated; 0 issued and outstanding at June 30, 2020 and December 31, 2019, convertible into common stock at $6.30 per share		—			—
Series B convertible cumulative preferred stock, $1,000 stated value per share, 15,000 shares designated; 1,705 and 1,705 issued and outstanding at June 30, 2020 and December 31, 2019, convertible into common stock at $7 per share		1,705,000			1,705,000
Common stock:  $0.001 par value; 500,000,000 shares authorized, 3,527,470 and 1,982,039 shares issued, 3,526,146 and 1,980,715 shares outstanding at June 30, 2020 and December 31, 2019, respectively		3,528			1,982
Additional paid-in capital		39,527,682			31,063,915
Total stock & paid-in-capital		41,236,210			32,770,897
Accumulated deficit		(36,353,653	)		(32,740,715	)
Sub-total		4,882,557			30,182
Less:  Treasury stock (1,324 shares of common stock at June 30, 2020 and December 31, 2019)		(157,452	)		(157,452	)
Total Stockholders' Equity (Deficit)		4,725,105			(127,270	)
Total Liabilities and Stockholders' Equity (Deficit)	$	8,155,915		$	5,532,300

See accompanying condensed notes to the unaudited consolidated financial statements.

2

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
REVENUES:
Technology systems	$	1,419,409		$	984,991		$	1,933,083		$	4,903,429
Technical support		382,124			280,601			727,311			602,075
Consulting services		2,385			80,213			134,469			192,382
AI technologies		178,224			—			178,224			—
Total Revenues		1,982,142			1,345,805			2,973,087			5,697,886
COST OF REVENUES:
Technology systems		897,514			967,649			1,479,058			3,060,643
Technical support		234,754			156,341			469,030			261,665
Consulting services		—			47,415			72,260			70,334
AI technologies		110,499			—			110,499			—
Total Cost of Revenues		1,242,767			1,171,405			2,130,847			3,392,642
GROSS PROFIT		739,375			174,400			842,240			2,305,244
OPERATING EXPENSES:
Research and development		149,566			487,738			555,958			871,160
Engineering		352,970			289,986			665,406			624,549
Sales & marketing		122,473			270,196			262,325			520,620
Administration		1,023,947			872,972			2,039,498			1,807,645
AI technologies		517,475			202,673			834,024			383,986
Total Operating Expenses		2,166,431			2,123,565			4,357,211			4,207,960
LOSS FROM OPERATIONS		(1,427,056	)		(1,949,165	)		(3,514,971	)		(1,902,716	)
OTHER INCOME (EXPENSES):
Interest Expense		(58,243	)		(3,692	)		(127,175	)		(6,313	)
Other income, net		19,410			3,066			29,208			3,407
Total Other Income (Expense)		(38,833	)		(626	)		(97,967	)		(2,906	)
NET LOSS		(1,465,889	)		(1,949,791	)		(3,612,938	)		(1,905,622	)
Basic & Diluted Net Loss Per Share	$	(0.42	)	$	(1.09	)	$	(1.16	)	$	(1.14	)
Weighted Average Shares-Basic & Diluted		3,526,382			1,788,659			3,106,660			1,665,439

See accompanying condensed notes to the unaudited consolidated financial statements.

3

DUOS TECHNOLOGIES GROUP, INC. SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

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

(Unaudited)

	Preferred Stock				Common Stock				Additional Paid-in-			Accumulated
	# of Shares		Amount		# of Shares		Amount		Capital			Deficit			Treasury Stock			Total
Balance December 31, 2019		1,705	$	1,705,000		1,982,039	$	1,982	$	31,063,915		$	(32,740,715	)	$	(157,452	)	$	(127,270	)
Common stock issued		—		—		1,542,188		1,542		9,251,586			—			—			9,253,128
Stock options granted to employees		—		—		—		—		8,100			—			—			8,100
Stock issuance costs		—		—		—		—		(1,001,885	)		—			—			(1,001,885	)
Common stock issued for services		—		—		1,611		2		7,498			—			—			7,500
Net loss for the three months ended March 31, 2020		—		—		—		—		—			(2,147,049	)		—			(2,147,049	)
Balance March 31, 2020		1,705		1,705,000		3,525,838		3,526		39,329,214			(34,887,764	)		(157,452	)		5,992,524
Modification of employee stock options		—		—		—		—		102,800			—			—			102,800
Stock options granted to employees		—		—		—		—		88,170			—			—			88,170
Common stock issued for services		—		—		1,632		2		7,498			—			—			7,500
Net loss for the three months ended June 30, 2020		—		—		—		—		—			(1,465,889	)		—			(1,465,889	)
Balance June 30, 2020		1,705	$	1,705,000		3,527,470	$	3,528	$	39,527,682		$	(36,353,653	)	$	(157,452	)	$	4,725,105

See accompanying condensed notes to the unaudited consolidated financial statements.

4

DUOS TECHNOLOGIES GROUP, INC. SUBSIDIARIES

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

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

(Unaudited)

	Preferred Stock				Common Stock				Additional Paid-in-			Accumulated			Treasury
	# of Shares		Amount		# of Shares		Amount		Capital			Deficit			Stock				Total
Balance December 31, 2018		2,830	$	2,830,000		1,505,883	$	1,505	$	27,416,802		$	(30,269,833	)	$	(149,459	)	$		(170,985	)
Commons stock issued for warrants exercised		—		—		214,286		214		1,649,786			—			—				1,650,000
Stock options granted to employees		—		—		—		—		21,892			—			—				21,892
Net Income for the three months ended March 31, 2019		—		—		—		—		—			44,169			—				44,169
Balance March 31, 2019		2,830		2,830,000		1,720,169		1,719		29,088,480			(30,225,664	)		(149,459	)			1,545,076
Commons stock issued for warrants exercised		—		—		76,634		77		513,943			—			—				514,020
Stock repurchase		—		—		—		—		—			—			(1,151	)			(1,151	)
Stock options granted to employees		—		—		—		—		6,241			—			—				6,241
Stock issuance cost		—		—		—		—		(10,000	)		—			—				(10,000	)
Net loss for the three months ended June 30, 2019		—		—		—		—		—			(1,949,791	)		—				(1,949,791	)
Balance June 30, 2019		2,830	$	2,830,000		1,796,803	$	1,796	$	29,598,664		$	(32,175,455	)	$	(150,610	)		$	104,395

See accompanying condensed notes to the unaudited consolidated financial statements.

5

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	June 30,
	2020			2019
Cash from operating activities:
Net loss	$	(3,612,938	)	$	(1,905,622	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		97,353			87,325
Stock based compensation		96,270			28,133
Modification of employee stock options		102,800			—
Interest expense related to debt discounts		94,627			—
Changes in assets and liabilities:
Accounts receivable		2,114,802			(302,986	)
Contract assets		530,110			904,543
Prepaid expenses and other current assets		235,194			86,411
Operating lease right of use asset		113,419			(565,925	)
Accounts payable		(2,009,394	)		(519,468	)
Related payable-related party		(300	)		—
Payroll taxes payable		(104,381	)		(196,609	)
Accrued expenses		(247,474	)		15,671
Operating lease obligation		(114,865	)		592,402
Contract liabilities		(5,378	)		(1,170,197	)
Deferred revenue		(442,598	)		234,988
Net cash used in operating activities		(3,152,753	)		(2,711,334	)
Cash flows from investing activities:
Purchase of patents/trademarks		(7,735	)		(3,000	)
Purchase of fixed assets		(171,467	)		(223,549	)
Net cash used in investing activities		(179,202	)		(226,549	)
Cash flows from financing activities:
Repurchase of common stock		—			(1,151	)
Repayments of line of credit		(27,615	)		(2,497	)
Issuance cost		(1,001,885	)		(10,000	)
Repayments of notes payable		(1,000,000	)		—
Repayments of insurance and equipment financing		(83,257	)		(141,105	)
Repayment of finance lease		(21,786	)		—
Proceeds from SBA loan		1,410,270			—
Proceeds from equipment leasing		121,637			—
Proceeds from common stock issued		9,253,128			—
Proceeds from warrants exercised		—			2,164,019
Net cash provided by financing activities		8,650,492			2,009,266
Net increase (decrease) in cash		5,318,537			(928,617	)
Cash, beginning of period		56,249			1,209,301
Cash, end of period		5,374,786			280,684
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	29,830		$	4,109
Supplemental Non-Cash Investing and Financing Activities:
Common stock issued for accrued BOD fees	$	15,000		$	—
Lease right of use asset and liability	$	644,245			—
Note issued for financing of insurance premiums	$	216,754		$	217,804

See accompanying condensed notes to the unaudited consolidated financial statements.

6

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

Nature of Operations

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

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

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not indicative of the results that may be expected for the year ending December 31, 2020 or for any other future period. These unaudited consolidated financial statements and the unaudited condensed notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.

Reverse Stock-Split

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

7

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

Reclassifications

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

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

	Before Reclassification			After Reclassification
	For the Three Months Ended			For the Three Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	128,506	Sales and marketing	$	270,196
Salaries, wages and contract labor		1,338,302	Engineering		289,986
Research and development		118,435	Research and development		487,738
Professional fees		17,054	AI technologies		202,673
General and administrative expenses		521,268	Administration		872,972
Total Operating Expenses	$	2,123,565		$	2,123,565

	Before Reclassification			After Reclassification
	For the Six Months Ended			For the Six Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	238,122	Sales and marketing	$	520,620
Salaries, wages and contract labor		2,607,081	Engineering		624,549
Research and development		231,129	Research and development		871,160
Professional fees		144,973	AI technologies		383,986
General and administrative expenses		986,655	Administration		1,807,645
Total Operating Expenses	$	4,207,960		$	4,207,960

Principles of Consolidation

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

8

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The most significant estimates in the accompanying unaudited consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of intangible and other long-lived assets, estimates of net contract revenues and the total estimated costs to determine progress towards contract completion, valuation of derivatives, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, estimates of the valuation of right of use assets and corresponding lease liabilities and valuation of stock-based awards. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Concentrations

Cash Concentrations

Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. We have not experienced any losses related to these balances. As of June 30, 2020, balance in one financial institution exceeded federally insured limits by approximately $4,952,107.

Significant Customers and Concentration of Credit Risk

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

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

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

Geographic Concentration

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

Fair Value of Financial Instruments and Fair Value Measurements

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

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

9

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

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

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

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

Software Development Costs

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

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss applicable to common stock by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, stock warrants, convertible debt instruments, convertible preferred stock or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At June 30, 2020, there was an aggregate of 1,588,750 outstanding warrants to purchase shares of common stock. At June 30, 2020, there was an aggregate of 311,898 shares of employee stock options to purchase shares of common stock. Also, at June 30, 2020, 243,571 common shares were issuable upon conversion of Series B convertible preferred stock, all of which were excluded from the computation of dilutive earnings per share because their inclusion would have been anti-dilutive.

Revenue Recognition

As of January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASC 606”), that affects the timing of when certain types of revenues will be recognized. The basic principles in ASC 606 include the following: a contract with a customer creates distinct unrecognized contract assets and performance obligations; satisfaction of a performance obligation creates revenue; and a performance obligation is satisfied upon transfer of control to a good or service to a customer.

Revenue is recognized for sales of systems and services over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

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

1.

Identify the contract with the customer;

2.

Identify the performance obligations in the contract;

3.

Determine the transaction price;

4.

Allocate the transaction price to separate performance obligations; and

5.

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

10

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

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

Segment Information

The Company operates in one reportable segment.

Stock Based Compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.

Determining Fair Value Under ASC 718-10

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

The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk-free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

Recent Accounting Pronouncements

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

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

NOTE 2 – LIQUIDITY

As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $3,612,938 for the six months ended June 30, 2020. During the same period, net cash used in operating activities was $3,152,753 The working capital surplus and accumulated deficit as of June 30, 2020 were $4,991,582 and $36,353,653 respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern. This was principally due to a lack of working capital prior to an underwritten offering which was completed during the first quarter of 2020 (the “2020 Offering”).

11

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

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

NOTE 3 – SOFTWARE DEVELOPMENT COSTS

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

	June 30, 2020			December 31, 2019
Software Development Costs	$	60,000		$	60,000
Less: Accumulated amortization		(50,000	)		(40,000	)
Total	$	10,000		$	20,000

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

NOTE 4 – DEBT

Notes Payable - Financing Agreements

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

	June 30, 2020				December 31, 2019
Notes Payable	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	8,662	7.31	%	$	28,500	7.31	%
Third Party - Insurance Note 2		41,282	5.26	%		—	6.36	%
Third Party - Insurance Note 3		1,656	—	%		13,799	—
Third Party - Insurance Note 4		124,196	—			—	6.36	%
Total	$	175,796			$	42,299

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

12

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

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

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

Finance Lease

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

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

As of December 31,	Amount
2020	$	53,331
2021		106,588
2022		86,735
2023		23,515
Total minimum financial lease payments	$	270,169
Less:  interest		(36,220	)
Total lease liability at June 30, 2020	$	233,949
Less: current portion of Finance Lease		(84,635	)
Long Term portion of Finance Lease	$	149,314

Notes Payable – Related Parties

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal			Interest
Related party	$	—		3%	$	267,000			3%
Related party		—		3%		733,000			3%
Total		—				1,000,000
Less unamortized discounts		—				(94,627	)
Total, net	$	—			$	905,373

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

13

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

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

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

Notes Payable

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

Notes Payable – SBA Loan

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal		Interest*
SBA loan	$	1,410,270		1%	$	—
Total		1,410,270				—
Less current portion		(627,465)				—
Long term portion	$	782,805			$	—

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

NOTE 5 – LINE OF CREDIT

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

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Delinquent Payroll Taxes Payable

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

14

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

Operating Lease Obligations

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

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

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

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

As of December 31,	Amount
2020	$	141,396
2021		213,568
Total minimum financial lease payments	$	354,964
Less:  interest		(27,344	)
Total lease liability at June 30, 2020	$	327,620
Less: current portion of Operating lease obligations		(252,907	)
Long Term portion of Operating lease obligations	$	74,713

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

NOTE 7 – STOCKHOLDERS’ EQUITY 

Common stock issued

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

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

15

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

Stock-Based Compensation

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

Employee Stock Options

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

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

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
Outstanding at December 31, 2018		160,143		$	14.00		4.4		—
Granted		8,572		$	14.00		5.0		—
Forfeited		(14,286	)	$	14.00		—		—
Outstanding at June 30, 2019		154,429		$	14.00		3.4		—
Exercisable at June 30, 2019		145,857		$	14.00		3.4		—
Outstanding at December 31, 2019		163,010		$	14.00		3.4		—
Granted		310,290		$	5.39		4.8		—
Cancelled/forfeited		(161,402	)	$	14.00		—		—
Outstanding at June 30, 2020		311,898		$	5.46		4.7		—
Exercisable at June 30, 2020		162,474		$	6.08		4.7		—

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

16

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

Warrants

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Warrants			Price		Term (Years)		Value
Outstanding at December 31, 2018		1,815,182		$	9.52		3.9		—
Warrants expired, forfeited, cancelled or exercised		(327,612	)
Outstanding at June 30, 2019		1,487,570		$	8.78		2.8		—
Exercisable at June 30, 2019		1,487,570		$	8.78		2.8		—
Outstanding at December 31, 2019		1,521,250		$	8.78		3.0		—
Warrants expired, forfeited, cancelled or exercised		—
Warrants issued		67,500		$	9.00		2.6		—
Outstanding at June 30, 2020		1,588,750		$	8.79		4.8		—
Exercisable at June 30, 2020		1,521,250		$	8.41		2.7		—

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

NOTE 8 - REVENUE

Revenue Recognition and Contract Accounting

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

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

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

17

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

Contract Assets

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

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

	June 30, 2020			December 31. 2019
Costs and estimated earnings recognized	$	3,663,654		$	3,700,124
Less: Billings or cash received		(2,817,844	)		(2,324,204	)
Contract assets	$	845,810		$	1,375,920

Contract Liabilities

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

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

	June 30, 2020			December 31. 2019
Billings and/or cash receipts on uncompleted contracts	$	3,283		$	35,665
Less: Costs and estimated earnings recognized		(—	)		(27,004	)
Contract liabilities	$	3,283		$	8,661

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

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

18

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

Technical Support

Maintenance and technical support services are provided on both an as-needed and extended-term basis and may include providing both parts and labor. Maintenance and technical support provided outside of a maintenance contract are on an as-requested basis, and revenue is recognized as the services are provided. Revenue for maintenance and technical support provided on an extended-term basis is recognized ratably over the term of the contract.

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

Consulting Services

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

For sales arrangements that do not involve performance obligations: 

(1)	Revenues for professional services, which are of short-term duration, are recognized when services are completed;
(2)	For all periods reflected in this report, software license sales have been one-time sales of a perpetual license to use our software product and the customer also has the option to purchase third-party manufactured handheld devices from us if they purchase our software license. Accordingly, the revenue is recognized upon delivery of the software and delivery of the hardware, as applicable, to the customer;
(3)	Training sales are one-time upfront short-term training sessions and are recognized after the service has been performed; and
(4)	Maintenance/support is an optional product sold to our software license customers under one-year contracts. Accordingly, maintenance payments received upfront are deferred and recognized over the contract term.

Artificial Intelligence

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

Multiple Elements

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

19

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

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

Deferred Revenue

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

Disaggregation of Revenue

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

Qualitative:

1.

We have four distinct revenue sources:

a.

Turnkey, engineered projects;

b.

Associated maintenance and support services;

c.

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

d.

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

2.

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

3.

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

4.

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

a.

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

b.

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

5.

Transfer of goods and services are over time.

20

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

Quantitative:  

For the Three Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Major Goods and Service Lines
Turnkey Projects	$	1,332.577	$	(2,421)	$	—	$	—	$	89,253	$	—	$	178,224	$	1,597,633
Maintenance & Support		299,314		54,973		—		20,221		7,616		—		—		382,124
Data Center Auditing Services		—		—		—		—		—		—		—		—
Software License		—		—		—		—		—		2,385		—		2,385
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Timing of Revenue Recognition
Goods transferred over time	$	1,332,577	$	(2,421)	$	—	$	—	$	89,253	$	2,385	$	178,224	$	1,600,018
Services transferred over time		299,314		54,973		—		20,221		7,616		—		—		382,124
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142

21

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

For the Three Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Major Goods and Service Lines
Turnkey Projects	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	—	$	984,991
Maintenance & Support		252,574		—		7,806		20,221		—		—		280,601
Data Center Auditing Services		—		—		—		—		—		80,213		80,213
Software License		—		—		—		—		—		—		—
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Timing of Revenue Recognition
Goods transferred over time	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	80,213	$	1,065,204
Services transferred over time		252,574		—		7,806		20,221		—		—		280,601
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805

22

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

For the Six Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Major Goods and Service Lines
Turnkey Projects	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	—	$	178,224	$	2,111,307
Maintenance & Support		531,462		120,685		—		47,370		27,794		—		—		727,311
Data Center Auditing Services		—		—		—		—		—		129,699		—		129,699
Software License		—		—		—		—		—		4,770		—		4,770
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Timing of Revenue Recognition
Goods transferred over time	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	134,469	$	178,224	$	2,245,776
Services transferred over time		531,462		120,685		—		47,370		27,794		—		—		727,311
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087

23

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020

(Unaudited)

For the Six Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Major Goods and Service Lines
Turnkey Projects	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	—	$	4,903,429
Maintenance & Support		534,714		2,197		15,612		40,442		9,110		—		602,075
Data Center Auditing Services		—		—		—		—		—		144,982		144,982
Software License		—		—		—		—		—		47,400		47,400
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Timing of Revenue Recognition
Goods transferred over time	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	192,382	$	5,095,811
Services transferred over time		534,714		2,197		15,612		40,442		9,110		—		602,075
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

This quarterly report on Form 10-Q and other reports filed by Duos Technologies Group, Inc. (the “duostech Group”), through its operating subsidiaries, Duos Technologies, Inc. (“duostech”) and TrueVue360, Inc (“TrueVue360”, duostech Group and duostech, collectively the “Company” “we”, “our”, and “us”) from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof.  When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements.  Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

Overview

Duos Technologies Group, Inc. (the “Company”) was incorporated in Florida on May 31, 1994 under the original name of Information Systems Associates, Inc. (“ISA”). Initially, our business operations consisted of consulting services for asset management of large corporate data centers and the development and licensing of information technology (“IT”) asset management software. In late 2014, ISA entered negotiations with Duos Technologies, Inc. (“duostech”), for the purposes of executing a reverse triangular merger. This transaction was completed on April 1, 2015, whereby duostech became a wholly owned subsidiary of the Company.  duostech was incorporated under the laws of Florida on November 30, 1990 for design, development and deployment of proprietary technology applications and turn-key engineered systems. The Company, based in Jacksonville, Florida, employs approximately 51 people and is a technology and software applications company with a strong portfolio of intellectual property. The Company’s core competencies, including advanced intelligent technologies, are delivered through its proprietary integrated enterprise command and control platform, centraco®.

The Company provides a broad range of sophisticated intelligent technology solutions with an emphasis on security, inspection and operations for critical infrastructure within a variety of industries including transportation, retail, law enforcement, oil, gas and utilities sectors. In January 2019, the Company launched a dedicated Artificial Intelligence program through its wholly owned subsidiary TrueVue360, Inc., marketing its services and solutions under the brand name truevue360. The Company is committed to adding significant focus on the development, marketing and deployment of advanced convolutional neural network-based Artificial Intelligence (“AI”), Deep Machine Learning and Advanced Algorithms applications. While TrueVue360 will chiefly support DTI’s business growth, it will also develop and market its significant library of AI applications following a stand-alone business development strategy. Accordingly, our business is now operating in two equally important business units which complement each other and provide comprehensive turnkey, end-to-end, solutions to our customers.

25

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

Specifically, based upon the current and anticipated business growth, the Company is investing in resources to focus on execution within its target markets, including but not limited to rail, distribution centers and security. We continue to evaluate key requirements within those markets and add development resources to allow us to compete for additional projects to drive additional revenue growth.

In the Consulting Services area, the Company is now deploying its dcVue software which replaced OSPI.OSPI was used by Duos’ consulting auditing teams until last year. dcVue is based upon the Company’s OSPI patent which was awarded in 2010. The Company offers dcVue available for license to our customers later this year as a licensed software product.

Prospects and Outlook

Over the past several years, we have made substantial investments in product research and development and achieved significant milestones in the development of our technology and turnkey solutions. We have made significant progress in penetrating the market with our proprietary technology solutions, specifically 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 the industry’s use of our technologies.

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

Notwithstanding the foregoing, no assurance can be provided that our product offerings will generate significant orders or maintain market acceptance.

Results of Operation

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

Comparison for the Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

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
	June 30,
	2020			2019
Revenue	$	1,982,142		$	1,345,805
Cost of revenue		1,242,767			1,171,405
Gross profit		739,375			174,400
Operating expenses		2,166,431			2,123,565
Loss from operations		(1,427,056	)		(1,949,165)
Other income (expense)		(38,833	)		(626	)
Net loss	$	(1,465,889	)	$	(1,949,791)

26

Revenues

	For the Three Months Ended
	June 30,
	2020		2019		% Change
Revenues:
Technology systems	$	1,419,409	$	984,991		44%
Technical support		382,124		280,601		36%
Consulting services		2,385		80,213		-97%
AI technologies		178,224		—		100%
Total revenue	$	1,982,142	$	1,345,805		47%

The increase in technology system revenues is due to a large project executed during the second quarter of 2020.  Technical support revenues were higher in the quarter as the result of new service support. The renewals of existing contracts have somewhat offset this impact and we believe that a shift to the next generation of technology systems, which are currently being installed, will have a positive impact going forward. The maintenance and technical support revenues are driven by successful completion on projects and represent services and support for those installations. The Company expects to continue the growth with new, long term recurring revenue from new customers which will be coming on-line in the next several months.

We recorded a decrease in consulting services recorded in revenue for the second quarter.  The current pandemic related to the Novel Coronavirus (COVID-19) has impacted both expected receipt of awards and delays in execution due to travel and other restrictions.  These delays will continue to impact the consulting services revenue portion of our business, but the impact for the full year is uncertain at this time.  

The AI technologies recorded their first quarter of revenue during the second quarter of 2020.  The Company expects to continue the growth with new revenue from existing customers which will be coming on-line in the next several months.

Cost of Revenues

	For the Three Months Ended
	June 30,
	2020		2019		% Change
Cost of revenues:
Technology systems	$	897,514	$	967,649		-7%
Technical support		234,754		156,341		50%
Consulting services		—		47,415		-100%
AI technologies		110,499		—		100%
Total cost of revenues	$	1,242,767	$	1,171,405		6%

Cost of revenues on technology systems decreased and the overall gross margin was higher during the period compared to the equivalent period in 2019. This is due to a continued focus on build costs and savings through efficiency. Cost of revenues increased on technical support is in line with the increase in revenue for technical support.

The consulting services recorded no cost of revenues in the second three months of 2020. The current pandemic related to the Novel Coronavirus (COVID-19) has impacted both expected receipt of awards and delays in execution due to travel and other restrictions.  These delays will impact the consulting services revenue portion of our business, but the impact for the full year is uncertain at this time.

The AI technologies recorded their first quarter of cost of revenue during the second quarter of 2020. The Company expects to continue the growth with new revenue from existing customers which will be coming on-line in the next several months.

27

Gross Profit

	For the Three Months Ended
	June 30,
	2020		2019		% Change
Revenues	$	1,982,142	$	1,345,805		47%
Cost of revenues		1,242,767		1,171,405		6%
Gross profit	$	739,375	$	174,400		324%

Overall Gross Profit was $739,375 or 37% of revenues compared to $174,400 or 13% of revenues for the three months ended June 30, 2020 and 2019, respectively. We anticipate an increase in the overall gross margin for the full year reporting in 2020.

Operating Expenses

	For the Three Months Ended
	June 30,
	2020		2019		% Change
Operating expenses:
Sales and marketing	$	122,473	$	270,196		-55%
Engineering		352,970		289,986		22%
Research and development		149,566		487,738		-69%
Administration		1,023,947		872,972		17%
AI technologies		517,475		202,673		155%
Total operating expense	$	2,166,431	$	2,123,565		2%

Operating expenses were higher by 2% than the equivalent period in 2019 reflecting the increase in resources related to the Company’s anticipated growth. Research and development expenses decreased due to a shift of personnel cost to the AI technologies department as a result of increased focus in this area. The increase in engineering during the period is a result of additional staff added and resource tools expenditures. Sales and marketing expense decreased due to fluctuation in personnel. Administration expenses increased mostly due to reclassing senior management from the individual departments to administration. AI technologies costs were higher as the result of additional growth in this area.

Loss From Operations

The loss from operations for the three months ended June 30, 2020 was $1,427,056 and $1,949,165 loss from operations for the same period in 2019. The decrease in losses from operations are the result of higher revenues and gross margins for the period together with an increase in operating expenses. The losses are expected to be temporary but with the uncertainty of the current Novel Coronavirus (Covid-19) crisis they are unlikely to be offset for the full year as the anticipated growth in business from new contracts is expected to be delayed by at least six months.

Other Income/Expense

Interest expense for the three months ended June 30, 2020 was $58,243 versus interest expense of $3,692 in the equivalent period in 2019. The increase is mainly due to the non-cash debt discount amortization.  Interest income will be more significant during the year due to the large amount of cash on deposit as a result of the 2020 Offering.  Interest income from cash on deposit was $19,410 at June 30, 2020 versus $3,066 in the same period of 2019.

Net Loss

The net loss for the three months ended June 30, 2020 and 2019 was $1,465,889 and $1,949,791, respectively. The 25% decrease in net loss was mostly attributed to the increase in revenues for the same period. Net loss per common share was $0.42 and $1.09 for the three months ended June 30, 2020 and 2019, respectively.

28

Comparison for the Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

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 Six Months Ended
	June 30,
	2020			2019
Revenue	$	2,973,087		$	5,697,886
Cost of revenue		2,130,847			3,392,642
Gross profit		842,240			2,305,244
Operating expenses		4,357,211			4,207,960
Loss from operations		(3,514,971	)		(1,902,716	)
Other income (expense)		(97,967	)		(2,906	)
Net loss	$	(3,612,938	)	$	(1,905,622	)

Revenues

	For the Six Months Ended
	June 30,
	2020		2019		% Change
Revenues:
Projects	$	1,933,083	$	4,903,429		-61%
Technical support		727,311		602,075		21%
Consulting services		134,469		192,382		-30%
AI technologies		178,224		—		100%
Total revenue	$	2,973,087	$	5,697,886		-48%

The majority of the decrease in overall revenues for the quarter is due to slower than anticipated start to two contract awards by one customer pending resolution of certain terms and conditions.  One of these contracts has now been received.  In addition, the current pandemic related to the Novel Coronavirus (COVID-19) has impacted both expected receipt of awards and delays in execution due to travel and other restrictions.  These delays have impacted the technology systems revenue portion of our business, but the impact for the full year is uncertain at this time.  The Company continues to make improvements in our project build and delivery process largely as a result of the investment in the establishment of the Engineering and Operations center in 2018 which has shortened delivery times on major projects.

Technical support revenues were higher in the quarter as the result of a new service agreement with a current customer. The renewals of existing contracts have somewhat offset this impact and we believe that a shift to the next generation of technology systems which are currently being installed will have a positive impact going forward. The technical support revenues are driven by successful completion on projects and represent services and support for those installations. The Company expects to continue the growth with new, long term recurring revenue from new customers which will be coming on-line in the next several months.

The Consulting services recorded a decrease in revenue in the six months ended June 30, 2020.  The decrease in consulting is related to the Novel Coronavirus (COVID-19) which has impacted both expected receipt of awards and delays in execution due to travel and other restrictions.

Cost of Revenues

	For the Six Months Ended
	June 30,
	2020		2019		% Change
Cost of revenues:
Projects	$	1,479,058	$	3,060,643		-52%
Technical support		469,030		261,665		79%
Consulting services		72,260		70,334		3%
AI technologies		110,499		—		100%
Total cost of revenues	$	2,130,847	$	3,392,642		-37%

29

Cost of revenues on projects decreased in line with the decrease in revenues but with the overall improvement in costs in revenues. The overall gross margin was positively impacted during the period compared to the equivalent period in 2019 due to tighter cost controls on production of systems and the efficiencies gained through the implementation of projects at the Operations and Engineering Center prior to customer deployment. This positive trend is expected to continue as the Company continues its focus on reducing the costs of delivery and streamlining execution. Cost of revenues increased on technical support as a result of increase of staff to support the growth. The consulting services costs of revenue were only slightly higher due to the proportion of the revenue from licensing. The AI technologies recorded their first quarter of cost of revenue during the second quarter of 2020. The Company expects to continue the growth with new revenue from existing customers which will be coming on-line in the next several months.

Gross Profit

	For the Six Months Ended
	June 30,
	2020		2019		% Change
Revenues	$	2,973,087	$	5,697,886		-48%
Cost of revenues		2,130,847		3,392,642		-37%
Gross profit	$	842,240	$	2,305,244		-63%

Gross Profit was $842,240 or 28% of revenues compared to $2,305,244 or 40% of revenues for the six months ended June 30, 2020 and 2019, respectively. The overall gross margin was much lower during the period compared to the equivalent period in 2019 but due to a continued focus on build costs and savings through efficiency the overall impact was mitigated.  We previously reported significant increase in personnel in anticipation of increased execution and support requirements for the second half of 2020 and management will continue to review pending orders to ensure appropriate staffing. As previously discussed, the implementation of ASC 606 covering revenue from contracts with customers, can have a temporary impact on overall gross margin during previous reporting periods as certain costs are recognized ahead of revenues. The effects of this are typically within a quarter and over the project cycle there is expected to be no material impact.

Operating Expenses

	For the Six Months Ended
	June 30,
	2020		2019		% Change
Operating expenses:
Sales and marketing	$	262,325	$	520,620		-50%
Engineering		665,406		624,549		7%
Research and development		555,958		871,160		-36%
Administration		2,039,498		1,807,645		13%
AI technologies		834,024		383,986		117%
Total operating expense	$	4,357,211	$	4,207,960		4%

Operating expenses were higher by 4% than the equivalent period in 2019 reflecting the increase in resources related to the Company’s anticipated growth. Sales and marketing expense decreased due to fluctuation in personnel in addition to travel restrictions due to the Novel Coronavirus (COVID-19).  Research and development expenses decreased due to personnel expenses transferred to the AI department. The increase in engineering during the period is a result of improved resourcing and tools necessary for increased efficiencies going forward.  Administration expenses increased mostly due to reclassing senior management from the individual departments to administration and one-time expenses related to the equity fundraising and to the Company’s listing on the Nasdaq during the first quarter. AI technologies costs were higher as the result of additional growth in this area and resources allocated from the research and development department.

Loss From Operations

The loss from operations for the six months ended June 30, 2020 was $3,514,971 and the loss from operations for the same period in 2019 was $1,902,716. The 85% increase in loss from operations was mostly due to the overall decrease in revenue for the period and lower than usual gross margin for the six-month period ending June 30, 2020.   

30

Interest Expense

Interest expense for the six months ended June 30, 2020 was $127,175 and the interest expense for same period in 2019 was $6,313. The increase is mainly due to the non-cash debt discount amortization.

Other Income

Other income for the six months ended June 30, 2020 and 2019 was $29,208 and $3,407, respectively. The increase in other income is due to a higher balance in the money market banking account for the first six-month period in 2020.

Net Loss

The net loss for the six months ended June 30, 2020 and 2019 was $3,612,938 and $1,905,622, respectively. The increase in net loss is mostly attributed to the overall decrease in revenue for the period and lower than usual gross margin for the six-month period ending June 30, 2020.  Net loss per common share was $1.16 and $1.14 for the six months ended June 30, 2020 and 2019, respectively.

Liquidity and Capital Resources

As of June 30, 2020, the Company has a working capital of $4,991,582 and a net loss of $3,612,938 for the six months ended June 30, 2020.

Cash Flows

The following table sets forth the major components of our statements of cash flows data for the periods presented:

	June 30, 2020			June 30, 2019
Net cash used in operating activities	$	(3,152,753	)	$	(2,711,334	)
Net cash used in investing activities		(179,202	)		(226,549	)
Net cash provided by financing activities		8,650,492			2,009,266
Net increase (decrease) in cash	$	5,318,537		$	(928,617)

Net cash used in operating activities for the six months ended June 30, 2020 was $3,152,753 and net cash used during the same period of 2019 was $2,711,334. The increase in net cash used in operations for the six months ended June 30, 2020 was the result of higher expenditures related to current and future project execution in anticipation of new projects.  In addition, there are a number of changes in assets and liabilities compared to the previous period that added to the use of cash in operations.  Notable changes were a significant decrease in accounts payable and along with decrease in accrued expenses reflecting better availability of working capital as a result of the recent capital raise. In addition, cash is being used to further development activities within our TrueVue360 subsidiary where there are no current offsetting revenues during this period.

Net cash used in investing activities for the six months ended June 30, 2020 and 2019 were $179,202 and $226,549, respectively, representing a decrease in investments in various fixed assets during the six months of 2020.

Net cash provided in financing activities for the six months ended June 30, 2020 was $8,650,492 and for the same period of 2019 was $2,009,266. Cash flows provided in financing activities during the six-month period in 2020 were primarily attributable to a significant capital raise undertaken during the period in conjunction with listing on the Nasdaq Capital Market.  Cash flows from financing activities during 2019 were primarily attributable to support of operations and repayment of one short term note and short-term credit facilities offset by proceeds from a warrant exercise from which the Company derived cash proceeds.

Previously, we have funded our operations primarily through the sale of our equity (or equity linked) and debt securities. During 2020, we have funded our operations through a combination of a recent capital raise, revenues generated, and cash received from ongoing project execution and associated maintenance revenues. As of August 11, 2020, we had cash on hand of approximately $4,624,900. We have approximately $135,000 in monthly lease and other mandatory payments, not including payroll and ordinary expenses which are due monthly.

On a long-term basis, our liquidity is dependent on continuation and expansion of operations and receipt of revenues. Our current capital and revenues are sufficient to fund operations for at least the next 12 months.  However, the Company cannot currently quantify the uncertainty related to the recent pandemic and its effects on the business in the coming quarters.

31

Demand for the products and services will be dependent on, among other things, continuing market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature and are currently impacted by the Novel Coronavirus (Covid-19). In as much as a major portion of our activities is the receipt of revenues from the sales of our products and services, our business operations may be adversely affected by this situation and potential for a prolonged recession period and are considered to be a factor at present.

Liquidity

Under Accounting Standards Update, or ASU, 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. As required by ASC 205-40, this evaluation shall initially not take into consideration the potential mitigating effects of plans that have not been fully implemented as of the date the financial statements are issued. Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40.

As reflected in the accompanying unaudited consolidated financial statements, the Company had working capital of $4,991,582 and an accumulated deficit of $36,353,653 at June 30, 2020. During the same period in 2019, the Company had negative working capital of $543,920 and an accumulated deficit of $32,175,455.

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

Management believes that we have eliminated the substantial doubt for the Company to continue as a going concern. We are executing the plan to grow our business and achieve profitability without the requirement to raise additional capital for existing operations. The continuation of the Company as a going concern is dependent upon the ability of the Company to continue executing the plan described above, generate sufficient revenue and to attain consistently profitable operations. Although the current pandemic related to the Novel Coronavirus (Covid-19) has affected our operations, we have analyzed our cash flow under “stress test” conditions and have determined that we have sufficient liquid assets on hand to maintain operations for at least 12 months from the date of this report.

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.

Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to our business operations and the understanding of our results of operations.

Accounts Receivable

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

32

Share-Based Compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718). This update is intended to reduce cost and complexity and to improve financial reporting for share-based payments issued to non-employees (for example, service providers, external legal counsel, suppliers, etc.). The ASU expands the scope of Topic 718, Compensation—Stock Compensation, which currently only includes share-based payments issued to employees, to also include share-based payments issued to non-employees for goods and services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. Management implemented on January 1, 2019. The standard was applied in a retrospective approach for each period presented.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The most significant estimates in the accompanying unaudited consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of intangible and other long-lived assets, estimates of net contract revenues and the total estimated costs to determine progress towards contract completion, valuation of derivatives, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt and valuation of stock-based awards. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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, Chief Financial Officer and Chief Accounting Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective to ensure that 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  SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the second quarter ended June 30, 2020 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

33

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. We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K, filed with the U.S Securities and Exchange Commission on April 15, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company issued 1,632 shares of common stock for services to the members of the board during the second quarter of 2020.

The above securities were issued in reliance on the exemption under Section 4(a)(2) of the Securities Act. These securities qualified for exemption under Section 4(a)(2) since the issuance by us did not involve a public offering. The offerings were not “public offerings” as defined in 4(a)(2) due to the insubstantial number of persons involved in the transactions, manner of the issuance and number of securities issued. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(a)(2) since they agreed to and received securities bearing a legend stating that such securities are restricted pursuant to Rule 144 of the Act. This restriction ensures that these securities would not be immediately redistributed into the market and therefore not be part of a “public offering”. Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(a)(2) of the Securities Act for these transactions.

Item 3. Defaults Upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None

34

Item 6. Exhibits.

Exhibit No.	Description
10.1*	Paycheck Protection Program Note, dated April 23, 2020, issued to BBVA USA
31.1*	Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
31.2*	Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).
32.1**	Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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

* Filed herewith

** Furnished herewith

35

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: August 14, 2020	By:	/s/ Gianni B. Arcaini
		Gianni B. Arcaini Chairman and Chief Executive Officer
Date: August 14, 2020	By:	/s/ Adrian G. Goldfarb
		Adrian G. Goldfarb Chief Financial Officer

36

EX-10.1

EXHIBIT 10.1

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Gianni B. Arcaini, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Duos Technologies Group, Inc.;

2.    Based on my knowledge, this quarterly 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 quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in 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 for the period in which this quarterly 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;

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;

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

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

Date: August 14, 2020	By:	/s/ Gianni B. Arcaini
		Gianni B. Arcaini Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER

PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Adrian G. Goldfarb, certify that:

1.    I have reviewed this quarterly report on Form 10-Q of Duos Technologies Group, Inc.;

2.    Based on my knowledge, this quarterly 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 quarterly report;

3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in 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 for the period in which this quarterly 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;

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;

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

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

Date: August 14, 2020	By:	/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 this Quarterly Report of Duos Technologies Group, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Gianni B. Arcaini, Chief Executive Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) Such Quarterly Report on Form 10-Q for the period ended June 30, 2020, 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 such Quarterly Report on Form 10-Q for the period ended June 30, 2020, fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2020	By:	/s/ Gianni B. Arcaini
		Gianni B. Arcaini
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

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 this Quarterly Report of Duos Technologies Group, Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2020, as filed with the U.S. Securities and Exchange Commission on the date hereof, I, Adrian G. Goldfarb, Chief Financial Officer of the Company, certify to the best of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:

(1) Such Quarterly Report on Form 10-Q for the period ended June 30, 2020, 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 such Quarterly Report on Form 10-Q for the period ended June 30, 2020, fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 14, 2020	By:	/s/ Adrian G. Goldfarb
		Adrian G. Goldfarb
		Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 11, 2020
Document And Entity Information
Entity Registrant Name	Duos Technologies Group, Inc.
Entity Central Index Key	0001396536
Document Type	10-Q
Document Period End Date	Jun. 30, 2020
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Document Fiscal Period Focus	Q2
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Incorporation State Country Code	FL
Entity File Number	000-55497
Entity Common Stock, Shares Outstanding		3,526,146

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2020	Dec. 31, 2019
CURRENT ASSETS:
Cash	$ 5,374,786	$ 56,249
Accounts receivable, net	496,807	2,611,608
Contract assets	845,810	1,375,920
Prepaid expenses and other current assets	698,158	716,598
Total Current Assets	7,415,561	4,760,375
Property and equipment, net	346,979	260,181
Operating lease right of use asset	316,726	430,146
OTHER ASSETS:
Software development costs, net	10,000	20,000
Patents and trademarks, net	66,649	61,598
Total Other Assets	76,649	81,598
TOTAL ASSETS	8,155,915	5,532,300
CURRENT LIABILITIES:
Accounts payable	632,043	2,641,437
Accounts payable - related parties	12,491	12,791
Notes payable - financing agreements	175,796	42,299
Notes payable - related parties, net of discounts		905,373
Line of credit		27,615
Payroll taxes payable	10,730	115,111
Accrued expenses	130,798	393,272
Current portion - financing lease agreements	84,635	45,072
Current portion-operating lease obligations	252,907	239,688
Current portion-SBA loan	627,465
Contract liabilities	3,283	8,661
Deferred revenue	493,830	936,428
Total Current Liabilities	2,423,978	5,367,747
Finance lease payable	149,314	89,026
Operating lease obligations	74,713	202,797
SBA loan	782,805
Total Liabilities	3,430,810	5,659,570
Commitments and Contingencies (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock: $0.001 par value; 500,000,000 shares authorized, 3,527,470 and 1,982,039 shares issued, 3,526,146 and 1,980,715 shares outstanding at June 30, 2020 and December 31, 2019, respectively	3,528	1,982
Additional paid-in capital	39,527,682	31,063,915
Total stock & paid-in-capital	41,236,210	32,770,897
Accumulated deficit	(36,353,653)	(32,740,715)
Sub-total	4,882,557	30,182
Less: Treasury stock (1,324 shares of common stock at June 30, 2020 and December 31, 2019)	(157,452)	(157,452)
Total Stockholders' Equity (Deficit)	4,725,105	(127,270)
Total Liabilities and Stockholders' Equity (Deficit)	8,155,915	5,532,300
Series A Convertible Preferred Stock [Member]
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock: $0.001 par value, 10,000,000 authorized, 9,485,000 shares available to be designated
Series B Convertible Preferred Stock [Member]
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock: $0.001 par value, 10,000,000 authorized, 9,485,000 shares available to be designated	$ 1,705,000	$ 1,705,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2020	Dec. 31, 2019
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, available to be designated	9,485,000	9,485,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	3,527,470	1,982,039
Common stock, shares outstanding	3,526,146	1,980,715
Treasury stock shares	1,324	1,324
Series A Convertible Preferred Stock [Member]
Series A redeemable convertible cumulative preferred stock, stated value per share	$ 10	$ 10
Series A redeemable convertible cumulative preferred stock, shares designated	500,000	500,000
Series A redeemable convertible cumulative preferred stock, shares issued	0	0
Series A redeemable convertible cumulative preferred stock, shares outstanding	0	0
Preferred stock, conversion price per share	$ 6.30	$ 6.30
Series B Convertible Preferred Stock [Member]
Preferred stock, par value	$ 1,000	$ 1,000
Preferred stock, shares authorized	15,000	15,000
Preferred stock, shares issued	1,705	1,705
Preferred stock, shares outstanding	1,705	1,705
Preferred stock, conversion price per share	$ 7	$ 7

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
REVENUES:
Total Revenues	$ 1,982,142	$ 1,345,805	$ 2,973,087	$ 5,697,886
COST OF REVENUES:
Total Cost of Revenues	1,242,767	1,171,405	2,130,847	3,392,642
GROSS PROFIT	739,375	174,400	842,240	2,305,244
OPERATING EXPENSES:
Research and development	149,566	487,738	555,958	871,160
Engineering	352,970	289,986	665,406	624,549
Sales & marketing	122,473	270,196	262,325	520,620
Administration	1,023,947	872,972	2,039,498	1,807,645
AI technologies	517,475	202,673	834,024	383,986
Total Operating Expenses	2,166,431	2,123,565	4,357,211	4,207,960
LOSS FROM OPERATIONS	(1,427,056)	(1,949,165)	(3,514,971)	(1,902,716)
OTHER INCOME (EXPENSES):
Interest Expense	(58,243)	(3,692)	(127,175)	(6,313)
Other income, net	19,410	3,066	29,208	3,407
Total Other Income (Expense)	(38,833)	(626)	(97,967)	(2,906)
NET LOSS	$ (1,465,889)	$ (1,949,791)	$ (3,612,938)	$ (1,905,622)
Basic & Diluted Net Loss Per Share	$ (0.42)	$ (1.09)	$ (1.16)	$ (1.14)
Weighted Average Shares-Basic & Diluted	3,526,382	1,788,659	3,106,660	1,665,439
Project Revenues [Member]
REVENUES:
Total Revenues	$ 1,419,409	$ 984,991	$ 1,933,083	$ 4,903,429
COST OF REVENUES:
Total Cost of Revenues	897,514	967,649	1,479,058	3,060,643
Maintenance and Technical Support Revenues [Member]
REVENUES:
Total Revenues	382,124	280,601	727,311	602,075
COST OF REVENUES:
Total Cost of Revenues	234,754	156,341	469,030	261,665
IT Asset Management Services Revenues [Member]
REVENUES:
Total Revenues	2,385	80,213	134,469	192,382
COST OF REVENUES:
Total Cost of Revenues		47,415	72,260	70,334
AI technologies [Member]
REVENUES:
Total Revenues	178,224		178,224
COST OF REVENUES:
Total Cost of Revenues	$ 110,499		$ 110,499

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STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited) - USD ($)	Preferred Stock	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Treasury Stock	Total
Balance at Dec. 31, 2018	$ 2,830,000	$ 1,505	$ 27,416,802	$ (30,269,833)	$ (149,459)	$ (170,985)
Balance, shares at Dec. 31, 2018	2,830	1,505,883
Commons stock issued for warrants exercised		$ 214	1,649,786			1,650,000
Commons stock issued for warrants exercised, shares		214,286
Stock options granted to employees			21,892			21,892
Net Income (Loss)				44,169		44,169
Balance at Mar. 31, 2019	$ 2,830,000	$ 1,719	29,088,480	(30,225,664)	(149,459)	1,545,076
Balance, shares at Mar. 31, 2019	2,830	1,720,169
Balance at Dec. 31, 2018	$ 2,830,000	$ 1,505	27,416,802	(30,269,833)	(149,459)	(170,985)
Balance, shares at Dec. 31, 2018	2,830	1,505,883
Net Income (Loss)						(1,905,622)
Balance at Jun. 30, 2019	$ 2,830	$ 1,796	29,598,664	(32,175,455)	(150,610)	104,395
Balance, shares at Jun. 30, 2019	2,830,000	1,796,803
Balance at Dec. 31, 2018	$ 2,830,000	$ 1,505	27,416,802	(30,269,833)	(149,459)	(170,985)
Balance, shares at Dec. 31, 2018	2,830	1,505,883
Balance at Dec. 31, 2019	$ 1,705,000	$ 1,982	31,063,915	(32,740,715)	(157,452)	(127,270)
Balance, shares at Dec. 31, 2019	1,705	1,982,039
Balance at Mar. 31, 2019	$ 2,830,000	$ 1,719	29,088,480	(30,225,664)	(149,459)	1,545,076
Balance, shares at Mar. 31, 2019	2,830	1,720,169
Commons stock issued for warrants exercised		$ 77	513,943			514,020
Commons stock issued for warrants exercised, shares		76,634
Stock Repurchase					(1,151)	(1,151)
Stock options granted to employees			6,241			6,241
Stock issuance costs			(10,000)			(10,000)
Net Income (Loss)				(1,949,791)		(1,949,791)
Balance at Jun. 30, 2019	$ 2,830	$ 1,796	29,598,664	(32,175,455)	(150,610)	104,395
Balance, shares at Jun. 30, 2019	2,830,000	1,796,803
Balance at Dec. 31, 2019	$ 1,705,000	$ 1,982	31,063,915	(32,740,715)	(157,452)	(127,270)
Balance, shares at Dec. 31, 2019	1,705	1,982,039
Common stock issued		$ 1,542	9,251,586			$ 9,253,128
Common stock issued, shares		1,542,188				1,542,188
Stock options granted to employees			8,100			$ 8,100
Stock issuance costs			(1,001,885)			(1,001,885)
Common stock issued for services		$ 2	7,498			7,500
Common stock issued for services, shares		1,611
Net Income (Loss)				(2,147,049)		(2,147,049)
Balance at Mar. 31, 2020	$ 1,705,000	$ 3,526	39,329,214	(34,887,764)	(157,452)	5,992,524
Balance, shares at Mar. 31, 2020	1,705	3,525,838
Balance at Dec. 31, 2019	$ 1,705,000	$ 1,982	31,063,915	(32,740,715)	(157,452)	(127,270)
Balance, shares at Dec. 31, 2019	1,705	1,982,039
Common stock issued						$ 9,250,000
Common stock issued, shares						1,542,188
Stock options cancelled and replaced to employees						102,800
Net Income (Loss)						$ (3,612,938)
Balance at Jun. 30, 2020	$ 1,705	$ 3,528	39,527,682	(36,353,653)	(157,452)	4,725,105
Balance, shares at Jun. 30, 2020	1,705,000	3,527,470
Balance at Mar. 31, 2020	$ 1,705,000	$ 3,526	39,329,214	(34,887,764)	(157,452)	5,992,524
Balance, shares at Mar. 31, 2020	1,705	3,525,838
Modification of employee stock options			102,800			102,800
Stock options granted to employees			88,170			88,170
Common stock issued for services		$ 2	7,498			7,500
Common stock issued for services, shares		1,632
Net Income (Loss)				(1,465,889)		(1,465,889)
Balance at Jun. 30, 2020	$ 1,705	$ 3,528	$ 39,527,682	$ (36,353,653)	$ (157,452)	$ 4,725,105
Balance, shares at Jun. 30, 2020	1,705,000	3,527,470

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash from operating activities:
Net loss	$ (3,612,938)	$ (1,905,622)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	97,353	87,325
Stock based compensation	96,270	28,133
Modification of employee stock options	102,800
Interest expense related to debt discounts	94,627
Changes in assets and liabilities:
Accounts receivable	2,114,802	(302,986)
Contract assets	530,110	904,543
Prepaid expenses and other current assets	235,194	86,411
Operating lease right of use asset	113,419	(565,925)
Accounts payable	(2,009,394)	(519,468)
Related payable-related party	(300)
Payroll taxes payable	(104,381)	(196,609)
Accrued expenses	(247,474)	15,671
Operating lease obligation	(114,865)	592,402
Contract liabilities	(5,378)	(1,170,197)
Deferred revenue	(442,598)	234,988
Net cash used in operating activities	(3,152,753)	(2,711,334)
Cash flows from investing activities:
Purchase of patents/trademarks	(7,735)	(3,000)
Purchase of fixed assets	(171,467)	(223,549)
Net cash used in investing activities	(179,202)	(226,549)
Cash flows from financing activities:
Repurchase of common stock		(1,151)
Repayments of line of credit	(27,615)	(2,497)
Issuance cost	(1,001,885)	(10,000)
Repayments of notes payable	(1,000,000)
Repayments of insurance and equipment financing	(83,257)	(141,105)
Repayment of finance lease	(21,786)
Proceeds from SBA loan	1,410,270
Proceeds from equipment leasing	121,637
Proceeds from common stock issued	9,253,128
Proceeds from warrants exercised		2,164,019
Net cash provided by financing activities	8,650,492	2,009,266
Net increase (decrease) in cash	5,318,537	(928,617)
Cash, beginning of period	56,249	1,209,301
Cash, end of period	5,374,786	280,684
Supplemental Disclosure of Cash Flow Information:
Interest paid	29,830	4,109
Supplemental Non-Cash Investing and Financing Activities:
Common stock issued for accrued BOD fees	15,000
Lease right of use asset and liability	644,245
Note issued for financing of insurance premiums	$ 216,754	$ 217,804

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NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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

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

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not indicative of the results that may be expected for the year ending December 31, 2020 or for any other future period. These unaudited consolidated financial statements and the unaudited condensed notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.

Reverse Stock-Split

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

Reclassifications

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

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

	Before Reclassification			After Reclassification
	For the Three Months Ended			For the Three Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	128,506	Sales and marketing	$	270,196
Salaries, wages and contract labor		1,338,302	Engineering		289,986
Research and development		118,435	Research and development		487,738
Professional fees		17,054	AI technologies		202,673
General and administrative expenses		521,268	Administration		872,972
Total Operating Expenses	$	2,123,565		$	2,123,565

	Before Reclassification			After Reclassification
	For the Six Months Ended			For the Six Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	238,122	Sales and marketing	$	520,620
Salaries, wages and contract labor		2,607,081	Engineering		624,549
Research and development		231,129	Research and development		871,160
Professional fees		144,973	AI technologies		383,986
General and administrative expenses		986,655	Administration		1,807,645
Total Operating Expenses	$	4,207,960		$	4,207,960

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates. The most significant estimates in the accompanying unaudited consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of intangible and other long-lived assets, estimates of net contract revenues and the total estimated costs to determine progress towards contract completion, valuation of derivatives, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, estimates of the valuation of right of use assets and corresponding lease liabilities and valuation of stock-based awards. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Concentrations

Cash Concentrations

Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. We have not experienced any losses related to these balances. As of June 30, 2020, balance in one financial institution exceeded federally insured limits by approximately $4,952,107.

Significant Customers and Concentration of Credit Risk

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

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

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

Geographic Concentration

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

Fair Value of Financial Instruments and Fair Value Measurements

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

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

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

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

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

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

Software Development Costs

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

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss applicable to common stock by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, stock warrants, convertible debt instruments, convertible preferred stock or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At June 30, 2020, there was an aggregate of 1,588,750 outstanding warrants to purchase shares of common stock. At June 30, 2020, there was an aggregate of 311,898 shares of employee stock options to purchase shares of common stock. Also, at June 30, 2020, 243,571 common shares were issuable upon conversion of Series B convertible preferred stock, all of which were excluded from the computation of dilutive earnings per share because their inclusion would have been anti-dilutive.

Revenue Recognition

As of January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASC 606”), that affects the timing of when certain types of revenues will be recognized. The basic principles in ASC 606 include the following: a contract with a customer creates distinct unrecognized contract assets and performance obligations; satisfaction of a performance obligation creates revenue; and a performance obligation is satisfied upon transfer of control to a good or service to a customer.

Revenue is recognized for sales of systems and services over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

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

1.

Identify the contract with the customer;

2.

Identify the performance obligations in the contract;

3.

Determine the transaction price;

4.

Allocate the transaction price to separate performance obligations; and

5.

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

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

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

Segment Information

The Company operates in one reportable segment.

Stock Based Compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.

Determining Fair Value Under ASC 718-10

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

The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk-free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

Recent Accounting Pronouncements

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

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

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LIQUIDITY

6 Months Ended

Jun. 30, 2020

LIQUIDITY [Abstract]

LIQUIDITY

NOTE 2 – LIQUIDITY

As reflected in the accompanying unaudited consolidated financial statements, the Company had a net loss of $3,612,938 for the six months ended June 30, 2020. During the same period, net cash used in operating activities was $3,152,753 The working capital surplus and accumulated deficit as of June 30, 2020 were $4,991,582 and $36,353,653 respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern. This was principally due to a lack of working capital prior to an underwritten offering which was completed during the first quarter of 2020 (the “2020 Offering”).

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

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

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SOFTWARE DEVELOPMENT COSTS

6 Months Ended

Jun. 30, 2020

SOFTWARE DEVELOPMENT COSTS [Abstract]

SOFTWARE DEVELOPMENT COSTS

NOTE 3 – SOFTWARE DEVELOPMENT COSTS

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

	June 30, 2020			December 31, 2019
Software Development Costs	$	60,000		$	60,000
Less: Accumulated amortization		(50,000	)		(40,000	)
Total	$	10,000		$	20,000

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

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DEBT

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

DEBT

NOTE 4 – DEBT

Notes Payable - Financing Agreements

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

	June 30, 2020				December 31, 2019
Notes Payable	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	8,662	7.31	%	$	28,500	7.31	%
Third Party - Insurance Note 2		41,282	5.26	%		—	6.36	%
Third Party - Insurance Note 3		1,656	—			13,799	—
Third Party - Insurance Note 4		124,196	—			—	6.36	%
Total	$	175,796			$	42,299

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

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

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

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

Finance Lease

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

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

As of December 31,	Amount
2020	$	53,331
2021		106,588
2022		86,735
2023		23,515
Total minimum financial lease payments	$	270,169
Less:  interest		(36,220	)
Total lease liability at June 30, 2020	$	233,949
Less: current portion of Finance Lease		(84,635	)
Long Term portion of Finance Lease	$	149,314

Notes Payable – Related Parties

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal			Interest
Related party	$	—		3%	$	267,000			3%
Related party		—		3%		733,000			3%
Total		—				1,000,000
Less unamortized discounts		—				(94,627	)
Total, net	$	—			$	905,373

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

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

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

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

Notes Payable

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

Notes Payable – SBA Loan

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal		Interest*
SBA loan	$	1,410,270		1%	$	—
Total		1,410,270				—
Less current portion		(627,465)				—
Long term portion	$	782,805			$	—

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

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LINE OF CREDIT

6 Months Ended

Jun. 30, 2020

LINE OF CREDIT [Abstract]

LINE OF CREDIT

NOTE 5 – LINE OF CREDIT

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

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Delinquent Payroll Taxes Payable

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

Operating Lease Obligations

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

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

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

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

As of December 31,	Amount
2020	$	141,396
2021		213,568
Total minimum financial lease payments	$	354,964
Less:  interest		(27,344	)
Total lease liability at June 30, 2020	$	327,620
Less: current portion of Operating lease obligations		(252,907	)
Long Term portion of Operating lease obligations	$	74,713

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

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STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2020

Equity [Abstract]

STOCKHOLDERS' EQUITY

NOTE 7 – STOCKHOLDERS’ EQUITY 

Common stock issued

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

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

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

Stock-Based Compensation

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

Employee Stock Options

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

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

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
Outstanding at December 31, 2018		160,143		$	14.00		4.4		—
Granted		8,572		$	14.00		5.0		—
Forfeited		(14,286	)	$	14.00		—		—
Outstanding at June 30, 2019		154,429		$	14.00		3.4		—
Exercisable at June 30, 2019		145,857		$	14.00		3.4		—
Outstanding at December 31, 2019		163,010		$	14.00		3.4		—
Granted		310,290		$	5.39		4.8		—
Cancelled/forfeited		(161,402	)	$	14.00		—		—
Outstanding at June 30, 2020		311,898		$	5.46		4.7		—
Exercisable at June 30, 2020		162,474		$	6.08		4.7		—

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

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

Warrants

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Warrants			Price		Term (Years)		Value
Outstanding at December 31, 2018		1,815,182		$	9.52		3.9		—
Warrants expired, forfeited, cancelled or exercised		(327,612	)
Outstanding at June 30, 2019		1,487,570		$	8.78		2.8		—
Exercisable at June 30, 2019		1,487,570		$	8.78		2.8		—
Outstanding at December 31, 2019		1,521,250		$	8.78		3.0		—
Warrants expired, forfeited, cancelled or exercised		—
Warrants issued		67,500		$	9.00		2.6		—
Outstanding at June 30, 2020		1,588,750		$	8.79		4.8		—
Exercisable at June 30, 2020		1,521,250		$	8.41		2.7		—

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

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REVENUE

6 Months Ended

Jun. 30, 2020

REVENUES:

REVENUE

NOTE 8 - REVENUE

Revenue Recognition and Contract Accounting

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

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

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

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

Contract Assets

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

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

	June 30, 2020			December 31. 2019
Costs and estimated earnings recognized	$	3,663,654		$	3,700,124
Less: Billings or cash received		(2,817,844	)		(2,324,204	)
Contract assets	$	845,810		$	1,375,920

Contract Liabilities

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

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

	June 30, 2020			December 31. 2019
Billings and/or cash receipts on uncompleted contracts	$	3,283		$	35,665
Less: Costs and estimated earnings recognized		(—	)		(27,004	)
Contract liabilities	$	3,283		$	8,661

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

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

Technical Support

Maintenance and technical support services are provided on both an as-needed and extended-term basis and may include providing both parts and labor. Maintenance and technical support provided outside of a maintenance contract are on an as-requested basis, and revenue is recognized as the services are provided. Revenue for maintenance and technical support provided on an extended-term basis is recognized ratably over the term of the contract.

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

Consulting Services

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

For sales arrangements that do not involve performance obligations: 

(1)	Revenues for professional services, which are of short-term duration, are recognized when services are completed;
(2)	For all periods reflected in this report, software license sales have been one-time sales of a perpetual license to use our software product and the customer also has the option to purchase third-party manufactured handheld devices from us if they purchase our software license. Accordingly, the revenue is recognized upon delivery of the software and delivery of the hardware, as applicable, to the customer;
(3)	Training sales are one-time upfront short-term training sessions and are recognized after the service has been performed; and
(4)	Maintenance/support is an optional product sold to our software license customers under one-year contracts. Accordingly, maintenance payments received upfront are deferred and recognized over the contract term.

Artificial Intelligence

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

Multiple Elements

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

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

Deferred Revenue

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

Disaggregation of Revenue

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

Qualitative:

1.

We have four distinct revenue sources:

a.

Turnkey, engineered projects;

b.

Associated maintenance and support services;

c.

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

d.

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

2.

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

3.

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

4.

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

a.

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

b.

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

5.

Transfer of goods and services are over time.

Quantitative:  

For the Three Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Major Goods and Service Lines
Turnkey Projects	$	1,332.577	$	(2,421)	$	—	$	—	$	89,253	$	—	$	178,224	$	1,597,633
Maintenance & Support		299,314		54,973		—		20,221		7,616		—		—		382,124
Data Center Auditing Services		—		—		—		—		—		—		—		—
Software License		—		—		—		—		—		2,385		—		2,385
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Timing of Revenue Recognition
Goods transferred over time	$	1,332,577	$	(2,421)	$	—	$	—	$	89,253	$	2,385	$	178,224	$	1,600,018
Services transferred over time		299,314		54,973		—		20,221		7,616		—		—		382,124
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142

For the Three Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Major Goods and Service Lines
Turnkey Projects	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	—	$	984,991
Maintenance & Support		252,574		—		7,806		20,221		—		—		280,601
Data Center Auditing Services		—		—		—		—		—		80,213		80,213
Software License		—		—		—		—		—		—		—
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Timing of Revenue Recognition
Goods transferred over time	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	80,213	$	1,065,204
Services transferred over time		252,574		—		7,806		20,221		—		—		280,601
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805

For the Six Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Major Goods and Service Lines
Turnkey Projects	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	—	$	178,224	$	2,111,307
Maintenance & Support		531,462		120,685		—		47,370		27,794		—		—		727,311
Data Center Auditing Services		—		—		—		—		—		129,699		—		129,699
Software License		—		—		—		—		—		4,770		—		4,770
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Timing of Revenue Recognition
Goods transferred over time	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	134,469	$	178,224	$	2,245,776
Services transferred over time		531,462		120,685		—		47,370		27,794		—		—		727,311
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087

For the Six Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Major Goods and Service Lines
Turnkey Projects	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	—	$	4,903,429
Maintenance & Support		534,714		2,197		15,612		40,442		9,110		—		602,075
Data Center Auditing Services		—		—		—		—		—		144,982		144,982
Software License		—		—		—		—		—		47,400		47,400
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Timing of Revenue Recognition
Goods transferred over time	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	192,382	$	5,095,811
Services transferred over time		534,714		2,197		15,612		40,442		9,110		—		602,075
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886

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

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

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

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

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

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2020 are not indicative of the results that may be expected for the year ending December 31, 2020 or for any other future period. These unaudited consolidated financial statements and the unaudited condensed notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2020.

Reverse Stock-Split

Reverse Stock-Split

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

Reclassifications

Reclassifications

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

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

	Before Reclassification			After Reclassification
	For the Three Months Ended			For the Three Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	128,506	Sales and marketing	$	270,196
Salaries, wages and contract labor		1,338,302	Engineering		289,986
Research and development		118,435	Research and development		487,738
Professional fees		17,054	AI technologies		202,673
General and administrative expenses		521,268	Administration		872,972
Total Operating Expenses	$	2,123,565		$	2,123,565

	Before Reclassification			After Reclassification
	For the Six Months Ended			For the Six Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	238,122	Sales and marketing	$	520,620
Salaries, wages and contract labor		2,607,081	Engineering		624,549
Research and development		231,129	Research and development		871,160
Professional fees		144,973	AI technologies		383,986
General and administrative expenses		986,655	Administration		1,807,645
Total Operating Expenses	$	4,207,960		$	4,207,960

Principles of Consolidation

Principles of Consolidation

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

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 unaudited consolidated financial statements include the allowance on accounts receivable, valuation of deferred tax assets, valuation of intangible and other long-lived assets, estimates of net contract revenues and the total estimated costs to determine progress towards contract completion, valuation of derivatives, valuation of warrants issued with debt, valuation of beneficial conversion features in convertible debt, estimates of the valuation of right of use assets and corresponding lease liabilities and valuation of stock-based awards. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Concentrations

Concentrations

Cash Concentrations

Cash is maintained at financial institutions and at times, balances may exceed federally insured limits. We have not experienced any losses related to these balances. As of June 30, 2020, balance in one financial institution exceeded federally insured limits by approximately $4,952,107.

Significant Customers and Concentration of Credit Risk

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

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

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

Geographic Concentration

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

Fair Value of Financial Instruments and Fair Value Measurements

Fair Value of Financial Instruments and Fair Value Measurements

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

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

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

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

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

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

Software Development Costs

Software Development Costs

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

Earnings (Loss) Per Share

Earnings (Loss) Per Share

Basic earnings per share (EPS) are computed by dividing net loss applicable to common stock by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing the net loss applicable to common stock by the weighted average number of common shares outstanding for the period and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options, stock warrants, convertible debt instruments, convertible preferred stock or other common stock equivalents. Potentially dilutive securities are excluded from the computation if their effect is anti-dilutive. At June 30, 2020, there was an aggregate of 1,588,750 outstanding warrants to purchase shares of common stock. At June 30, 2020, there was an aggregate of 311,898 shares of employee stock options to purchase shares of common stock. Also, at June 30, 2020, 243,571 common shares were issuable upon conversion of Series B convertible preferred stock, all of which were excluded from the computation of dilutive earnings per share because their inclusion would have been anti-dilutive.

Revenue Recognition

Revenue Recognition

As of January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASC 606”), that affects the timing of when certain types of revenues will be recognized. The basic principles in ASC 606 include the following: a contract with a customer creates distinct unrecognized contract assets and performance obligations; satisfaction of a performance obligation creates revenue; and a performance obligation is satisfied upon transfer of control to a good or service to a customer.

Revenue is recognized for sales of systems and services over time using cost-based input methods, in which significant judgement is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

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

1.

Identify the contract with the customer;

2.

Identify the performance obligations in the contract;

3.

Determine the transaction price;

4.

Allocate the transaction price to separate performance obligations; and

5.

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

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

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

Segment Information

Segment Information

The Company operates in one reportable segment.

Stock Based Compensation

Stock Based Compensation

The Company accounts for employee stock-based compensation in accordance with ASC 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options, restricted stock units, and employee stock purchases based on estimated fair values.

Determining Fair Value Under ASC 718-10

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

The Company estimates volatility based upon the historical stock price of the Company and estimates the expected term for employee stock options using the simplified method for employees and directors and the contractual term for non-employees. The risk-free rate is determined based upon the prevailing rate of United States Treasury securities with similar maturities.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

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

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

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

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of Reclassifications

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

	Before Reclassification			After Reclassification
	For the Three Months Ended			For the Three Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	128,506	Sales and marketing	$	270,196
Salaries, wages and contract labor		1,338,302	Engineering		289,986
Research and development		118,435	Research and development		487,738
Professional fees		17,054	AI technologies		202,673
General and administrative expenses		521,268	Administration		872,972
Total Operating Expenses	$	2,123,565		$	2,123,565

	Before Reclassification			After Reclassification
	For the Six Months Ended			For the Six Months Ended
	June 30,			June 30,
	2019			2019
OPERATING EXPENSES:
Selling and marketing expenses	$	238,122	Sales and marketing	$	520,620
Salaries, wages and contract labor		2,607,081	Engineering		624,549
Research and development		231,129	Research and development		871,160
Professional fees		144,973	AI technologies		383,986
General and administrative expenses		986,655	Administration		1,807,645
Total Operating Expenses	$	4,207,960		$	4,207,960

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SOFTWARE DEVELOPMENT COSTS (Tables)

6 Months Ended

Jun. 30, 2020

SOFTWARE DEVELOPMENT COSTS [Abstract]

Schedule of Software Development Costs

Software development costs consisted of the following at June 30, 2020 and December 31, 2019:

	June 30, 2020			December 31, 2019
Software Development Costs	$	60,000		$	60,000
Less: Accumulated amortization		(50,000	)		(40,000	)
Total	$	10,000		$	20,000

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DEBT (Tables)

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Schedule of Notes Payable - Financing Agreements

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

	June 30, 2020				December 31, 2019
Notes Payable	Principal		Interest		Principal		Interest
Third Party - Insurance Note 1	$	8,662	7.31	%	$	28,500	7.31	%
Third Party - Insurance Note 2		41,282	5.26	%		—	6.36	%
Third Party - Insurance Note 3		1,656	—			13,799	—
Third Party - Insurance Note 4		124,196	—			—	6.36	%
Total	$	175,796			$	42,299

Schedule of Notes Payable - Finance Lease

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

As of December 31,	Amount
2020	$	53,331
2021		106,588
2022		86,735
2023		23,515
Total minimum financial lease payments	$	270,169
Less:  interest		(36,220	)
Total lease liability at June 30, 2020	$	233,949
Less: current portion of Finance Lease		(84,635	)
Long Term portion of Finance Lease	$	149,314

Schedule of Notes Payable - Related Parties

Notes Payable – Related Parties

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal			Interest
Related party	$	—		3%	$	267,000			3%
Related party		—		3%		733,000			3%
Total		—				1,000,000
Less unamortized discounts		—				(94,627	)
Total, net	$	—			$	905,373

Schedule of Notes Payable - SBA Loan

	June 30, 2020				December 31, 2019
Payable To	Principal		Interest		Principal		Interest*
SBA loan	$	1,410,270		1%	$	—
Total		1,410,270				—
Less current portion		(627,465)				—
Long term portion	$	782,805			$	—

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COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2020

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Lease Payments Due Operating Leases

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

As of December 31,	Amount
2020	$	141,396
2021		213,568
Total minimum financial lease payments	$	354,964
Less:  interest		(27,344	)
Total lease liability at June 30, 2020	$	327,620
Less: current portion of Operating lease obligations		(252,907	)
Long Term portion of Operating lease obligations	$	74,713

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STOCKHOLDERS' EQUITY (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Employee Stock Options and Warrants

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term (Years)		Value
Outstanding at December 31, 2018		160,143		$	14.00		4.4		—
Granted		8,572		$	14.00		5.0		—
Forfeited		(14,286	)	$	14.00		—		—
Outstanding at June 30, 2019		154,429		$	14.00		3.4		—
Exercisable at June 30, 2019		145,857		$	14.00		3.4		—
Outstanding at December 31, 2019		163,010		$	14.00		3.4		—
Granted		310,290		$	5.39		4.8		—
Cancelled/forfeited		(161,402	)	$	14.00		—		—
Outstanding at June 30, 2020		311,898		$	5.46		4.7		—
Exercisable at June 30, 2020		162,474		$	6.08		4.7		—

Warrant [Member]

Share-based Compensation Arrangement by Share-based Payment Award [Line Items]

Schedule of Employee Stock Options and Warrants

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

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Warrants			Price		Term (Years)		Value
Outstanding at December 31, 2018		1,815,182		$	9.52		3.9		—
Warrants expired, forfeited, cancelled or exercised		(327,612	)
Outstanding at June 30, 2019		1,487,570		$	8.78		2.8		—
Exercisable at June 30, 2019		1,487,570		$	8.78		2.8		—
Outstanding at December 31, 2019		1,521,250		$	8.78		3.0		—
Warrants expired, forfeited, cancelled or exercised		—
Warrants issued		67,500		$	9.00		2.6		—
Outstanding at June 30, 2020		1,588,750		$	8.79		4.8		—
Exercisable at June 30, 2020		1,521,250		$	8.41		2.7		—

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REVENUE (Tables)

6 Months Ended

Jun. 30, 2020

REVENUES:

Schedule of Contract Assets on Uncompleted Contracts

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

	June 30, 2020			December 31. 2019
Costs and estimated earnings recognized	$	3,663,654		$	3,700,124
Less: Billings or cash received		(2,817,844	)		(2,324,204	)
Contract assets	$	845,810		$	1,375,920

Schedule of Contract Liabilities on Uncompleted Contracts

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

	June 30, 2020			December 31. 2019
Billings and/or cash receipts on uncompleted contracts	$	3,283		$	35,665
Less: Costs and estimated earnings recognized		(—	)		(27,004	)
Contract liabilities	$	3,283		$	8,661

Schedule of Disaggregation of Revenue Quantitative

For the Three Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Major Goods and Service Lines
Turnkey Projects	$	1,332.577	$	(2,421)	$	—	$	—	$	89,253	$	—	$	178,224	$	1,597,633
Maintenance & Support		299,314		54,973		—		20,221		7,616		—		—		382,124
Data Center Auditing Services		—		—		—		—		—		—		—		—
Software License		—		—		—		—		—		2,385		—		2,385
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142
Timing of Revenue Recognition
Goods transferred over time	$	1,332,577	$	(2,421)	$	—	$	—	$	89,253	$	2,385	$	178,224	$	1,600,018
Services transferred over time		299,314		54,973		—		20,221		7,616		—		—		382,124
	$	1,631,891	$	52,552	$	—	$	20,221	$	96,869	$	2,385	$	178,224	$	1,982,142

For the Three Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Major Goods and Service Lines
Turnkey Projects	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	—	$	984,991
Maintenance & Support		252,574		—		7,806		20,221		—		—		280,601
Data Center Auditing Services		—		—		—		—		—		80,213		80,213
Software License		—		—		—		—		—		—		—
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805
Timing of Revenue Recognition
Goods transferred over time	$	552,561	$	169,010	$	12,815	$	33,354	$	217,251	$	80,213	$	1,065,204
Services transferred over time		252,574		—		7,806		20,221		—		—		280,601
	$	805,135	$	169,010	$	20,621	$	53,575	$	217,251	$	80,213	$	1,345,805

For the Six Months Ended June 30, 2020

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Artificial Intelligence		Total
Primary Geographical Markets
North America	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Major Goods and Service Lines
Turnkey Projects	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	—	$	178,224	$	2,111,307
Maintenance & Support		531,462		120,685		—		47,370		27,794		—		—		727,311
Data Center Auditing Services		—		—		—		—		—		129,699		—		129,699
Software License		—		—		—		—		—		4,770		—		4,770
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087
Timing of Revenue Recognition
Goods transferred over time	$	1,813,687	$	6,202	$	—	$	—	$	113,194	$	134,469	$	178,224	$	2,245,776
Services transferred over time		531,462		120,685		—		47,370		27,794		—		—		727,311
	$	2,345,149	$	126,887	$	—	$	47,370	$	140,988	$	134,469	$	178,224	$	2,973,087

For the Six Months Ended June 30, 2019

Segments	Rail		Commercial		Petrochemical		Government		Banking		IT Suppliers		Total
Primary Geographical Markets
North America	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Major Goods and Service Lines
Turnkey Projects	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	—	$	4,903,429
Maintenance & Support		534,714		2,197		15,612		40,442		9,110		—		602,075
Data Center Auditing Services		—		—		—		—		—		144,982		144,982
Software License		—		—		—		—		—		47,400		47,400
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886
Timing of Revenue Recognition
Goods transferred over time	$	3,942,219	$	186,734	$	39,361	$	56,626	$	678,489	$	192,382	$	5,095,811
Services transferred over time		534,714		2,197		15,612		40,442		9,110		—		602,075
	$	4,476,933	$	188,931	$	54,973	$	97,068	$	687,599	$	192,382	$	5,697,886

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NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Credit Risk) (Details)	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Revenue [Member] | Outside of the US [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	29.00%
Customer A [Member] | Revenue [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	45.00%	69.00%
Customer A [Member] | Accounts Receivable
Concentration Risk [Line Items]
Concentration of Credit Risk	41.00%		68.00%
Customer B [Member] | Revenue [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	15.00%	12.00%
Customer B [Member] | Accounts Receivable
Concentration Risk [Line Items]
Concentration of Credit Risk	32.00%		10.00%
Customer C [Member] | Revenue [Member]
Concentration Risk [Line Items]
Concentration of Credit Risk	12.00%
Customer C [Member] | Accounts Receivable
Concentration Risk [Line Items]
Concentration of Credit Risk	10.00%
Customer D [Member] | Accounts Receivable
Concentration Risk [Line Items]
Concentration of Credit Risk	10.00%

XML

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019	Dec. 31, 2018
Number of warrants outstanding	1,588,750
Cash, uninsured balance	$ 4,952,107
Employee stock options	311,898	154,429	160,143
Series B Convertible Preferred Stock [Member]
Number of shares issued upon conversion	243,571

XML

NATURE OF OPERATIONS, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Reclassifications) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Research and development	$ 149,566	$ 487,738	$ 555,958	$ 871,160
Engineering	352,970	289,986	665,406	624,549
Sales and marketing	122,473	270,196	262,325	520,620
Administration	1,023,947	872,972	2,039,498	1,807,645
AI technologies	517,475	202,673	834,024	383,986
Total Operating Expenses	$ 2,166,431	2,123,565	$ 4,357,211	4,207,960
Before Reclassification [Member]
Selling and marketing expenses		128,506		238,122
Salaries, wages and contract labor		1,338,302		2,607,081
Research and development		118,435		231,129
Professional fees		17,054		144,973
General and administrative expenses		521,268		986,655
Total Operating Expenses		2,123,565		4,207,960
After Reclassification [Member]
Selling and marketing expenses		270,196		520,620
Salaries, wages and contract labor		289,986		624,549
Research and development		487,738		871,160
Professional fees		202,673		383,986
General and administrative expenses		872,972		1,807,645
Total Operating Expenses		$ 2,123,565		$ 4,207,960

XML

LIQUIDITY (Narrative) (Details) - USD ($)	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
LIQUIDITY [Abstract]
Net income	$ 1,465,889	$ 2,147,049	$ 1,949,791	$ (44,169)	$ 3,612,938	$ 1,905,622
Net cash used in operations					3,152,753	$ 2,711,334
Working capital deficit	4,991,582				4,991,582
Accumulated deficit	$ 36,353,653				36,353,653		$ 32,740,715
Proceeds from an underwritten offering					$ 8,100,000

XML

SOFTWARE DEVELOPMENT COSTS (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
SOFTWARE DEVELOPMENT COSTS [Abstract]
Software Development Costs	$ 60,000	$ 60,000
Less: Accumulated amortization	(50,000)	(40,000)
Software Development Costs, net	$ 10,000	$ 20,000

XML

SOFTWARE DEVELOPMENT COSTS (Narrative) (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
SOFTWARE DEVELOPMENT COSTS [Abstract]
Capitalized development of new software products	$ 60,000
Amortization expense of software development costs	$ 10,000	$ 10,000

XML

DEBT (Narrative) (Details)					1 Months Ended			3 Months Ended	6 Months Ended	12 Months Ended
	Apr. 15, 2020 USD ($)	Aug. 12, 2019 USD ($)	Apr. 15, 2019 USD ($)	Feb. 03, 2019 USD ($)	Jun. 22, 2020 USD ($)	May 22, 2020 USD ($)	Sep. 25, 2019 USD ($) $ / shares shares	Mar. 31, 2020 shares	Jun. 30, 2020 USD ($) $ / shares shares	Dec. 31, 2019 USD ($)	Feb. 03, 2020 USD ($)	Aug. 26, 2019 USD ($)	May 22, 2019 USD ($)	Dec. 23, 2018 USD ($)	Sep. 15, 2018 USD ($)
Debt Instrument [Line Items]
Debt discount										$ 94,627
Shares issued | shares								1,542,188	1,542,188
Third Party - Insurance Note 1 [Member]
Debt Instrument [Line Items]
Monthly installments of principal and interest									$ 2,218
Interest rate														7.31%
Notes payable outstanding balance									8,662	28,500				$ 28,500
Third Party - Insurance Note 2 [Member]
Debt Instrument [Line Items]
Monthly installments of principal and interest	$ 5,263		$ 5,326
Interest rate	5.26%		6.36%
Notes payable outstanding balance	$ 51,379		$ 51,940						41,282	0
Third Party - Insurance Note 3 [Member]
Debt Instrument [Line Items]
Notes payable outstanding balance									1,656	13,799					$ 13,799
Number of installment															5
Third Party - Insurance Note 4 [Member]
Debt Instrument [Line Items]
Monthly installments of principal and interest				$ 14,520					13,726
Interest rate				6.36%
Notes payable outstanding balance				$ 141,058					124,196	0	$ 165,375
Finance Lease - Insurance Note 1 [Member]
Debt Instrument [Line Items]
Monthly installments of principal and interest						$ 3,919			4,963
Interest rate												12.72%	9.90%
Notes payable outstanding balance									233,949	0		$ 147,810	$ 121,637
Notes Payable Related Parties [Member]
Debt Instrument [Line Items]
Interest rate							3.00%
Notes payable outstanding balance							$ 267,000		0
Maturity date							Jun. 25, 2020
Stock price | $ / shares							$ 7.70
Amortization of debt discount									94,627
Repayments short-term note Amount					$ 267,000
Notes Payable Related Parties [Member] | Warrant [Member]
Debt Instrument [Line Items]
Debt discount									$ 146,779
Shares issued | shares							11,920
Stock price | $ / shares									$ 7.00
Exercise price | $ / shares									$ 7.70
Expected term									5 years
Expected volatility									86.00%
Discount rate									1.609%
Notes Payable Related Parties One [Member]
Debt Instrument [Line Items]
Interest rate							3.00%
Notes payable outstanding balance							$ 733,000		$ 0
Maturity date							Jun. 25, 2020
Stock price | $ / shares							$ 7.70
Repayments short-term note Amount					$ 733,000
Notes Payable Related Parties One [Member] | Warrant [Member]
Debt Instrument [Line Items]
Shares issued | shares							32,724
Notes Payable [Member]
Debt Instrument [Line Items]
Maturity date		Nov. 11, 2019
Discount rate		5.00%
Amortization of debt discount		$ 250,000								$ 12,500
Shareholder Total, net		$ 262,500

XML

DEBT (Schedule of Notes Payable - Financing Agreements) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Notes Payable, Principal	$ 175,796	$ 42,299
Third Party - Insurance Note 1 [Member]
Debt Instrument [Line Items]
Notes Payable, Principal	$ 8,662	$ 28,500
Notes Payable, Interest	7.31%	7.31%
Third Party - Insurance Note 2 [Member]
Debt Instrument [Line Items]
Notes Payable, Principal	$ 41,282
Notes Payable, Interest	5.26%	6.36%
Third Party - Insurance Note 3 [Member]
Debt Instrument [Line Items]
Notes Payable, Principal	$ 1,656	$ 13,799
Notes Payable, Interest
Third Party - Insurance Note 4 [Member]
Debt Instrument [Line Items]
Notes Payable, Principal	$ 124,196
Notes Payable, Interest		6.36%

XML

DEBT (Schedule of Future Minimum Lease Payments Due Finance Leases) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Year ended December 31,
2020	$ 53,331
2021	106,588
2022	86,735
2023	23,515
Total minimum financial lease payments	270,169
Less: interest	(36,220)
Total lease liability at June 30, 2020	233,949
Less: current portion of Finance Lease	(84,635)	$ (45,072)
Long Term portion of Finance Lease	$ 149,314	$ 89,026

XML

DEBT (Schedule of Notes Payable - Related Parties) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total		$ 1,000,000
Less unamortized discounts		(94,627)
Total, net		905,373
Related party
Debt Instrument [Line Items]
Total		$ 267,000
Interest rate	3.00%	3.00%
Related Party [Member]
Debt Instrument [Line Items]
Total		$ 733,000
Interest rate	3.00%	3.00%

XML

DEBT (Schedule of Notes Payable - SBA Loan) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total	$ 1,410,270
Less current portion	(627,465)
Long term portion	782,805
Related Party [Member] | SBA Loan [Member]
Debt Instrument [Line Items]
Total	$ 1,410,270
Interest Rate	1.00%

XML

LINE OF CREDIT (Narrative) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019	Apr. 02, 2015
Line of Credit Facility [Line Items]
Line of Credit - Wells Fargo Bank		$ 27,615
Line of Credit - Wells Fargo Bank [Member]
Line of Credit Facility [Line Items]
Line of Credit - Wells Fargo Bank	$ 0	$ 27,615	$ 40,000

XML

COMMITMENTS AND CONTINGENCIES (Narrative) (Details)			6 Months Ended
	Apr. 03, 2019 ft²	Jun. 01, 2018 ft²	Jun. 30, 2020 USD ($) ft²	Dec. 31, 2019 USD ($)
Payroll taxes payable			$ 10,730	$ 115,111
Long-term debt and payables			$ 0	37,210
Area of lease | ft²			14,603
Right-of-use model (ROU) asset			$ 316,726	430,146
Operating lease liability - current			252,907	239,688
Operating lease liability - long term			74,713	$ 202,797
Right-of-use model (ROU) asset			316,726
Operating lease liability			$ 327,620
Minimum [Member]
Area of lease | ft²	8,308
Maximum [Member]
Area of lease | ft²	10,203
Jacksonville, Florida [Member] | Minimum [Member]
Area of lease | ft²		4,400

XML

COMMITMENTS AND CONTINGENCIES (Schedule of Future Minimum Lease Payments Due Operating Leases) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Year ended December 31,
2020	$ 141,396
2021	213,568
Total minimum financial lease payments	354,964
Less: interest	(27,344)
Total lease liability at June 30, 2020	327,620
Less: current portion of Operating lease obligations	(252,907)	$ (239,688)
Long Term portion of Operating lease obligations	$ 74,713	$ 202,797

XML

STOCKHOLDERS' EQUITY (Narrative) (Details) - USD ($)				1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Apr. 03, 2020	Feb. 12, 2020	Aug. 15, 2019	Feb. 20, 2020	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Class of Stock [Line Items]
Common stock issued						1,542,188	1,542,188
Common stock par value					$ 0.001		$ 0.001		$ 0.001
Common stock issued, Value						$ 9,253,128	$ 9,250,000
Total compensation cost for stock options not yet recognized					$ 282,142		$ 282,142
Total compensation cost for stock options not yet recognized, period							1 year
Stock option granted							310,290		8,572
Exercise price of stock option							$ 5.39		$ 14.00
Options forfeited							161,402		14,286
Stock options cancelled and replaced to employees							102,800
Strike price of the cancelled options							$ 14.00
Warrant [Member]
Class of Stock [Line Items]
Public offering price					$ 6.00		$ 6.00
Percentage of strike price					150.00%		150.00%
Strike price					$ 9.00		$ 9.00
Shareholder [Member]
Class of Stock [Line Items]
Maximum number of shares was increased							321,429
2016 Plan [Member]
Class of Stock [Line Items]
Shares available for grant					178,572		178,572
Employees and directors [Member]
Class of Stock [Line Items]
Stock-based compensation expense							$ 199,070	$ 28,133
Board of Directors [Member]
Class of Stock [Line Items]
Total compensation cost for stock options not yet recognized, period					1 year 9 months
Strike price	$ 4.74
Stock option granted	310,290		8,572		310,290		8,572
Exercise price of stock option	$ 6.00		$ 14.00				$ 14.00
Exercise Amount	$ 149,424
Options forfeited	161,402				161,402
Stock option plan expense					$ 88,170		$ 370,312
Board of Directors [Member] | Before Reclassification [Member]
Class of Stock [Line Items]
Stock option granted	160,866
Options forfeited	536
Board of Directors [Member] | Minimum [Member]
Class of Stock [Line Items]
Exercise price of stock option					$ 4.74
Vesting Period	9 months
Board of Directors [Member] | Maximum [Member]
Class of Stock [Line Items]
Exercise price of stock option					6.00
Vesting Period	21 months
President and Chief Operating Officer [Member]
Class of Stock [Line Items]
Options forfeited								14,286
Employee stock options [Member]
Class of Stock [Line Items]
Strike price					4.74		$ 4.74
Day of issuance					$ 4.70		$ 4.70
Expected term							2 years 6 months
Expected volatility							81.00%
Dividend rate							0.255%
ThinkEquity [Member]
Class of Stock [Line Items]
Common stock issued		1,350,000
Common stock par value		$ 0.001
Public offering price		$ 6.00
ThinkEquity [Member] | Over-Allotment Option [Member]
Class of Stock [Line Items]
Common stock issued		202,500		192,188
Common stock par value				$ 6.00
Closing date of public offering		Feb. 18, 2020		Feb. 21, 2020

XML

STOCKHOLDERS' EQUITY (Schedule of Employee Stock Options) (Details) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Shares
Outstanding at beginning of period	154,429	160,143
Granted	310,290	8,572
Cancelled/Forfeited	(161,402)	(14,286)
Expired	102,800
Outstanding at end of period	311,898	154,429
Exercisable at end of period	162,474	145,857
Weighted Average Exercise Price
Outstanding at beginning of period	$ 14.00	$ 14.00
Granted	5.39	14.00
Forfeited	14.00	14.00
Expired	14.00
Outstanding at end of period	5.46	14.00
Exercisable at end of period	$ 6.08	$ 14.00
Weighted Average Remaining Contractual Term (Years)
Outstanding at beginning of period	3 years 4 months 24 days	4 years 4 months 24 days
Granted	4 years 9 months 18 days	5 years
Outstanding at end of period	4 years 8 months 12 days	3 years 4 months 24 days
Exercisable at end of period	4 years 8 months 12 days	3 years 4 months 24 days
Aggregate Intrinsic Value
Outstanding at beginning of period
Granted
Outstanding at end of period
Exercisable at end of period

XML

STOCKHOLDERS' EQUITY (Schedule of Activity of Warrants) (Details) - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Number of Warrants
Outstanding at beginning of period	154,429	160,143
Warrants expired, forfeited, cancelled or exercised	(102,800)
Outstanding at end of period	311,898	154,429
Exercisable at end of period	162,474	145,857
Weighted Avg. Exercise Price
Outstanding at beginning of period	$ 14.00	$ 14.00
Warrants expired	14.00
Outstanding at end of period	5.46	14.00
Exercisable at end of period	$ 6.08	$ 14.00
Remaining Contractual Life (Years)
Outstanding at end of period	4 years 8 months 12 days	3 years 4 months 24 days
Exercisable at end of period	4 years 8 months 12 days	3 years 4 months 24 days
Warrant [Member]
Number of Warrants
Outstanding at beginning of period	1,487,570	1,815,182
Warrants expired, forfeited, cancelled or exercised		(327,612)
Warrants issued	67,500
Outstanding at end of period	1,588,750	1,487,570
Exercisable at end of period	1,521,250	1,487,570
Weighted Avg. Exercise Price
Outstanding at beginning of period	$ 8.78	$ 9.52
Warrants issued	9.00
Outstanding at end of period	8.79	8.78
Exercisable at end of period	$ 8.41	$ 8.78
Remaining Contractual Life (Years)
Outstanding at beginning of period	2 years 9 months 18 days	3 years 10 months 25 days
Warrants issued	2 years 7 months 6 days
Outstanding at end of period	4 years 9 months 18 days	2 years 9 months 18 days
Exercisable at end of period	2 years 8 months 12 days	2 years 9 months 18 days

XML

REVENUE (Schedule of Contract Assets on Uncompleted Contracts) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
REVENUES:
Costs and estimated earnings recognized	$ 3,663,654	$ 3,700,124
Less: Billings or cash received	(2,817,844)	(2,324,204)
Contract assets	$ 845,810	$ 1,375,920

XML

REVENUE (Schedule of Contract Liabilities on Uncompleted Contracts) (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
REVENUES:
Billings and/or cash receipts on uncompleted contracts	$ 3,283	$ 35,665
Less: costs and estimated earnings recognized		(27,004)
Contract liabilities	$ 3,283	$ 8,661

XML

REVENUE (Schedule of Disaggregation of Revenue Quantitative) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Disaggregation of Revenue [Line Items]
Revenue	$ 1,982,142	$ 1,345,805	$ 2,973,087	$ 5,697,886
Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,600,018	1,065,204		5,095,811
Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	382,124	280,601	2,245,776	602,075
Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue			727,311
Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,597,633	984,991	2,111,307	4,903,429
Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue	382,124	280,601	727,311	602,075
Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue		80,213	129,699	144,982
Rail [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,631,891	805,135	2,345,149	4,476,933
Rail [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,332,577	552,561		3,942,219
Rail [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	299,314	252,574	1,813,687	534,714
Rail [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue			531,462
Rail [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,332,577	552,561	1,813,687	3,942,219
Rail [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue	299,314	252,574	531,462	534,714
Rail [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
Rail [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Commercial [Member]
Disaggregation of Revenue [Line Items]
Revenue	52,552	169,010	126,887	188,931
Commercial [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	(2,421)	169,010		186,734
Commercial [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	54,973		6,202	2,197
Commercial [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue			120,685
Commercial [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue	(2,421)	169,010	6,202	186,734
Commercial [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue	54,973		120,685	2,197
Commercial [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
Commercial [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Petrochemical [Member]
Disaggregation of Revenue [Line Items]
Revenue		20,621		54,973
Petrochemical [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Petrochemical [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue		12,815		39,361
Petrochemical [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue		7,806		15,612
Petrochemical [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue
Petrochemical [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue		12,815		39,361
Petrochemical [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue		7,806		15,612
Petrochemical [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
Government [Member]
Disaggregation of Revenue [Line Items]
Revenue	20,221	53,575	47,370	97,068
Government [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Government [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue		33,354		56,626
Government [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	20,221	20,221		40,442
Government [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue			47,370
Government [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue		33,354		56,626
Government [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue	20,221	20,221	47,370	40,442
Government [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
Banking [Member]
Disaggregation of Revenue [Line Items]
Revenue	96,869	217,251	140,988	687,599
Banking [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Banking [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	89,253	217,251		678,489
Banking [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	7,616		113,194	9,110
Banking [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue			27,794
Banking [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue	89,253	217,251	113,194	678,489
Banking [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue	7,616		27,794	9,110
Banking [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
IT Suppliers [Member]
Disaggregation of Revenue [Line Items]
Revenue	2,385	80,213	134,469	192,382
IT Suppliers [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue	2,385		4,770	47,400
IT Suppliers [Member] | Goods transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	2,385	80,213		192,382
IT Suppliers [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue			134,469
IT Suppliers [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue
IT Suppliers [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue
IT Suppliers [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue
IT Suppliers [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue		80,213	129,699	144,982
Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue	178,224		178,224
Artificial Intelligence [Member] | Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue
Artificial Intelligence [Member] | Services transferred over time [Member]
Disaggregation of Revenue [Line Items]
Revenue	382,124		178,224
Artificial Intelligence [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue
Artificial Intelligence [Member] | Turnkey Projects [Member]
Disaggregation of Revenue [Line Items]
Revenue	178,224		178,224
Artificial Intelligence [Member] | Maintenance & Support [Member]
Disaggregation of Revenue [Line Items]
Revenue
Artificial Intelligence [Member] | Data Center Auditing Services [Member]
Disaggregation of Revenue [Line Items]
Revenue
Software License [Member]
Disaggregation of Revenue [Line Items]
Revenue	2,385		4,770	47,400
North America [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,982,142	1,345,805	2,973,087	5,697,886
North America [Member] | Rail [Member]
Disaggregation of Revenue [Line Items]
Revenue	1,631,891	805,135	2,345,149	4,476,933
North America [Member] | Commercial [Member]
Disaggregation of Revenue [Line Items]
Revenue	52,552	169,010	126,887	188,931
North America [Member] | Petrochemical [Member]
Disaggregation of Revenue [Line Items]
Revenue		20,621		54,973
North America [Member] | Government [Member]
Disaggregation of Revenue [Line Items]
Revenue	20,221	53,575	47,370	97,068
North America [Member] | Banking [Member]
Disaggregation of Revenue [Line Items]
Revenue	96,869	217,251	140,988	687,599
North America [Member] | IT Suppliers [Member]
Disaggregation of Revenue [Line Items]
Revenue	2,385	$ 80,213	134,469	$ 192,382
North America [Member] | Artificial Intelligence [Member]
Disaggregation of Revenue [Line Items]
Revenue	$ 178,224		$ 178,224