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What changed in DUOS TECHNOLOGIES GROUP, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of DUOS TECHNOLOGIES GROUP, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+153 added−158 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in DUOS TECHNOLOGIES GROUP, INC.'s 2023 10-K

153 paragraphs added · 158 removed · 93 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn 2021, the Company also hired a new Chief Technology Officer bringing 25 years of experience in designing and delivering on value driven technologies. Our new CTO has already led the team through instrumental changes to its approach to software and artificial intelligence development.
Biggest changeIn the third quarter of 2023, the Company also brought on a new Chief Commercial Officer bringing significant experience from the sales and operations aspects of the intermodal and power industries. In 2021, the Company also hired a new Chief Technology Officer bringing 25 years of experience in designing and delivering value driven technologies.
Our team includes engineering subject matter expertise in hardware, software, and information technology as well as industry specific applications of artificial intelligence also referred to as Expert Artificial Intelligence. We also have specific industry experts on staff and as consultants in the rail industry.
Our team includes engineering subject matter expertise in hardware, software, and information technology as well as industry specific applications of artificial intelligence also referred to as Expert Artificial Intelligence. We also have specific industry experts in the rail industry on staff and as consultants.
They include: · Introducing a new “subscription” based offering for access to data and images by a much broader target market including Class 1 railroads, railcar owners and lessors, short line railroads. · Owning and operating a network of RIPs with multiple subscribers outside of the Company’s traditional customer base. · Selling customized RIPs to Class 1, Short-line and other industrial companies where specialized applications or routes demand a bespoke solution. duos tech™ Railcar Inspection Portal ( r i p ® ) Federal regulations require each railcar/train to be inspected for mechanical defects prior to leaving a rail yard.
They include: · Introducing a new “subscription” based offering for access to data and images by a much broader target market including Class 1 railroads, railcar owners and lessors, and short-line railroads. · Owning and operating a network of RIPs with multiple subscribers outside of the Company’s traditional customer base. · Selling customized RIPs to Class 1, short-line and other industrial companies where specialized applications or routes demand a bespoke solution. duos tech™ Railcar Inspection Portal ( r i p ® ) Federal regulations require each railcar/train to be inspected for mechanical defects prior to leaving a rail yard.
The new leadership team’s focus is to improve operational and technical execution which will in turn enable the commercial side of the business to expand RIP and ALIS delivery into existing customers.
The new leadership team’s focus is to improve operational and technical execution which will in turn enable the commercial side of the business to expand RIP and ALIS delivery into existing and new customers.
The Company’s primary customers are all governed by regulations related to the safe and effective transportation of goods, primarily by rail, but in future scenarios by air, road and sea. While changes in the regulatory environment could impact the Company in future years, we believe any changes will be overall positive for the Company.
The Company’s primary customers are all governed by regulations related to the safe and effective transportation of goods and passengers, primarily by rail, but in future scenarios by air, road and sea. While changes in the regulatory environment could impact the Company in future years, we believe any changes will be overall positive for the Company.
Duos is currently developing industry solutions for its target markets which will address rail, trucking, aviation and other vehicle-based processes. Duos’ initial offering, the Railcar Inspection Portal (RIP), provides both freight and transit railroad customers and select government agencies the ability to conduct fully automated railcar inspections of trains while they are moving at full speed.
Duos is currently developing industry solutions for its target markets which will address rail, trucking, aviation and other vehicle-based processes. Duos’ initial offering, the Railcar Inspection Portal (RIP), provides both freight and transit railroad customers and select government agencies the ability to conduct fully remote railcar inspections of trains while they are moving at full speed.
This solution has the potential to transform the railroad industry by increasing safety, improving efficiency and reducing costs. The Company has already deployed this system with several Class 1 railroads and anticipates an increased demand from transit and other railroad customers along with selected government agencies that operate and/or manage rail traffic.
This solution has the potential to transform the railroad industry immediately increasing safety, improving efficiency and reducing costs. The Company has already deployed this system with several Class 1 railroads and anticipates an increased demand from transit and other railroad customers along with selected government agencies that operate and/or manage rail traffic.
For 2023 and possibly beyond, we expect to face significant challenges with macro-economic impacts, specifically inflation and supply chain disruption. Although these started to be identified in late 2021, we believe they continue to manifest themselves in ways that could challenge our business growth in the future.
For 2024 and possibly beyond, we expect to face significant challenges with macro-economic impacts, specifically inflation and supply chain disruption. Although these started to be identified in late 2021, we believe they continue to manifest themselves in ways that could challenge our business growth in the future.
The Company, based in Jacksonville, Florida, oversees its wholly owned subsidiary, duostech™ and employs approximately 75 people and is a technology company which designs, develops, deploys and operates intelligent technology solutions with a focus on software applications and artificial intelligence (“AI”). The company has a strong portfolio of intellectual property.
The Company, based in Jacksonville, Florida, oversees its wholly owned subsidiary, duostech™ and employs approximately 71 people and is a technology company which designs, develops, deploys and operates intelligent technology solutions with a focus on software applications and artificial intelligence (“AI”). The Company has a strong portfolio of intellectual property.
In this regard, the Company has made significant changes in the senior management team to include a new Chief Executive Officer, who joined the Company in 2022 and has years of experience successfully leading start-up and turn-around companies.
In this regard, the Company has made significant changes in the senior management team to include a new Chief Executive Officer, who joined the Company in September 2020 and has years of experience successfully leading start-up and turn-around companies.
The algorithms are developed in conjunction with industrial application experts, in this case resident Railcar Mechanical Engineers, to provide specific guidance in the analysis (“human in the loop”). Within minutes of the railcar passing through the RIP, a detailed report is sent to the customer where they are able to action identified issues.
The algorithms are developed in conjunction with industrial application experts, in this case resident Railcar Mechanical Engineers, to provide specific guidance in the analysis (“human in the loop”). Within seconds of the railcar passing through the RIP, a detailed report is sent to the customer where they are able to take action on identified issues.
Employees We have a current staff of 75 employees, of which 67 are full-time, the majority of which work in the Jacksonville area, none of which are subject to a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
Employees We have a current staff of 71 employees, of which 66 are full-time, the majority of which work in the Jacksonville area, none of which are subject to a collective bargaining agreement. We have not experienced any work stoppages and we consider our relationship with our employees to be good.
The Company continues to expand its detection capabilities through the development and integration of additional sensor technologies to include laser, infrared, thermal, sound and x-ray to process AI-based analytics of inspection points. As of early 2023, the Company has a high-reliability catalog of over 30 artificial intelligence algorithms which can be integrated into the RIP to enhance mechanical anomalies detections.
The Company continues to expand its detection capabilities through the development and integration of additional sensor technologies to include laser, infrared, thermal, sound and x-ray to process AI-based analytics of inspection points. Currently the Company has a high-reliability catalog of over 48 artificial intelligence algorithms which can be integrated into the RIP to enhance mechanical anomalies detections.
Even though supply chain issues are expected to continue through 2023, the Company’s primary customers have indicated readiness to order more equipment and services based upon the Company’s current performance and the new subscription offerings expands the universe of potential customers.
Even though supply chain issues are expected to continue in 2024, the Company’s primary customers have indicated readiness to order more equipment and services based upon the Company’s current performance and the new subscription offerings expands the universe of potential customers.
We continuously review potential changes in the regulatory environment and maintain contact with key personnel at certain agencies including the Federal Railroad Administration (FRA), the Transportation Safety Agency (TSA) as well as the DHS previously mentioned. We expect to develop similar relationships with governmental agencies in target market both in the US and internationally.
We continuously review potential changes in the regulatory environment and maintain contact with key personnel at certain agencies including the Federal Railroad Administration (FRA), the Transportation Security Administration (TSA) as well as the DHS previously mentioned. We expect to develop similar relationships with governmental agencies in target markets both in the US and internationally.
Potential competitors could move into this sector, and it is possible that some Class 1 railroads could develop their own solutions that limit our total addressable market. In late 2022, the Company announced it will pursue a subscription platform for the Railcar Inspection Portals (“RIPs”).
Potential competitors could move into this sector, and it is possible that some Class 1 railroads could develop their own solutions that limit our total addressable market. In late 2022, the Company announced it will pursue a subscription platform for the RIPs.
This transaction was completed on April 1, 2015, whereby duostech™ became a wholly owned subsidiary of ISA. After the merger was completed, ISA changed its corporate name to Duos Technologies Group, Inc. (together with its subsidiaries, “Duos,” “we,” “us” or the “Company”).
This transaction was completed on April 1, 2015, whereby duostech™ became a wholly owned subsidiary of ISA. After the merger was completed, ISA changed its corporate name to Duos Technologies Group, Inc.
The year 2022 ushered in a new phase in the Company’s development. Although we continue to see an extension of challenges faced in 2021, we also see positive changes and opportunities for our business that will be discussed in greater detail later in this report.
Although we continue to see an extension of challenges faced in 2022, we also see positive changes and opportunities for our business that will be discussed in greater detail herein.
In addition, a key account executive from one of duos’ competitors has joined the executive team during late 2022 as the Senior Vice President of Sales & Marketing to support the continued revenue growth of the business and brings with him over 20 years of sales experience focused in the rail market.
In addition, a key account executive from one of Duos’ competitors joined the team during late 2022 to support the continued revenue growth of the business bringing significant sales experience focused around the rail market.
The team also saw a change in CFO in late 2022 who brings significant experience in growth for asset-intensive businesses which aligns with the subscription format the Company will expand into.
Our new CTO has already led the team through instrumental changes to its approach to software and artificial intelligence development. The team also saw a change in CFO in late 2022 with the new CFO bringing significant experience in growth for asset-intensive businesses which aligns with the subscription format the Company will expand into.
In the last quarter of 2022, the Company elected not to renew a support contract for its Integrated Correctional Automation System (iCAS) for one customer. The Company is currently looking to sell the assets related to that business but due to the limited nature of this business, any impact is not expected to be material.
In the last quarter of 2022, the Company elected not to renew a support contract for its Integrated Correctional Automation System (iCAS) for one customer. The Company subsequently sold its iCAS assets to a buyer during the second quarter of 2023 for $165,000 via a convertible note. The year 2023 ushered in a new phase in the Company’s development.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeFor the year ended December 31, 2022, four customers accounted for 42%, 18%, 14% and 14% of revenues. For the year ended December 31, 2021, one customer accounted for 83% of revenues. In all cases, there are no minimum contract values stated.
Biggest changeFor the year ended December 31, 2023, three customers accounted for 48%, 30%, and 11% of revenues. For the year ended December 31, 2022, four customers accounted for 42%, 18%, 14% and 14% of revenues. In all cases, there are no minimum contract values stated.
If an active market for our common stock develops, there is a significant risk that our stock price may fluctuate in the future in response to any of the following factors, some of which are beyond our control: · Variations in our quarterly operating results; · Announcements that our revenue or income are below analysts’ expectations; · General economic downturns; · Sales of large blocks of our common stock; and · Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. 11 You may experience dilution of your ownership interest due to future issuance of our securities.
If an active market for our common stock develops, there is a significant risk that our stock price may fluctuate in the future in response to any of the following factors, some of which are beyond our control: · Variations in our quarterly operating results; · Announcements that our revenue or income are below analysts’ expectations; · General economic downturns; · Sales of large blocks of our common stock; and · Announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments. 11 You may experience dilution of your ownership interest due to future issuances of our securities.
We may be adversely affected by the effects of inflation and supply chain disruption Our business operates in an environment of long bid to contract award cycles. Our customer’s bid requirements are such that firm pricing is expected on much or all of our proposal and as such we must commit to certain commercial terms and conditions such as pricing.
We may be adversely affected by the effects of inflation and supply chain disruption Our business operates in an environment of long bid to contract award cycles. Our customer’s bid requirements are such that firm pricing is expected on much or all of our proposals and as such we must commit to certain commercial terms and conditions such as pricing.
Our operating results are likely to fluctuate from period to period. We anticipate that there may be fluctuations in our future operating results.
Our operating results are likely to fluctuate from period to period. We anticipate that there may be significant fluctuations in our future operating results.
Additionally, our largest customer accounted for approximately 42% of our total revenues for the year ended December 31, 2022. This concentration of credit risk makes us more vulnerable economically. The loss of any of these customers could materially reduce our revenues and net income, which could have a material adverse effect on our business.
Additionally, our largest customer accounted for approximately 48% of our total revenues for the year ended December 31, 2023. This concentration of credit risk makes us more vulnerable economically. The loss of any of these customers could materially reduce our revenues and net income, which could have a material adverse effect on our business.
We have a history of losses and our growth plans may lead to additional losses and negative operating cash flows in the future. Our accumulated deficit was approximately $52 million as of December 31, 2022.
We have a history of losses and our growth plans may lead to additional losses and negative operating cash flows in the future. Our accumulated deficit was approximately $64 million as of December 31, 2023.
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Each of the customers referenced has the following termination provisions: · For Customer 1, termination can be made, prior to delivery of products or services, in the case where either party breach any of its obligations under the agreement with the Company.
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As of December 31, 2023, two customers accounted for 83%, and 11% of our accounts receivable.
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The other party may terminate the agreement effective fifteen (15) Business Days following notice from the non-defaulting party, if the non-performance has not been cured within such period, and without prejudice to damages that could be claimed by the non-defaulting party.
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Either party may terminate the agreement if the other party becomes unable to pay its debts in the ordinary course of business; goes into liquidation (other than for the purpose of a genuine amalgamation or restructuring); has a receiver appointed over all or part of its assets; enters into a composition or voluntary arrangement with its creditors; or any similar event occurs in any jurisdiction, all to the extent permitted by law. · For Customer 2, prior to delivery of products or services, either party may terminate the agreement with the Company upon the other party’s material breach of a representation, warranty, term, covenant or undertaking in the agreement if, within thirty (30) days following the delivery of a written notice to the defaulting party setting forth in reasonable detail the basis of such default, the defaulting party has not rectified such default to the reasonable satisfaction of the non-defaulting party.
Removed
Failure to perform due to a force majeure condition shall not be considered a material default under the agreement. · For Customer 3, prior to delivery of products or services, Customer 3 may terminate the agreement with the Company upon the Company’s material breach of a representation, warranty, term, covenant or undertaking in the agreement if, within ten (10) days following the delivery of a written notice to the defaulting party setting forth in reasonable detail the basis of such default, the defaulting party has not rectified such default to the reasonable satisfaction of the non-defaulting party.
Removed
Failure to perform due to a force majeure condition shall not be considered a material default under the agreement.
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In the event of a termination for convenience event, the Company has the ability to seek any earned, unbilled revenues of the contract in the form of termination costs of the agreement. · For Customer 4, may terminate the agreement with the Company upon the Company’s material breach of a representation, warranty, term, covenant or undertaking in the agreement if, within ten (30) days following the delivery of a written notice to the defaulting party setting forth in reasonable detail the basis of such default, the defaulting party has not rectified such default to the reasonable satisfaction of the non-defaulting party.
Removed
Failure to perform due to a force majeure condition shall not be considered a material default under the agreement.
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Additionally, Customer 4 may terminate the agreement for convenience at which point the Company shall cease all work and all executory obligations of the parties shall be discharged and Customer 4 shall remit any amounts owed to the Company for obligations performed. As of December 31, 2022, four customers accounted for 34%, 31%, 19% and 10% of our accounts receivable.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company has applied the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”) in the fourth quarter of 2021. The Company now has a total of office and warehouse space of 40,000 square feet. Rental expense for the office lease during 2022 and 2021 was $782,591 and $414,085, respectively.
Biggest changeThe Company has applied the FASB issued ASU No. 2016-02 Leases (Topic 842) (“ASU 2016-02”) in the fourth quarter of 2021 The Company now has a total of office and warehouse space of 40,000 square feet. Rental expense for the office lease during 2023 and 2022 was $781,638 and $782,591, respectively. 13

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. From time to time, we may be involved in claims that arise during the ordinary course of business. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations.
Biggest changeItem 3. 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.
Removed
We do not currently have any pending litigation to which we are a party or to which our property is subject that we believe to be material. Regardless of the outcome, litigation can be costly and time consuming, and it can divert management’s attention from important business matters and initiatives, negatively impacting our overall operations. Item 4. Mine Safety Disclosures.
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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 any of our Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
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Item 4. Mine Safety Disclosures. Not Applicable. 14 PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 15 PART II Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 16 Item 6. [Reserved] 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 19 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 14 PART II Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 Item 6. [Reserved] 18 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 19
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Financial Statements and Supplementary Data 28 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 28 Item 9A. Controls and Procedures 28

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

18 edited+30 added−0 removed17 unchanged
Biggest changeAs of December 31, 2022 there are 1,299 of Series D Convertible Preferred Stock issued and outstanding. 15 Approximate Number of Equity Security Holders As of March 28, 2023, there were approximately 1,709 holders of record of our common stock, and the last reported sale price of our common stock on the Nasdaq Capital Market on March 24, 2023 was $2.92 per share.
Biggest changeApproximate Number of Equity Security Holders As of March 28, 2024, there were approximately 3,070 holders of record of our common stock, and the last reported sale price of our common stock on the Nasdaq Capital Market on March 28, 2024 was $4.34 per share.
We received the shareholder approval at the meeting held on July 15, 2021. 14 In connection with the Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Purchasers.
We received the shareholder approval at the meeting held on July 15, 2021. 15 In connection with the Purchase Agreement, the Company also entered into a Registration Rights Agreement with the Purchasers.
Dividends To date, we have not paid any dividends on our common stock and do not anticipate paying any such dividends in the foreseeable future.
Dividend To date, we have not paid any dividends on our common stock and do not anticipate paying any such dividends in the foreseeable future.
Each share of Series C Convertible Preferred Stock is convertible, at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the Beneficial Ownership Limitation) determined by dividing the stated value of such share ($1,000) by the conversion price, which is $5.50 (subject to adjustment).
Each share of Series C Convertible Preferred Stock was convertible, at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the Beneficial Ownership Limitation) determined by dividing the stated value of such share ($1,000) by the conversion price, which was $5.50 (subject to adjustment).
On September 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain existing investors in the Company (the “Purchasers”). Pursuant to the Purchase Agreement, the Purchasers purchased 999 shares of the newly authorized Series D Convertible Preferred Stock (the “Series D Convertible Preferred Stock”), and the Company received proceeds of $999,000.
On September 30, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain existing investors in the Company (the “Purchasers”). Pursuant to the Purchase Agreement, the Purchasers purchased 999 shares of the newly authorized Series D Convertible Preferred Stock, and the Company received proceeds of $999,000.
Notwithstanding the foregoing, we shall not effect any conversion of Series B Convertible Preferred Stock, with certain exceptions, to the extent that, after giving effect to an attempted conversion, the holder of shares of Series B Convertible Preferred Stock (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of our common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our common stock then outstanding after giving effect to such exercise.
Notwithstanding the foregoing, we could not effect any conversion of Series B Convertible Preferred Stock, with certain exceptions, to the extent that, after giving effect to an attempted conversion, the holder of shares of Series B Convertible Preferred Stock (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of our common stock in excess of 4.99% (or, at the election of the purchaser, 9.99%) of the shares of our common stock then outstanding after giving effect to such conversion.
Pursuant to the Registration Rights Agreement, the Company filed with the SEC a registration statement covering the resale by the Purchasers of the shares of common stock into which the shares of Series C Convertible Preferred Stock are convertible. The Company caused the registration statement to be declared effective on June 3, 2021.
Pursuant to the Registration Rights Agreement, the Company filed with the SEC a registration statement covering the resale by the Purchasers of the shares of common stock into which the shares of Series C Convertible Preferred Stock were convertible. The Company caused the registration statement to be declared effective on June 3, 2021.
Each share of Series B Convertible Preferred Stock is convertible at any time at the holder’s option into a number of shares of common stock equal to $1,000 divided by the conversion price of $7.00 per share.
Each share of Series B Convertible Preferred Stock was convertible at any time at the holder’s option into a number of shares of common stock equal to $1,000 divided by the conversion price of $7.00 per share.
Series A Redeemable Convertible Preferred Stock Our board of directors has designated 500,000 of the 10,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock. As of December 31, 2022 and 2021, we have no shares of Series A Convertible Preferred Stock issued and outstanding, respectively.
Series A Redeemable Convertible Preferred Stock Our board of directors has designated 500,000 of the 10,000,000 authorized shares of preferred stock as Series A Convertible Preferred Stock. As of December 31, 2023 and 2022, we have no shares of Series A Convertible Preferred Stock issued and outstanding, respectively.
Unregistered Sales of Equity Securities There were no unregistered sales of the Company’s equity securities during 2022 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
Unregistered Sales of Equity Securities There were no unregistered sales of the Company’s equity securities during 2023 that were not previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.
As of December 31, 2022 and 2021, there are 0 and 2,500 shares of Series C Convertible Preferred Stock issued and outstanding, respectively. Under the Purchase Agreement, the Company was required to hold a meeting of shareholders at the earliest practical date, and such meeting occurred on July 15, 2021.
As of December 31, 2023 and 2022, there are 0 and 0 shares of Series C Convertible Preferred Stock issued and outstanding, respectively. Under the Purchase Agreement, the Company was required to hold a meeting of shareholders at the earliest practical date, and such meeting occurred on July 15, 2021.
Each share of Series C Convertible Preferred Stock has 172 votes (subject to adjustment); provided that in no event may a holder of Series C Convertible Preferred Stock be entitled to vote a number of shares in excess of such holder’s Beneficial Ownership Limitation (as defined in the Certificate of Designation and as described below).
Each share of Series C Convertible Preferred Stock had 172 votes (subject to adjustment); provided that in no event may a holder of Series C Convertible Preferred Stock be entitled to vote a number of shares in excess of such holder’s Beneficial Ownership Limitation (as defined in the Certificate of Designation).
Holders of Series B Convertible Preferred Stock will vote on an as converted basis on all matters on which the holders of common stock are entitled to vote, subject to beneficial ownership limitations. As of December 31, 2022 and 2021, there are 0 and 851 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.
Holders of Series B Convertible Preferred Stock voted on an as converted basis on all matters on which the holders of common stock are entitled to vote, subject to beneficial ownership limitations. As of December 31, 2023 and 2022, there are 0 and 0 shares of Series B Convertible Preferred Stock issued and outstanding, respectively.
Each share of Series D Convertible Preferred Stock is convertible, subject to shareholder approval (which has not yet been granted) for an increase in authorized common stock; at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the Beneficial Ownership Limitation) determined by dividing the stated value of such share ($1,000) by the conversion price, which is $3.00 (subject to adjustment).
Each share of Series E Convertible Preferred Stock is convertible, subject to shareholder approval (which has not yet been granted); at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the Beneficial Ownership Limitation) determined by dividing the stated value of such share ($1,000) by the conversion price, which is $3.00 (subject to adjustment).
Additionally, the Series D Convertible Preferred Stock does not have the right to dividends and in the event of an involuntary liquidation, the Series D shares shall be treated as a pro rata equivalent of common stock outstanding at the date of the liquidation event and have no liquidation preference.
Additionally, the Series D Convertible Preferred Stock does not have the right to dividends (other than any dividends payable on the common stock on an as converted basis) and in the event of an involuntary liquidation, the Series D shares shall be treated as a pro rata equivalent of common stock outstanding at the date of the liquidation event and have no liquidation preference.
The Company shall, subject to shareholder approval, reserve and keep available out of its authorized and unissued Common Stock, solely for the issuance upon the conversion of the Series D Convertible Preferred Stock, such a number of shares of Common Stock as shall from time to time be issuable upon the conversion of all of the shares of the Series D Convertible Preferred Stock then outstanding.
The Company reserves and keeps available out of its authorized and unissued Common Stock, solely for the issuance upon the conversion of the Series D Convertible Preferred Stock, such a number of shares of Common Stock as shall from time to time be issuable upon the conversion of all of the shares of the Series D Convertible Preferred Stock then outstanding.
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is quoted on the Nasdaq Capital Market (“Nasdaq”) under the trading symbol “DUOT”. Our common stock was initially quoted on the OTCQB in 2008 under the symbol “IOSA”.
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is quoted on the Nasdaq Capital Markets (“Nasdaq”) under the trading symbol “DUOT”.
The Registration Rights Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties.
The Series E Preferred Stock was sold at $1,000 a share. The November Purchase Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties.
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Each share of Series D Convertible Preferred Stock is convertible, at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the Beneficial Ownership Limitation) determined by dividing the stated value of such share ($1,000) by the conversion price, which is $3.00 (subject to adjustment).
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The Registration Rights Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties. On May 16, 2023 Series D Convertible Preferred received approval at the shareholders meeting for conversion to common stock. On March 22, 2024, the Company entered into Securities Purchase Agreements with certain accredited investors.
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Pursuant to one agreement (the “Series D Purchase Agreement”), the Company issued an aggregate of 500 shares of Series D Convertible Preferred Stock and the Company received proceeds of $500,000.
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On March 28, 2024, the Company entered into one additional agreement with an accredited investor and issued an additional 120 shares of Series D Convertible Preferred and received proceeds of $120,000. The Series D Preferred Stock was sold at $1,000 a share. The Series D Purchase Agreement contains customary representations, warranties, agreements, and indemnification rights and obligations of the parties.
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As of December 31, 2023 and 2022 there are 1,299 and 1,299 shares of Series D Convertible Preferred Stock issued and outstanding, respectively. 16 Series E Convertible Preferred Stock The Company’s Board of Directors has designated 30,000 shares as the Series E Convertible Preferred Stock (the “Series E Convertible Preferred Stock”).
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Each share of the Series E Convertible Preferred Stock has a stated value of $1,000.
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The holders of the Series E Convertible Preferred Stock, the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock shall vote as one class on all matters submitted to a vote of shareholders of the Company.
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Each share of Series E Preferred Stock has 333 votes (subject to adjustment); provided that in no event may a holder of Series E Preferred Stock be entitled to vote a number of shares in excess of such holder’s Beneficial Ownership Limitation.
Added
The Company shall not effect any conversion of the Series E Convertible Preferred Stock, and the holder shall not have the right to convert any portion of the Series E Convertible Preferred Stock, to the extent that after giving effect to the conversion sought by the holder such holder (together with such holder’s Attribution Parties (as defined in the Certificate of Designation)) would beneficially own more than 4.99% (or upon election by a holder, 19.99%) of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion (the “Beneficial Ownership Limitation”).
Added
All holders of the Series E Convertible Preferred Stock elected the 19.99% Beneficial Ownership Limitation The Company on March 27, 2023 entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an existing investor in the Company (the “Purchaser”).
Added
Pursuant to the Purchase Agreement, the Purchaser purchased 4,000 shares of a newly authorized Series E Convertible Preferred Stock at a price of $1,000 per share, and the Company received proceeds of $4,000,000. The Purchase Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties.
Added
The investor’s Purchase Agreement also provided that the Company would not, with certain exceptions, sell or issue common stock or Common Stock Equivalents (as defined in the Purchase Agreement) on or prior to December 31, 2023 that entitled any person to acquire shares of common stock at an effective price per share less than the then conversion price of the Series E Convertible Preferred Stock without the consent of the Purchaser.
Added
On November 9, 2023, the Company entered into a Securities Purchase Agreement (the "November Purchase Agreement") with certain existing investors in the Company (the "Purchasers"). Pursuant to the November Purchase Agreement, the Purchasers purchased an aggregate of 2,500 shares of Series E Preferred Stock and the Company received aggregate proceeds of $2,500,000.
Added
The terms of the Series E Preferred Stock were previously disclosed in the Company's Current Report on Form 8-K filed with the SEC on March 28, 2023 and the Certificate of Designation of Preferences, Rights and Limitations of the Series E Preferred Stock was filed as an exhibit to the Form 8-K.
Added
The November Purchase Agreement also provides that the Company will not, with certain exceptions, sell or issue common stock or Common Stock Equivalents (as defined in the November Purchase Agreement) on or prior to June 30, 2024 that entitles any person to acquire shares of common stock at an effective price per share less than the then conversion price of the Series E Preferred Stock without the consent of the Purchasers.
Added
The conversion price of the Series E Preferred Stock currently is $3.00 per share (subject to adjustment). The Purchasers under the November Purchase Agreement also were the holders of the Company's Series F Preferred Stock issued on August 2, 2023.
Added
The purchase agreement relating to the shares of Series F Preferred Stock required the consent of the holders in the event the Company were to issue common stock or rights to acquire common stock prior to December 31, 2023 at an effective price per share less than the then conversion price of the Series F Preferred Stock, which was $6.20 per share.
Added
As a result, on November 10, 2023 the Company and the holders of the Series F Preferred Stock entered into Exchange Agreements pursuant to which the holders of Series F Preferred Stock exchanged their 5,000 shares of Series F Preferred Stock for an equal number of shares of Series E Preferred Stock.
Added
As a result of the November Purchase Agreement and the Exchange Agreements, the Company issued a total of 7,500 shares of Series E Preferred Stock and the 5,000 shares of Series F Preferred Stock were cancelled. On March 22, 2024, the Company entered into Securities Purchase Agreements with certain accredited investors.
Added
Pursuant to one agreement (the “Series E Purchase Agreement”), the Company issued an aggregate of 2,125 shares of Series E Convertible Preferred Stock and the Company received proceeds of $2,125,000. The Series E Preferred Stock was sold at $1,000 a share. The Series E Purchase Agreement contains customary representations, warranties, agreements, and indemnification rights and obligations of the parties.
Added
As of December 31, 2023 and December 31, 2022, respectively, there were 11,500 and 0 shares of Series E Convertible Preferred Stock issued and outstanding. Series F Convertible Preferred Stock On August 1, 2023, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an existing, accredited investor in the Company (the “Purchaser”).
Added
Pursuant to the Purchase Agreement on August 2, 2023, the Purchaser purchased 5,000 shares of a newly authorized Series F Convertible Preferred Stock (the “Series F Convertible Preferred Stock”), and the Company received proceeds of $5,000,000. The Purchase Agreement contains customary representations, warranties, agreements and indemnification rights and obligations of the parties.
Added
The Company's Board of Directors designated 5,000 shares as the Series F Preferred Stock.
Added
Each share of Series F Preferred Stock was convertible, at any time and from time to time, at the option of the holder, into that number of shares of common stock (subject to the beneficial ownership limitation described below) determined by dividing the stated value of such share ($1,000) by the conversion price, which was $6.20 (subject to adjustment).
Added
The Company, however, shall not effect any conversion of the Series F Preferred Stock, and the holder shall not have the right to convert any portion of the Series F Preferred Stock, to the extent that after giving effect to the conversion sought by the holder such holder (together with such holder’s Attribution Parties (as defined in the Certificate of Designation)) would beneficially own more than 4.99% (or upon election by a holder, 19.99%) of the number of shares of common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion.
Added
The purchasers of the Series F Preferred Stock elected that their ownership limitation would be 19.99%. 17 The holders of the Series F Preferred Stock, the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company.
Added
Each share of Series F Preferred Stock has 161 votes (subject to adjustment); provided that in no event may a holder of Series F Preferred Stock be entitled to vote a number of shares in excess of such holder’s ownership limitation.
Added
The Company also agreed that it would not, with certain exceptions, sell or issue common stock or Common Stock Equivalents (as defined in the Purchase Agreement relating to the Series F Preferred Stock) on or prior to December 31, 2023 that entitled any person to acquire shares of common stock at an effective price per share less than the then conversion price of the Series F Preferred Stock without the consent of the holders.
Added
As a result of that agreement, upon the issuance of 2,500 shares of Series E Preferred Stock (which have a conversion price of $3.00 per share) on November 10, 2023, the holders exchanged their 5,000 shares of Series F Preferred Stock for 5,000 shares of Series E Preferred Stock.
Added
All of the shares of Series F Preferred Stock thereupon were cancelled. As of December 31, 2023 and December 31, 2022, respectively, there were 0 and 0 shares of Series F Convertible Preferred Stock issued and outstanding.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

45 edited+27 added−55 removed31 unchanged
Biggest changeAdditionally, the Company saw improved revenue growth related to higher margin services and artificial intelligence during the year which contributed to revenue growth outpacing the change in cost of sales. These internal costs are being recognized against project and support revenues with a similar reduction in costs previously recognized for research and development, engineering development and internal support.
Biggest changeThese internal costs are being recognized against project and support revenues with a similar reduction in costs previously recognized for research and development, engineering and internal support. The project costs reflect subsequent allocations of fixed costs related to the staff and departmental costs associated with procurement, manufacturing and installation of RIP installations.
Duos initial offering, the Railcar Inspection Portal (RIP), provides both freight and transit railroad customers and select government agencies the ability to conduct fully automated railcar inspections of trains while they are moving at full speed. Specifically, based upon the current and anticipated business growth, the Company is investing in resources to focus on execution within its target markets.
Duos’ initial offering, the Railcar Inspection Portal (RIP), provides both freight and transit railroad customers and select government agencies the ability to conduct fully automated railcar inspections of trains while they are moving at full speed. Specifically, based upon the current and anticipated business growth, the Company is investing in resources to focus on execution within its target markets.
As a result, we expect to generate sufficient revenue and to attain profitable operations with minimal cash use in the next 12 months.
As a result, we expect to generate sufficient revenue and to attain profitable operations with minimal cash use in the next 12-18 months.
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 obligation is satisfied.
Revenue is recognized by evaluating the Company 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 obligation is satisfied.
In addition, management has been taking and continues to take actions including, but not limited to, elimination of certain costs that do not contribute to short term revenue, and re-aligning both management and staffing with a focus on improving certain skill sets necessary to build growth and profitability and focusing product strategy on opportunities that are likely to bear results in the relatively short term.
In addition, management has taken and continues to take actions including, but not limited to, elimination of certain costs that do not contribute to short term revenue, and re-aligning both management and staffing with a focus on improving certain skill sets necessary to build growth and profitability and focusing product strategy on opportunities that are likely to bear results in the relatively short term.
Ultimately the continuation of the Company as a going concern is dependent upon the ability of the Company to continue executing the plan described above which was put in place in late 2022 and will continue in 2023 and beyond.
Ultimately the continuation of the Company as a going concern is dependent upon the ability of the Company to continue executing the plan described above which was put in place in late 2022 and will continue in 2024 and beyond.
However, recent common stock offerings and private placements as well as the availability to raise capital via its shelf registration indicate there is no substantial doubt for the Company to continue as a going concern for a period of twelve months. We continue executing the plan to grow our business and achieve profitability.
However, recent private placements as well as the availability to raise capital via its shelf registration indicate there is no substantial doubt for the Company to continue as a going concern for a period of twelve months. We continue executing the plan to grow our business and achieve profitability.
The increase in net cash used in operations for the year ended December 31, 2022 was the result of higher expenditures related to current projects as previously discussed as well as expenditures related to projects which the Company anticipates will be completed in 2023.
The increase in net cash used in operations for the year ended December 31, 2023 was the result of expenditures related to current projects as previously discussed as well as expenditures related to projects which the Company anticipates will be completed in 2024.
This was principally due to a lack of working capital prior to an underwritten offerings and a private placement which were completed during the first quarter of 2022 and during third and fourth quarters of 2022 as well as the first quarter of 2023.
This was principally due to a lack of working capital prior to an underwritten offerings and private placements which were completed during the first, third and fourth quarters of 2022, the first, third and fourth quarters of 2023, as well as the first quarter of 2024.
The basic principles in ASC 606 include the following: a contract with a customer creates distinct 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.
The Company follows the principles in ASC 606 which include the following: a contract with a customer creates distinct 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.
The Company believes that, with the combination of Series E Preferred Stock offering coupled with an S-3 shelf registration availability starting in the second quarter of 2023, it will have sufficient working capital to meet its obligations over the following twelve months.
The Company believes that, with the combination of commercial sales success, Series E Preferred Stock offering coupled with an S-3 shelf registration availability starting in the second quarter of 2024, it will have sufficient working capital to meet its obligations over the following twelve months.
The Company has continued to face inflation and supply chain pressures during 2022 and, as normal course of business, has worked to balance these impacts through management of customer contracts and cost control efforts. Interest Expense Interest expense for the years ended December 31, 2022 and 2021 was $9,191 and $20,268, respectively.
The Company has continued to face inflation and supply chain pressures during 2023 and, as normal course of business, has worked to balance these impacts through management of customer contracts and cost control efforts. Interest Expense Interest expense for the years ended December 31, 2023 and 2022 was $7,159 and $9,191, respectively.
In the last twelve months the Company has seen significant growth in its contracted backlog as well as positive signs from new commercial engagements that indicate improvements in future commercial opportunities.
In the last twelve months the Company has seen growth in its contracted backlog as well as significant, positive signs from new commercial projects that indicate improvements in future revenues.
Management believes that, at this time, the conditions in our market space with ongoing contract delays, the consequent need to procure certain materials in advance of a binding contract and the additional time needed to execute on new contracts previously reported have put a strain on our cash reserves.
Management believes that, at this time, the conditions in our market space with ongoing contract delays and the additional time needed to execute on new contracts previously reported have put a strain on our cash reserves.
In concert with this, there is a continued focus on construction costs and savings through efficiency, but the Company has elected to expand its key employees in anticipation of expected sales growth in technology systems and services in 2023 and beyond.
As such, in 2023, this fixed component contributed to a negative margin on the Technology systems revenues. In concert with this, there is a continued focus on construction costs and savings through efficiency, but the Company has elected to retain its key employees in anticipation of expected sales growth in technology systems and services in 2024 and beyond.
Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40. 22 As reflected in the accompanying consolidated financial statements, the Company had a net loss of $6,864,783 for the year ended December 31, 2022. During the same period, cash used in operating activities was $7,873,307.
Management has assessed the Company’s ability to continue as a going concern in accordance with the requirement of ASC 205-40. 24 As reflected in the accompanying consolidated financial statements, the Company had a net loss of $11,241,718 for the year ended December 31, 2023. During the same period, cash used in operating activities was $8,746,564.
The Company undertook a major review of operations during 2021 and made significant changes in staffing including additional engineering staff and revamping its software development and Artificial Intelligence staffing. These efforts have begun to yield benefits in 2022 as reflected in the improved systems revenues.
The Company undertook a major review of operations during 2021 and made significant changes in staffing including additional engineering staff and revamping its software development and Artificial Intelligence staffing. These efforts have yielded benefits throughout 2022, 2023 and beyond.
The year-over-year revenue from consulting and services increase outpaced the increase in costs which is a positive trend. The Company put into service additional artificial intelligence algorithms and maintenance and support services which are high margin and represent only marginal increases in the requisite costs to deliver these services.
The Company continues to put into service additional artificial intelligence algorithms and maintenance and support services which are high margin and represent only marginal increases in the requisite costs to deliver these services.
The working capital surplus and accumulated deficit as of December 31, 2022, were $2,339,052 and $52,361,834, respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern.
The working capital surplus and accumulated deficit as of December 31, 2023, were $3,009,842 and $63,603,552, respectively. In previous financial reports, the Company had raised substantial doubt about continuing as a going concern.
Cost of Revenues For the Years Ended December 31, 2022 2021 % Change Cost of revenues: Technology systems $ 8,376,649 $ 4,728,197 77 % Services and consulting 1,887,614 1,492,176 27 % Total cost of revenues $ 10,264,263 $ 6,220,373 65 % 19 Cost of revenues largely comprises equipment, labor and overhead necessary to support the implementation of new systems and support and maintenance of existing systems.
Cost of Revenues For the Years Ended December 31, 2023 2022 % Change Cost of revenues: Technology systems $ 4,352,247 $ 8,376,649 -48 % Services and consulting 1,810,070 1,887,614 -4 % Total cost of revenues $ 6,162,317 $ 10,264,263 -40 % 21 Cost of revenues largely comprises equipment, certain fixed labor and overhead necessary to support the implementation of new systems and support and maintenance of existing systems.
During 2022, we funded our operations through the sale of our equity (or equity linked) securities, and through revenues generated and cash received from ongoing project execution, services and associated maintenance revenues. As of March 28, 2023, we have cash on hand of approximately $4,500,000.
During 2023, we funded our operations through the sale of our equity (or equity linked) securities, and through revenues generated and cash received from ongoing project execution, services and associated maintenance revenues. As of March 27, 2024, we have cash on hand of approximately $3,329,753 after an equity capital raise in March 2024 which provided net proceeds of $2,745,000.
Liquidity and Capital Resources As of December 31, 2022, the Company has a cash balance of $1,121,092. 21 Cash Flows The following table sets forth the major components of our statements of cash flows data for the periods presented: For the Years Ended December 31, 2022 2021 Net cash used in operating activities $ (7,873,307 ) $ (6,579,378 ) Net cash used in investing activities (644,888 ) (552,940 ) Net cash provided in financing activities 8,745,567 4,056,938 Net increase (decrease) in cash $ 227,372 $ (3,075,380 ) Net cash used in operating activities for the years ended December 31, 2022 and 2021 was $7,873,307 and $6,579,378, respectively.
Liquidity and Capital Resources As of December 31, 2023, the Company has a cash balance of $2,441,842 and an Accounts Receivable balance of $1,462,463. 23 Cash Flows The following table sets forth the major components of our statements of cash flows data for the periods presented: For the Years Ended December 31, 2023 2022 Net cash used in operating activities $ (8,746,564 ) $ (7,873,307 ) Net cash used in investing activities (1,093,909 ) (644,888 ) Net cash provided in financing activities 11,161,223 8,745,567 Net increase (decrease) in cash $ 1,320,750 $ 227,372 Net cash used in operating activities for the years ended December 31, 2023 and 2022 was $8,746,564 and $7,873,307, respectively.
Additionally, during the second quarter of 2023, the Company will again have access to its S-3 “shelf registration” statement allowing the Company to sell additional common shares.
As part of its strategy, the Company will endeavor to utilize the Preferred Series E and the remainder of the Series D as additional funding mechanisms. Additionally, during the second quarter of 2024, the Company will again have access to its S-3 “shelf registration” statement allowing the Company to sell additional common shares.
There are many risks that affect our business and results of operations, some of which are beyond our control and unexpected macro events can have a severe impact on the business. Results of Operations The following discussion should be read in conjunction with the consolidated financial statements included in this report.
There are many risks that affect our business and results of operations, some of which are beyond our control and unexpected macro events can have a severe impact on the business. Please see the risk factors identified in “Item 1A – Risk Factors” elsewhere in this Annual Report.
For the year ended December 31, 2022 compared to December 31, 2021 The following table sets forth a summary of our Consolidated Statements of Operations that is used in the following discussions of our results of operations: For the Years Ended December 31, 2022 2021 Revenues $ 15,012,366 $ 8,259,917 Cost of revenue 10,264,263 6,220,373 Gross margin 4,748,103 2,039,544 Operating expenses 11,613,252 9,496,495 Loss from operations (6,865,149 ) (7,456,951 ) Other income 366 1,448,050 Net loss $ (6,864,783 ) $ (6,008,901 ) 18 Revenues For the Years Ended December 31, 2022 2021 % Change Revenues: Technology systems $ 11,190,292 $ 5,871,666 91 % Services and consulting 3,822,074 2,388,251 60 % Total revenues $ 15,012,366 $ 8,259,917 82 % For the full year 2022, there was an 82% overall increase in revenues compared to 2021.
For the year ended December 31, 2023 compared to December 31, 2022 The following table sets forth a summary of our Consolidated Statements of Operations that is used in the following discussions of our results of operations: For the Years Ended December 31, 2023 2022 Revenues $ 7,471,198 $ 15,012,366 Cost of revenues 6,162,317 10,264,263 Gross margin 1,308,881 4,748,103 Operating expenses 12,755,447 11,613,252 Loss from operations (11,446,566 ) (6,865,149 ) Other income 204,848 366 Net loss $ (11,241,718 ) $ (6,864,783 ) 20 Revenues For the Years Ended December 31, 2023 2022 % Change Revenues: Technology systems $ 3,618,022 $ 11,190,292 -68 % Services and consulting 3,853,176 3,822,074 1 % Total revenues $ 7,471,198 $ 15,012,366 -50 % For the full year 2023, there was a 50% decrease in overall revenues compared to 2022.
Cash flows provided by financing activities during 2022 were primarily attributable to gross proceeds from the issuance of common and preferred stock to shareholders in the amount of $10,100,004, offset by $942,946 in issuance costs. 2022 marked an increase from 2021 financing activities $4,056,938 which was primarily underpinned from the gross proceeds of a private placement of $4,500,000.
Cash flows provided by financing activities during 2023 were primarily attributable to gross proceeds from the issuance of preferred stock to shareholders in the amount of $11,500,000, offset by $25,797 in issuance costs. 2023 marked an increase from 2022 financing activities of $8,745,567.
The Company is focusing on increasing its business from services and the increase is the result of new contracts for existing and new systems which the Company anticipates will continue growing throughout 2023 and beyond. As previously discussed, management cautions that because of the delays in anticipated start dates, certain installations may produce revenues towards the end of 2023.
The Company is focusing on increasing its business from services and the increase is the result of new contracts for existing and new systems which the Company anticipates will continue growing throughout 2024 and beyond.
Gross Margin For the Years Ended December 31, 2022 2021 % Change Revenues $ 15,012,366 $ 8,259,917 82 % Cost of revenues 10,264,263 6,220,373 65 % Gross margin $ 4,748,103 $ 2,039,544 133 % Gross margin showed a significant improvement for the year ended December 31, 2022 as compared to the same period in 2021.
Gross Margin For the Years Ended December 31, 2023 2022 % Change Revenues $ 7,471,198 $ 15,012,366 -50 % Cost of revenues 6,162,317 10,264,263 -40 % Gross margin $ 1,308,881 $ 4,748,103 -72 % Gross margin showed a decrease for the year ended December 31, 2023 as compared to the same period in 2022.
Net cash used in investing activities for the years ended December 31, 2022 and 2021 was $644,888 and $552,940, respectively. The Company continues to invest in computing, lab equipment and software and artificial development as reflected in the increase in 2022.
The Company continued to invest in computing, lab equipment, internal use software and artificial intelligence detections development as reflected in the year-over-year increase in 2023. Net cash provided in financing activities for the years ended December 31, 2023 and 2022 was $11,161,223 and $8,745,567, respectively.
The Company began to recognize revenue and profit on those activities in accord with its revenue recognition policy. The recognition of the revenue and subsequent profit from these major projects, as well as underlying services and maintenance revenues from existing projects, resulted in a 32% gross margin.
The recognition of the revenue and subsequent profit from these projects, as well as underlying services and maintenance revenues from existing and recently completed projects, coupled with the previously mentioned fixed departmental costs resulted in a gross margin of approximately 18%.
Although the lingering effects of the global pandemic related to the coronavirus (Covid-19) continue to affect our operations, particularly in our supply chain, we now believe that this is expected to be an ongoing issue and our working capital assumptions reflect this new reality.
Although the lingering effects of the global pandemic related to the coronavirus (Covid-19) previously affected our operations, particularly in our supply chain, we now believe that the supply chain lags have largely been abated.
As previously noted, the Company raised $4,500,000 from existing shareholders through the issuance of Series C Convertible Preferred Stock during 2021. Additionally, the Company was successful during 2022 in raising gross proceeds of over $10,100,000 from the sale of both common shares and Series D Preferred Stock.
As previously noted, the Company was successful during 2023 in raising gross proceeds of over $11,500,000 from the sale of Series E and F Preferred Stock. Additionally, late in the first quarter of 2024, the Company raised gross proceeds of $2,745,000 from the issuance of a combination of Series D and E Preferred Stock (See Note 17).
While the margins are not significantly different year-over-year, the Company’s 82% increase in revenue from additional projects and services drove an overall higher gross margin-dollar amount. 20 Operating Expenses For the Years Ended December 31, 2022 2021 % Change Operating expenses: Sales and marketing $ 1,337,186 $ 1,233,851 8 % Research and development 1,651,064 2,515,630 -34 % General and Administration 8,625,002 5,747,014 50 % Total operating expense $ 11,613,252 $ 9,496,495 22 % Overall operating expenses were higher by 22% in 2022 as compared to the full-year 2021.
The recognition of the revenue and subsequent profit from these major projects, as well as underlying services and maintenance revenues from existing projects, resulted in a 32% gross margin in 2022. 22 Operating Expenses For the Years Ended December 31, 2023 2022 % Change Operating expenses: Sales and marketing $ 1,493,309 $ 1,337,186 12 % Research and development 1,812,951 1,651,064 10 % General and Administration 9,449,187 8,625,002 10 % Total operating expense $ 12,755,447 $ 11,613,252 10 % Overall operating expenses were higher by 10% in 2023 as compared to the full-year 2022.
These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 23 Revenue Recognition The Company follows Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), that affects the timing of when certain types of revenues will be recognized.
These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. 25 Critical Accounting Estimates Revenue Recognition The Company recognizes revenue over time using a cost-based input methodology in which significant judgment is required to estimate costs to complete projects.
There was a marginal 8% increase in sales and marketing related to increased investment into the overall capability of the commercial team. Specifically, 2022 saw the Company bring in additional talent with direct experience from the technology and rail spaces. Research and development costs declined 34% during the year.
There was a 12% increase in sales and marketing related to increased investment into the capability of the commercial team, including the addition of professionals with extensive experience and leadership in the rail industry. Research and development costs saw a 10% uptick during the year, driven by the increased personnel costs related to the departments allocated to R&D.
We continue to evaluate key requirements within those markets, our go-to-market strategy and add development resources to allow us to compete for additional projects to drive additional revenue growth. 17 Prospects and Outlook The Company made significant changes to its senior management team coming out of the COVID-19 pandemic to improve operational effectiveness.
We continue to evaluate key requirements within those markets, our go-to-market strategy and add development resources to allow us to compete for additional projects to drive additional revenue growth. 19 Prospects and Outlook The Company’s focus is to improve operational and technical execution which, we believe, will in turn enable the commercial side of the business to expand RIP and ALIS delivery into existing customers and to expand and diversify our current customer base.
Net loss per common share was $1.11 and $1.63 for the years ended December 31, 2022 and 2021, respectively.
The increase in net loss is primarily attributable to the decrease in project activity in 2023 compared to 2022, offset slightly with an increase in the Company’s recurring services and consulting. Net loss per common share was $1.56 and $1.11 for the years ended December 31, 2023 and 2022, respectively.
The Company still faces some pressure on existing staff compensation as a result of inflation during 2022 but remains focused to manage and stabilize administrative costs without interruption to customer service. Loss From Operations The losses from operations for the years ended, December 31, 2022 and 2021 were $6,865,149 and $7,456,951, respectively.
These efforts reflect a focus on employee retention and to drive higher performance and attract and retain better quality resources in a tight labor market. The Company still faces some pressure on existing staff compensation as a result of inflation in prior years but remains focused to manage and stabilize administrative costs without interruption to customer service.
The reduction in interest expense was primarily due to the financing charges related to insurance policies in 2021. Other Income Other income for the years ended December 31, 2022 and 2021 was $9,557 and $1,468,318, respectively. The decrease is mainly due to the PPP loan forgiveness recorded in the first quarter of 2021.
The reduction in interest expense was primarily attributed to the extinguishment of equipment financing payables in 2023 that were present during 2022. Other Income Other income for the years ended December 31, 2023 and 2022 was $212,007 and $9,557, respectively.
Additionally, the new CEO has directed that the Company make engineering and software upgrades to the RIP to meet anticipated Federal Railroad Association (FRA), Transport Canada and Association of American Railroad (AAR) standards.
Historically, the Company has been focused on large, one-time sales with the subscription opportunities representing an expanded addressable market with emphasis on recurring revenues. Additionally, the Company is making engineering and software upgrades to the RIP to meet anticipated Federal Railroad Association (FRA) and Association of American Railroad (AAR) standards.
As noted above, the improvement in margin was a direct result of increased business activity the Company recognized in the latter half of 2022. The increased business activity was related to the manufacturing and near completion of installation of two Rail Inspection Portals, a number of one-time service events and significant progress made on a special-purpose, high-value RIP.
As noted above, the decline in margin was a direct result of an increased level of business activity the Company recognized in 2022 related to the delivery of two freight portals and the progression of the transit-focused RIPs compared to the activity in 2023 as well as project delays that were experienced in the latter half of 2023.
In addition, the Company is currently investigating other possible market expansion including Aviation, Trucking and Edge Data Centers. Although the Company’s prospects and outlook are anticipated to be favorable for 2023, investing in our securities involves risk and careful consideration should be made before deciding to purchase our securities.
The Company anticipates that it will install a two-RIP solution for the carrier in 2024, with a long-term services agreement commencing upon delivery of the system. Although the Company’s prospects for future revenue growth are anticipated to be favorable, investing in our securities involves risk and careful consideration should be made before deciding to purchase our securities.
The Company generates revenues from four sources: 1. Technology Systems; 2. AI Technology; 3. Technical Support; and 4. Consulting Services. Technology Systems For revenues related to technology systems, the Company recognizes revenue over time using a cost-based input methodology in which significant judgment is required to estimate costs to complete projects.
The Company generates revenue from four sources: 1. Technology Systems 2. AI Technologies 3. Technical Support 4.
The travel and quarantine restrictions surrounding COVID-19 have largely diminished in 2021 and 2022 and the Company’s primary customers have indicated readiness to order more equipment and services should the Company execute as expected on key deliverables over the next few months.
The Company’s primary customers have indicated readiness to order more equipment and services should the Company execute as expected on key deliverables. With the Company working toward a subscription platform approach and its expansion of its artificial intelligence offering, this will also open up additional commercial avenues to the Company.
The Company expects to continue the growth with new, long term recurring revenue from existing customers which will be coming on-line in the next several months.
Recurring revenue from services and consulting continues to grow and is expected to contribute significantly to future revenue streams, bolstered by new long-term contracts with existing customers expected to commence in the coming months.
Removed
In addition to new “C” level personnel, the Company replaced its software and AI team with stronger talent including promoting one of the senior leaders to the position of Chief Technology Officer. The Company also replaced its Commercial team with seasoned rail industry personnel to improve it’s go-to-market plan with current and prospective customers.
Added
These upgrades will continue to be released throughout 2024 and are expected to drive revenue growth this year and beyond. The Company is expanding its focus in the rail industry to encompass passenger transportation and was awarded a large, multi-year contract with a national rail carrier.
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The Company’s Board of Directors was strengthened with the addition of experienced leaders. Additionally, the company retained a number of long-term former rail industry executives in advisory roles to help guide the Company’s growth strategy.
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Results of Operations The following discussion should be read in conjunction with the consolidated financial statements included in this report.
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The leadership team’s focus is to improve operational and technical execution which will in turn enable the commercial side of the business to expand our product set into existing customers and to expand and diversify our current customer base.
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This decrease was primarily driven by the substantial completion of two freight RIP projects, alongside ongoing procurement and manufacturing for our transit-focused RIPs in 2022.
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The Company is expanding its focus in the rail industry to encompass passenger transportation and is currently in the process of delivering high-speed portals for a national rail carrier. The Company is expected to deliver at least two RIP solutions along with the initiation of a long-term services agreement during 2023.
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However, in 2023, despite progress into the advanced stages of procurement and manufacturing for the transit-focused RIPs, customer-driven delays beyond the Company’s control arose during the ongoing production of the two high-speed transit-focused RIPs and thus resulted in timing delays of the overall project delivery timeline shifting anticipated revenues into 2024.
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The increase was driven by new revenues being recorded after lengthy delays in receiving “notices to proceed” for anticipated new contracts earlier in the year that pushed delivery dates into the second half of 2022 and into 2023. There was a significant increase in revenue from systems with a slightly lower increase in service revenues of 60% year-over-year.
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For the full year 2023, there was a small increase in services and consulting revenues as there were one-time services performed in 2022, related to major site maintenance and repairs for a single customer which did not occur in 2023. Underlying recurring revenues climbed by approximately 23% on a year-over-year basis.
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The increase in revenues stems directly from the delivery of two RIP projects across 2022 in addition to the onset of a new high-speed RIP project which the Company will continue to recognize well into 2023.
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This growth is fueled by the expansion of service contracts following the completion of new portals in early 2023, coupled with the deployment of AI services deployed with several customers.
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Additionally, the growth in services and consulting stems from the Company’s success in deploying artificial intelligence as well as change orders to existing services agreements during the year.
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The Company continues to navigate delays outside of the Company's control related to the ongoing production and installation of our two high-speed transit-focused Railcar Inspection Portals. Management cautions that because of the delays in anticipated start dates, certain installations may produce revenues towards the end of 2024. These deferrals resulted in a slightly lower revenue growth performance than originally anticipated.
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Additionally, although the industries in which we operate have improved after the Covid-19 pandemic, other macro-economic effects are anticipated to impact us, including inflation and the current supply chain issues which are extending deadlines for shipment of key components used in our technology systems. The effect of this deferred some revenue recognition into 2023 as previously mentioned.
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However, the bulk of these deferred revenues are expected to be reported in 2024. While customer-driven delays in the installation of our high-speed transit-focused Railcar Inspection Portals have impacted revenue growth timing year-over-year, the Company's capital structure remains resilient, allowing us to pursue large projects despite unexpected delays.
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These deferrals resulted in a slightly lower revenue growth performance than originally anticipated. However, the bulk of these deferred revenues are expected to be reported in 2023.
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Overall, in 2023, the Company achieved notable success in advancing procurement and manufacturing for its transit-focused RIPs, expanding service contracts, and securing new AI contracts and growing its AI portfolio, including the announcement of its inaugural subscription customer.
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The effects of inflation are not fully quantifiable at the current time but are beginning to be evident in increased costs for materials and labor and may result in higher costs for project implementation that cannot be wholly or even partially passed on to our customers and thus resulting in delaying our progress towards profitability.
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Cost of revenues on technology systems decreased during the period compared to the equivalent period in 2022 in-line with the decline in project revenues.
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The Company’s capital structure continues to allow us to weather the unexpected delays without significant operational impact and enables us to pursue large projects where the ability to deploy major resources is required.
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The decline in costs generally follows the same trend as project revenues year-over-year as a result of an overall timing difference of major project work related to the substantial completion of two freight Railcar Inspection Portals and subsequent progression of procurement and manufacturing for the transit-focused RIPs compared to the equivalent period in 2023 where the Company continued to progress into the advanced stages of procurement and manufacturing of the transit-focused RIPs, which it anticipates completing during 2024.
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This effort has improved delivery times on major projects and helps to offset some of the continued supply chain lags the Company has faced post-Covid-19. The Company continues to monitor the situation and procures materials ahead of contract award where feasible.
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Cost of revenues decreased on services and consulting year-over-year. The decrease in costs was a result of o ne-time services performed in 2022, related to major site maintenance and repairs for a single customer slightly offset by additional services costs related to the completion of two new freight portals in early 2023.
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The Company also expects to continue the growth with new revenue from other existing customers which we expect to be coming on-line in the next several months. In aggregate during 2022, the Company has been successful in the expansion of project and services contracts to account for new work.
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The business activity in 2023 consisted primarily of continued progression into the advanced stages of procurement and manufacturing for the transit-focused RIPs. The Company began to recognize revenue and profit on those activities in accordance with its revenue recognition policy.
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The services portion of revenues are driven by successful completion on projects and represents services and support for those installations. The recurring revenue portion of our revenue for services and consulting, continues to make-up a greater share of our revenues and this growth is expected to continue going forward.
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By comparison for the full-year 2022, the Company had increased business activity from a handful of projects primarily related to the substantial completion of two freight RIPs along with significant progress made on the procurement and manufacturing of our two transit-focused RIPs.
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Cost of revenues on technology systems increased during the period compared to the equivalent period in 2021 by a slightly lower rate than the increase in revenues. The primary reason for the increased growth in costs year-over-year stems from additional project work related to the delivery of two Railcar Inspection Portals.
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Additionally, a 10% increase in general and administration costs was influenced by several factors, including non-cash amortization charges associated with roughly 400,000 share options that were issued during 2023 as well as an increase in incentive programs tied to certain 2022 performance targets.
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Additionally, the Company made significant progress on the manufacturing of a special-purpose, high value Railcar Inspection Portal which it anticipates completing during 2023. The Company’s costs are composed of materials, subcontractor costs and labor consisting of the Company’s engineering, project management and software team’s efforts to deliver on the aforementioned Railcar Inspection Portals.
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Other factors driving the increase in general and administration costs include an increase in depreciation charges linked to capitalized AI development cost for third party support to expand Duos’ AI catalog to over 40 algorithms by the end of 2023.
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The cost of sales grew at a slower pace than revenues primarily because the Company neared completion of two of its portals and thus recognized additional profits on these projects as it satisfied its project-related obligations.
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Lastly the Company saw increased general and administration costs related to a financing deal which was ultimately not consummated with a bank as well as additional legal and consulting fees related to intellectual property and patents documentation and support.
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Cost of revenues increased on services and consulting year-over-year albeit at a slower pace than the increase in services and consulting revenues. The increase in costs was a result of one-time services completed on existing RIP sites on which the Company incurred some additional material costs as well as project management and engineering team labor to complete the project.

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