Duos Technologies Group Reports Third Quarter and Nine Month 2020 Results
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Duos Technologies Group Reports Third Quarter and Nine Month 2020 Results

Thursday, November 12, 2020 4:05 PM
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JACKSONVILLE, FL / ACCESSWIRE / November 12, 2020 / Duos Technologies Group, Inc. ("Duos" or the "Company") (NASDAQ:DUOT), a provider of intelligent security analytical technology solutions, reported financial results for the third quarter and nine months ended September 30, 2020.

Third Quarter 2020 and Recent Operational Highlights

  • Awarded a new contract from existing customer CN, which includes complete North American service, support, maintenance and spare components sourcing for the seven (7) Railcar Inspection Portals (rip®) currently in operation at CN. The total contract will be recognized as recurring revenue through 2022.
  • Awarded an initial $1.3 million contract by an existing Class 1 railroad customer to substantially expand the Company's current relationship and upgrade its scope of work at an existing Railcar Inspection Portal (rip®) for the purpose of instituting increased automated mechanical inspections. The contract will be executed over the next few months with completion expected before the end of the year and includes future payments through 2022 for recurring service, maintenance and spare parts components in addition to the base contract value.
  • Appointed experienced corporate executive and U.S. Army veteran Charles "Chuck" Ferry as Chief Executive Officer. Ferry brings extensive leadership experience in the energy and defense contracting industry as well as 26 years of active duty leadership experience in the U.S. Army. Prior to joining Duos, Ferry was the Chief Executive Officer for APR Energy, a global fast-track power company, where he had P&L responsibility for $325 million in annual revenue and oversaw roughly 800 employees and 17 globally dispersed power plants.
  • Promoted Wm. "Scott" Carns to the newly created title of Chief Commercial Officer for the Company's wholly owned subsidiary, Duos Technologies. In this new role, Carns will be responsible for the development and execution of Duos' growth strategy and expansion, interfacing with Duos' major clients to develop and create solutions to meet their unique operational challenges.
  • Appointed IT and Energy industry veteran Ben Eiser as Chief Operating Officer for the Company's wholly owned subsidiary, Duos Technologies. Eiser joins Duos with 27 years of active duty military service and private-sector leadership, project and IT management experience. Prior to joining Duos, Eiser was the Vice President for Global Projects for APR Energy, where he led a project management team that oversaw the installation and demobilization of temporary power plants among other key functions.
  • Proposed election of Ed Harris to the Company's Board of Directors. As the former COO at Tier 1 rail operator CSX, Harris would bring more than 50 years of directly applicable industry experience.

Third Quarter 2020 Financial Results

It should be noted that the following Financial Results represent the consolidation of the Company with its subsidiaries Duos Technologies, Inc. and truevue360™.

Total revenue decreased 42% to $1.28 million compared to $2.20 million in the same quarterly period last year. The decrease in total revenue for the quarter was due to a decline in technology systems revenue as a result of a delay in receiving an order for a large project which was initially planned for execution during the third quarter of 2020 that will be substantially completed in the fourth quarter.

Gross profit decreased 71% to $295,000 (23% of total revenue) compared to $1.03 million (47% of total revenue) in the same quarterly period last year. The decrease in gross profit was due to the higher overall cost of sales relative to revenue recorded during the quarter largely due to implementation delays.

Operating expenses increased 39% to $3.00 million from $2.16 million in the same quarterly period last year. The increase in operating expenses was primarily due to an increase in administration expenses, which was offset by decreases in sales and marketing, engineering, research and development, and AI technologies expenses. The increase in administration expenses was related to a one-time charge for payment in connection with the retirement of the Company's former CEO and Chairman.

Net loss totaled $2.71 million, compared to net loss of $1.14 million in the same quarter a year-ago. The increase in net loss was primarily attributable to the increase in administration expenses as noted previously.

Cash and cash equivalents at quarter-end totaled $4.12 million, compared to $56,000 at December 31, 2019.

Nine Month 2020 Financial Results

Total revenue decreased 46% to $4.26 million from $7.90 million in the same period last year. The decrease in total revenue was driven by slower than anticipated contract awards by a single customer, which will be recognized pending resolutions of certain terms and conditions. The current global pandemic has also impacted expected receipt of awards and caused delays in execution due to travel and other restrictions.

Gross profit decreased 66% to $1.14 million (27% of total revenue) from $3.33 million (42% of total revenue) in the same period last year. The decrease in gross profit was mainly the result of

fixed costs related to maintaining a minimum staff to begin execution once orders were received, not being offset by sufficient revenues as had been anticipated earlier in the year.

Operating expenses increased 16% to $7.36 million from $6.37 million in the same period last year. The increase in operating expenses was primarily due to an increase in administration expenses and AI technologies expenses, which were offset by decreases in sales and marketing, engineering and research and development. The increase in administration expenses was related to a one-time charge for payment in connection with the retirement of the Company's former CEO and Chairman as noted previously. AI technologies costs were higher as the result of additional growth in this area and an increase in resources allocated from the research and development department. With development work for the Company's AI platform completed, costs in this area are expected to normalize going forward.

Net loss totaled $6.32 million, compared to a net loss of $3.05 million in the same period a year-ago. The greater net loss was primarily attributable to an overall decrease in revenue for the period as well as an increase in expenses as noted previously.

Financial Outlook

For the fiscal year ending December 31, 2020, the Company now expects total revenue to be between $7.5 million and $8.0 million. The Company's guidance is based on contracts in backlog and near-term pending orders that are already performing or scheduled to be executed during the fourth quarter of 2020. The Company's business is in the early stages of a recovery, and management has undertaken significant restructuring efforts beginning in Q4 to build revenues for both new systems and recurring revenue services. Management also expects that the current cash position will remain largely unchanged through the end of the fiscal year. Although uncertainties continue in the macro economic climate, management believes that 2021 will yield a much stronger financial performance for revenue and profitability. The Company plans to release guidance for 2021 in early January.

Management Commentary

"During the third quarter we experienced a moderate return to more normal business conditions and believe we have taken the first steps forward on the path to a new growth era at Duos," said Company Chief Executive Officer Chuck Ferry. "In my short time since coming on board, we've hit the ground running. The executive leadership team has conducted and concluded a thorough review of our operations and outlined a long-term strategic roadmap designed to accomplish the following goals: improve our go-to-market strategy through securing larger, higher-margin sales with a focus on recurring revenue, make our operations more efficient through better-quality delivery and performance-based incentives, improve communication, and decision-making through a simplified, horizontally-integrated corporate reorganization, and deliver sustained profitability through successful execution across a clearly defined set of goals.

"Though we were encouraged by the signing of two significant contracts this past quarter, we recognize that there is more work to be done and difficult decisions ahead to position our Company for long-term success. During the quarter we delayed delivery on certain key projects to ensure proper pre-shipping preparation was completed to standard, which impacted our results to a degree. We fully expect to recognize these project revenues in Q4, but we are committed to quality and safety above all else, which, over time, should allow us to command premium pricing and reduce maintenance and repair expenses post-installation. We have an excellent pipeline of opportunities with our existing rail and logistics customers that we expect will drive much improved financial results for 2021. I remain excited by the tremendous opportunity we have before us at Duos and believe we have the team, technology, and resources necessary to capture a greater share of the North American rail market."

Conference Call

The Company's management will host a conference call today, Thursday, November 12, 2020 at 4:30 p.m. Eastern time (1:30 p.m. Pacific time) to discuss these results, followed by a question and answer period.

Date: Thursday, November 12, 2020
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
U.S. dial-in: (877) 407-3088
International dial-in: +1 (201) 389-0927
Confirmation: 13712203

Please call the conference telephone number 5-10 minutes prior to the start time of the conference call. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

The conference call will be broadcasted live via telephone and available for online replay via the investor section of the Company's website here.

About Duos Technologies Group, Inc.

Duos Technologies Group, Inc. (Nasdaq: DUOT), based in Jacksonville, Florida, through its wholly owned subsidiary, Duos Technologies, Inc., provides advanced, analytical technology solutions with a strong portfolio of intellectual property. The Company's core competencies include intelligent technologies that combine machine learning, artificial intelligence and advanced video analytics that are delivered through its proprietary integrated enterprise command and control centraco® platform. The Company provides its broad range of technology solutions with an emphasis on mission critical security, inspection and operations within the rail transportation, retail, petrochemical, government, and banking sectors. Duos Technologies also offers professional and consulting services for large data centers. For more information, visit www.duostech.com.

Forward Looking Statements

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things our plans, strategies and prospects -- both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release include market conditions and those set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to Duos Technologies Group, Inc. or a person acting on its behalf are expressly qualified in their entirety by this cautionary language.

Contacts:

Corporate
Tracie Hutchins
Duos Technologies Group, Inc. (Nasdaq: DUOT)
(904) 652-1601
[email protected]

Investor Relations
Matt Glover or Tom Colton
Gateway Investor Relations
(949) 574-3860
[email protected]

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

             
 
  September 30,     September 30,  
 
  2020     2019     2020     2019  
 
                       
REVENUES:
                       
Technology systems
  $ 672,951     $ 1,921,306     $ 2,606,034     $ 6,954,062  
Technical support
    502,502       229,008       1,229,813       701,552  
Consulting services
    50,216       48,087       184,685       240,673  
AI technologies
    56,280       -       234,504       -  
 
                               
Total Revenues
    1,281,949       2,198,401       4,255,036       7,896,287  
 
                               
COST OF REVENUES:
                               
Technology systems
    601,814       984,805       2,080,872       4,045,448  
Technical support
    333,721       158,785       802,751       420,451  
Consulting services
    12,301       29,352       84,561       99,686  
AI technologies
    39,182       -       149,681       -  
 
                               
Total Cost of Revenues
    987,018       1,172,942       3,117,865       4,565,585  
 
                               
GROSS PROFIT
    294,931       1,025,459       1,137,171       3,330,702  
 
                               
OPERATING EXPENSES:
                               
Sales & marketing
    173,197       214,979       435,522       735,599  
Engineering
    280,897       339,282       946,303       963,831  
Research and development
    215,831       273,555       771,789       1,144,715  
Administration
    1,991,408       852,584       4,030,906       2,660,227  
AI technologies
    340,441       476,960       1,174,465       860,947  
 
                               
Total Operating Expenses
    3,001,774       2,157,360       7,358,985       6,365,319  
 
                               
LOSS FROM OPERATIONS
    (2,706,843 )     (1,131,901 )     (6,221,814 )     (3,034,617 )
 
                               
OTHER INCOME (EXPENSES):
                               
Interest Expense
    (6,260 )     (12,783 )     (133,435 )     (19,095 )
Other income, net
    4,524       615       33,732       4,021  
 
                               
Total Other Income (Expense)
    (1,736 )     (12,168 )     (99,703 )     (15,074 )
 
                               
NET LOSS
    (2,708,579 )     (1,144,069 )     (6,321,517 )     (3,049,691 )
 
                               
 
                               
Basic & Diluted Net Loss Per Share
  $ (0.77 )   $ (0.63 )   $ (1.95 )   $ (1.78 )
 
                               
 
                               
Weighted Average Shares-Basic & Diluted
    3,528,128       1,817,289       3,247,954       1,715,480  
                                 

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

             
 
  September 30,     December 31,  
 
  2020     2019  
 
  (Unaudited)        
ASSETS
           
CURRENT ASSETS:
           
Cash
  $ 4,116,582     $ 56,249  
Accounts receivable, net
    1,339,786       2,611,608  
Contract assets
    184,235       1,375,920  
Prepaid expenses and other current assets
    618,492       716,598  
 
               
Total Current Assets
    6,259,095       4,760,375  
 
               
Property and equipment, net
    336,486       260,181  
Operating lease right of use asset
    257,367       430,146  
 
               
OTHER ASSETS:
               
Software Development Costs, net
    5,000       20,000  
Patents and trademarks, net
    65,757       61,598  
Total Other Assets
    70,757       81,598  
 
               
TOTAL ASSETS
  $ 6,923,705     $ 5,532,300  
 
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
 
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 702,611     $ 2,641,437  
Accounts payable - related parties
    7,950       12,791  
Notes payable - financing agreements
    70,991       42,299  
Notes payable - related parties, net of discounts
    -       905,373  
Line of credit
    -       27,615  
Payroll taxes payable
    3,146       115,111  
Accrued expenses
    989,397       393,272  
Current portion - financing lease agreements
    87,091       45,072  
Current portion-operating lease obligations
    247,182       239,688  
Current portion-SBA loan
    863,845       -  
Contract liabilities
    332,751       8,661  
Deferred revenue
    707,244       936,428  
 
               
Total Current Liabilities
    4,012,208       5,367,747  
 
               
Finance lease payable
    126,597       89,026  
Operating lease obligations
    18,958       202,797  
SBA loan
    546,425       -  
 
               
Total Liabilities
    4,704,188       5,659,570  
 
               
Commitments and Contingencies (Note 6)
               
 
               
STOCKHOLDERS' EQUITY (DEFICIT):
               
Series A redeemable convertible cumulative preferred stock, $10 stated value per share,
               
500,000 shares designated; 0 issued and outstanding at September 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,
               
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,
               
3,535,339 and 1,982,039 shares issued, 3,534,015
    3,536       1,982  
and 1,980,715 shares outstanding at September 30, 2020
               
and December 31, 2019, respectively
               
Additional paid-in capital
    39,730,665       31,063,915  
Total stock & paid-in-capital
    41,439,201       32,770,897  
Accumulated deficit
    (39,062,232 )     (32,740,715 )
Sub-total
    2,376,969       30,182  
Less: Treasury stock (1,324 shares of common stock
               
at September 30, 2020 and December 31, 2019)
    (157,452 )     (157,452 )
Total Stockholders' Equity (Deficit)
    2,219,517       (127,270 )
 
               
Total Liabilities and Stockholders' Equity (Deficit)
  $ 6,923,705     $ 5,532,300  
                 

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

       
 
  For the Nine Months Ended  
 
  September 30,  
 
  2020     2019  
 
           
Cash from operating activities:
           
Net loss
  (6,321,517 )   (3,049,691 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    159,121       136,108  
Stock based compensation
    261,761       35,017  
Modification of employee stock options
    102,800       -  
Interest expense related to debt discounts
    94,627       9,401  
Changes in assets and liabilities:
               
Accounts receivable
    1,271,822       124,810  
Contract assets
    1,191,685       379,136  
Prepaid expenses and other current assets
    331,456       (562,263 )
Operating lease right of use asset
    172,778       (509,958 )
Accounts payable
    (1,938,824 )     461,701  
Related payable-related party
    (4,841 )     (682 )
Payroll taxes payable
    (111,965 )     (195,120 )
Accrued expenses
    648,625       27,804  
Operating lease obligation
    (176,345 )     534,415  
Contract liabilities
    324,090       (1,141,088 )
Deferred revenue
    (229,184 )     126,534  
 
               
Net cash used in operating activities
    (4,223,911 )     (3,623,876 )
 
               
Cash flows from investing activities:
               
Purchase of patents/trademarks
    (8,185 )     (11,595 )
Purchase of fixed assets
    (216,401 )     (133,039 )
 
               
Net cash used in investing activities
    (224,586 )     (144,634 )
 
               
Cash flows from financing activities:
               
Repurchase of common stock
    -       (7,993 )
Repayments of line of credit
    (27,615 )     (2,689 )
Repayments of related party notes
    -       (80,000 )
Issuance cost
    (1,001,885 )     (10,000 )
Repayments of notes payable
    (1,000,000 )     -  
Repayments of insurance and equipment financing
    (204,659 )     (207,187 )
Repayment of finance lease
    (42,046 )     (10,851 )
Proceeds from SBA loan
    1,410,270       -  
Proceeds from notes payable-related parties
    -       1,080,000  
Proceeds from notes payable
    -       250,000  
Proceeds from equipment leasing
    121,637       -  
Proceeds from common stock issued
    9,253,128       -  
Proceeds from warrants exercised
    -       2,315,268  
 
               
Net cash provided by financing activities
    8,508,830       3,326,548  
 
               
Net increase (decrease) in cash
    4,060,333       (441,962 )
Cash, beginning of period
    56,249       1,209,301  
Cash, end of period
    4,116,582       767,339  
 
               
Supplemental Disclosure of Cash Flow Information:
               
Interest paid
  32,768     5,728  
 
               
Supplemental Non-Cash Investing and Financing Activities:
               
Common stock issued for accrued BOD fees
  52,500     19,166  
Lease right of use asset and liability
  644,245     -  
Note issued for financing of insurance premiums
  233,350     217,804  
Debt discount on Notes issued
  -     12,500  
Note issued for equipment financing lease
  -     102,928  
                 

SOURCE: Duos Technologies Group, Inc.

Duos Technologies Group, Inc.
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