Duos Technologies (DUOT) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company reported an 84% revenue increase to $2.6 million and a reduced net loss of $2.1 million for Q1 2023 Consolidated Balance Sheets Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2023 | December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Cash | $4,340,947 | $1,121,092 | +287.2% | | Total Current Assets | $8,546,516 | $6,834,757 | +25.1% | | Total Assets | $14,868,332 | $13,089,119 | +13.6% | | Total Current Liabilities | $4,686,177 | $4,495,705 | +4.2% | | Total Liabilities | $9,153,061 | $9,038,648 | +1.3% | | Total Stockholders' Equity | $5,715,271 | $4,050,471 | +41.1% | - The significant increase in cash and stockholders' equity was primarily driven by the issuance of 4,000 shares of Series E convertible preferred stock, which provided $4.0 million in proceeds during the quarter[16] Consolidated Statements of Operations Consolidated Statements of Operations (Unaudited, For the Three Months Ended March 31) | Metric | 2023 | 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $2,644,288 | $1,439,316 | +83.7% | | Gross Margin | $537,172 | $222,066 | +141.9% | | Loss from Operations | ($2,146,798) | ($2,641,618) | -18.7% | | Net Loss | ($2,143,683) | ($2,644,616) | -19.0% | | Net Loss Per Share (Basic & Diluted) | ($0.30) | ($0.49) | -38.8% | - The substantial increase in revenue was primarily driven by the Technology Systems segment, which grew 133% YoY from $783,269 to $1,827,764[13] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Unaudited, For the Three Months Ended March 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,086) | ($827,733) | | Net cash used in investing activities | ($261,144) | ($102,078) | | Net cash provided by financing activities | $3,488,085 | $5,365,954 | | Net increase in cash | $3,219,855 | $4,436,143 | - Cash from financing activities in Q1 2023 was primarily from $4.0 million in proceeds from issuing Series E preferred stock, offset by issuance costs and debt repayments[22] Notes to the Consolidated Financial Statements The notes detail operations, liquidity, debt, and equity changes, highlighting its RIP technology and recent financing - The company develops and deploys vision-based analytical technology, including the Railcar Inspection Portal (RIP) which uses AI to automate inspections of trains in transit[24][25] - Despite a net loss of $2.1 million in Q1 2023, management believes recent capital raises, including $4.0M from Series E Preferred Stock, provide sufficient liquidity to operate for at least the next twelve months[77][78][80] - In March 2023, the company issued 4,000 shares of Series E Convertible Preferred Stock for $4.0 million in proceeds[112][114][118] Disaggregation of Revenue (For the Three Months Ended March 31, 2023) | Segments | Rail | Commercial | Government | Artificial Intelligence | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $2,376,449 | $28,831 | $11,353 | $227,655 | $2,644,288 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses an 84% revenue increase, improved margins, and a strengthened liquidity position from a $4.0 million capital raise Overview and Outlook - The company's core business involves providing technology solutions like the Rail Inspection Portal (RIP) to the railroad and logistics industries[159][160][161] - A key strategic initiative is the pursuit of a subscription platform for its RIPs, selling data access to a wider range of customers[165] - The company anticipates favorable prospects for 2023, driven by product upgrades and a large, multi-year contract with a national rail carrier[168][169] Results of Operations Revenue Comparison (For the Three Months Ended March 31) | Revenue Source | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Technology systems | $1,827,764 | $783,269 | +133% | | Services and consulting | $816,524 | $656,047 | +24% | | Total revenues | $2,644,288 | $1,439,316 | +84% | - The substantial increase in revenue is primarily attributed to the production and manufacturing of new and upgraded RIPs[173] - Gross margin improved significantly to 20.3% of revenue in Q1 2023, compared to 15.4% in Q1 2022, due to profit recognition on new RIPs[179] - Total operating expenses decreased by 6% YoY to $2.7 million, mainly due to an 8% reduction in General and Administrative costs[181] - The net loss for Q1 2023 was $2,143,683, a 19% improvement from the prior year, driven by higher revenues and lower operating expenses[184] Liquidity and Capital Resources - As of March 31, 2023, the company had a working capital surplus of $3,860,339[185] Cash Flow Summary (For the Three Months Ended March 31) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,086) | ($827,733) | | Net cash provided by financing activities | $3,488,085 | $5,365,954 | - The company's liquidity was significantly bolstered in Q1 2023 by net proceeds of approximately $3.7 million from the issuance of Series E Convertible Preferred Stock[189] - Management has determined that the company has sufficient cash and access to capital to operate for at least the next 12 months, removing substantial doubt about its ability to continue as a going concern[196][197] Quantitative and Qualitative Disclosures about Market Risk This section is not applicable to the company for this reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[217] Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness and is implementing a remediation plan - Management concluded that the Company's disclosure controls and procedures were not effective as of March 31, 2023[219] - The ineffectiveness is due to a material weakness in internal control over financial reporting previously identified in the Annual Report on Form 10-K[219] - Planned remediation activities include reassessing IT infrastructure, upgrading software, and augmenting staff to enhance review and segregation of duties[221][223] PART II – OTHER INFORMATION Legal Proceedings The company is not currently involved in any material litigation - The company reports that it is not currently involved in any material legal proceedings[225] Risk Factors No material changes to risk factors from the previous Annual Report were reported - There are no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K filed on March 31, 2023[226] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None reported for the period[227] Defaults Upon Senior Securities The company reported no defaults on its senior securities - There have been no defaults on any indebtedness of the Company[227] Exhibits This section lists filed exhibits, including agreements and certifications related to Series E Preferred Stock - Exhibits filed include documents related to the Series E Convertible Preferred Stock, Securities Purchase Agreement, Registration Rights Agreement, and Sarbanes-Oxley certifications[229]