DUOS TECHNOLOGIES GROUP, INC. - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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þ  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2015

o  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

Commission file number: 000-55497

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DUOS TECHNOLOGIES GROUP, INC.

(Exact name of registrant as specified in its charter)

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6622 Southpoint Drive South, Ste. 310, Jacksonville, Florida 32216

(Address of Principal Executive Office)

(904) 652-1616

 (Registrant’s telephone number, including area code)

Securities Registered Under Section 12(b) of the Exchange Act: None

Securities Registered Under Section 12(g) of the Exchange Act:

Common Stock, $.001 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act of 1933. Yes o   No þ

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes þ   No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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

Large accelerated filer o        Accelerated filer o        Non-accelerated filer o        Smaller reporting company þ

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

The registrant had 65,008,605 shares of common stock outstanding as of March 31, 2016.  The aggregate market value of the common stock held by non-affiliates of the registrant as of June 30, 2015, was approximately $15.8 million computed by reference to the closing price of such common stock on such date on the OTCQB.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant intends to file a definitive proxy statement pursuant to Regulation 14A in connection with its 2016 Annual Meeting of Stockholders within 120 days after the close of the fiscal year covered by this Form 10-K. Portions of such proxy statement are incorporated by reference into Items 10, 11, 12, 13 and 14 of Part III of this report.

DUOS TECHNOLOGIES GROUP INC.

2015 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

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FORWARD LOOKING STATEMENTS

The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this form 10-K. Certain statements made in this discussion are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by terminology such as “may”, “will”, “should”, “expects”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, or “continue” or the negative of these terms or other comparable terminology and include, without limitation, statements below regarding our ability to continue as a going concern, our business plans, the ability to raise working capital and expectations as to market acceptance of our products. Forward-looking statements involve risks and uncertainties and there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, our ability to continue as a going concern, our ability to raise funds to continue and expand operations, the effect of a going concern statement by our auditors, the competitive environment generally and in our specific market areas, changes in technology, the availability of and the terms of financing, changes in costs and availability of goods and services, economic conditions in general and in our specific market areas, changes in federal, state and/or local government laws and regulations potentially affecting the use of our technology, changes in operating strategy or development plans and the ability to attract and retain qualified personnel. Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance or achievements. Indeed, it is likely that some of our assumptions may prove to be incorrect. Our actual results and financial position may vary from those projected or implied in the forward-looking statements and the variances may be material. Moreover, we do not assume responsibility for the accuracy and completeness of these forward-looking statements. Duos is under no duty to update any forward-looking statements after the date of this report to conform such statements to actual results.

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PART I

ITEM 1. BUSINESS.

Duos Technologies Group, Inc. (“Duos” or the “Company”) is primarily engaged in the design and deployment of state-of-the-art, artificial intelligence driven intelligent technologies systems and IT Infrastructure services. Duos was incorporated in Florida on May 31, 1994 under the name Information Systems Associates, Inc. (“ISA”), and became a public reporting company in 2008 under the symbol OTC: IOSA. On April 1, 2015, ISA and Duos Technologies, Inc., a Florida based privately held company (“duostech”), merged via a reverse triangular merger pursuant to which a wholly owned subsidiary of ours merged with and into Duos Technologies, Inc., a Florida company, with Duos Technologies Inc. remaining as our wholly owned subsidiary. In anticipation of the Merger, and as required under the merger agreement, we reclassified our outstanding Class A and Class B common stock, par value $0.001 per share, onto one class of common stock, par value $0.001 per share, and increased the number of our authorized preferred stock, par value $0.001 per share. Effective April 8, 2015, we implemented a 1-for-200 reverse stock split of our issued and outstanding shares of common stock. These actions resulted in 61,246,870 shares issued and outstanding post-merger and post-reverse stock split with total authorized stock of 500,000,000 common and 10,000,000 shares of "blank check" preferred stock. The Company also relocated its headquarters to duostech’s place of business at 6622 Southpoint Drive South, Suite 310, Jacksonville, FL, 32216.

Our common stock currently trades on the OTC Markets, QB tier, under the symbol “DUOT”.

The Company’s subsidiary, Duos Technologies, Inc. (“duostech”), was incorporated under the laws of the State of Florida on November 30, 1990 with focus on the design, development and deployment of proprietary technology applications and turnkey engineered systems.

As part of the merger strategy, ISA effected a name change to Duos Technologies Group, Inc. and will continue to operate under the brand name “duostech”. For the purpose of this description of the business, the combined entities are collectively referred to as the “Company”, “Duos” or “duostech”. The Company is headquartered in Jacksonville, Florida and currently employs a staff of 39.

INDUSTRY BACKGROUND AND OVERVIEW

Duos Technologies, Inc., the Company’s main operating entity, provides an array of sophisticated, proprietary technology applications and turnkey engineered systems. From its inception, Duos initially focused on solutions for the homeland security and critical infrastructure protection markets, and has adapted its proprietary technologies over the years to a highly diversified suite of applications.

The Company made its initial mark with the development and deployment of a comprehensive homeland and border security-centric critical infrastructure applications suite. These applications are currently operated by major freight rail operators (also known as Class-1, such as Union Pacific, CSX, KCS), and by various divisions of the Department of Homeland Security (“DHS”). After achieving initial success in the transportation industry, the Company broadened its market reach and expanded into servicing the commercial, industrial, healthcare, utilities and government sectors.

Our current target verticals include:

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Transportation (Railroads, Airports, Sea and Inland Ports)

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Healthcare

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Utilities

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Oil, Gas & Chemical Industries

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Retail Industries

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Government

Our customer base consists of predominantly Fortune-500 companies.

Technology Platform

Duos’ IP is built upon two core technology platforms, i.e. praesidium® and centraco™, both distributed as licensed software suites, and natively embedded within engineered turnkey systems.

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praesidium® Intelligent Analytics Suite

praesidium® is a modular suite of analytics applications which process and simultaneously analyze data streams from a virtually unlimited number of conventional sensors and/or data points. Our native algorithms compare analyzed data against user-defined criteria and rules in real time and automatically report any exceptions, deviations and/or anomalies. This application suite also includes a broad range of conventional operational system components and sub-systems, including an embedded feature-rich video management engine and a proprietary Alarm Management Service (“AMS”). This unique service provides continuous monitoring of all connected devices, processes, equipment and sub-systems, and automatically communicates to the front end-user interface, if and when an issue, event or performance anomalies are detected.

The core modules are tailored to specific industry applications and its analytics engine(s) process any type of conventional sensor outputs, thereby adding “intelligence” to any third party sensor technology.

The processed information is instantly distributed simultaneously to an unlimited number of users in a visualized and correlated user interface using the Company’s proprietary modular centraco™ command and control platform, i.e. enterprise information management suite.

SAFETY Act Designation

The praesidium® video analytics technology received “Safety Act” designation from the US Department of Homeland Security. (For details on Homeland Security Act of 2002, Public Law 107-296.

(see:https://www.safetyact.gov/pages/homepages/SamsStaticPages.do?path=sams\pages\AboutUs.html).

Only 10 companies have received this designation for video related solutions and praesidium® is the only video analytics application with this designation.

(To verify, navigate to: https://www.safetyact.gov/pages/award/samsApprovedAwards.do and enter “video” under “Keyword”.)

Over the years, our analytics suite has been expanded to meet a significant number of security objectives and environments, adaptable to a broad range of target verticals such as [C] Commercial, [T] Transportation (Rail, Air and Seaports), [H] Healthcare, [UOGC] Utilities, Oil, Gas &Chemical, and [G] Government (critical infrastructure).

Some of the most notable applications are:

Virtual Perimeter & Directional Intrusion Detection

Markets: [C] [T] [H] [UOGC] [G]

The intrusion detection/virtual fencing system uses live video feeds to capture area scenes. The analytics model continuously monitors a virtual fence line or buffer zone defined by user input. The area of interest can be represented by one or multiple “trip lines” and/or by an area drawn in any geometric shape (square, triangular or polygon shapes). The target area will be classified and any motion inside or outside (as defined by rules) of such area is monitored and analyzed by the analytics model which automatically triggers an alarm if any rule is either compromised or matched as the case may be. The system can process an unlimited number of camera feeds simultaneously and presents only actionable events to (human) security stakeholders via the centraco® user interface. The user interface (described in more detail later in this document) distributes live and archived video images and intrusion alerts over a secure network connection to authorized personnel, and provides the information needed to respond promptly to a security event.

The system includes a built-in buffering capability that is an important part of an intrusion detection system. This buffering provides pre- and post-incident alarm recording, scalable from 10 seconds to 60 minutes in either direction. When praesidium® generates an intrusion alarm, the user can examine the buffered video to review activity within the intrusion area for a time period just before and after the alarm.

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This model has been adapted into many different applications and is used in various forms throughout the critical infrastructure security spectrum such as at:

Wrong Way Detection

Markets: [C] [T] [H] [UOGC] [G]

This module detects people or objects moving against the flow of traffic.

Loitering Detection

Markets: [C] [T] [H] [UOGC] [G]

The system continuously monitors a user defined area for loitering behavior within a user defined time envelope. Zones can either include or exclude specific sectors within the target field of view.

Removed or Left Objects Detection

Markets: [C] [T] [H] [UOGC] [G]

The system continuously monitors a defined area and automatically detects objects that have either been removed or left behind. Among many other parameters settings, the user can define the duration an object has been either removed or added to the scene before it constitutes an actionable event.

PTZ Camera Tracking

Markets: [C] [T] [H] [UOGC] [G]

An object (human or vehicle) identified by the system as a potential threat (as defined by user rules), is tracked by automatic re-positioning of the respective PTZ camera. If multiple PTZ cameras are attached to the system (as is the case under a virtual fence scenario), additional logic provides for “camera handoff” where the object is tracked over multi-camera fields of view. This application has been adapted to many different scenarios, including a combination of radar and camera view. Under this scenario, the coordinates of an object detected by radar as compromising an area of interest, are continuously transmitted from the radar to a separate short-, medium- or long-range camera. The system subsequently “locks” the correlating outputs to each other and simultaneously triggers an alarm. Security stakeholders are able to observe and evaluate the scene displaying the automatically tracked object.

We are in the process of transitioning the above video analytics-based modules (“Video Analytics Suite”) to a “licensed” distribution model. Under this new model, we plan to distribute this software globally via manufacturer reps, channel partners, and integrators.

Over time, the code base has been expanded to integrate a myriad of 3rd party sensor technologies thereby creating complete engineered solutions. These engineered solutions usually address more complex end-user requirements and are typically designed, developed, deployed and maintained by duostech in a direct relationship with the end-user on a turnkey basis.

Representative Engineered Solutions

The combination of the two platforms (praesidium and centraco) with its many variants has and continues to deliver comprehensive “end-to-end” solutions, some of which play a significant role in pro-active homeland security. Following is a sampling of a few significant rail-centric turnkey projects we have delivered in the past.

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National Capital Region Railroad Pilot Program (NCRRPP)

Under a congressional $15 Million budget earmark, our company designed, developed and deployed the first “virtual security fence” technology which applies a combination of our video-analytics based system monitoring over 200 fixed and PTZ cameras with a myriad of other sensing technologies to remotely protect a 7-mile rail track through Washington D.C. The project was structured as a public-private partnership between the DHS, CSX Transportation (CSXT) and AMTRAK. duostech delivered this as a turnkey design/build project to DHS using in-house developed technologies.

The NCRRPP project established a virtual security buffer on both sides of the rail tracks along the 7-mile route between the Anacostia Bridge in the north and the Long Bridge near Crystal City in the south, and includes the Virginia Avenue and the New York Avenue tunnels. Two remote portals provided early alerts of inbound train traffic from Maryland and Virginia. The system consisted of over two hundred fixed and PTZ cameras combined with the duostech praesidium® Video Analytics Suite. (Note: following major re-routing and construction of additional tracks, the system has recently been decommissioned).

Train Rider Detection System (trids™)

The duostech Train Rider Detection System automatically inspects trains moving at speeds of up to 70 MPH searching for illegal riders hiding in wells of passing container cars and underneath tractor trailers on flatbed cars.

Border Security Rail Inspection Portal (rip™)

The duostech Rail Inspection Portal is the latest technological innovation and deployment for rail security and inspection at border, yards and inspection areas. Under a Union Pacific (UP) funded pilot program at the Eagle Pass, TX border crossing, duostech designed and developed a leading edge portal to provide US Customs and Border Protection (CBP) agency a tool that would aid customs officers in the inspection of inbound and outbound rail cars. The rip™ system uses multiple technologies and sub-systems to remotely scan all railcars passing through the inspection portal, then displays stitched 360-degree views of the entire rail consist. It uses sensors and analytical algorithms to pre-screen railcars and to automatically detect and report anomalies and deviations from established norms. After successfully passing rigorous testing, this systems has now been adopted into the US CBP standard concept of operation for southwestern rail border crossings and has been deployed at most southwestern border locations, with a few remaining locations currently under negotiation.

The rip™ application provides the following modules for automated analysis, detection and inspection:

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Linear Panorama Generator

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Automated Detection of Open Doors

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Automated Detection of Open/Missing Hatches

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Train Rider Detection System (trids^™)

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Under Vehicle Inspection with Foreign Object Detection (vue^™)

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Gondola Car Inspection System

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Pantograph Inspection System (apis^™)

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3D modeling using LIDAR technology (under development)

Utilizing the centraco™ command and control platform as the system interface, the user accesses a variety of features enabling remote inspection, analysis and detection from the safety of remote command centers. Images containing detailed views of areas of concern, determined to be “potentially suspicious”, are automatically presented to a human operator for further inspection. Users conduct a quick review of the pre-screened imagery and decide whether to refer specific areas of interest to field personnel for further (physical) inspection.

The system also resolves the particularly difficult process of inspecting rail car undercarriages by providing high resolution images of the entire undercarriage. The system is not intended to replace the human operator; rather it is designed to help streamline the physical inspection process by narrowing the number of inspection targets down to cars with “potential” anomalies. Consequently, the detection sensitivity is intentionally set to err on the safe side to avoid false negatives.

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Linear Panorama Generator

The Linear Panorama Generator (LPG) assembles images gathered from cameras on all four sides of the train and stitches all frames to create a continuous 360 degree view of the entire train. Operators can quickly inspect the entire train consist by selecting the side of interest and scrolling through the continuous panorama view. The main purpose of the linear panorama is to provide inspection personnel with geo-spatial information of detections. The system marks the approximate location of detection on the linear panorama image and displays the target car location specifying the car sequence number and the approximate distance from the locomotive and/or the AEI tag data if available. The operator can select areas to enlarge, tag, save, or print any image of interest. Panoramas are stored indefinitely and dependent only on the size of the storage drives.

Automated Detection of Open Doors and Missing or Open Hatches

As the train passes, laser sensors scan the top and sides of the train to detect open/missing hatches and open doors. In the event of a potential detection, the system saves a series of images and enters the corresponding car information into a database. The detections are marked on the Panorama images and presented to the operator who will either acknowledge the suggested detection as valid (green button) or reject the detection as invalid. The operator can expand the event to view car and consist information, additional images, or can enlarge specific areas for a closer view of the detection.

Illegal Train Rider Detection System (trids ™)

The Train Rider Detection System (trids^™) performs automated detection of riders hiding in railcar wells, which have been the typical hiding place on trains traveling at speed. trids™ is designed to offer inspection personnel an expedient and efficient method of isolating and identifying anomalies of interest, particularly unauthorized train riders. Images of areas of interest are identified automatically by the software algorithms and presented to the operator for validation. The system is intentionally set to a high sensitivity to avoid false negatives. A version upgrade has just been completed which expands the detection area to the entire rail car.

Vehicle Undercarriage Examiner (vue)

The Vehicle Undercarriage Examiner (vue) is embedded between the rails and captures a dual view of the train at opposing angles in order to maximize the visual information. The images are assembled (stitched) to create a continuous panoramic view of the entire length of the rail car’s undercarriage. Images are stored indefinitely depending on the size of the storage drives. By employing the vue the undercarriage can be inspected from a remote location safely and efficiently.

The system features an automated Foreign Object Detection (FOD) algorithm that compares the undercarriage images to reference images taken from the same car during an earlier scan. The vue images are “matched up” for comparison by using the unique car identification code provided by the AEI tag system. The detection algorithm looks for “all” differences and highlights respective detections for closer inspection by an operator. Detections can be filtered through sensitivity variables.

Pantograph Inspection System (apis™)

duostech developed and deployed a system that incorporates ultra high resolution cameras, structured lighting, speed and proximity sensors, and Radio Frequency Identification (RFID) technology to assist stakeholders to inspect the condition of pantographs on passing railcars.

Railroad Bridge Security

These projects employed digital video surveillance to create a virtual perimeter at either end of selected railroad drawbridges in the U.S. These systems include motion detection and intrusion detection with alarms. A wireless Ethernet bridge connects equipment at one end of the bridge to a server at the opposite end, eliminating the need to connect wire or cable across the waterway. A group of fixed and PTZ cameras provide real time video images and intrusion alarm notifications to the railroad’s centralized Command and Control facilities.

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Tank Farm Surveillance

We have designed and deployed intelligent perimeter surveillance systems to secure tank farms for both fuel storage and liquefied petroleum gas (LPG) for the above listed companies. Digital video cameras and intelligent video analytics combine to create a virtual perimeter around the tank area and vital structures on the site, automatically notifying company personnel of a security breach. The use of day/night cameras and software based video enhancement delivers a system that works in all light conditions and in bad weather, with the industry’s lowest rate of false alarms.

Rail Yard Security

We have designed and deployed intelligent security perimeter and anomaly detection systems for many U.S. rail yards. These systems employ our patented video analytics technology to provide secure perimeters around the facilities.

Remote Bridge Controls

We designed a system that eliminated the need for local drawbridge operators, allowing centralized and remote control of the drawbridges from a single location. This system has received U.S. Coast Guard accreditation and approval for use. It consists of a combination of PLC technology integrated with multiple sensors to provide operators complete situational awareness of the drawbridge.

Gondola Car Inspection System (gcis™)

The gcis™ system was developed to provide Conrail with an automated method for conducting inspections of gondola cars with steel slab loads. The system provides complete visibility utilizing our rvspro™ and praesidium® systems of the interior of a gondola rail car.

Virtual Fence/Secure Rail Corridor

These systems were deployed to isolate and protect trains as they move through specific high threat areas along their routes. They consist of the same virtual fence technology deployed at other facilities.

centraco™ Enterprise Command and Control Suite

centraco™ is a multi-layered command and control interface which functions as the central point for information consolidation, connectivity and communications. The platform is browser based and completely agnostic to the interconnected sub-systems and provides full LDAP (Active Directory) integration for seamless user credentialing.

centraco™ performs the following major functions:

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Collection: Device management independently collects data from any number of disparate devices or sub-systems

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Analysis: Correlates and analyzes data, events, and alarms to identify real-time situations and their priorities for response measures and end-user’s Concept of Operations (“CONOPS”)

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Verification: The contextual layer represents relevant information in a quick and easily interpreted format which provides operators optimal situational awareness

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Resolution: Event-specific presentation of user-defined Standard Operating Procedures (“SOPs”), that includes a step-by-step instruction on how to resolve situation(s)

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Reporting: Tracking of data and events for statistical, pattern and/or forensic analysis

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Auditing: Device-level drill down that records each operator’s login interaction with the system and tracks manual changes including calculations of operator alertness and reaction time for each event

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What significantly differentiates Duos from its competitors, is that we not only develop and own the application software code for the various analytics processes, but we also design, develop and deploy turnkey engineered solutions, which integrates the Company’s own proprietary applications with any third-party technology through its native centraco™ platform. Typically, competitors specialize either on analytics software, command and control software or technology integration. Our feedback from field deployments of turnkey engineered systems and our knowledge base of involvement in post-sales technical support services, uniquely positions our Company to continuously expand and advance our technology solutions, which we believe are unparalleled in today’s marketplace.

The centraco™ enterprise command and control platform is central to our digital products offering as it will be distributed as the “aggregator” of our family of proprietary applications and third-party applications. Additional services and/or products developed or acquired in the future will be integrated into the centraco™ platform and/or provided independently, thereby taking advantage of the economies of scale of the Company’s marketing campaigns.

RESEARCH AND DEVELOPMENT

Duos not only develops and owns the application software source code for the various analytics processes, but also designs, develops and deploys turnkey engineered solutions, which pair our proprietary applications with any third-party technology. The feedback from actual field deployments has enabled us to develop superior artificial intelligence-based analytics applications and is one of the major contributing factors as to why Duos intelligent analytics applications register the lowest false alarm rate in the industry.

Our Engineering and R&D departments continuously develop expanded capabilities to our core technologies as well as new solutions for our customer base. Both, our praesidium® and centraco™ platforms are modular and are designed for expandability. New functionalities (developed in-house or from third parties) can be added to our application suites through our proprietary API and SDK.

COMPETITION

Our offerings allow us to compete in the Intelligent Technologies sector where duostech is already a leading player as well as in the IT services sector. What significantly differentiates Duos from its competitors, is that we not only develop and own the application software (source) code for the various analytics processes, but we also design, develop and deploy turnkey engineered solutions, which integrate our own proprietary applications with any third-party technology through our native centraco™ platform. Typically, competitors specialize either on analytics software, or command and control software or technology integration. The feedback from field deployments of turnkey engineered systems and the knowledge base built over many years of involvement in post-sales technical support services, uniquely positions us to continuously expand and advance our technology solutions, which we believe are unparalleled in today’s marketplace.

SPECIFIC AREAS OF COMPETITION

Since inception, we have implemented a strategy of diversification to mitigate the potential vulnerabilities experienced by companies with a narrow business scope. Many public companies within the Nano-Cap community are de facto “one trick ponies”, and their single product strategy has made most of these companies irrelevant in the market place.

During the past several years, we have made considerable investments in, and have successfully developed, our two core technology platforms, praesidium® and centraco®.

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praesidium® is an open architecture, modular engine that manages an unlimited number of “back end” process and analytics frameworks. In addition to driving our own proprietary sensor and data analytics, this core technology also allows for the integration of an unlimited number of third-party technologies, systems and sub-systems. Third-party Industry or task-specific processes are modularized and embedded into the praesidium® engine, thereby substantially expanding the functionality of such third-party system. While most companies tailor their products and services to a specific industry, this core platform is industry agnostic and will allow us to penetrate multiple industries in the very near future. Our past and current concentration on specific target markets (i.e. Rail, Healthcare, Utilities, Chemical, Gas & Oil, and Government) has enabled us to “test the markets” with our innovative technology solutions. Our praesidium® platform competes currently with the following sector specific companies:

*1) Note: We conceived the concept of a rail inspection portal used for comprehensive inspection of security threads and we do not know of any competitor in this sector. Recently, the American Association of Railroads (AAR), through its technology research subsidiary TTCI, has engaged us to adapt our security portal technology to an automated mechanical inspection system. We are in the stage 2 of 3 on this development. There are no competitors engaged in this effort and the potential competitors are currently only focusing on the inspection of wheels, bearings, breaks and track alignment. We expect that any competitor interested in expanding their inspection technologies to the ones we have developed over the past 4 years, would require at least 2-3 years of research and development before they would be able to produce similar systems for real time testing. The testing cycle will take at least an additional 1-2 years. The AAR/TTCI is currently conducting beta testing only with our systems. Likewise, the CBP (US Customs and Border Protection) and Union Pacific R/R are using our systems as their only security inspection infrastructure at the US border.

centraco® is an open architecture “fusion” engine which functions as a comprehensive “front end” user interface. This framework combines our proprietary modules with an unlimited number of 3d party technologies. In addition to a wide range of proprietary embedded features, such as video management (vms), alarm management (ams), LDAP network access credentialing and many more, centraco® intelligently manages unlimited types of data sources and allows control and monitoring of this wide array of sensors and data from a single unified interface. This platform includes both the traditional Physical Security Information Management (PSIM) systems as well as a full scale Enterprise Information Management System (EIS). Neither of our competitors includes both PSIM and EIMS, nor do any of the competing products allow for the integration of embedded engineered solutions.

Competitors include:

It should be noted that the PSIM market is rapidly expanding and we expect that capability requirements will substantially increase. Companies increasingly require expanded capabilities to justify the investment in their digital infrastructure for use by multiple corporate disciplines (security, building management, IT, network access control management).

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GROWTH STRATEGY

We are currently executing on our growth strategy and will tap into an expanded total available market that is expected to grow to over $2.5 billion by 2017 (Source: Homeland Security Research). We will focus on expanding our customer base both in numbers of customers and average revenue per customer as our offerings deliver greater value. In particular, our strategy is comprised of the following key components:

We are pursuing a two pronged strategy:

1.

Organic growth through scaling sales of the Company’s combined products and services, and

2.

Growth through strategic acquisitions

1. Organic Growth: Subject to raising the needed capital, we intend to scale Duos’ core businesses by expanding Duos’ research & development resource pool and adding business development resources. The Company has a current project portfolio and a substantial pipeline of business opportunities with many project opportunities expected to solidify in the immediate future. We will continue to expand our IP library, which is expected to broaden our market reach and increase sales. Based on a review of the existing technology and development efforts, the Company’s expanded research & development team is continuously evaluating all aspects of our current products and engineered solutions, as well as planned enhancements. The Company’s management team will be making decisions based on this analysis and adjust the Company’s strategic plans accordingly.

2. Strategic Acquisitions: Planned acquisition targets include sector specific technology companies with the objective of augmenting our current capabilities with feature-rich (third-party) solutions. The decision tree includes weighing time, effort and cost it would take to develop certain technologies in-house, vs. acquiring i.e. merging with an entity that already has successfully developed technology sub-component. Additional criteria include evaluating the acquisition target’s customer base, stage of technology, merger/acquisition cost as compared to market conditions.

ORGANIZATION AND BUSINESS UNITS

Duos Technologies Group, Inc., which serves as the holding company, is staffed with the corporate senior management team and administration (currently CEO, CFO, CTO and CAO). Subject to size and scope, future acquisitions may either be managed as subsidiaries or incorporated into one of the existing subsidiaries. Administrative and other general services will be streamlined to avoid duplication of overhead.

We are currently operating under two main business units, i.e. Intelligent Technologies Division, and IT Infrastructure Services Division (ISA’s legacy business).

SALES, MARKETING AND CUSTOMER SUPPORT

The Company currently markets its products and services through a combination of direct sales for the intelligent analytics platforms and indirect through strategic partners for the IT infrastructure services. The direct sales team is comprised of a senior manager and support staff for proposal writing, project management and after sales support. Sales through strategic partners are handled by a senior level manager with implementation and professional services either handled by in-house staff or by independent contractors for delivery of professional services. It is intended to expand both teams as the business grows and funding allows. The Company also attends certain industry specific trade shows.

In 2016, the Company plans to implement a combination of product and corporate marketing campaigns to boost its brand and corporate name recognition. The product marketing campaigns will include a significant refresh of its web presence, advertising in trade publications, increased presence at trade shows, with focus on the rail and homeland security sectors, increased participation at industry seminars and conventions as guest presenters, and the organization of “lunch and learn” sessions, hosted by national engineering firms and tear one and tear two integrators.

The corporate marketing campaign will also include a coordinated series of “non-deal” road shows, extended presence and presentations at investor conferences, extended research coverage, implementation of regular investor and shareholder conference calls, and the quarterly publication of a CEO report with updates on the Company’s R&D news. The Company will continue releasing PRs of all relevant project awards, technology achievements and new technology initiatives.

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OUR CUSTOMERS

Duos Technologies provides a broad range of sophisticated intelligent technology solutions with an emphasis on security, inspection and operations for critical infrastructure within a variety of industries including transportation, healthcare, oil and gas and utilities sectors. Some of the current applications we have, specific to critical infrastructure include:

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Imaging Portals for automated security and operational inspection criteria

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Physical Security Information Management (PSIM) – Integrations of VMS, Access Control, Building Controls, Fire Alarm, Burglar Alarm, etc.

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Intelligent Video Analytics

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RFID Tracking Systems (people, assets, and pharmaceutical)

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Command and Control Centers

Our goal is to provide our end users with improved situational awareness and overall efficiencies in operations by leveraging technology as a force multiplier. Our established customer base includes Class 1 Railroads (Freight), Healthcare, Retail, Oil and Gas Industries and Utilities. Duostech solutions are designed for specific industries but the underlying technologies are industry agnostic and suitable for a wide range of applications and industries.

MANUFACTURING AND ASSEMBLY

Duostech’s research and development team designs and develops all of its systems and applications. Duos also streamlines its manufacturing by outsourcing component manufacture to qualified fabricators. On-site installations are performed using a combination of in-house project managers/engineers and specialist sub-contractors as necessary. Duostech maintains responsibility for the system implementation, servicing and tech support for its solutions.

GOVERNMENT REGULATIONS

The Company has been working with various agencies of the federal government for more than 10-years. Our offerings are DHS Safety Act and CFATS certified. duostech's Homeland Security solutions include sophisticated remote systems that combine and synchronize a myriad of sensing technologies, wireless communications, and innovative intelligent sensor applications.

INTELLECTUAL PROPERTY

We currently rely upon a combination of trade secrets, patents, copyrights and trademarks, as well as non-disclosure agreements and invention assignment agreements, from our staff, to protect our technologies and other proprietary company information. As of December 31, 2015, our intellectual property portfolio included 12 patents and 20 trademarks issued or allowed by the United States Patent and Trademark Office (USPTO) and we have 2 pending patent applications in the United States.

Our policy is to require our employees, consultants, advisors and collaborators to execute confidentiality agreements. Additionally, we require our employees and consultants to execute assignment of invention agreements upon the commencement of employment, consulting or advisory relationships. These agreements generally provide that all confidential information developed or made known to a party by us during the course of the party’s association with our company is to be kept confidential and not to be disclosed to third parties except in specific circumstances. In the case of employees and consultants, the agreements also provide that all inventions conceived by the individuals in the course of their employment or consulting relationship will be our exclusive property.

EMPLOYEES

We have a current staff of 39, none of which are subject to a collective bargaining agreement.

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AVAILABLE INFORMATION

Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge through our Internet website (http://www.duostech.com) as soon as practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission. Except as otherwise stated in these documents, the information contained on our website or available by hyperlink from our website is not incorporated by reference into this report or any other documents we file, with or furnish to, the Securities and Exchange Commission. 

ITEM 1A. RISK FACTORS.

Our business, financial condition and results of operations could be materially adversely affected by various risk factors, including, but not limited to the principal risks noted below. 

Risk Factors Relating to our Company and Business

We will need to raise capital in order to realize our business plan and the failure to obtain the needed funding could adversely impact our operations.

We will need to raise approximately $1 million in order to maintain operations as presently conducted, and between $1.5 million and $2 million to fully execute our growth plan. Without adequate funding or a significant increase in revenues, we may not be able to accelerate the development and deployment of our products, respond to competitive pressures and develop new or enhanced products. As of December 31, 2015, we had available cash resources of $140,129 and as of March 31, 2016 we had $955 and we are not always able to meet our current operating expenses in a timely manner.  On March 31, 2016, we entered into a Securities Purchase Agreement, which provides for, among other things, $1.8 million in debt financing which after loan fees, legal expenses and payment of certain existing debt obligations provides approximately $500,000 of additional working capital. The Company expects to close the debt financing on or about April 1, 2016, subject to the satisfaction of customary closing conditions.

Overall, we have funded our cash needs from inception through December 31, 2015 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition, however, the recent debt transaction has lessened the overall risk in this regard.

We may have difficulty obtaining additional funds as and when needed, and we may have to accept terms that would adversely affect our stockholders. In addition, current conditions in the credit and equity markets may adversely affect our ability to raise funds when needed. Any failure to achieve adequate funding will delay our development programs and product launches and could lead to abandonment of one or more of our development initiatives, as well as prevent us from responding to competitive pressures or take advantage of unanticipated acquisition opportunities.

Any additional equity financing may be dilutive to stockholders, and certain types of equity financing, if available, may involve restrictive covenants or other provisions that would limit how we conduct our business or finance our operations. These conditions may affect our ability to continue as a going concern and may make it more difficult for us to raise additional capital when needed. This uncertainty is also reflected in our independent registered public accounting firm’s report on our consolidated financial statements for the years ended December 31, 2015 and 2014.

The nature of the technology management platforms utilized by us is complex and highly integrated, and if we fail to successfully manage releases or integrate new solutions, it could harm our revenues, operating income, and reputation.

The technology platforms developed and designed by us accommodate integrated applications that include our own developed technology and third-party technology, thereby substantially increasing their functionality. By enabling such system interoperability, our communications platform both reduces implementation and ongoing costs, and improves overall management efficiencies.

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Due to this complexity and the condensed development cycles under which we operate, we may experience errors in our software, corruption or loss of our data, or unexpected performance issues from time to time. For example, our solutions may face interoperability difficulties with software operating systems or programs being used by our customers, or new releases, upgrades, fixes or the integration of acquired technologies may have unanticipated consequences on the operation and performance of our other solutions. If we encounter integration challenges or discover errors in our solutions late in our development cycle, it may cause us to delay our launch dates. Any major integration or interoperability issues or launch delays could have a material adverse effect on our revenues, operating income and reputation.

Our products and services may fail to keep pace with rapidly changing technology and evolving industry standards.

The market in which we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements and changes in customer requirements. In addition, both traditional and new competitors are investing heavily in our market areas and competing for customers. As next-generation video analytics technology continues to evolve, we must keep pace in order to maintain or expand our market position. We recently introduced a significant number of new product offerings and are increasingly focused on new, high value safety and security based surveillance products, as a revenue driver. If we are not able to successfully add staff resources with sufficient technical skills to develop and bring these new products to market in a timely manner, achieve market acceptance of our products and services or identify new market opportunities for our products and services, our business and results of operations may be materially and adversely affected.

The market opportunity for our products and services may not develop in the ways that we anticipate.

The demand for our products and services can change quickly and in ways that we may not anticipate because the market in which we operate is characterized by rapid, and sometimes disruptive, technological developments, evolving industry standards, frequent new product introductions and enhancements, changes in customer requirements and a limited ability to accurately forecast future customer orders. Our operating results may be adversely affected if the market opportunity for our products and services does not develop in the ways that we anticipate or if other technologies become more accepted or standard in our industry or disrupt our technology platforms.

Our revenues are dependent on general economic conditions and the willingness of enterprises to invest in technology.

We believe that enterprises continue to be cautious about sustained economic growth and have tried to maintain or improve profitability through cost control and constrained spending. While our core technologies are designed to address cost reduction, other factors may cause delaying or rejecting capital projects, including the implementation of our products and services. In addition, certain industries in which we operate are under financial pressure to reduce capital investment which may make it more difficult for us to close large contracts in the immediate future. We believe there is a growing market trend toward more customers exploring operating expense models as opposed to capital expense models for procuring technology. We believe the market trend toward operating expense models will continue as customers seek ways of reducing their overhead and other costs. All of the foregoing may result in continued pressure on our ability to increase our revenue and may potentially create competitive pricing pressures and price erosion. If these or other conditions limit our ability to grow revenue or cause our revenue to decline our operating results may be materially and adversely affected.

We are dependent on certain third parties for hardware and software which could cause constraints on future business.

We use certain technologies from third parties that make up part of our overall solution. There are currently no anticipated or expected issues with these third parties, but difficulties with either the technology or business relationships could cause our business to be impacted negatively in terms of reduced revenue or increased costs

We rely on certain third parties for certain licensing and intellectual property arrangements which could impact our ability to deliver new solutions.

Some of our solutions require licenses for third party products which are embedded in our solutions. We do not anticipate any issues with current licensing arrangements but if a key licensor should experience difficulties or choose to change the terms and conditions under which we license their products, we may not be able to resolve those difficulties or arrange licensing for suitable alternatives in a timely manner which may impact our ability to deliver new solutions or implement upgrades for existing clients on time.

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We could be vulnerable to security breaches if certain third-parties attempt to gain access through our systems because of unknown weaknesses in our clients’ infrastructures.

Our systems operate inside client network infrastructure, which typically reside behind an ASA or other form of firewall. Communication between us and our clients are highly encrypted and generally take place through virtual private network (VPN) connections. We also use ASA equipment to protect our own network infrastructure. In addition, although our systems are LDAP/Active Directory compatible and include additional security layers we cannot be assured that any of our or our client’s systems are 100% secure. Any breach of these systems could be damaging to our reputation and lead to a loss of confidence in our offerings. Such loss of confidence could impact future sales or revenues from existing systems.

We face significant competition and many of our competitors are larger and have greater financial and other resources than we do.

Some of our product offerings compete and will compete with other similar products from our competitors. These competitive products could be marketed by well-established, successful companies that possess greater financial, marketing, distributional, personnel and other resources than we possess. In certain instances, competitors with greater financial resources also may be able to enter a market in direct competition with us offering attractive marketing tools to encourage the sale of products that compete with our products or present cost features that our target end users may find attractive.

We have a history of losses and our growth plans expect to incur losses and negative operating cash flows in the future.

Our accumulated deficit was approximately $21 million as of December 31, 2015. Our operating losses may continue as we continue to expend resources to further develop and enhance our technology offering, to complete prototyping for proof-of-concept, obtain regulatory clearances or approvals as required, expand our business development activities and finance capabilities and conduct further research and development. We also expect to experience negative cash flow in the short-term until our revenues and margins increase at a rate greater than our expenses which will continue to grow as we invest in additional resources for development and sales.

We do not have a long operating history which may make it difficult for a third party to evaluate our business.

Although we commenced operations in 1994 and we introduced our first product into the marketplace in 2004, there is limited operating history of our company post-merger. Accordingly, there is currently limited historical information regarding our revenue trends and operations upon which investors can evaluate our business. Our prospects must be considered in light of the substantial risks, expenses, uncertainties and difficulties encountered by high-growth technology companies, which is often characterized by increasing competition.

Our inability to protect our intellectual property could impair our competitive advantage, reduce our revenue, and increase our costs.

Our success and ability to compete depend in part on our ability to maintain the proprietary aspects of our technologies and products. We rely on a combination of trade secrets, patents, copyrights, trademarks, confidentiality agreements, and other contractual provisions to protect our intellectual property, but these measures may provide only limited protection. We customarily enter into written confidentiality and non-disclosure agreements with our employees, consultants, customers, manufacturers, and other recipients of information about our technologies and products and assignment of invention agreements with our employees and consultants. We may not always be able to enforce these agreements and may fail to enter into any such agreement in every instance when appropriate. We license from third parties certain technology used in and for our products. These third-party licenses are granted with restrictions; therefore, such third-party technology may not remain available to us on terms beneficial to us. Our failure to enforce and protect our intellectual property rights or obtain from third parties the right to use necessary technology could have a material adverse effect on our business, operating results, and financial condition. In addition, the laws of some foreign countries do not protect proprietary rights as fully as do the laws of the United States.

Patents may not issue from the patent applications that we have filed or may file in the future. Our issued patents may be challenged, invalidated, or circumvented, and claims of our patents may not be of sufficient scope or strength, or issued in the proper geographic regions, to provide meaningful protection or any commercial advantage. We have registered certain of our trademarks in the United States and other countries. We cannot assure you that we will obtain registrations of principal or other trademarks in key markets in the future. Failure to obtain registrations could compromise our ability to protect fully our trademarks and brands, and could increase the risk of challenge from third parties to our use of our trademarks and brands.

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We may be required to incur substantial expenses and divert management attention and resources in defending intellectual property litigation against us.

We cannot be certain that our technologies and products do not and will not infringe on issued patents or other proprietary rights of others. While we are not currently subject to any infringement claim, any future claim, with or without merit, could result in significant litigation costs and diversion of resources, including the attention of management, and could require us to enter into royalty and licensing agreements, any of which could have a material adverse effect on our business. We may not be able to obtain such licenses on commercially reasonable terms, if at all, or the terms of any offered licenses may be unacceptable to us. If forced to cease using such technology, we may be unable to develop or obtain alternate technology. Accordingly, an adverse determination in a judicial or administrative proceeding, or failure to obtain necessary licenses, could prevent us from manufacturing, using, or selling certain of our products, which could have a material adverse effect on our business, operating results, and financial condition.

Furthermore, parties making such claims could secure a judgment awarding substantial damages, as well as injunctive or other equitable relief, which could effectively block our ability to make, use, or sell our products in the United States or abroad. Such a judgment could have a material adverse effect on our business, operating results, and financial condition. In addition, we are obligated under certain agreements to indemnify the other party in connection with infringement by us of the proprietary rights of third parties. In the event that we are required to indemnify parties under these agreements, it could have a material adverse effect on our business, financial condition, and results of operations.

We may incur substantial expenses and divert management resources in prosecuting others for their unauthorized use of our intellectual property rights.

Other companies, including our competitors, may develop technologies that are similar or superior to our technologies, duplicate our technologies, or design around our patents, and may have or obtain patents or other proprietary rights that would prevent, limit, or interfere with our ability to make, use, or sell our products. Although we do not have foreign operations at this time, we may compete for contracts in non-US countries from time to time. Effective intellectual property protection may be unavailable, or limited, in some foreign countries in which we may do business, such as China. Unauthorized parties may attempt to copy or otherwise use aspects of our technologies and products that we regard as proprietary. Our means of protecting our proprietary rights in the United States or abroad may not be adequate or competitors may independently develop similar technologies. If our intellectual property protection is insufficient to protect our intellectual property rights, we could face increased competition in the market for our technologies and products.

Should any of our competitors file patent applications or obtain patents that claim inventions also claimed by us, we may choose to participate in an interference proceeding to determine the right to a patent for these inventions, because our business would be harmed if we fail to enforce and protect our intellectual property rights. Even if the outcome is favorable, this proceeding could result in substantial cost to us and disrupt our business.

In the future, we also may need to file lawsuits to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. This litigation, whether successful or unsuccessful, could result in substantial costs and diversion of resources, which could have a material adverse effect on our business, financial condition, and results of operations.

We depend on key personnel who would be difficult to replace, and our business plans will likely be harmed if we lose their services or cannot hire additional qualified personnel.

Our success depends substantially on the efforts and abilities of our senior management and certain key personnel. The competition for qualified management and key personnel, especially engineers, is intense. Although we maintain non-competition and non-disclosure covenants with all our key personnel, we do not have employment agreements with most of them. The loss of services of one or more of our key employees, or the inability to hire, train, and retain key personnel, especially engineers and technical support personnel, could delay the development and sale of our products, disrupt our business, and interfere with our ability to execute our business plan.

Potential strategic alliances may not achieve their objectives, and the failure to do so could impede our growth.

We may enter into strategic alliances. Among other matters, we continually explore strategic alliances designed to enhance or complement our technology or to work in conjunction with our technology; to provide necessary know-how, components, or supplies; to attract additional customers; and to develop, introduce, and distribute products utilizing our technology. Any strategic alliances may not achieve their intended objectives, and parties to our strategic alliances may not perform as contemplated. The failure of these alliances may impede our ability to introduce new products.

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Risks Related to Our Common Stock

There is currently not an active liquid trading market for the Company’s common stock.

Our common stock is quoted on the OTC Markets, QB tier under the symbol “DUOT”. However, there is currently no regular active trading market in our common stock. Although there are periodic volume spikes from time to time, we cannot give an assurance that a consistent, active trading market will develop in the short term. 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:

Our common stock is subject to the “penny stock” rules of the Securities and Exchange Commission, which may make it more difficult for stockholders to sell our common stock.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks, and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of the Company’s common stock if and when such shares are eligible for sale and may cause a decline in the market value of its stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

Future sales of common stock by Duos Technologies’ original shareholders or others or other dilutive events may adversely affect the market price of our common stock.

Our existing stockholders could sell any or all of the shares of common stock owned by them from time to time for any reason. Future sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect prevailing trading prices of our common stock and could impair our ability to raise capital through future offerings of equity or equity-related securities. We cannot speculate what effect, if any, future sales of our common stock, or the availability of shares for future sales, will have on the market price of our stock. As of December 31, 2015, our outstanding securities were as follows:

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Approximately 64.8 million shares of common stock outstanding

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Approximately 791,000 shares of common stock issuable upon conversion of two outstanding convertible notes at an average price of $0.15 per share

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Approximately 609,340 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average price of $0.54 per share

We may not be able to attract the attention of brokerage firms because we became a public company by means of a reverse acquisition.

Because we became public through a “reverse acquisition,” securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.

Our Board of Directors may issue and fix the terms of shares of our Preferred Stock without stockholder approval, which could adversely affect the voting power of holders of our Common Stock or any change in control of our Company.

Our Articles of Incorporation authorize the issuance of up to 10,000,000 shares of "blank check" preferred stock, $0.001 par value per share, with such designation rights and preferences as may be determined from time to time by the Board of Directors. Our Board of Directors is empowered, without shareholder approval, to issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our Common Stock. In the event of such issuances, the preferred stock could be used, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our company. 

We do not expect to pay dividends and investors should not buy our Common Stock expecting to receive dividends.

We do not anticipate that we will declare or pay any dividends in the foreseeable future. Consequently, you will only realize an economic gain on your investment in our common stock if the price appreciates. You should not purchase our common stock expecting to receive cash dividends. Since we do not pay dividends, and if we are not successful in establishing an orderly trading market for our shares, then you may not have any manner to liquidate or receive any payment on your investment. Therefore our failure to pay dividends may cause you to not see any return on your investment even if we are successful in our business operations. In addition, because we do not pay dividends we may have trouble raising additional funds which could affect our ability to expand our business operations.

We are likely to raise additional funds, finance acquisitions or develop strategic relationships by issuing capital stock.

We have financed our operations, and we expect to continue to finance our operations, acquisitions and develop strategic relationships, by issuing equity or convertible debt securities, which could significantly reduce the percentage ownership of our existing stockholders. Furthermore, any newly issued securities could have rights, preferences and privileges senior to those of our existing common stock. Moreover, any issuances by us of equity securities may be at or below the prevailing market price of our common stock and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our common stock to decline.

We may also raise additional funds through the incurrence of debt, and the holders of any debt we may issue would have rights superior to rights of our shareholders or creditors in the event we are not successful and are forced to seek the protection of the bankruptcy laws.

Our operating results are likely to fluctuate from period to period.

We anticipate that there may be fluctuations in our future operating results. Potential causes of future fluctuations in our operating results may include:

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Period-to-period fluctuations in financial results

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Issues in manufacturing products

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Unanticipated potential product liability claims

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The introduction of technological innovations or new commercial products by competitors

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The entry into, or termination of, key agreements, including key strategic alliance agreements

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The initiation of litigation to enforce or defend any of our intellectual property rights

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Regulatory changes

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Failure of any of our products to achieve commercial success

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General and industry-specific economic conditions that may affect research and development expenditures

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Future sales of our common stock

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Moreover, stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of our Common Stock.

Our business, financial condition and results of operations could be materially adversely affected by various risks, including, but not limited to the principal risks noted below. 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We do not own any real property. The Company has an operating lease agreement, through the former parent, for office space of approximately 8,308 square feet located in Jacksonville, Florida that is scheduled to expire as of April 30, 2016. Minimum rent payments under this lease is recognized on a straight-line basis over the term of the lease. The current monthly lease payment is $14,178. Rental expense for the lease during 2015 and 2014 was $142,593 and $142,091, respectively.

On March 8, 2016, the former parent executed an amendment to the current lease, with a start date of May 1, 2016 and ending on October 31, 2021. Rental expense for the months of March 2016 through May 2016 will be $0.00, followed by a monthly rent of $14,816 (including operating cost and taxes) commencing with the month of June 2016. The rent is subject to an annual escalation of 3%, beginning May 1, 2017.

ITEM 3. LEGAL PROCEEEDINGS.

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of December 31, 2015, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not Applicable.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our common stock is quoted on the OTC Market, QB, under the symbol “DUOT”. Prior to August 6, 2015, our common stock was quoted on the OTC Bulletin Board under the symbol “IOSA”.

Although trading in our common stock has occurred on a relatively consistent basis, the volume of shares traded has been sporadic. There can be no assurance that an established trading market will develop, that the current market will be maintained, or that a liquid market for our common stock will be available in the future. Investors should not rely on historical stock price performance as an indication of future stock price performance. 

The following table provides the high and low bid price information for our common stock for each quarterly period within the two most recent fiscal years as reported by the OTC Market. The quotation reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The prices listed are based on the one for two-hundred share reverse split that the Company implemented on April 9, 2015.

DIVIDEND POLICY

We have paid no dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. We plan to retain all earnings to provide funds for the operations of our company. In the future, our Board of Directors will decide whether to declare and pay dividends based upon our earnings, financial condition, capital requirements, and other factors that our Board of Directors may consider relevant. We are not under any contractual restriction as to present or future ability to pay dividends.

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UNREGISTERED SALES OF SECURITIES

In addition to those unregistered securities previously disclosed in reports filed with the Securities and Exchange Commission, or the SEC, we have sold the following securities without registration under the Securities Act of 1933, which we refer to as the “Securities Act”:

The sales were exempt under Rule 506 of section 4(a)(2) of the Securities Act of 1933, as amended. Each investor acquired the securities for investment and without a view to distribution.

ISSUER PURCHASES OF EQUITY SECURITIES

We do not have a stock repurchase program for our common stock and have not otherwise purchased any shares of our common stock.

ITEM 6. SELECTED FINANCIAL DATA.

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OUR COMPANY

Duos (f/k/a ISA) was incorporated in Florida on May 31, 1994 to engage in the business of developing software for the financial and asset management industries. In late 2014, ISA entered into negotiations with Duos Technologies for the purposes of executing a reverse triangular merger. This transaction was completed on April 1, 2015. Duos Technologies, Inc. (Duos) was incorporated under the laws of Florida on November 30, 1990 for the purpose of design, development and deployment of proprietary technology applications and turn-key engineered systems. Duos, based in Jacksonville, Florida, employs approximately 39 people and is a technology company with a strong portfolio of intellectual property, with core competencies that include advanced intelligent technologies that are delivered through its proprietary integrated enterprise command and control platform.

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RESULTS OF OPERATIONS

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

For the years ended December 31, 2015 compared to December 31, 2014

Revenues

Revenues were $6,767,763 and $4,202,457 for the years ended December 31, 2015 and 2014, respectively, a 61% year over year increase. The increase in revenue during 2015 largely resulted from a more than doubling in our project revenues as investment in sales and R&D over the past 2-years begin to deliver a return on investment. In addition, all revenue categories showed increases year over year including a more than 30% growth in our IT asset management services business as compared against the results for it as a standalone business in 2014.

Cost of Revenues

Costs of revenues were $3,196,176 and $2,132,103 for the years ended December 31, 2015 and 2014, respectively. The increase in 2015 cost of sales is due to growing Project revenue for the costs of implementation. The addition of the IT asset management services business added $185,212 against the prior year where the business was not yet part of Duos Technologies.

Gross Profit

Gross Profits were $3,571,587 and $2,070,354 for the years ended December 31, 2015 and 2014, respectively. The increase in 2015 resulted from a large increase in revenues offset by a higher cost of sales. The year over year comparison shows a higher rate of growth in cost of sales than in revenues.

Operating Expenses

Operating expenses for the years ended December, 2015 and 2014 were $5,798,895 and $3,658,046 respectively, an increase of $2,140,849. The 59% increase in operating expenses was primarily due to a one- time impairment loss of $1,578,816 as a result of the merger with Information Systems Associates, Inc. from the write-off of intangible assets. Excluding this one-time charge, expenses related to operations were higher by $562,031 as a result of an increase in employees from the merger, additional professional fees related to operating as a public company and additional spending on resource tools purchased for the research and development department by the Company.

Loss before other Income (Expense)

The loss from operations for the years ended, December 31, 2015 and 2014 were $2,227,308 and $1,587,692, respectively. The increase in loss from operations was primarily due to a one time impairment loss of $1,578,816 as a result of the merger with Information Systems Associates from the write-off of intangible assets. Excluding this one-time, non-cash, charge, the loss from ongoing operations was reduced by more than 41%.

Other Income (Expense)

Interest Expense

Interest expense for the years ended December 31, 2015 and 2014 were $744,343 and $515,539 respectively. The increase in interest expense was primarily related to higher financing costs as a result of the merger with Information Systems Associates and amortization of debt discounts related to features contained within certain convertible notes including warrant issuance costs. The Company also converted most of its convertible notes into common stock during 2015 which gave rise to a net amount of $216,271 in onetime non-cash charges in connection with the conversions and associated warrant issuances.

Other Income

Other income years ending December 31, 2015 and 2014 were $861,973 and $76, respectively. The large increase in 2015 was the result of the settlement of a previously charged contingent lawsuit liability of $1,411,650 which was settled in late 2015 for a fixed amount of $550,000, resulting in a positive, non-cash improvement in net income of $861,650.

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Net Loss

The net loss for the years ended December 31, 2015 and 2014 were $2,325,950 and $2,107,015 respectively. The $218,935 increase in net loss is primarily attributable to one-time, non-cash charges in connection with a one-time impairment loss of $1,578,816 as a result of the merger with Information Systems Associates, Inc. from the write-off of intangible assets. Net loss applicable to Common Stock was $2,325,950 in 2015 versus $2,643,391 in 2014, a reduction of $317,441. The loss in 2014 included a one-time charge for Preferred Stock Dividends charged to retained earnings of $536,376. Net loss per common share was $0.04 and $0.05 for the years ended December 31, 2015 and 2014, respectively.

Liquidity and Capital Resources

Cash flows used in operating activities for the years ended December 31, 2015 and 2014 were $2,116,481 and $985,650, respectively. Cash flows used in operations for the years ended December 31, 2015 and 2014 were due primarily to the net losses for the years. The losses in 2015 were positively impacted by approximately $2 million in non-cash charges including an almost $1.6 million impairment loss, offset by $1.7 million negative variance in changes in assets and liabilities.

Cash flows used in provided by investing activities for the years ended December 31, 2015 and 2014 were $75,236 and $30,346, respectively representing investments in certain assets required for continuing operations and research and development.

Cash flows provided by financing activities for the years ended December 31, 2015 and 2014 were $2,246,411 and $1,101,181, respectively. Cash flows from financing activities during 2015 were primarily attributable to proceeds from the issuances of new notes payable, partially offset by repayments of existing notes and short term credit facilities. Cash flows from financing activities during 2014 were primarily from proceeds of new notes payable partially offset by repayment of existing notes and short term credit facilities. During the year ended 2015 we were able to finance operations more through equity issuances rather than debt in an attempt to improve the overall health of our balance sheet.

On March 31, 2016, we entered into a Securities Purchase Agreement, which provides for, among other things, $1.8 million in debt financing which after loan fees, legal expenses and payment of certain existing debt obligations provides approximately $500,000 of additional working capital. The Company expects to close the debt financing on or about April 1, 2016, subject to the satisfaction of customary closing conditions.  Because of the growing nature of the business, we project that we will need additional capital to fund operations over the next 12 months. We anticipate we will need an additional $1 million for the year of 2016, which may be funded through equity instruments.

Overall, we have funded our cash needs from inception through December 31, 2015 with a series of debt and equity transactions, primarily with related parties. If we are unable to receive additional cash from our related parties, we may need to rely on financing from outside sources through equity transactions. Our related parties are under no legal obligation to provide us with capital infusions. Failure to obtain such financing could have a material adverse effect on operations and financial condition, however, the recent debt transaction has lessened the overall risk in this regard.

We had available cash resources of $955 as of March 31, 2016.  On March 31, 2016, we entered into a Securities Purchase Agreement, which provides for, among other things, $1.8 million in debt financing which after loan fees, legal expenses and payment of certain existing debt obligations provides approximately $500,000 of additional working capital. The Company expects to close the debt financing on or about April 1, 2016, subject to the satisfaction of customary closing conditions. Currently, our available cash resources allow us to maintain operations as presently conducted until December, 2016. This is based on our cash flow needs from operations and our existing working capital deficit. We will need to obtain additional capital through equity financing to sustain operations beyond that date. Our current level of operations would require additional capital of at least $500,000. Modifications to our business plans may also require additional capital for us to operate. For example, if we have an opportunity for an accretive acquisition, it would likely require additional capital above our current need. Conversely, if we are unable to raise additional capital in the future we may need to curtail our number of product offers or limit our marketing efforts to the most profitable geographical areas. This may result in lower revenues and market share for us. In addition, there can be no assurance that additional capital will be available to us when needed or available on terms favorable to us.

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

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Demand for the products and services will be dependent on, among other things, market acceptance of our products and services, the technology market in general, and general economic conditions, which are cyclical in nature. Inasmuch as a major portion of our activities is the receipt of revenues from the sales of our products and services, our business operations may be adversely affected by our competitors and prolonged recession periods.

OFF BALANCE SHEET ARRANGEMENTS

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

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenue recognition, bad debts, investments, intangible assets, and income taxes. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

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

Revenue Recognition

The Company generates revenue from three sources: (1) Project Implementation; (2) Maintenance and Technical Support and (3) IT Asset Management (consulting & auditing).

Project Revenue

The Company constructs intelligent technology systems consisting of materials and labor under customer contracts. Revenues and related costs on project revenue are recognized using the “percentage of completion method” of accounting in accordance with ASC 605-35, “Construction-Type and Production-Type Contracts”. Under this method, contract revenues are recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs include direct material, direct labor, subcontract labor and other allocable indirect costs. All un-allocable indirect costs and corporate general and administrative costs are also charged to the periods as incurred. Any recognized revenues that have not been billed to a customer are recorded as an asset in “costs and estimated earnings in excess of billings on uncompleted contracts”. Any billings of customers in excess of recognized revenues are recorded as a liability in “billings in excess of costs and estimated earnings on uncompleted contracts”. However, in the event a loss on a contract is foreseen, the Company will recognize the loss when such loss is determined.

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

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

Maintenance and Technical Support

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

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

IT Asset Management Services

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

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

For sales arrangements that do not involve multiple elements: 

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

(2) Throughout the date of this report, software license sales have been one time sales of a perpetual license to use our software product and the customer also has the option to purchase third party manufactured handheld devices from us if they purchase our software license. Accordingly the revenue is recognized upon delivery of the software and delivery of the hardware, as applicable, to the customer;

(3) Training sales are one-time upfront short term training sessions and are recognized after the service has been performed; and

(4) Maintenance/support is an optional product sold to our software license customers under one year contracts. Accordingly, maintenance payments received upfront are deferred and recognized over the contract term.

Multiple Elements

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

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

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Use of Estimates

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The information called for by Item 8 is included following the "Index to Financial Statements" on page F-1 contained in this annual report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.

Not applicable

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this report. In making this assessment, our management used the criteria set forth in the framework contained in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this report based on those criteria.

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

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2016 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2016 annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2016 annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORS INDEPENDENCE.

The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2016 annual meeting of stockholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2016 annual meeting of stockholders.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a)

Documents filed as a part of this submittal:

(1)

Financial Statements. See Index to Consolidated Financial Statements, which appear on page F-1 hereof. The financial statements listed in the accompanying Index to Consolidated Financial Statements are filed herewith in response to this Item.

(2)

Financial Statements Schedules.

(3)

Exhibits

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SIGNATURES

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

Pursuant to requirements with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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INDEX TO FINANCIAL STATEMENTS

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of:

Duos Technologies Group, Inc.

We have audited the accompanying consolidated balance sheets of Duos Technologies Group, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2015.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Duos Technologies Group, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company reported a net loss of $2,325,950 and cash used in operating activities of $2,116,481 in 2015. At December 31, 2015, the Company had a working capital deficiency, stockholders’ deficit and accumulated deficit of $3,888,273, $3,758,723 and $20,951,176 respectively. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans as to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Salberg & Company, P.A.

SALBERG & COMPANY, P.A.

Boca Raton, Florida

March 31, 2016

2295 NW Corporate Blvd., Suite 240 • Boca Raton, FL 33431-7328

Phone: (561) 995-8270 • Toll Free: (866) CPA-8500 • Fax: (561) 995-1920

www.salbergco.com • info@salbergco.com

Member National Association of Certified Valuation Analysts • Registered with the PCAOB

Member CPAConnect with Affiliated Offices Worldwide • Member AICPA Center for Audit Quality

F-2

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See accompanying notes to the consolidated financial statements.

F-3

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to the consolidated financial statements.

F-4

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

For the Years Ended December 31, 2015 and 2014

See accompanying notes to the consolidated financial statements.

F-5

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the consolidated financial statements.

F-6

DUOS TECHNOLOGIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)