What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2021-03-31 compared with 2020-04-06 · 331 added, 225 removed, 199 unchanged (74% of the section changed)

produce digital video imaging and storage products for use in law enforcement, security and commercial applications.

products are an in-car digital video/audio recorder contained in a rear-view mirror for use in law enforcement and commercial

a system that provides its law enforcement customers with audio/video surveillance from multiple vantage points and hands-free

automatic activation of body-worn cameras and in-car video systems;

a miniature digital video system designed to be worn on an

individual’s body;

We produce digital video

imaging, storage products and disinfectant and related safety products for use in law enforcement, security and commercial applications.

Our current products include, in-car digital video/audio recorders contained in a rear-view mirror for use in law enforcement

and commercial fleets;

a system that provides its law enforcement customers with audio/video surveillance from multiple vantage

points and hands-free automatic activation of body-worn cameras and in-car video systems;

a miniature digital video system designed

to be worn on an individual’s body;

and cloud storage solutions.

We have active research and development programs to adapt our technologies

to other applications.

We can integrate electronic, radio, computer, mechanical, and multi-media technologies to create unique

solutions to address needs in a variety of other industries and markets, including mass transit, school bus, taxicab and the military.

We sell our products to law enforcement agencies, private security customers and organizations and consumer and commercial fleet

operators through direct sales domestically and third-party distributors internationally.

Additionally, the Company has recently added two new lines

of branded products:

(1) the ThermoVu™

which is a line of self-contained temperature monitoring stations that provides alerts

and controls facility access when an individual’s temperature exceeds a pre-set threshold and (2) our Shield™

disinfectants

and cleansers which are for use against viruses and bacteria.

The Company began offering its Shield™

disinfectants

and cleansers to its law enforcement and commercial customers late in the second quarter of 2020.

We have active research

and development programs to adapt our technologies to other applications.

We can integrate electronic, radio, computer, mechanical,

and multi-media technologies to create unique solutions to address needs in a variety of other industries and markets, including

mass transit, school bus, taxicab and the military.

We sell our products to law enforcement agencies, private security customers

and organizations and consumer and commercial fleet operators through direct sales domestically and third-party distributors internationally.

were incorporated in Nevada on December 13, 2000 as Vegas Petra, Inc.

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January 2, 2008, we commenced trading on the Nasdaq Capital Market under the symbol “DGLY.”

We conduct our business

from 9705 Loiret Boulevard, Lenexa, Kansas 66219.

We conduct our

business from 15612 College Blvd, Lenexa, Kansas 66219.

Our telephone number is (913) 814-7774.

The consolidated financial

statements contained in this Report as well as the description of our business contained herein, unless otherwise indicated, principally

reflect the status of our business and the results of our operations as of December 31, 2019.

Since that date, economies throughout

the world have been severely disrupted by the effects of the quarantines, business closures and the reluctance of individuals

to leave their homes as a result of the outbreak of the coronavirus (COVID-19).

Although we remain open as an “essential

business,”

our supply chain has been disrupted and our customers and in particular our commercial customers have

been significantly impacted which has, in turn, reduced our level of operations and activities.

the capital markets have been disrupted and our efforts to raise necessary capital will likely be adversely impacted by the

outbreak of the virus and we cannot forecast with any certainty when the disruptions caused by it will cease

to impact our business and the results of our operations.

In reading this report on Form 10-K, including our

discussion of our ability to continue as a going concern set forth herein, in each case, consider the additional uncertainties

caused by the outbreak of COVID-19.

supply technology-based products utilizing our portable digital video and audio recording capabilities for the law enforcement

and security industries and for the commercial fleet and mass transit markets.

We have the ability to integrate electronic, radio,

computer, mechanical, and multi-media technologies to create positive solutions to our customers’

the DVM-800 and DVM-800 Lite, in-car digital video mirror systems for law enforcement;

the FirstVU and the FirstVU HD,

body-worn cameras;

COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different

global geographies, including locations where we have offices, employees, customers, vendors and other suppliers and business

most US-based businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March

By that time, much of our first fiscal quarter was completed.

During the remainder of the year ended December 31, 2020,

we observed recent decreases in demand from certain customers, including primarily our law-enforcement and commercial customers.

the fact that our products are sold through a variety of distribution channels, we expect our sales will experience more volatility

as a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic.

are aware that many companies, including many of our suppliers and customers, are reporting or predicting negative impacts from

COVID-19 on future operating results.

Although we observed significant declines in demand for our products from certain customers

during the year ended December 31, 2020, we believe that it remains too early for us to know the exact impact COVID-19 will have

on the long-term demand for our products.

We also cannot be certain how demand may shift over time as the impacts of the COVID-19

pandemic may go through several phases of varying severity and duration.

light of broader macro-economic risks and already known impacts on certain industries that use our products and services, we have

taken, and continue to take targeted steps to lower our operating expenses because of the COVID-19 pandemic.

We continue to monitor

the impacts of COVID-19 on our operations closely and this situation could change based on a significant number of factors that

are not entirely within our control and are discussed in this and other sections of this Annual Report on Form 10-K.

expect there to be material changes to our assets on our balance sheet or our ability to timely account for those assets.

in connection with the preparation of this Annual Report on Form 10-K, we reviewed the potential impacts of the COVID-19 pandemic

on goodwill and intangible assets and have determined there to be no material impact at this time.

We have also reviewed the potential

impacts on future risks to the business as it relates to collections, returns and other business-related items.

date, travel restrictions and border closures have not materially impacted our ability to obtain inventory or manufacture or deliver

products or services to customers.

However, if such restrictions become more severe, they could negatively impact those activities

in a way that would harm our business over the long term.

Travel restrictions impacting people can restrain our ability to assist

our customers and distributors as well as impact our ability to develop new distribution channels, but at present we do not expect

these restrictions on personal travel to be material to our business operations or financial results.

We have taken steps to restrain

and monitor our operating expenses and therefore we do not expect any such impacts to materially change the relationship between

costs and revenues.

most companies, we have taken a range of actions with respect to how we operate to assure we comply with government restrictions

and guidelines as well as best practices to protect the health and well-being of our employees and our ability to continue operating

our business effectively.

To date, we have been able to operate our business effectively using these measures and to maintain

internal controls as documented and posted.

We also have not experienced challenges in maintaining business continuity and

do not expect to incur material expenditures to do so.

However, the impacts of COVID-19 and efforts to mitigate the same have

remained unpredictable and it remains possible that challenges may arise in the future.

actions we have taken so far during the COVID-19 pandemic include, but are not limited to:

all employees who can work from home to work from home;

our IT networking capability to best assure employees can work effectively outside the office;

employees who must perform essential functions in one of our offices:

employees maintain a distance of at least six feet from

other employees whenever possible;

employees work in dedicated shifts to lower the risk all

employees who perform similar tasks might become infected by COVID-19;

employees stay segregated from other employees in the office

with whom they require no interaction;

employees to wear masks while they are in the office whenever

currently believe revenue for the year ending December 31, 2021 may decline year over year due to the conditions noted.

2020, we implemented a COVID-19 mitigation plan designed to further reduce our operating expenses during the pandemic.

taken to date include work hour and salary reductions for senior management.

These cost reductions are in addition to the significant

restructuring actions we initiated in the first quarter of 2020.

Based on our current cash position, our projected cash flow from

operations and our cost reduction and cost containment efforts to date, we believe that we will have sufficient capital and or

have access to sufficient capital through public and private equity and debt offerings to sustain operations for a period of one

year following the date of this filing.

If business interruptions resulting from the COVID-19 pandemic were to be prolonged or

expanded in scope, our business, financial condition, results of operations and cash flows would be negatively impacted.

continue to actively monitor this situation and will implement actions necessary to maintain business continuity.

We supply technology-based

products utilizing our portable digital video and audio recording capabilities for the law enforcement and security industries

and for the commercial fleet and mass transit markets.

We have the ability to integrate electronic, radio, computer, mechanical,

and multi-media technologies to create positive solutions to our customers’

Our products include:

and DVM-800 Lite, which are in-car digital video mirror systems for law enforcement;

the FirstVU and the FirstVU HD, which

are body-worn cameras;

our patented and revolutionary VuLink product, which integrates our body-worn cameras with our in-car

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the DVM-250 and DVM-250

Plus, a commercial line of digital video mirrors that serve as “event recorders”

for the commercial fleet and mass

transit markets;

and FleetVU and VuLink, our cloud-based evidence management systems.

We introduced the EVO-HD product in the

second quarter of 2019 and began full-scale deliveries in the third quarter 2019.

The EVO-HD is designed and built on a new and

highly advanced technology platform that will become the platform for a new family of in-car video solution products for the law

enforcement and commercial markets.

We believe that the launch of these new products will help to reinvigorate our in-car and

body-worn systems revenues while diversifying and broadening the market for our product offerings.

The following describes our

product portfolio.

Plus, which are our commercial line of digital video mirrors that serve as “event recorders”

for the commercial

fleet and mass transit markets;

and FleetVU and VuLink, which are our cloud-based evidence management systems.

We introduced

the EVO-HD product in the second quarter of 2019 and began full-scale deliveries in the third quarter 2019, which continued into

The EVO-HD is designed and built on a new and highly advanced technology platform that will become the platform for a new

family of in-car video solution products for the law enforcement and commercial markets.

We believe that the launch of these new

products will help to reinvigorate our in-car and body-worn systems revenues while diversifying and broadening the market for

our product offerings.

Additionally, we introduced two new lines of branded products:

(1) the ThermoVu™

which is a line

of self-contained temperature monitoring stations that provides alerts and controls facility access when an individual’s

temperature exceeds a pre-set threshold and (2) our Shield™

disinfectants and cleansers which are for use against viruses

and bacteria.

We began offering our Shield™

disinfectants and cleansers to our law enforcement and

commercial customers late in the second quarter of 2020.

The following describes our product portfolio.

Digital Video Mirror System for law enforcement –

EVO-HD, DVM-800 and DVM-800 Lite

video systems for patrol cars are now a necessity and have generally become standard.

Current systems are primarily digital based

systems with cameras mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console

or under the seat of the vehicle.

Most if not all manufacturers have already developed and transitioned completely to digital

video, and some have offered full high definition (“HD”) level recordings which is currently state-of-art for the

In-car video systems for

patrol cars are now a necessity and have generally become standard.

Current systems are primarily digital based systems with cameras

mounted on the windshield and the recording device generally in the trunk, headliner, dashboard, console or under the seat of

Most manufacturers have developed and transitioned completely to digital video, and some have offered full high definition

(“HD”) level recordings, which is currently state-of-art for the industry.

digital video rear-view mirror unit is a self-contained video recorder, microphone and digital storage system that is integrated

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in-car digital video rear-view mirror has the following features:

wide angle zoom

color camera;

angle zoom color camera;

standards-based

video and audio compression and recording;

system is concealed

in the rear-view mirror, replacing factory rear-view mirror;

monitor in rear-view

mirror is invisible when not activated;

easily installs

in any vehicle;

ability to integrate

with body-worn cameras including auto-activation of either system;

archives audio/video

data to the cloud, computers (wirelessly) and to compact flash memory, or file servers;

900 MHz audio transceiver

with automatic activation;

marks exact location

of incident with integrated GPS;

playback using Windows

Media Player;

optional wireless

download of stored video evidence;

proprietary software

protects the chain of custody;

records to rugged

and durable solid-state memory.

Company has completed development of a new in-car digital video platform under the name EVO-HD which it launched during the second

quarter of 2019.

The EVO-HD is a next generation system that offers a multiple HD in-car camera solution system with built-in

patented VuLink auto-activation technology.

The EVO-HD is built on an entirely new and highly advanced technology platform that

enables many new and revolutionary features, including auto activation beyond the car and body camera.

No other provider can offer

built-in patented VuLink auto-activation technology.

The EVO-HD provides law enforcement officers with an easier to use, faster

and more advanced system for capturing video evidence and uploading than the Company’s competitors.

Additional features

a remote cloud trigger feature that allows dispatchers

to remotely start recordings;

simultaneous audio/video play back;

cloud connectivity via cell modem, including

the planned deployment of the new 5G network;

near real-time mapping and system health monitoring;

body-camera connectivity with built-in auto

activation technology;

128 gigabyte internal storage, up to 2 terabyte

external solid-state drive storage.

EVO-HD is designed and built on a new and highly advanced technology platform that will become the platform for a whole new family

of in-car video solution products for the law enforcement.

is concealed in the rear-view mirror, replacing factory rear-view mirror;

in rear-view mirror is invisible when not activated;

installed in any vehicle;

to integrate with body-worn cameras including auto-activation of either system;

audio/video data to the cloud, computers (wirelessly) and compact flash memory, or file servers;

MHz audio transceiver with automatic activation;

exact location of incident with integrated GPS;

using Windows Media Player;

wireless download of stored video evidence;

software protects the chain of custody;

to rugged and durable solid-state memory.

The Company launched

its in-car digital video platform under the name EVO-HD during the second quarter of 2019.

The EVO-HD is a next generation

system that offers a multiple HD in-car camera solution system with built-in patented VuLink auto-activation technology.

is built on a new and highly advanced technology platform that enables many new and revolutionary features, including auto

activation beyond the car and body camera.

We believe that no other provider can offer built-in patented VuLink auto-activation

The EVO-HD provides law enforcement officers with an easier to use, faster and more advanced system for capturing

video evidence and uploading than the Company’s competitors.

Additional features include:

remote cloud trigger feature that allows dispatchers to remotely start recordings;

audio/video play back;

connectivity via cell modem, including the planned deployment of the new 5G network;

real-time mapping and system health monitoring;

connectivity with built-in auto activation technology;

gigabyte internal storage and, up to 2 terabyte external solid-state drive storage.

The EVO-HD is designed

and built on a new and highly advanced technology platform that is expected to become the platform for a new family of

in-car video solution products for law enforcement.

The innovative EVO-HD technology replaces the current in-car mirror-based

systems with a miniaturized system that can be custom-mounted in the vehicle while offering numerous hardware configurations to

meet the varied needs and requirements of its law enforcement customers.

The EVO-HD can support up to four HD cameras, with two

cameras having pre-event and evidence capture assurance (“ECA”) capabilities to allow agencies to review entire shifts.

meet the varied needs and requirements of our law enforcement customers.

The EVO-HD can support up to four HD cameras,

with two cameras having pre-event and evidence capture assurance (“ECA”) capabilities to allow agencies to review

entire shifts.

An internal cell modem will allow for connectivity to the VuVault.net cloud, powered by Amazon Web Services (“AWS”)

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DVM-250 Plus for Commercial Fleets

Ally provides commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety

and track assets in real-time and minimize the company’s liability risk, all while enabling fleet managers to operate the

fleet at an optimal level.

We market a product designed to address these commercial fleet markets with our DVM-250 Plus event

recorders that provide all types of commercial fleets with features and capabilities which are fully-customizable, consistent

with their specific application and inherent risks.

The DVM-250 Plus is a rear-view mirror based digital audio and video recording

system with many, but not all of, the features of our DVM-800 law enforcement mirror systems, which we sell at a lower price point.

The DVM-250 Plus is designed to capture “events,”

such as wrecks and erratic driving or other abnormal occurrences,

for evidentiary or training purposes.

The commercial fleet markets may find our units attractive from both a feature and a cost

perspective compared to other providers.

We believe that due to our marketing efforts, commercial fleets are adopting this technology,

in particular the ambulance and taxi-cab markets.

Ally offers a suite of data management web-based tools to assist fleet managers in the organization, archival, and management

of videos and telematics information.

Within the suite, there are powerful mapping and reporting tools that are intended to optimize

efficiency, serve as excellent training tools for teams on safety and ultimately generate a significant return on investment for

the organization.

plans for the EVO-HD described above will also become the platform for a whole new family of in-car video solution products for

the commercial markets.

The innovative EVO-HD technology will replace the current in-car mirror-based systems with a miniaturized

system that can be custom-mounted in the vehicle while offering numerous hardware configurations to meet the varied needs and

requirements of its commercial customers.

In its commercial market application, the EVO-HD can support up to four HD cameras,

with two cameras having pre-event and ECA capabilities to allow customers to review entire shifts.

An internal cell modem will

allow for connectivity to the FleetVU Manager cloud-based system for commercial fleet tracking and monitoring, powered by AWS

and real time metadata when in the field.

Digital Ally provides

commercial fleets and commercial fleet managers with the digital video tools that they need to increase driver safety,

track assets in real-time and minimize the company’s liability risk while enabling fleet managers to operate the fleet at

an optimal level.

We market a product designed to address these commercial fleet markets with our DVM-250 Plus event recorders

that provide various types of commercial fleets with features and capabilities that are fully-customizable and

consistent with their specific application and inherent risks.

The DVM-250 Plus is a rear-view mirror based digital audio

and video recording system with many, but not all, of the features of our DVM-800 law enforcement mirror systems, which

we sell at a lower price point.

The DVM-250 Plus is designed to capture events, such as wrecks and erratic driving or other

abnormal occurrences, for evidentiary or training purposes.

The commercial fleet markets may find our units attractive from both

a feature and a cost perspective compared to other providers.

We believe that, due to our marketing efforts, commercial

fleets are adopting this technology, and in particular, the ambulance and taxi-cab markets.

Digital Ally offers a

suite of data management web-based tools to assist fleet managers in the organization, archival, and management of videos and

telematics information.

Within the suite, there are powerful mapping and reporting tools that are intended to optimize efficiency,

serve as training tools for teams on safety, and, ultimately, generate a significant return on investment for the organization.

The Company’s

management expects EVO-HD to become the platform for a new family of in-car video solution products for the commercial

The innovative EVO-HD technology is expected to replace the current in-car mirror-based systems with a miniaturized

system that can be custom-mounted in the vehicle, while offering numerous hardware configurations to meet the varied needs

and requirements of the Company’s commercial customers.

In its commercial market application, the EVO-HD can support

up to four HD cameras, with two cameras having pre-event and ECA capabilities to allow customers to review entire shifts.

cell modem will allow for connectivity to the FleetVU Manager cloud-based system for commercial fleet tracking and monitoring,

which is powered by AWS and real time metadata when in the field.

Body-Worn Digital Video System –

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allowing for automatic activation of both systems.

feature is becoming a standard feature required by many law agencies.

Unfortunately, certain of our competitors have chosen to

infringe our patent and develop products that provide the same or similar features as our VuLink system.

We filed lawsuits against

two competitors –

Axon Enterprises, Inc.

(“Axon,”

formerly known as Taser International, Inc.) and Enforcement

Video, LLC d/b/a WatchGuard Video (“WatchGuard”) –

which challenge Axon’s and WatchGuard’s infringing

On May 13, 2019, we and WatchGuard resolved the dispute and executed a settlement agreement in the form of a

Release and License Agreement.

The litigation has been dismissed as a result of this settlement.

See Item 3, “Legal Proceedings.”

and FleetVU Manager

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web portal that utilizes many of the features of our VuVault.net law-enforcement cloud-based storage solution.

the last year, we focused our research and development efforts to meet the varying needs of our customers, enhance our existing

products and commence development of new products and product categories.

Our research and development efforts are intended to

maintain and enhance our competitiveness in the market niche we have carved out, as well as positioning us to compete in diverse

markets outside of law enforcement.

In December 2019, the we announced a partnership with Pivot International for design and manufacture

of a new and innovative Breathalyzer Device utilizing our recently issued patent.

new technology, when an officer is conducting a field sobriety test and the breathalyzer is activated, the digital video recording

device will automatically start a recording, later embedding the meta-data captured onto the recorded video.

The ‘732 Patent

was granted by the U.S.

Patent Office in August of 2019 and is an expansion of our patented VuLink automatic activation technology.

and Shield Disinfectants

is a non-contact temperature-screening instrument that measures temperature through the wrist and controls entry to facilities

when temperature measurements exceed pre-determined parameters.

ThermoVu has optional features such as facial recognition to improve

facility security by restricting access based on temperature and/or facial recognition reasons.

ThermoVu provides an instant pass/fail

audible tone with its temperature display and controls access to facilities based on such results.

Disinfectants and Cleansers consists of a disinfectant and cleanser line, which is for use against viruses and bacteria, that

is less harsh than many of the traditional products now widely distributed.

Shield Disinfectants and Cleansers is offered in a

variety of sizes and quantities.

Company has also begun distributing other personal protective equipment and supplies such as masks and gloves to supplement

its Shield brand of products to health care workers as well as other consumers.

During the last year,

we focused our research and development efforts to meet the varying needs of our customers, enhance our existing products and

commence development of new products and product categories.

Our research and development efforts are intended to maintain and

enhance our competitiveness in the market niche we have carved out, as well as positioning us to compete in diverse markets outside

of law enforcement.

In December 2019, we announced a partnership with Pivot International for design and manufacture of a new

and innovative Breathalyzer Device utilizing our recently issued patent.

With this new technology,

when an officer is conducting a field sobriety test and the breathalyzer is activated, the digital video recording device will

automatically start a recording, later embedding the meta-data captured onto the recorded video.

(the “‘732 Patent’”) was granted by the U.S.

Patent Office in August 2019 and is an expansion of our

patented VuLink automatic activation technology.

and Industry Overview

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Video evidence also helps to protect police departments against frivolous lawsuits.

important largest source of police video evidence today is in-car video.

Unfortunately, some police cars still do not have in-car

video, and in those that do, the camera usually points forward rather than to the side of the road where the sobriety test takes

The in-car video is typically of little use for domestic violence investigations, burglary or theft investigations, disorderly

conduct calls or physical assaults.

In virtually all of these cases, the FirstVU HD may provide recorded evidence of the suspect’s

actions and reactions to police intervention.

An important source of

police video evidence today is in-car video.

Some police cars still do not have in-car video, and in those that do, the

camera usually points forward rather than to the side of the road where the sobriety test takes place.

The in-car video is typically

of little use for domestic violence investigations, burglary or theft investigations, disorderly conduct calls or physical assaults.

In virtually all of these cases, the FirstVU HD may provide recorded evidence of the suspect’s actions and reactions to

police intervention.

Additionally,

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environment in general for schools.

Additionally,

we believe this market would heavily utilize our new ThermoVu and Shield lines as the economy continues to deal with the Covid-19

Security Companies

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security for specific dates rather than 100% of the time.

We believe that this area will be a productive source of future revenues.

Additionally, we believe this market would heavily utilize our new

ThermoVu and Shield lines as the economy continues to deal with the Covid-19 pandemic.

We believe that this area will be a productive

source of future revenues.

Security Market

addition to the government, U.S.

corporations are spending heavily for protection against the potential of terrorist attacks.

corporations are spending heavily for protection against potential terrorist attacks.

Public and private-sector outlays for antiterrorism measures and for protection against other forms of violence are significant.

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a core of knowledgeable production personnel for consistent quality and to limit the dissemination of sensitive intellectual property,

and will continue this practice.

In addition, such technicians are valuable in our service and repair business to support our

growing installed customer base.

and we expect to continue this practice.

In addition, such technicians are valuable in our service and repair business

to support our growing installed customer base.

also contract with two manufacturers that have manufacturing facilities in the Philippines and South Korea to produce our DVM-250

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The direct territory

sales team is supported by a team of five inside sales representatives, and a tele-sales specialist and a pre-sales solution design

sales team is supported by a team of five inside sales representatives, a tele-sales specialist and a pre-sales solution design

We also have a bid specialist to coordinate large bid opportunities.

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Our key promotional activities include:

attendance at industry

trade shows and conventions;

direct sales, with

a force of industry-specific sales individuals who identify, call upon and build on-going relationships with key purchasers

and targeted industries;

support of our direct

sales with passive sales systems, including inside sales and e-commerce;

print advertising

in journals with specialized industry focus;

direct mail campaigns

targeted to potential customers;

web advertising,

including supportive search engines and website and registration with appropriate sourcing entities;

our NASCAR relationship

is supportive of developing new business opportunities by and between the sponsors at NASCAR sponsored events in addition

to the races;

public relations,

industry-specific venues, as well as general media, to create awareness of our brand and our products, including membership

in appropriate trade organizations;

brand identification

through trade names associated with us and our products.

law enforcement and security surveillance markets are extremely competitive.

Competitive factors in these industries include ease

of use, quality, portability, versatility, reliability, accuracy and cost.

There are direct competitors with technology and products

in the law enforcement and surveillance markets for all our products and those we have in development.

Many of these competitors

have significant advantages over us, including greater financial, technical, marketing and manufacturing resources, more extensive

distribution channels, larger customer bases and faster response times to adapt new or emerging technologies and changes in customer

requirements.

Our primary competitors in the in-car video systems market include L-3 Mobile-Vision, Inc., Coban Technologies,

Inc., WatchGuard, Kustom Signals, Panasonic System Communications Company, International Police Technologies, Inc.

of other competitors who sell, or may in the future sell, in-car video systems to law enforcement agencies.

Our primary competitors

in the body-worn camera market include Axon, Reveal Media, WatchGuard and VieVU, Inc., which was acquired by Axon in 2018.

face similar and intense competitive factors for our event recorders in the mass transit markets as we do in the law enforcement

and security surveillance markets.

We will also compete with any company making surveillance devices for commercial use.

can be no assurance that we will be able to compete successfully in these markets.

Further, there can be no assurance that new

and existing companies will not enter the law enforcement and security surveillance markets in the future.

at industry trade shows and conventions;

sales, with a force of industry-specific sales individuals who identify, call upon and build on-going relationships with key

purchasers and targeted industries;

of our direct sales with passive sales systems, including inside sales and e-commerce;

advertising in journals with specialized industry focus;

mail campaigns targeted to potential customers;

advertising, including supportive search engines and website and registration with appropriate sourcing entities;

NASCAR relationship is supportive of developing new business opportunities by and between the sponsors at NASCAR sponsored

events in addition to the races;

relations, industry-specific venues, as well as general media, to create awareness of our brand and our products, including

membership in appropriate trade organizations;

identification through trade names associated with us and our products.

The law enforcement and

security surveillance markets are extremely competitive.

Competitive factors in these industries include ease of use, quality,

portability, versatility, reliability, accuracy and cost.

There are direct competitors with technology and products in the law

enforcement and surveillance markets for all of our products, including those that are in development.

of these competitors have significant advantages over us, including greater financial, technical, marketing and manufacturing

resources, more extensive distribution channels, larger customer bases and faster response times to adapt new or emerging technologies

and changes in customer requirements.

Our primary competitors in the in-car video systems market include L-3 Mobile-Vision, Inc.,

Coban Technologies, Inc., Enforcement Video, LLC d/b/a WatchGuard Video (“WatchGuard”), Kustom Signals,

Panasonic System Communications Company, International Police Technologies, Inc.

and a number of other competitors who sell, or

may in the future sell, in-car video systems to law enforcement agencies.

Our primary competitors in the body-worn camera market

include Axon Enterprises, Inc.

(“Axon”), Reveal Media, WatchGuard, and VieVU, Inc., which was acquired by Axon

We face similar and intense competitive factors for our event recorders in the mass transit markets as we do in the law

enforcement and security surveillance markets.

We will also compete with any company making surveillance devices for commercial

There can be no assurance that we will be able to compete successfully in these markets.

Further, there can be no assurance

that new and existing companies will not enter the law enforcement and security surveillance markets in the future.

commercial fleet security and surveillance markets likewise are also very competitive.

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Plus “event recorders,”

which several may have greater financial, technical marketing, and manufacturing resources

which may have greater financial, technical marketing, and manufacturing resources

Our primary competitors in the commercial fleet sector include Lytx, Inc.

25 unchanged sentences

gain access to our trade secrets and know-how.

filed lawsuits against Axon and WatchGuard to protect our various patents.

“Legal Proceedings.”

had 119 full-time employees as of December 31, 2019.

Our employees are not covered by any collective bargaining agreement and

we have never experienced a work stoppage.

We believe that our relations with our employees are good.

Risk Factors.

Unresolved Staff Comments.

of December 31, 2020, Digital Ally had approximately full-time 86 employees spread throughout the country, representing

the core values and objectives of the Company.

Our employees are our most important assets and they set the foundation for our

ability to achieve our strategic objectives.

All of our employees contribute to Digital Ally’s success and, in particular,

the employees in our manufacturing, sales, research and development, and quality assurance departments are instrumental

in driving operational execution and strong financial performance, advancing innovation and maintaining a strong quality and compliance

employees are not covered by any collective bargaining agreement and we have never experienced a work stoppage.

We strive to create

a culture and work environment that enables us to attract, train, promote, and retain a diverse group of talented employees who

together can help us gain a competitive advantage.

Our key programs and initiatives that are focused to attract, develop and retain

our diverse workforce include:

Programs and Employee Benefits:

the main objective of Digital Ally’s compensation program is to provide a compensation

package that will attract, retain, motivate and reward superior employees who must operate in a highly competitive and technologically

challenging environment.

We seek to do this by linking annual changes in compensation to overall Company performance, as well

as each individual’s contribution to the results achieved.

The emphasis on overall Company performance is intended to

align the employee’s financial interests with the interests of shareholders.

Digital Ally also seeks fairness in total

compensation with reference to external comparisons, internal comparisons and the relationship between management and non-management

remuneration.

The structure of our compensation programs balances incentive earnings for both short-term and long-term performance.

Specifically:

provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and

geographic location.

align our executives’

long-term equity compensation with our shareholders’

interests by linking realizable pay

with stock performance.

increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented

through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.

employees are eligible for health insurance, paid and unpaid leaves, short-term disability, worker’s compensation, long-term

disability, a retirement plan and life and disability/accident coverage.

We also offer a variety of voluntary benefits that

allow employees to select the options that meet their needs.

Health and Safety:

the health and safety of our employees are top priorities, which was emphasized this year

amidst the global COVID-10 pandemic.

Digital Ally is committed to operating in a safe, secure and responsible manner for the

benefit of its employees, customers and communities Digital Ally serves.

Our safety focus is evident in our response to the

COVID-19 pandemic:

work from home flexibility;

regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures;

temperature screening of employees at the majority of our manufacturing facilities;

cleaning protocols across all locations;

additional personal protective equipment and cleaning supplies;

protocols to address actual and suspected COVID-19 cases and potential exposure;

masks to be worn in all locations.

Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business