What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-31 compared with 2020-04-06 · 1008 added, 861 removed, 436 unchanged (81% of the section changed)

Market for Registrant’s

Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

common stock commenced trading on the NASDAQ Capital Market on January 2, 2008 under the symbol “DGLY,”

and continues

From July 2007 until we became listed on the NASDAQ Capital Market, our common stock was traded on the OTC Bulletin

Board and prior to that it was quoted in the “Pink Sheets.”

high/low closing prices of our common stock were as follows for the periods below.

In addition, the quotations below reflect inter-dealer

bid prices without retail markup, markdown, or commission and may not represent actual transactions:

Year Ended December 31, 2019

Year Ended December 31, 2018

for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock, par

value $0.001 per share (“Common Stock”), commenced trading on the Nasdaq Capital Market on January 2, 2008 under the

symbol “DGLY,”

and continues to do so.

From July 2007 until we became listed on the Nasdaq Capital Market, our Common

Stock was traded on the OTC Bulletin Board and prior to that it was quoted in the “Pink Sheets.”

of Common Stock

of December 31, 2019, we had approximately 135 shareholders of record for our common stock.

date, we have not declared or paid cash dividends on our shares of common stock.

The holders of our common stock will be entitled

to non-cumulative dividends on the shares of common stock, when and as declared by our board of directors, in its discretion.

We intend to retain all future earnings, if any, for our business and do not anticipate paying cash dividends in the foreseeable

future determination to pay cash dividends will be at the discretion of our board of directors and will be dependent upon our

financial condition, results of operations, capital requirements, general business conditions and such other factors as our board

of directors may deem relevant.

of March 31, 2021, we had approximately 158 shareholders of record for our Common Stock.

To date, we have not declared

or paid cash dividends on our shares of Common Stock.

The holders of our Common Stock will be entitled to non-cumulative

dividends on the shares of Common Stock, when and as declared by our board of directors (the “Board of Directors”

or the “Board”), in its discretion.

We intend to retain all future earnings, if any, for our business and do not

anticipate paying cash dividends in the foreseeable future.

Any future determination

to pay cash dividends will be at the discretion of our Board and will be dependent upon our financial condition, results

of operations, capital requirements, general business conditions and such other factors as our Board may deem relevant.

Authorized for Issuance under Equity Compensation Plans

Board of Directors adopted the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”) on September 1, 2005.

The 2005 Plan authorized us to reserve 312,500 shares of our Common Stock for issuance upon exercise of options and grant of restricted

stock awards.

The 2005 Plan terminated in 2015 with 19,678 shares reserved for awards that are now unavailable for issuance.

options granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2019 total 8,063.

January 17, 2006, our board of directors adopted the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”).

The 2006 Plan authorizes us to reserve 187,500 shares for future grants under it.

The 2006 Plan terminated in 2016 with 24,662

shares reserved for awards that are now unavailable for issuance.

Stock options granted under the 2006 Plan that remain unexercised

and outstanding as of December 31, 2019 total 42,812.

January 24, 2007, our board of directors adopted the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”).

The 2007 Plan authorizes us to reserve 187,500 shares for future grants under it.

The 2007 Plan terminated in 2017 with 88,401

shares reserved for awards that are now unavailable for issuance.

Stock options granted under the 2007 Plan that remain unexercised

and outstanding as of December 31, 2019 total 6,250.

January 2, 2008, our board of directors adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”).

The 2008 Plan authorizes us to reserve 125,000 shares for future grants under it.

The 2008 Plan terminated in 2018 with 8,249

shares reserved for awards that are now unavailable for issuance.

Stock options granted under the 2008 Plan that remain unexercised

and outstanding as of December 31, 2019 total 32,250.

March 18, 2011, our board of directors adopted the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”).

The 2011 Plan authorizes us to reserve 62,500 shares for future grants under it.

At December 31, 2018, there were 726 shares reserved

for awards available for issuance under the 2011 Plan.

Our Board of Directors

adopted the 2005 Stock Option and Restricted Stock Plan (the “2005 Plan”) on September 1, 2005.

The 2005 Plan authorized

us to reserve 312,500 shares of our Common Stock for issuance upon exercise of options and grant of restricted stock awards.

2005 Plan terminated in 2015 with 19,678 shares of Common Stock reserved for awards that are now unavailable for issuance.

Stock options granted under the 2005 Plan that remain unexercised and outstanding as of December 31, 2020 total 7,563.

On January 17, 2006, our

Board adopted the 2006 Stock Option and Restricted Stock Plan (the “2006 Plan”).

The 2006 Plan authorizes us

to reserve 187,500 shares of Common Stock for future grants under it.

The 2006 Plan terminated in 2016 with 25,849 shares

of Common Stock reserved for awards that are now unavailable for issuance.

Stock options granted under the 2006 Plan that

remain unexercised and outstanding as of December 31, 2020 total 39,750.

On January 24, 2007, our

Board adopted the 2007 Stock Option and Restricted Stock Plan (the “2007 Plan”).

The 2007 Plan authorizes us

to reserve 187,500 shares of Common Stock for future grants under it.

The 2007 Plan terminated in 2017 with 89,651 shares

of Common Stock reserved for awards that are now unavailable for issuance.

Stock options granted under the 2007 Plan that

remain unexercised and outstanding as of December 31, 2020 total 5,000.

On January 2, 2008, our

Board adopted the 2008 Stock Option and Restricted Stock Plan (the “2008 Plan”).

The 2008 Plan authorizes us

to reserve 125,000 shares of Common Stock for future grants under it.

The 2008 Plan terminated in 2018 with 9,249 shares

of Common Stock reserved for awards that are now unavailable for issuance.

Stock options granted under the 2008 Plan that

remain unexercised and outstanding as of December 31, 2020 total 31,250.

On March 18, 2011, our

Board adopted the 2011 Stock Option and Restricted Stock Plan (the “2011 Plan”).

The 2011 Plan authorizes us

to reserve 62,500 shares of Common Stock for future grants under it.

At December 31, 2020, there were 726 shares of

Common Stock reserved for awards available for issuance under the 2011 Plan.

Stock options granted under the 2011 Plan that

remain unexercised and outstanding as of December 31, 2020 total 9,750.

On March 22, 2013, our

Board adopted the 2013 Stock Option and Restricted Stock Plan (the “2013 Plan”).

The 2013 Plan was amended

on March 28, 2014 and November 14, 2014 to increase the number of shares of Common Stock authorized and reserved for issuance

under the 2013 Plan to a total of 300,000.

At December 31, 2020, there were 100 shares of Common Stock reserved for awards

available for issuance under the 2013 Plan.

Stock options granted under the 2013 Plan that remain unexercised and outstanding

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March 27, 2015, our Board of Directors adopted the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”).

The 2013 Plan was amended on March 28, 2014 and November 14, 2014 to increase the number of shares authorized and reserved for

issuance under the 2013 Plan to a total of 300,000.

At December 31, 2018, there were 100 shares reserved for awards available

for issuance under the 2013 Plan.

Stock options granted under the 2013 Plan that remain unexercised and outstanding as of December

31, 2019 total 20,000.

March 27, 2015, our Board of Directors adopted the 2015 Stock Option and Restricted Stock Plan (the “2015 Plan”).

The 2015 Plan was amended on February 25, 2016 and May 31, 2017 to increase the number of shares of Common Stock authorized and

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as of December 31, 2020 total 340,000.

2005 Plan, 2006 Plan, 2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan and 2018 Plan are referred to as the “Plans.”

Plans authorize us to grant (i) to the key employees incentive stock options (except for the 2007 Plan) to purchase shares of

common stock and non-qualified stock options to purchase shares of common stock and restricted stock awards, and (ii) to non-employee

On September 9, 2020,

our board of directors adopted the 2020 Stock Option and Restricted Stock Plan (the “2020 Plan”).

The 2020 Plan authorizes

us to reserve 1,500,000 shares of Common Stock for future grants under it.

At December 31, 2020, there were 408,341 shares

of Common Stock reserved for awards available for issuance under the 2020 Plan.

Stock options granted under the 2020 Plan

that remain unexercised and outstanding as of December 31, 2020 total 255,000.

The 2005 Plan, 2006 Plan,

2007 Plan, 2008 Plan, 2011 Plan, 2013 Plan, 2015 Plan, 2018 Plan, and 2020 Plan are collectively referred to as the “Plans.”

The Plans authorize us

to grant (i) to the key employees incentive stock options (except for the 2007 Plan) to purchase shares of Common Stock

and non-qualified stock options to purchase shares of Common Stock and restricted stock awards, and (ii) to non-employee

directors and consultants’

non-qualified stock options and restricted stock.

The Compensation Committee of our board of

directors administers the Plans by making recommendations to the board or determinations regarding the persons to whom options

or restricted stock should be granted and the amount, terms, conditions and restrictions of the awards.

Plans allow for the grant of incentive stock options (except for the 2007 Plan), non-qualified stock options and restricted stock

Incentive stock options granted under the Plans must have an exercise price at least equal to 100% of the fair market

value of the common stock as of the date of grant.

Incentive stock options granted to any person who owns, immediately after the

grant, stock possessing more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary

corporation, must have an exercise price at least equal to 110% of the fair market value of the common stock on the date of grant.

Non-statutory stock options may have exercise prices as determined by our Compensation Committee.

Compensation Committee is also authorized to grant restricted stock awards under the Plans.

A restricted stock award is a grant

of shares of the common stock that is subject to restrictions on transferability, risk of forfeiture and other restrictions and

that may be forfeited in the event of certain terminations of employment or service prior to the end of a restricted period specified

by the Compensation Committee.

have filed various registration statements on Form S-8 and amendments to previously filed Form S-8’s with the SEC which

registered a total of 4,175,000 shares issued or to be issued upon exercise of the stock options underlying the various stock

option plans.

following table sets forth certain information regarding the stock option plans adopted by the Company as of December 31, 2019:

The Compensation Committee of our Board

(the “Compensation Committee”) administers the Plans by making recommendations to the Board or determinations

regarding the persons to whom options or restricted stock should be granted and the amount, terms, conditions and restrictions

of the awards.

The Plans allow for the

grant of incentive stock options (except for the 2007 Plan), non-qualified stock options and restricted stock awards.

stock options granted under the Plans must have an exercise price at least equal to 100% of the fair market value of the Common

Stock as of the date of grant.

Incentive stock options granted to any person who owns, immediately after the grant, stock

possessing more than 10% of the combined voting power of all classes of our stock, or of any parent or subsidiary corporation,

must have an exercise price at least equal to 110% of the fair market value of the Common Stock on the date of grant.

Non-statutory

stock options may have exercise prices as determined by our Compensation Committee.

The Compensation Committee

is also authorized to grant restricted stock awards under the Plans.

A restricted stock award is a grant of shares of the Common

Stock that is subject to restrictions on transferability, risk of forfeiture and other restrictions and that may be forfeited

in the event of certain terminations of employment or service prior to the end of a restricted period specified by the Compensation

We have filed various

registration statements on Form S-8 and amendments to previously filed Form S-8’s with the Securities and Exchange Commission

(the “SEC”), which registered a total of 5,675,000 shares of Common Stock issued or to be issued upon exercise

of the stock options underlying Plans.

The following table sets

forth certain information regarding the Plans as of December 31, 2020:

Equity Compensation Plan Information

Plan category

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Sales of Unregistered Securities

following represents an issuance of unregistered securities that has not already been reported in our Quarterly Reports on Form

10-Q or in a Current Report on Form 8-K during 2019:

December 23, 2019, the Company, borrowed $300,000 under an unsecured note payable to private, third-party lender.

The promissory

note bears interest at the rate of 8% per annum with principal and accrued interest payable on or before its maturity date of

March 31, 2020.

The Company granted the lender warrants exercisable to purchase a total of 107,000 shares of its common stock

at an exercise price of $1.40 per share until December 23, 2024.

The Company allocated $71,869 of the proceeds of the promissory

note to additional paid-in-capital, which represented the grant date relative fair value of the warrants issued to the lender.

underwriters were involved in the foregoing sale of securities.

The issuances of the securities described above were deemed to

be exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act.

The recipient of securities

in such transaction represented his intention to acquire the securities for investment only and not with a view to or for sale

in connection with any distribution thereof and appropriate legends were affixed to the warrants to purchase common stock agreement

issued in such transactions.

The recipient had adequate access, through his relationships with us, to information about us.

Selected Financial Data.

Management’s Discussion and Analysis

of Financial Condition and Results of Operation.

Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of

the Securities Exchange Act of 1934.

as previously reported by the Company on its Quarterly Reports on Form 10-Q or its Current Reports on Form 8-K, as applicable,

we did not sell any securities during the period covered by this Annual Report on Form 10-K that were not registered under the

Securities Act.

Financial Data.

Management’s

Discussion and Analysis of Financial Condition and Results of Operation.

This Report contains forward-looking

statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act.

The words “believe,”

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“continue,”

and other expressions that are predictions of or indicate future events and trends

and that do not relate to historical matters identify forward-looking statements.

These forward-looking statements are based largely

on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business

risks and known and unknown uncertainties, a number of which are beyond our control.

Therefore, actual results could differ materially

from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such

forward-looking statements.

and other expressions

that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking

These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected

by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are

beyond our control.

Therefore, actual results could differ materially from the forward-looking statements contained in this document,

and readers are cautioned not to place undue reliance on such forward-looking statements.

undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future

4 unchanged sentences

will, in fact, transpire or prove to be accurate.

that could cause or contribute to our actual results differing materially from those discussed herein or for our stock price to

be adversely affected include, but are not limited to:

Factors that could cause

or contribute to our actual results differing materially from those discussed herein or for our stock price to be adversely affected

include, but are not limited to:

(1) our losses in recent years, including fiscal 2020 and 2019;

and other risks for our business from the effects of the COVID-19 pandemic, including the impacts on our

law-enforcement and commercial customers, suppliers and employees and on our ability to raise capital as required;

our ability to increase revenues, increase our margins and return to consistent profitability in the current economic and competitive

(4) our operation in developing markets and uncertainty as to market acceptance of our technology and new products;

(5) the availability of funding from federal, state and local governments to facilitate the budgets of law enforcement agencies,

including the timing, amount and restrictions on such funding;

(6) our ability to deliver our new product offerings as scheduled

in 2020, such as the EVO-HD, have such new products perform as planned or advertised and whether they will help increase our revenues;

(7) whether we will be able to increase the sales, domestically and internationally, for our products in the future;

(8) our ability

to maintain or expand our share of the market for our products in the domestic and international markets in which we compete,

including increasing our international revenues;

(9) our ability to produce our products in a cost-effective manner;

(10) competition

from larger, more established companies with far greater economic and human resources;

(11) our ability to attract and retain

quality employees;

(2) economic and other risks

for our business from the effects of the COVID-19 pandemic, including the impacts on our law-enforcement and commercial customers,

suppliers and employees and on our ability to raise capital as required;

(3) our ability to increase revenues, increase our margins

and return to consistent profitability in the current economic and competitive environment;

(4) our operation in developing markets

and uncertainty as to market acceptance of our technology and new products;

(5) the availability of funding from federal, state

and local governments to facilitate the budgets of law enforcement agencies, including the timing, amount and restrictions on

such funding;

(6) our ability to deliver our new product offerings as scheduled in 2020, such as the Shield™

disinfectant/sanitizers

products and ThermoVU™

temperature screening systems, whether such new products perform as planned or advertised and whether

they will help increase our revenues;

(7) whether we will be able to increase the sales, domestically and internationally, for

our products in the future;

(8) our ability to maintain or expand our share of the market for our products in the domestic and

international markets in which we compete, including increasing our international revenues;

(9) our ability to produce our products

in a cost-effective manner;

(10) competition from larger, more established companies with far greater economic and human resources;

(11) our ability to attract and retain quality employees;

(12) risks related to dealing with governmental entities as customers;

(13) our expenditure of significant

resources in anticipation of sales due to our lengthy sales cycle and the potential to receive no revenue in return;

(14) characterization

of our market by new products and rapid technological change;

(15) our dependence on sales of our EVO-HD, DVM-800, FirstVU HD

and DVM-250 products;

(16) potential that stockholders may lose all or part of their investment if we are unable to compete in

our markets and return to profitability;

(17) defects in our products that could impair our ability to sell our products or could

result in litigation and other significant costs;

(13) our expenditure of significant resources in anticipation of sales due to our lengthy sales cycle and the potential to receive

no revenue in return;

(14) characterization of our market by new products and rapid technological change;

(15) our dependence

on sales of our EVO-HD, DVM-800, FirstVU HD and DVM-250 products;

(16) that stockholders may lose all or part of their investment

if we are unable to compete in our markets and return to profitability;

(17) defects in our products that could impair our ability

to sell our products or could result in litigation and other significant costs;

(18) our dependence on key personnel;

(19) our reliance on third-party distributors

and sales representatives for part of our marketing capability;

(20) our dependence on a few manufacturers and suppliers for components

of our products and our dependence on domestic and foreign manufacturers for certain of our products;

(21) our ability to protect

technology through patents and to protect our proprietary technology and information as trade secrets and through other similar

reliance on third-party distributors and sales representatives for part of our marketing capability;

(20) our dependence on a

few manufacturers and suppliers for components of our products and our dependence on domestic and foreign manufacturers for certain

of our products;

(21) our ability to protect technology through patents and to protect our proprietary technology and information,

such as trade secrets, through other similar means;

(22) our ability to generate more recurring cloud and service revenues;

(23) risks related to our license arrangements;

(24) our revenues and operating results may fluctuate unexpectedly from quarter to quarter;

(25) sufficient voting power by coalitions

of a few of our larger stockholders, including directors and officers, to make corporate governance decisions that could have

significant effect on us and the other stockholders;

(26) sale of substantial amounts of our common stock that may have a depressive

effect on the market price of the outstanding shares of our common stock;

(27) possible issuance of common stock subject to options

and warrants that may dilute the interest of stockholders;

(28) our nonpayment of dividends and lack of plans to pay dividends

in the future;

(29) future sale of a substantial number of shares of our common stock that could depress the trading price of

our common stock, lower our value and make it more difficult for us to raise capital;

(30) our additional securities available

for issuance, which, if issued, could adversely affect the rights of the holders of our common stock;

(31) our stock price is

likely to be highly volatile due to a number of factors, including a relatively limited public float;

(32) whether the litigation

against Axon will achieve its intended objectives and result in monetary recoveries for us;

(33) whether the USPTO rulings

will curtail, eliminate or otherwise have an effect on the actions of Axon and other competitors respecting us, our products and

and (34) whether our patented VuLink technology is becoming the de-facto “standard”

engaged in deploying state-of-the-art body-worn and in-car camera systems and will increase our revenues;

(36) whether such technology

will have a significant impact on our revenues in the long-term;

(37) whether we will be able to meet the standards for continued

listing on NASDAQ;

(24) our revenues and operating results may fluctuate unexpectedly from quarter

(25) sufficient voting power by coalitions of a few of our larger stockholders, including directors and officers,

to make corporate governance decisions that could have a significant effect on us and the other stockholders;

sale of substantial amounts of our Common Stock that may have a depressive effect on the market price of the outstanding

shares of our Common Stock;

(27) the possible issuance of Common Stock subject to options and warrants that

may dilute the interest of stockholders;

(28) our nonpayment of dividends and lack of plans to pay dividends in the future;

future sale of a substantial number of shares of our Common Stock that could depress the trading price of our common stock,

lower our value and make it more difficult for us to raise capital;

(30) our additional securities available for issuance, which,

if issued, could adversely affect the rights of the holders of our Common Stock;

(31) our stock price is likely to be highly

volatile due to a number of factors, including a relatively limited public float;

(32) whether our patented VuLink technology

is becoming the de-facto “standard”

for agencies engaged in deploying state-of-the-art body-worn and in-car

camera systems, which might impact our revenues;

(33) whether such technology will have a significant impact on our revenues

in the long-term;

(34) whether we will be able to meet the standards for continued listing on the Nasdaq Capital Market;

and (35) indemnification of our officers and directors.

Trends and Recent Developments for the Company

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 unique solutions to our customers’

Our products include

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

hands-free automatic activation, for both law enforcement and commercial markets;

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 VuLink, our cloud-based evidence management systems.

We introduced the EVO-HD product in late June 2019 and began full-scale

deployments in the third quarter 2019.

It 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.

experienced operating losses for all quarters during 2019 and 2018 except for the second quarter 2019 which was aided by a patent

litigation settlement.

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 unique solutions to our customers’

Our products include the DVM-800 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

systems by providing hands-free automatic activation, for both law enforcement and commercial markets;

the DVM-250 and DVM-250

Plus, which are a 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 late June 2019 and began full-scale deployments in the third quarter 2019.

It is designed and built on a

new and advanced technology platform that is expected to 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 as circumstances

normalize in a post-COVID-19 economy, although we can offer no assurance in this regard.

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.

experienced operating losses for all quarters during 2020 and 2019 except for third quarter 2020 which was aided by the launch

of our ThermoVU™

and the Shield™

line, and second quarter 2019 which was aided by a patent litigation settlement.

The following is a summary of our recent operating results on a quarterly basis:

the Three Months Ended:

September 30,

Total revenue

3 unchanged sentences

Operating loss percentage

$ (3,426,984 )

$ (2,985,825 )

$ (3,205,174 )

Net income/(loss)

$ (2,334,110 )

2 unchanged sentences

$ (3,205,174 )

business is subject to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and

operating results in the above table.

Our business is subject

to substantial fluctuations on a quarterly basis as reflected in the significant variations in revenues and operating results

in the above table.

These variations result from various factors, including but not limited to:

(1) the timing

of large individual orders;

(2) the traction gained by products, such as the recently released EVO HD;

(3) production, quality

and other supply chain issues affecting our cost of goods sold;

(4) unusual increases in operating expenses, such as the timing

of trade shows and stock-based and bonus compensation;

(5) the timing of patent infringement litigation settlements, such as the

$6.0 settlement we obtained from WatchGuard during the second quarter 2019 and (5) ongoing patent and other litigation and related

expenses respecting outstanding lawsuits.

We reported an operating loss of $3,233,819 on revenues of $2,420,437 for fourth quarter

The income recognized in the second quarter 2019 ended a series of quarterly losses resulting from competitive pressures,

supply chain problems, increases in inventory reserves as our current product suite ages, product quality control issues, product

warranty issues, infringement of our patents by direct competitors such as Axon that reduced our revenues, and litigation expenses

relating to the patent infringement.

(1) the timing of large individual

(2) the traction gained by products, such as the recently released EVO HD, the ThermoVU™

and the Shield™

(3) production, quality and other supply chain issues affecting our cost of goods sold;

(4) unusual increases in operating expenses,

such as the timing of trade shows and stock-based and bonus compensation;

(5) the timing of patent infringement litigation settlements

(5) ongoing patent and other litigation and related expenses respecting outstanding lawsuits;

and (6) most recently, the

impact of COVID-19 on the economy and our business.

We reported an operating loss of $321,318 on revenues of $2,798,291

for fourth quarter 2020.

The income recognized in the third quarter 2020 and second quarter 2019 ended a series of quarterly losses

resulting from competitive pressures, supply chain problems, increases in inventory reserves as our current product suite ages,

product quality control issues, product warranty issues, and litigation expenses relating to patent infringement claims.

factors and trends affecting our recent performance include:

13, 2019 we reached a resolution of the pending patent infringement litigation with WatchGuard and executed a settlement agreement

that resulted in the dismissal of this case.

As part of the settlement agreement, we received a one-time $6,000,000 payment

and granted WatchGuard a perpetual covenant to not sue WatchGuard if its products incorporate agreed-upon modified recording

functionality.

Additionally, we granted it license to the ‘292 Patent and ‘452 Patent through December 31, 2023.

As part of the settlement, the parties agree that WatchGuard made no admission that it infringed any of our patents.

12, “Contingencies”

for the details respecting the settlement.

Revenues decreased

in fourth quarter 2019 to $2,420,436 compared to the previous quarters.

The primary reason for the revenue decrease in the

fourth quarter 2019 is that we continue to face increased challenges for our in-car and body-worn systems as our competitors

have released new products with advanced features and have maintained their product price cuts.

We introduced a new product

platform, the EVO-HD, specifically for in-car systems late in June 2019 to address our competitors’

new product features

and we experienced some positive traction in third and fourth quarter 2019.

However, we expect potential customers to review

and test the EVO-HD prior to adopting the new platform for deployment and therefore expect that the rate of adoption of the

new technology will accelerate in 2020.

This new product platform utilizes advanced chipsets that will generate new and highly

advanced products for our law enforcement and commercial customers and we believe will improve product revenues in future

quarters as customers become aware of and commit to the new EVO-HD.

Our law enforcement revenues declined over the prior period

due to price-cutting, willful infringement of our patents and other actions by our competitors and adverse marketplace effects

related to the patent litigation.

For example, one of our competitors introduced a body-camera including cloud storage free

for one year beginning in 2017 and this has continued to pressure our revenues in 2019.

May 13, 2019, we reached a resolution of the pending patent infringement litigation with WatchGuard and executed a

settlement agreement that resulted in the dismissal of this case.

As part of the settlement agreement, we received a one-time

$6,000,000 payment and granted WatchGuard a perpetual covenant to not sue WatchGuard if its products incorporate agreed-upon

modified recording functionality.

Additionally, we granted it license to U.S.

8,781,292 (“‘292

Patent’”) and the ‘452 Patent through December 31, 2023.

As part of the settlement, the parties

agree that WatchGuard made no admission that it infringed any of our patents.

The Company does not anticipate any future

recoveries from Watchguard or its successors and assigns relative to WatchGuard’s use of the ‘292 Patent or the

‘452 Patent.

See Note 12, “

Commitments and Contingencies ,”

to our consolidating financial

statements for the details respecting the settlement.

July 20, 2020, the Company and Brickell Key Investments LP (“BKI”) executed a Termination Agreement and

Mutual Release (the “Termination Agreement”).

Under the terms of the Termination Agreement, the Company made

a payment in the amount of $1,250,000 to BKI, and the parties agreed to terminate a Proceeds Investment Agreement (the

“PIA”), which they previously entered into on July 31, 2018, and to release each other from any further liability

under the PIA.

As a result, any obligations under the PIA have been extinguished and a $5,250,000 change

in fair value was assessed for the year ended December 31, 2020.

increased in the third quarter 2020 to $3,558,640 compared to the previous quarters.

The primary reason for the revenue increase

in the third quarter 2020 is the noticeable demand for our new ThermoVu line, as it accounted for $1,087,740 in revenue for

such quarter.

We expect to continue to experience improved results due to the introduction of our new product

objective is to expand our recurring service revenue to help stabilize our revenues on a quarterly basis.

Revenues from cloud

storages have been increasing in recent quarters and reached approximately $205,714 in Q-4 2019, an increase of $12,714 (7%)

over Q-4 2018.

Overall, cloud revenues increased to approximately $750,000 in 2019 compared to approximately $694,000 for

2018, an increase of $56,000, or 8%.

Additionally, revenues from extended warranties have also been increasing and were approximately

$405,179 for the year ended December 31, 2019, compared to $301,000 for the prior year period for an increase of $104,179

We are pursuing several new market channels that do not involve our traditional law enforcement and private security

customers, such as our NASCAR affiliation and event security solutions, which we believe will help expand the appeal of our

products and service capabilities to new commercial markets.

If successful, we believe that these new market channels could

yield recurring service revenues for us in the future.

Recognizing a critical

limitation in law enforcement camera technology, during 2014 we pioneered the development of our VuLink ecosystem that provided

intuitive auto-activation functionality as well as coordination between multiple recording devices.

The USPTO granted us multiple

patents with claims covering numerous features, such as automatically activating an officer’s cameras when the light

bar is activated or when a data-recording device such as a smart weapon is activated.

Additionally, our patent claims cover

automatic coordination between multiple recording devices.

Prior to this innovation, officers were forced to manually activate

each device while responding to emergency scenarios - a requirement that both decreased the usefulness of the existing camera

systems and diverted officers’

attention during critical moments.

We believe law enforcement agencies have recognized

the value of our VuLink technology and that a trend has developed where the agencies are seeking information on “auto-activation”

features in requests for bids and requests for information involving the procurement process of body-worn cameras and in-car

We believe this trend may result in our patented VuLink technology becoming the de-facto “standard”

agencies engaged in deploying state-of-the-art body-worn and in-car camera systems.

However, the willful infringement of our

VuLink patent by Axon and others has substantially and negatively impacted revenues that otherwise would have been generated

by our VuLink system and indirectly our body-worn and in-car systems.

We believe that the results of the current patent litigation

with Axon will largely set the competitive landscape for body-worn and in-car systems for the foreseeable future.

We are seeking

other ways to monetize our VuLink patents, which may include entering into license agreements or supply and distribution agreements

with competitors.

We expect that this technology will have a significant positive impact on our revenues in the long-term,

particularly if we are successful in our prosecution of the patent infringement litigation pending with Axon, and we can successfully

monetize the underlying patents, although we can make no assurances in this regard.

We have a multi-year

official partnership with NASCAR, naming us “A Preferred Technology Provider of NASCAR.”

As part of the relationship,

we will provide cameras that will be mounted in the Monster Energy NASCAR Cup Series garage throughout the season, bolstering

both NASCAR’s commitment to safety at every racetrack, as well as enhancing its officiating process through technology.

storages have been increasing in recent quarters and reached approximately $228,724 in fourth quarter 2020, an increase

of $23,010 (11%) over fourth quarter 2019.

Overall, cloud revenues increased to approximately $937,000 in 2020 compared

to approximately $750,000 in 2019, an increase of $187,000, or 25%.

We are pursuing several new market channels that

do not involve our traditional law enforcement and private security customers, such as our NASCAR affiliation and event security

solutions, which we believe will help expand the appeal of our products and service capabilities to new commercial markets.

If successful, we believe that these new market channels could yield recurring service revenues for us in the future.

have a multi-year official partnership with NASCAR, naming us “A Preferred Technology Provider of NASCAR.”

part of the relationship, we will provide cameras that will be mounted in the Monster Energy NASCAR Cup Series garage throughout

the season, bolstering both NASCAR’s commitment to safety at every racetrack, as well as enhancing its officiating process

through technology.

Our relationship with NASCAR has yielded many new opportunities with NASCAR related sponsors.

We believe this partnership

with NASCAR will demonstrate the flexibility of our product offerings and help expand the appeal of our products and service

capabilities to new commercial markets.

Our international

revenues decreased to $190,105 (2% of total revenues) during the year ended December 31, 2019, compared to $362,338 (3% of

total revenues) during the year ended December 31, 2018.

Political macro-economic tensions including illegal immigration and

import/export tariffs between the United States and many countries that have been our customers in the past have made it a

difficult climate for our international sales.

The international sales cycle generally takes longer than domestic business

and we continue to provide bids to a number of international customers.

We are actively marketing many of our products, including

but not limited to the EVO-HD, DVM-800, DVM-750, DVM-500+, FleetVu driver monitoring and management service and the FirstVU

HD, internationally.

We saw an uptick in our international sales activity in 2020 as evidenced by the recent award of a contract

with the potential of over $4.0 million for our FirstVU HD by a sovereign nation’s national police force.

this partnership with NASCAR will demonstrate the flexibility of our product offerings and help expand the appeal of our products

and service capabilities to new commercial markets.

We also have an affiliation with the Indy series races and, in particular,

the RLL Team (Rahal, Lanigan & Letterman) which has several cars in most Indy style races.

These relationships provide

us with access to many potential customers through the various programs supported by both the NASCAR and Indy-Style car race

international revenues decreased to $89,374 (less than 1% of total revenues) during the year ended December 31, 2020, compared

to $190,105 (approximately 2% of total revenues) during the year ended December 31, 2019.

Political macro-economic

tensions including illegal immigration and import/export tariffs between the United States and many countries that have been

our customers in the past have made it a difficult climate for our international sales.

The international sales cycle generally

takes longer than domestic business and we continue to provide bids to a number of international customers.

We are actively

marketing many of our products, including but not limited to, the EVO-HD, DVM-800, DVM-750, DVM-500+, FleetVu driver

monitoring and management service and the FirstVU HD, internationally.

We saw a decline in our international sales activity

in 2020, largely due in part to the Covid-19 pandemic restricting travel, causing budgetary restraints for customers, and

increased shipping delays.

Sheet Arrangements

do not have any off-balance sheet debt, nor did we have any transactions, arrangements, obligations (including contingent obligations)

or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial

conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or

significant components of revenue or expenses.

are a party to operating leases and license agreements that represent commitments for future payments (described in Note 12 to

our consolidated financial statements) and we have issued purchase orders in the ordinary course of business that represent commitments

to future payments for goods and services.

or other relationships with any unconsolidated entities or other persons that may have a material current or future effect

on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital

resources, or significant components of revenue or expenses.

are a party to operating leases and license agreements that represent commitments for future payments (described in Note 11,

“Commitments and Contingencies,”

to our consolidated financial statements) and we have issued purchase orders

in the ordinary course of business that represent commitments to future payments for goods and services.

the Years Ended December 31, 2020 and 2019

12 unchanged sentences

Operating loss

Change in warrant derivative liabilities

Change in fair value of secured convertible notes

Change in fair value of secured convertible debentures

Change in fair value of note payable

Change in fair value of proceeds investment agreement

Loss on extinguishment of secured convertible debentures

Gain on extinguishment of debt

Secured convertible note payable issuance expenses

46 unchanged sentences

is replacing the DVM-100 and DVM-400 product offerings and allows the customer to configure the system to their needs.

configuration

body-worn digital audio/video camera system primarily designed for law enforcement customers.

3 unchanged sentences

and simultaneously start recording.

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

when temperature measurements exceed pre-determined parameters

and cleanser line, which is for use against viruses and bacteria, that is less harsh than many of the traditional products

now widely distributed.

Offered in a variety of sizes and quantities.

sell our products and services to law enforcement and commercial customers in the following manner:

Sales to domestic

customers are made directly to the end customer (typically a law enforcement agency or a commercial customer) through our

sales force, comprised of our employees.

to domestic customers are made directly to the end customer (typically a law enforcement agency or a commercial customer)

through our sales force, comprised of our employees.

Revenue is recorded when the product is shipped to the end customer.

Sales to international

customers are made through independent distributors who purchase products from us at a wholesale price and sell to the end

user (typically law enforcement agencies or a commercial customer) at a retail price.

The distributor retains the margin as

its compensation for its role in the transaction.

The distributor generally maintains product inventory, customer receivables

and all related risks and rewards of ownership.

Revenue is recorded when the product is shipped to the distributor consistent

with the terms of the distribution agreement.

Repair parts and

services for domestic and international customers are generally handled by our inside customer service employees.

is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

to international customers are made through independent distributors who purchase products from us at a wholesale price and

sell to the end user (typically law enforcement agencies or a commercial customer) at a retail price.

The distributor retains

the margin as its compensation for its role in the transaction.

The distributor generally maintains product inventory, customer

receivables and all related risks and rewards of ownership.

Revenue is recorded when the product is shipped to the distributor

consistent with the terms of the distribution agreement.

parts and services for domestic and international customers are generally handled by our inside customer service employees.

Revenue is recognized upon shipment of the repair parts and acceptance of the service or materials by the end customer.

may discount our prices on specific orders based upon the size of the order, the specific customer and the competitive landscape.

COVID-19 pandemic had an impact on our 2020 revenues and a negative impact generally on our legacy products and, in particular,

our commercial event recorder hardware (DVM-250 Plus) and in-car hardware for law enforcement (DVM-800) during the quarter.

The COVID-19 pandemic had a positive impact generally on our new Shield TM disinfectant/sanitizer and ThermoVU TM

product lines.

for the years ended December 31, 2020 and 2019 were derived from the following sources:

1 unchanged sentence

DVM-800 and DVM 800HD

Shield TM disinfectants/sanitizers

Cloud service revenue

1 unchanged sentence

Accessories and other revenues

revenues for the years ended December 31, 2019 and 2018 were $7,732,796 and $9,130,911 respectively, a decrease of $1,398,115

revenues for the years ended December 31, 2020 and 2019 were $8,029,457 and $7,732,796, respectively, an increase of $296,661

(3%), due to the following factors:

In general, we have

experienced pressure on our revenues as our in-car and body-worn systems are facing increased competition because our competitors

have released new products with advanced features.

Additionally, our law enforcement revenues declined over the prior period

due to price-cutting, willful infringement of our patents and other actions by our competitors, adverse marketplace effects

related to the patent litigation and supply chain issues.

We introduced our EVO-HD late in second quarter 2019 with the goal

of enhancing our product line features to meet these competitive challenges and we started to see traction in late 2019.

expect customers and potential customers to review and test the EVO-HD prior to committing to this new product platform, which

may have delayed any meaningful positive impact to revenues until 2020.

We shipped five

individual orders in excess of $100,000, for a total of approximately $951,734 in revenue for the year ended December 31,

2019, compared to six individual orders in excess of $100,000, for a total of approximately $984,450 in revenue for the year

ended December 31, 2018.

Our average order size increased to approximately $2,259 in the year ended December 31, 2019 from

$2,075 during the year ended December 31, 2018.

For certain opportunities that involve multiple units and/or multi-year contracts,

we have occasionally discounted our products to gain or retain market share and revenues.

Our international

revenues decreased to $190,105 (2% of total revenues) during the year ended December 31, 2019, compared to $362,338 (3% of

total revenues) during the year ended December 31, 2018.

Political macro-economic tensions including illegal immigration and

import/export tariffs between the United States and many countries that have been our customers in the past have made it a

difficult climate for our international sales.

The international sales cycle generally takes longer than domestic business

and we continue to provide bids to a number of international customers.

We are actively marketing many of our products, including

but not limited to the EVO-HD, DVM-800, DVM-750, DVM-500+, FleetVu driver monitoring and management service and the FirstVU

HD, internationally.

We have seen an uptick in our international sales activity in 2020 as evidenced by the recent award of

a contract with the potential over $4.0 million for our FirstVU HD by a sovereign nation’s national police force.

and other revenues for the years ended December 31, 2019 and 2018 were $2,708,568 and $2,160,498, respectively, an increase of

Company generated revenues totaling over $1,643,434 during the years ended December 31, 2020 compared to $-0- for the

same period in 2019 from its new product lines.

Late in the second quarter of 2020, the Company launched two product lines

in direct response to the increased safety precautions that organizations and individuals are taking due to the COVID-19

ThermoVu™

was launched as 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.

We believe that it can be widely applied in schools, office buildings,

subway stations, airports and other public venues.

The Company also launched its Shield™

disinfectant/sanitizer

product lines to fulfill demand by current customers and others for a disinfectant and sanitizer that is less harsh than

many of the traditional products now widely distributed.

The Shield™

Cleanser product line contains a cleanser with

no harsh chemicals or fumes.

Company began offering the Shield™

line of disinfecting products to its first responder customers including police,

fire and paramedics late in the second quarter of 2020.

Commercial customers such as cruise lines, taxi-cab and para transit

may also be good candidates for the products.

The Company is considering enhancing the line of disinfectant products for

additional related products including hardware to efficiently and effectively dispense the disinfectants.

is hopeful that its law enforcement and commercial customers will adopt this new product offering to combat the spread

of the COVID-19 virus as well as other bacteria and viruses.

shipped four individual orders in excess of $100,000, for a total of approximately $903,910 in revenue for the year ended

December 31, 2020, compared to five individual orders in excess of $100,000, for a total of approximately $951,734 in revenue

for the year ended December 31, 2019.

Our average order size decreased to approximately $1,902 in the year ended December

31, 2020 from $2,259 during the year ended December 31, 2019.

For certain opportunities that involve multiple units and/or

multi-year contracts, we have occasionally discounted our products to gain or retain market share and revenues.

general, we have experienced pressure on our revenues as our in-car and body-worn systems are facing increased competition

because our competitors have released new products with advanced features.

Additionally, our law enforcement revenues declined

over the prior period due to price-cutting and competitive actions by our competitors, adverse marketplace effects related

to our patent litigation proceedings and our recent financial condition.

We introduced our EVO-HD late in the second quarter

of 2019 with the goal of enhancing our product line features to meet these competitive challenges and we started to see traction

in late 2019.

We expect customers and potential customers to review and test the EVO-HD prior to committing to this new product

platform, all of which has been delayed due to the COVID-19 pandemic.

COVID-19 pandemic delayed the shipment of law enforcement orders in the third quarter

2020 as police forces and governments dealt with its impact.

In addition, our salesmen

were generally unable to meet with and demonstrate our products to our law enforcement

customers because of travel and other restrictions imposed by cities and states due to

the COVID-19 pandemic.

In person demonstration of our products to potential customers

is generally important in order to obtain new customers or upgrade existing customers.

Our product sales to law enforcement decreased substantially in the third quarter 2020

compared to 2019 primarily due to the impact of the COVID-19 pandemic.

COVID-19 pandemic impacted the shipment of commercial orders in the third quarter 2020 as cruise lines, taxi cabs, paratransit

and other commercial customers dealt with its impact.

In addition, our salesmen were generally unable to meet with and

demonstrate our products to our commercial customers because of travel and other restrictions imposed by cities and states

due to the COVID-19 pandemic.

In person demonstration of our products to potential customers is generally required in

order to obtain new customers or upgrade existing customers.

Our product sales to commercial customers decreased substantially

in the third quarter 2020 compared to 2019 primarily due to the impact of the COVID-19 pandemic.

has been focusing on migrating customers, and in particular commercial customers, from a “hardware sale”

to a service fee model.

Therefore, we expect a reduction in commercial hardware sales (principally DVM-250’s and FirstVU’s)

as we convert these customers to a service model under which we provide the hardware as part of a recurring monthly service

In that respect, we introduced a monthly subscription agreement plan for our body worn cameras and related equipment

during the second quarter of 2020 that allowed law enforcement agencies to pay a monthly service fee to obtain body worn cameras

without incurring a significant upfront capital outlay.

This program has gained some traction, resulting in decreased product

revenues and increasing our service revenues.

and other revenues for the years ended December 31, 2020 and 2019 were $2,485,411 and $2,708,568, respectively, a decrease of

$223,157 (8%), due to the following factors:

Cloud revenues were

$749,713 and $693,653 for the years ended December 31, 2019 and 2018, respectively, an increase of $56,060 (8%).

We have experienced

increased interest in our cloud solutions for law enforcement primarily due to the deployment of our new cloud-based EVO-HD

in-car system, which contributed to our increased cloud revenues in the year ended December 31, 2019.

We expect this trend

to continue for 2020 as the migration from local storage to cloud storage continues in our customer base.

Revenues from extended

warranty services were $1,414,308 and $1,106,289 for the years ended December 31, 2019 and 2018, respectively, an increase

of $308,019 (28%).

We have many customers that have purchased extended warranty packages, primarily in our DVM-800 premium

service program, and we expect the trend of increased revenues from these services to continue into 2020.

Installation service

revenues were $954,873 and $749,713 for the years ended December 31, 2020 and 2019, respectively, an increase of $205,160

We have experienced increased interest in our cloud solutions for law enforcement primarily due to the deployment of

our cloud-based EVO-HD in-car system, which contributed to our increased cloud revenues in the year ended December 31, 2020.

We expect this trend to continue for 2021 as the migration from local storage to cloud storage continues in our customer base.

from extended warranty services were $1,173,169 and $1,414,308 for the years ended December 31, 2020 and 2019, respectively,

a decrease of $241,139 (17%).

We have many customers that have purchased extended warranty packages, primarily in our DVM-800

premium service program.

However, the fallout from the COVID-19 pandemic and related restrictions on travel adversely affected

our sales of DVM-800 hardware systems resulting in a decrease in their sales of 33% in the 2020 period compared to 2019.

service revenues were $180,319 and $255,149 for the years ended December 31, 2020 and 2019, respectively, a decrease of $74,830

Installation revenues tend to vary more than other service revenue types and are dependent on larger customer implementations.

Software revenue,

non-warranty repair and other revenues were $289,398 and $270,045 for the years ended December 31, 2019 and 2018, respectively,

an increase of $19,353 (7%).

Software revenues were $106,155 in 2019 compared to $115,458 in 2018 and non-warranty repairs

were $99,647 in 2019 compared to $106,910 in 2018.

Situational security event fees were $64,800 in 2019 compared to $-0- in

revenues for the years ended December 31, 2019 and 2018 were $10,441,364 and $11,291,409, respectively, a decrease of $850,045

The Covid-19 pandemic travel restrictions also limited our ability to provide onsite installation services in 2020 as compared

revenue, non-warranty repair and other revenues were $177,050 and $289,398 for the years ended December 31, 2020 and 2019,

respectively, a decrease of $112,348 (39%).

Software revenues were $64,493 in 2020 compared to $106,155 in 2019 and non-warranty

repairs were $48,896 in 2020 compared to $99,647 in 2019.

Situational security event fees were $48,600 in 2020 compared to

$64,800 in 2019.

revenues for the years ended December 31, 2020 and 2019 were $10,514,868 and $10,441,364, respectively, an increase of $73,504

(1%), due to the reasons noted above.

1 unchanged sentence

decrease of $837,775 (13%).

The decrease in product cost of goods sold is commensurate with the 15% decrease in product revenues

coupled with product cost of sales as a percentage of revenues increasing to 85% in 2019 from 75% in 2018.

We scrapped approximately

$726,000 of inventory and increased the reserve/expensed obsolete and excess inventories by approximately $856,000 during the

year ended December 31, 2019 due to increased levels of excess component parts of older versions of PCB boards, used trade-in

inventory requiring refurbishment and the phase-out of our DVM-500, DVM-500 Plus, DVM, DVM-750 and LaserAlly legacy products.

Cost of goods sold for products as a percentage of product revenues for the years ended December 31,

2020 and 2019 were 71% and 85%, respectively.

This improvement of cost of goods sold for products as a percentage of product revenues

is due to the Company moving to new and smaller warehouse facilities during June 2020, resulting in manufacturing efficiencies

during the year ended December 31, 2020.

Additionally, the improvement in cost as a percentage of revenues is attributable to

the new product lines, including ThermoVU™

and Shield™, which the Company introduced in 2020 and have

higher margins than our legacy products.

of service and other revenue for the years ended December 31, 2020 and 2019 was $712,702 and $631,388, respectively, an increase

of $81,314 (13%).

The increase in service and other cost of goods sold is commensurate with the 25% increase in service and other

revenues for the year ended December 31, 2019.

In addition, our cost of service and other revenue improved to 23.3% in 2019 compared

to 24.2% in 2018.

cost of sales as a percentage of revenues increased to 69% during the year ended December 31, 2019 from 65% for the year ended

The increase in service and other cost of goods sold is primarily due to an increase in the cost of service

and other revenues sold as a percentage of service and other revenues to 29% for the year ended December 31, 2020 as compared

to 23% for the year ended December 31, 2019 offset by the 13% decrease in service and other revenues for the 2020 period compared

to the 2019 period.

The increase in the cost of service and other revenues sold as a percentage of service and other revenues

is attributable to inefficiencies and additional expenses related to service technicians performing installation and other software

related services due to the effects of the COVID-19 pandemic.

cost of sales as a percentage of revenues decreased to 61% for the year ended December 31, 2020 from 69% for the year ended

December 31, 2019.

We believe our gross margins will improve if we improve revenue levels, continue to reduce product warranty

issues and add higher margin revenues from cloud-based and other services.

recorded $4,144,013 and $3,287,771 in reserves for obsolete and excess inventories at December 31, 2019 and December 31, 2018,

respectively.

Total raw materials and component parts were $4,481,611 and $4,969,786 at December 31, 2019 and December 31, 2018,

respectively, a decrease of $488,175 (10%).

We scrapped older version inventory component parts that were mostly or fully reserved

during the year ended December 31, 2019 which was the primary cause for the decrease.

Finished goods balances were $4,906,956

and $4,965,594 at December 31, 2019 and December 31, 2018, respectively, a decrease of $58,638 (1%).

The increase in the inventory

reserve is primarily due to a higher level of excess component parts of the older versions of our PCB boards and the phase out

of our DVM-750, DVM-500 Plus, DVM-500 and LaserAlly legacy products.

We believe the reserves are appropriate given our inventory

levels at December 31, 2019.

profit for the years ended December 31, 2019 and 2018 was $3,232,629 and $3,961,808, respectively, a decrease of $729,179 (18%).

The decrease is commensurate with the 8% overall decline in revenues for the year ended December 31, 2019 coupled with a deterioration

in the overall cost of sales percentage to 69% during the year ended December 31, 2019 from 65% for the year ended December 31,

We believe that gross margins will improve during 2020 and beyond if we improve revenue levels primarily through the introduction

of products such as the EVO-HD, continue to reduce product warranty issues and shift our revenues to higher-margin cloud services.

Our goal is to improve our margins to 60% over the longer term based on the expected margins of our EVO-HD, DVM-800, VuLink and

FirstVU HD and our cloud evidence storage and management offering, if they gain traction in the marketplace and we are able to

increase our commercial market penetration in 2020.

In addition, if revenues from these products increase, we will seek to further

improve our margins from them through economies of scale and more efficiently utilizing fixed manufacturing overhead components.

We plan to continue our initiative to more efficient management of our supply chain through outsourcing production, quantity purchases

and more effective purchasing practices.

We believe our gross margins will continue to improve as we continue to improve revenue levels, continue to

reduce product warranty issues and add higher margin revenues from cloud-based and other services.

We recorded $1,960,351

and $4,144,013 in reserves for obsolete and excess inventories at December 31, 2020 and 2019, respectively.

Total raw materials

and component parts were $3,186,426 and $4,481,611 at December 31, 2020 and 2019, respectively, a decrease of $1,295,185 (29%).

We scrapped older version inventory component parts that were mostly or fully reserved during the year ended December 31, 2020

which was the primary cause for the decrease.

Finished goods balances were $6,974,291 and $4,906,956 at December 31, 2020 and

December 31, 2019, respectively, an increase of $2,067,335 (42%) which was attributable to accumulating inventory for the new

Shield and ThermoVu product lines.

The decrease in the inventory reserve is primarily due to the scrapping of older version legacy

products that were mostly or fully reserved during the year 2020 as a result of moving our warehouse and office location.

The remaining reserve for inventory obsolescence is generally provided for the level of excess component parts of the older versions

of our PCB boards and the phase out of our DVM-750, DVM-500 Plus, DVM-500 and LaserAlly legacy products.

We believe the reserves

are appropriate given our inventory levels at December 31, 2020.

profit for the years ended December 31, 2020 and 2019 was $4,062,594 and $3,232,629, respectively, an increase of $829,965 (26%).

The increase is attributable to the 1% overall increase in revenues for the year ended December 31, 2020 coupled with an improvement

in the overall cost of sales percentage to 61% for the year ended December 31, 2020 from 69% for the year ended December

Our goal is to improve our margins to 60% over the longer term based on the expected margins of our EVO-HD, DVM-800,

VuLink, FirstVU HD, ThermoVu TM , Shield TM disinfectants and our cloud evidence storage and management offering,

if they gain traction in the marketplace and subject to a normalizing economy in the wake of the COVID-19 pandemic.

if revenues from these products increase, we will seek to further improve our margins from them through economies of scale and

more efficiently utilizing fixed manufacturing overhead components.

We plan to continue our initiative to more efficient management

of our supply chain through outsourcing production, quantity purchases and more effective purchasing practices.

General and Administrative Expenses

general and administrative expenses were $11,726,245 and $9,265,410 for the years ended December 31, 2020 and 2019, respectively,

a decrease of $5,252,455 (36%).

The significant decrease was fueled by the patent litigation settlement of $6.0 million we received

in second quarter 2019.

Exclusive of the patent litigation settlement selling, general and administrative expenses as a percentage

of sales increased to 146% for 2019 compared to 129% in the same period in 2018.

The significant components of selling, general

and administrative expenses are as follows:

an increase of $2,460,835 (27%).

The increase was primarily attributable to a patent litigation settlement of $6.0 million

we received during 2019 that did not recur in 2020.

Exclusive of the 2019 patent litigation settlement;

our selling, general

and administrative expenses as a percentage of sales decreased to 112% for 2020 compared to 146% in the same period in 2019.

significant components of selling, general and administrative expenses are as follows:

Year ended December 31,

9 unchanged sentences

Our research and development expenses totaled $1,842,800 and $2,005,717 for the years ended December 31, 2020

and 2018, respectively, an increase of $561,654 (39%).

We employed 16 engineers at December 31, 2019 compared to 11 engineers

at December 31, 2018, most of whom are dedicated to research and development activities for new products and primarily the EVO-HD,

which was launched in late second quarter 2019, and a commercial version of the EVO-HD, which we plan to launch in late 2020,

and a non-mirror based DVM-250 that can be located in multiple places in a vehicle.

We expect our research and development activities

will continue to trend higher in future quarters as we continue to expand our product offerings based on our new EVO-HD product

We consider our research and development capabilities and new product focus to be a competitive advantage and will continue

to invest in this area on a prudent basis and consistent with our financial resources.

and 2019, respectively, a decrease of $162,917 (9%).

We employed 15 engineers at December 31, 2020 compared to 16 engineers at

December 31, 2019, most of whom are dedicated to research and development activities for new products and primarily the ThermoVu TM ,

Shield TM , EVO-HD and non-mirror based DVM-250 that can be located in multiple places in a vehicle.

We expect our research

and development activities will continue to trend higher in future quarters as we continue to expand our product offerings based

on our new EVO-HD product platform and we outsource more development projects.

We consider our research and development capabilities

and new product focus to be a competitive advantage and will continue to invest in this area on a prudent basis and consistent

with our financial resources.

advertising and promotional expenses.

Selling, advertising and promotional expense totaled $2,607,242 and $3,652,434 for

the years ended December 31, 2019 and 2018, respectively, an increase of $854,641 (31%).

the years ended December 31, 2020 and 2019, respectively, a decrease of $1,045,192 (40%).

Salesman salaries and commissions represent

the primary components of these costs and were $1,616,267 and $2,632,729 for the years ended December 31, 2020 and 2019, respectively,

an increase of $219,049 (9%).

The effective commission rate was 25.2% for the year ended December 31, 2019 compared to 21.4% for

the year ended December 31, 2018.

We increased the number of salesmen in our law enforcement and commercial channels in late 2018

and increased travel expenses in 2019 compared to 2018.

and advertising expenses totaled $1,019,705 during the year ended December 31, 2019 compared to $384,113 during the year ended

December 31, 2018, an increase of $635,592 (165%).

The increase is primarily attributable to sponsorship of the NASCAR race in

May 2019 and efforts to expand brand awareness and leverage our relationship with NASCAR for business opportunities.

a decrease of $1,016,432 (63%).

The effective commission rate was 15.4% for the year ended December 31, 2020 compared to 25.2%

for the year ended December 31, 2019.

We reduced the number of salesmen in our law enforcement and commercial channels in early

2020 and decreased travel expenses in 2020 compared to 2019, due to the impact of Covid-19 restrictions.

In addition, we are utilizing

third-party distributors as a major component of our new Shield and ThermoVU sales channel.

and advertising expenses totaled $990,975 during the year ended December 31, 2020 compared to $1,533,679 during the

year ended December 31, 2019, a decrease of $542,704 (35%).

The overall decrease is primarily attributable to our 2019

sponsorship of NASCAR, and the ultimate suspension of the 2020 NASCAR season during 2020, a reduction in attendance at trade

shows as a result of the COVID-19 pandemic, altered by our sponsorship of several events to promote our new Shield and

ThermoVU product lines including the Indianapolis 500 race that occurred in August 2020.

compensation expense.

4 unchanged sentences

other employees.

We relied more on stock-based compensation during 2019 and 2018 as we attempted to reduce cash expenses for liquidity

We relied more on stock-based compensation in 2019 as we attempted to reduce cash expenses;

in 2020 we attempted to reduce all expenses due to the impact of COVID-19.

fees and expense .

1 unchanged sentence

and 2019, respectively, a decrease of $543,423 (35%).

The professional fees are primarily attributable to legal fees and expenses

related to the ongoing Axon lawsuit and the resolution of the WatchGuard and PGA lawsuits.

We resolved the PGA lawsuit on April

17, 2019 and the associated cost was accrued as of December 31, 2019 and the WatchGuard lawsuit was settled on May13, 2019.

June 17, 2019, the U.S.

District Court granted Axon’s Motion for Summary Judgment, which accepted Axon’s position

that it did not infringe on our patent and dismissed the lawsuit in its entirety.

We have appealed the Court’s ruling and

the oral arguments were set before the U.S.

Court of Appeals on April 6, 2020.

However, on March 12, 2020, the Court of Appeals

issued an order cancelling the oral arguments on April 6, 2020 having determined that they will decide the appeal based on the

parties’

briefs without oral argument.

Our spending on legal fees on the Axon case has slowed as we wait for the appeal

The decrease in professional fees is primarily attributable to legal fees

and expenses related to the termination of the Axon lawsuit and the resolution of the WatchGuard and PGA lawsuits.

the PGA lawsuit on April 17, 2019 and the associated cost was accrued as of December 31, 2019 and the WatchGuard lawsuit was settled

on May 13, 2019.

On June 17, 2019, the U.S.

District Court granted Axon’s Motion for Summary Judgment and accepted Axon’s

position that it did not infringe on the ‘452 Patent and dismissed the lawsuit in its entirety.

appealed the U.S.

District Court’s ruling and on April 22, 2020, a three-judge panel of the United States Court of Appeals

for the Tenth Circuit denied our appeal and affirmed the U.S.

District Court’s previous decision to grant Axon summary judgment.

The Company filed a motion requesting a rehearing in front of the Court of Appeals which motion was also denied on June 9, 2020.

Company had until November 7, 2020 to decide whether it would appeal the U.S.

District Court’s and Court of Appeals’

decisions to the United States Supreme Court.

Our spending on legal fees on the Axon case has slowed during 2020 as we waited

for the appeal to be heard.

The Company has decided not to appeal the decisions to the United States Supreme Court and to abandon

the lawsuit against Axon which reduced the amount of legal expenses for 2020 as compared to 2019.

sales and administrative staff payroll.

Executive, sales and administrative staff payroll expenses totaled $2,449,690

and $2,139,687 for the years ended December 31, 2019 and 2018, respectively, an increase of $943,334 (44%).

and $3,083,021 for the years ended December 31, 2020 and 2019, respectively, a decrease of $633,331 (21%).

The primary reason

for the increase in executive, sales and administrative staff payroll was an increase in staff from 95 at December 31, 2018 to

117 at December 31, 2019 and bonuses paid to executives during 2019.

litigation settlement.

The income attributable to our patent litigation settlement with WatchGuard was $6.0 million and

$-0- for years ended December 31, 2019 and 2018, respectively.

On May 13, 2019 we reached a resolution of the litigation and executed

a settlement agreement that resulted in the dismissal of this case.

As part of the agreement, we received a one-time $6.0 million

payment and granted WatchGuard a perpetual covenant to not sue WatchGuard if its products incorporate agreed-upon modified recording

functionality.

Additionally, we granted it a license to the ‘292 Patent and ‘452 Patent through December 31, 2023.

As part of the settlement, the parties agreed that WatchGuard made no admission that it had infringed on any of our patents.

Note 12, “Contingencies”

for the details respecting the settlement.

for the decrease in executive, sales and administrative staff payroll was a reduction in our technical support staffing in response

to the COVID-19 pandemic and the Company expects such reductions to continue to reduce related staff expenses during the balance

The COVID-19 pandemic has significantly impacted the Company’s new event security business channel in 2020 as many

sporting venues were closed including those served by these service technicians.

In addition, several members of the Company’s

management accepted reductions in their cash compensation in 2020 to help the Company’s liquidity position in light of the

COVID-19 pandemic.

Other selling, general and administrative expenses totaled $2,373,987 and $2,878,469 for the years ended December 31, 2020 and

2018, respectively, an increase of $437,497 (18%).

The increase in other expenses in 2019 compared to 2018 is primarily attributable

to higher contract employee expenses and travel costs.

We have added several contract employees to our technical support teams

2019, respectively, a decrease of $504,482 (17%).

The decrease in other expenses in 2020 compared to 2019 is primarily attributable

to lower contract employee expenses and travel costs resulting from the COVID-19 pandemic offset by increases in the Company’s

insurance costs.

the reasons previously stated, our operating loss was $7,663,651 and $6,032,781 for the years ended December 31, 2020 and 2019,

respectively, an improvement of $4,523,276 (43%).

Operating loss as a percentage of revenues decreased to 58% in 2019 from 94%

respectively, a increase of $1,630,870 (27%).

Operating loss as a percentage of revenues decreased to 73% in 2020 from 58% in

and Other Income

1 unchanged sentence

and cash equivalent levels in 2020 compared to 2019.

The Company raised significant amounts of cash through the closing of several

underwritten public offerings and the exercise of outstanding common stock purchase warrants during 2020, which generated additional

interest income in 2020 when compared to 2019.

incurred interest expense of $342,379 and $43,373 during the years ended December 31, 2020 and 2019, respectively.

was attributable to lower interest-bearing debt balances outstanding in 2019 as compared to 2018.

We issued an aggregate of $2,778,000

principal amount of secured convertible notes on August 5, 2019 bearing interest at 8% per annum on the outstanding principal

In May and April 2018, we issued an aggregate of $6,875,000 principal amount of secured convertible debentures (2018

Debentures) bearing interest at the rate of 8% per annum on the outstanding principal balance.

We paid the 2018 Debentures in

full on August 21, 2018, but were required to pay the remaining 12 months of guaranteed interest on the Debentures, which included

a 10% premium, because they were not retired before August 1, 2018.

We issued an aggregate of $300,000 principal amount of Notes

on December 23, 2019 bearing interest at 8% per annum on the outstanding principal balance.

in Warrant Derivative Liabilities

issued detachable warrants exercisable to purchase a total of 398,916 common shares, as adjusted, in conjunction with $2.0 million

and $4.0 million Secured Convertible Notes during March and August 2014.

The warrants were required to be treated as derivative

liabilities because of their anti-dilution and down-round provisions.

Accordingly, we estimated the fair value of such warrants

as of their respective date of issuance and recorded a corresponding derivative liability in the balance sheet.

Upon exercise

of the warrants we recognized a gain/loss based on the closing market price of the underlying common stock on the date of exercise.

Certain common stock purchase warrants issued in August 2014 contained anti-dilution provisions that triggered a reset to their

exercise price and number as a result of the April 2018 financing transaction.

The reset provisions resulted in the 12,200 warrants

held at an exercise price of $7.32 per share increased by 159,538 warrants resulting in a final reset to 172,038 warrants at an

exercise price of $0.52 per share.

holder of the warrants exercised its option to purchase common stock for all remaining outstanding warrants during the year ended

December 31, 2018 at the reset exercise price of $.52 per share.

The net change in fair value of the warrants to the closing market

price on their respective date of exercise resulted in a net charge to change in warrant derivatives for the year ended December

31, 2018 of $319,105.

remained no warrants classified as derivative liabilities outstanding at December 31, 2018;

therefore, the respective warrant

derivative liability balance was $0 at December 31, 2018.

Furthermore, no similar instruments were outstanding during the year

ended December 31, 2019.

was attributable to higher interest-bearing debt balances outstanding in 2020 as compared to 2019.

We had secured convertible

notes outstanding in 2020 represented by the $1.667 million principal amount of notes issued on April 17, 2020 and by the $2.778

million principal amount of notes issued on August 5, 2019, both of which bore interest at 8% per annum, and both of which

were paid off during 2020.

In addition, we issued an aggregate of $300,000 principal amount of an unsecured promissory note

on December 23, 2019 bearing interest at 8% per annum on the outstanding principal balance which was paid off during

On May 12, 2020 the Company

received $150,000 in additional loan funding under the Economic Injury Disaster Loans (“EIDL”) program administered

by the Small Business Administration (“SBA”).

Under the terms of the EIDL promissory note, interest accrues

on the outstanding principal at the rate of 3.75% per annum.

The term of the EIDL promissory note is thirty years and monthly

principal and interest payments are deferred for twelve months after the date of disbursement and total $731.00 per month thereafter.

in Fair Value of Secured Convertible Notes

elected to account for the secured convertible notes that were issued in August of 2019 on its fair value basis.

Therefore, we

determined the fair value of the secured convertible notes as of their issuance date and as of December 31, 2019 to be $1,845,512

and $1,593,809, respectively.

During the year ended December 31, 2019, the holders converted an aggregate of $648,067of convertible

note principal.

The change in fair value from the issuance date of August 5, 2019 and December 31, 2019 was $519,821, which was

recognized as a charge in the Consolidated Statement of Operations at December 31, 2019.

in Fair Value of Secured Convertible Debentures

elected to account for the $4.0 million principal amount of 2016 Debentures that we retired on April 3, 2018 on their fair value

The change in fair value of the debentures was $12,807 during the year ended December 31, 2018, which was recognized as

a gain in the Consolidated Statement of Operations.

We paid these Debentures on April 3, 2018 so there was no similar fair value

change in the year ended December 31, 2019.

elected to account for the $6.875 million principal amount of 2018 Debentures issued in April and May 2018 on their fair value

Therefore, we determined the fair value of the 2018 Debentures which yielded an estimated fair value of $4,565,749 including

their embedded derivatives as of their origination date.

We also determined the estimated fair value of $5,354,803 for the 2018

Debentures including their embedded derivatives as of June 30, 2018.

We paid the 2018 Debentures on August 21, 2018 in full and

the change in fair value of the 2018 Debentures from origination date to August 21, 2018 was $2,309,251, which was recognized

as a loss in the Consolidated Statement of Operations.

net charge to change in fair value of secured debentures for the year ended December 31, 2019 was $-0- compared to $2,296,444

for the year ended December 31, 2018.

elected to account for the secured convertible notes that were issued on April 17, 2020 on their fair value basis.

we determined the fair value of the secured convertible notes as of their issuance date of April 17, 2020 and through June 12,

2020, when they were paid in full.

The change in fair value from their issuance date of April 17, 2020 to their pay-off date was

$887,807, which was recognized as a charge in the Consolidated Statement of Operations for the year ended December 31, 2020.

elected to account for the secured convertible notes that were issued in August 2019 on its fair value basis.

Therefore, we determined

the fair value of the secured convertible notes as of their issuance date on December 31, 2019 until they were paid in full March

The change in fair value from December 31, 2019 to their pay-off date was $412,445, which was recognized as a charge

in the Consolidated Statement of Operations at December 31, 2020.

The change in fair value

from the issuance date of August 5, 2019 and December 31, 2019 was $519,821, which was recognized as a charge in the Consolidated

Statement of Operations at December 31, 2019

in Fair Value of Proceeds Investment Agreement

elected to account for the PIA that was entered into July of 2018 on its fair value basis.

Therefore, we determined the fair value

of the 2018 PIA as of December 31, 2019, and December 31, 2018 to be $6,500,000 and $9,142,000, respectively.

During the year

ended December 31, 2019, we settled our patent infringement litigation with WatchGuard and received a lump sum payment of $6.0

million as further described in Note 12.

In accordance with the terms of the PIA, we remitted the $6.0 million as a principal

payment toward our minimum return payment obligations under the PIA.

The change in fair value from December 31, 2018 to December

31, 2019 was $3,358,000, which was recognized as a loss in the Consolidated Statement of Operations at December 31, 2019.

July 2018 we determined the fair value of the 2018 PIA was an estimated fair value of $9,067,513 as of its origination date.

also determined the estimated fair value was $9,142,000 for the PIA as of December 31, 2018.

The change in fair value from origination

date until December 31, 2018 was $74,487, which was recognized as a loss in the Consolidated Statement of Operations at

December 31, 2018.

on Extinguishment of Secured Convertible Debentures

Board of Directors approved the Private Placement of $6.875 million of debentures and 806,667 Warrants exercisable to purchase

916,667 shares of our common stock.

The Private Placement closed on April 3, 2018.

Private Placement resulted in gross proceeds of $6.25 million before placement agent fees and other expenses associated with the

A portion of the proceeds was used to repay in full the Debentures issued in December 2016, which matured on March

30, 2018, and approximately $758,500 principal amount of the June Note and Secured Note that matured in March 2018.

of the proceeds was used for working capital purposes.

conjunction with the transaction we recorded a loss on extinguishment of the secured convertible debentures totaling $600,000

for the year ended December 31, 2018.

There was no similar extinguishment of secured convertible debentures in 2019.

recorded a gain (loss) representing the change in fair value of proceeds investment agreement of $5,250,000 and $(3,358,000) during

the years ended December 31, 2020 and 2019, respectively.

We elected to account

for the PIA that was entered into in July 2018 on its fair value basis.

Therefore, we determined the fair value of the

2018 PIA as of December 31, 2020, and 2019 to be $0 and $6,500,000, respectively.

During the year ended December

31, 2019, we settled our patent infringement litigation with WatchGuard and received a lump sum payment of $6.0 million as further

described in Note 12, “Commitments and Contingencies,”

to our consolidated financial statements.

In accordance

with the terms of the PIA, we remitted the $6.0 million as a principal payment toward our minimum return payment obligations under

The change in fair value from December 31, 2019 to December 31, 2020 was $5,250,000, which was recognized as a loss in

the Consolidated Statement of Operations at December 31, 2020.

On July 20, 2020, the

Company and BKI executed the Termination Agreement.

Under the terms of the Termination Agreement, the parties agreed

to terminate the PIA and to release each other from any further liability under the PIA obligation.

Under the terms of the

Termination Agreement, upon payment of $1,250,000 by the Company to BKI, both parties agreed to terminate the PIA and to release

each other from any further liability thereunder.

Such $1,250,000 payment was made on July 22, 2020.

In addition to the $1,250,000

payment, the Company further agreed to pay BKI the following:

(a) a contingent payment in the amount of $2,750,000 following the

closing of an asset purchase, membership interest purchase, or similar transaction between the Company and a specified third-party

(the “Purchase Transaction”) and (b) any and all future proceeds received from Watchguard and its successors and assigns

by the Company for WatchGuard’s use of the ‘292 Patent and the ‘452 Patent.

For clarity, the Company

and BKI further agreed that the payment of the contingent payment would only be due and payable upon the closing of the specified

Purchase Transaction and the relevant contingent payment portion of the Termination Agreement, and any obligations stemming therefrom,

would automatically terminate if the specified Purchase Transaction is abandoned prior to its closing, including its failure to

close within three years from the date of the Termination Agreement.

The parties abandoned

the Purchase Transaction during the year ended December 31, 2020 and, therefore, the contingent payment obligation automatically

terminated as the specified Purchase Transaction was abandoned prior to its closing.

Furthermore, the Company does not anticipate

any future recoveries from Watchguard and its successors and assigns relative to WatchGuard’s use of the ‘292

Patent or ‘452 Patent.

As a result, the PIA obligation was extinguished upon the payment of the $1,250,000 required

under the Termination Agreement.

Convertible Debentures Issuance Expenses

elected to account for and record our secured convertible notes issued in August 2019 on a fair value basis.

Accordingly, we were

required to expense the related issuance costs to other expense in the consolidated statements of operations.

Such costs totaled

$89,148 for 2019.

elected to account for and record our $6.875 million Secured Convertible Debenture issued in April and May 2018 on a fair value

elected to account for and record our $1.667 million principal amount of secured convertible notes on April 17, 2020 on a fair

Accordingly, we were required to expense the related issuance costs to other expense in the consolidated statements

of operations.

Such costs totaled $351,462 for 2018.

The issuance costs included a $150,000 placement agent fee and the remainder

was primarily legal fees.

before Income Tax Benefit

Such costs totaled $34,906 for the year ended December 31, 2020 and primarily included related legal and accounting

elected to account for and record our $2.778 million principal amount of secured convertible notes on August 5, 2019 on a fair

Accordingly, we were required to expense the related issuance costs to other expense in the consolidated statements

of operations.

Such costs totaled $89,148 for the year ended December 31, 2019 and primarily included related legal and accounting

on Extinguishment of Debt

discussed in Note 7 , “Debt Obligations ,”

on May 4, 2020 the Company received a $1,418,900 promissory note

under the SBA’s PPP Loan through the CARES Act.

On December 10, 2020, we were informed that the Company’s SBA Loan

had been forgiven, less the EIDL Advance received, thus the remaining balance has been released resulting in a gain on extinguishment

accordance with ASC Topic No.

470, “Debt –

Modifications and Extinguishments”

(Topic 470), the transaction noted

above was determined to be an extinguishment of the existing debt.

As a result, we recorded a gain on the extinguishment of debt

in the amount of $1,417,413, which is included in “Gain on Extinguishment of Debt”

in our Consolidated Statements

of Operations.

(Loss) before Income Tax Benefit

a result of the above, we reported a loss before income tax benefit of $2,625,881 and $10,005,713 for the years ended December

7 unchanged sentences

have further determined to continue providing a full valuation reserve on our net deferred tax assets as of December 31, 2020.

During 2019, we increased our valuation reserve on deferred tax assets by $2,100,000 whereby our deferred tax assets continue

to be fully reserved due to our recent operating losses.

had approximately $67,100,000 of Federal net operating loss carryforwards and $1,795,000 of research and development tax credit

carryforwards as of December 31, 2019 available to offset future net taxable income.

During 2020, we increased our valuation reserve on deferred tax assets by $405,000 whereby our deferred tax assets continue to

be fully reserved due to our recent operating losses.

had approximately $76,070,000 of federal net operating loss carryforwards and $1,795,000 of research and development tax

credit carryforwards as of December 31, 2020 available to offset future net taxable income.

a result of the above, we reported net losses of $2,625,881 and $10,005,713 for the years ended December 31, 2020 and 2019, respectively,

6 unchanged sentences

reported for each period.

and Capital Resources and Going Concern

and Capital Resources

Management’s

Liquidity Plan.

The accompanying consolidated financial statements have been prepared on a going concern basis, which

contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company incurred

substantial operating losses in recent years due to the factors cited elsewhere in this Report and has accessed the public and

private capital markets to raise funding through the issuance of debt and equity.

During the year ended December 31, 2019, the

Company settled one of its patent infringement cases and received a lump sum payment of $6.0 million, which it used to pay its

obligations under the PIA as more fully described in Note 12.

In recent years the Company has accessed the public and private

capital markets to raise funding through the issuance of debt and equity.

In that regard, the Company raised net proceed of approximately

$2,500,000 through issuances of secured convertible debt, $300,000 through the issuance of unsecured note payable, and $1,564,000

from the exercise of warrants in the year ended December 31, 2019.

In fiscal 2018 the Company raised capital through the issuance

of subordinated debt, secured debt and the PIA totaling $16,500,000, and net proceeds of $7,324,900 from an underwritten public

offering of common stock.

These debt and equity raises were utilized to fund its operations and management expects to continue

this pattern until it achieves positive cash flows from operations, although it can offer no assurance in this regard.

Company will have to restore positive operating cash flows and profitability over the next year and/or raise additional capital

to fund its operational plans, meet its customary payment obligations and otherwise execute its business plan.

There can be no

assurance that it will be successful in restoring positive cash flows and profitability, or that it can raise additional debt

or equity financing when needed and obtain it on terms acceptable or favorable to the Company.

we must further supplement our liquidity to support our operations in 2020, given our recent history of net operating losses and

negative cash flows, we do not believe that traditional banking indebtedness would be available to us given our recent operating

Our 2020 operating plan could include raising additional capital a public offering or a private placement of debt or

equity, all of which are under consideration as part of our strategic alternatives.

We demonstrated our ability to raise new debt

or equity capital in 2019 and recent years.

If necessary, we believe that we could raise additional capital during the next 12

months if required, but we can offer no assurances in this regard.

March 3, 2020, the Company consummated an underwritten public offering of 2,521,740 shares of common stock (the “Offering”).

The common shares in the Offering were sold at a public offering price of $1.15 per share.

The Company has granted the Underwriters

a 45-day option to purchase up to an additional 378,261 additional shares of common stock at the public offering price, less underwriting

discounts and commissions, to cover over-allotments, if any.

The gross proceeds to the Company from the offering, before deducting

underwriting discounts and commissions and other estimated offering expenses, and assuming the Underwriters do not exercise their

option to purchase the option shares, were approximately $2.9 million.

Liquidity Plan - The Company has historically raised capital in the form of equity and debt instruments from

private and public sources to supplement its needs for funds to support its business operational and strategic plans.

during 2019, the Company settled one of its patent infringement cases and received a lump sum payment of $6.0 million, which it

used to pay its obligations under the PIA agreement, and on July 20, 2020, the Company and BKI executed a Termination Agreement

which terminated the PIA and released the parties from any further liability under the PIA obligation upon payment of $1,250,000

by the Company to BKI.

Such $1,250,000 payment was made on July 22, 2020 and the PIA obligation was extinguished, as more fully

described in Note 7 , “

Debt Obligations ”.

In recent years the Company has accessed the public

and private capital markets to raise funding through the issuance of debt and equity.

In that regard, the Company raised $12.8

million in underwritten public offerings of Common Stock, $5.2 million through the exercise of common stock purchase warrants

and options, $1.6 million through the issuance of promissory notes under the SBA’s PPP and EIDL programs, raised $1.5 million

through the issuance of secured convertible notes and $419,000 in unsecured promissory notes and detachable warrants during the

year ended December 31, 2020.

These debt and equity raises were utilized to fund its operations during 2020.

believes that it now has adequate liquidity for the foreseeable future from recent issuances of equity in 2021 through the utilization

of the Company’s shelf registration statement on Form S-3 (File No.

333-239419), which was initially filed with the SEC

on June 25, 2020, and was declared effective on July 2, 2020 (the “Shelf Registration Statement”).

Registration Statement on Form S-3 - The Shelf Registration Statement allows the Company to offer and sell, from time to

time in one or more offerings, any combination of our Common Stock, debt securities, debt securities convertible into Common

Stock or other securities in any combination thereof, rights to purchase shares of Common Stock or other securities

in any combination thereof, warrants to purchase shares of Common Stock or other securities in any combination thereof

or units consisting of Common Stock or other securities in any combination thereof having an aggregate initial offering

price not exceeding $125,000,000.

The Company has utilized the Shelf Registration Statement for two recent offerings of

its securities, as described as follows:

Direct Offering

- On January 14, 2021, the Company, pursuant a securities purchase agreement,

closed a registered direct offering (the “January Offering”) of

(i) 2,800,000 shares of Common Stock, (ii) pre-funded warrants to purchase up

to 7,200,000 of Common Stock at an exercise price of $0.01 per share, issuable

to investors whose purchase of shares of Common

Stock would otherwise result in such investor, together with its affiliates and certain

related parties, beneficially owning more than 4.99% (or, at the election of the holder,

9.99%) of the Company’s outstanding Common Stock immediately following the consummation

of the January Offering;

and (iii) common stock purchase warrants (“January

Warrants”) to purchase up to an aggregate of 10,000,000 shares of Common

Stock, which are exercisable for a period of five years after issuance at an initial

exercise price $3.25 per share, subject to certain adjustments, as provided in the January

The January Offering was conducted pursuant to a placement

agency agreement, dated January 11, 2021 (the “January Placement Agency Agreement”),

between the Company and Kingswood Capital Markets, division of Benchmark Investments,

(the “Placement Agent”).

The combined offering price of each share of

Common Stock and accompanying January Warrant in the January Offering was $3.095.

to the terms of the January Placement Agency Agreement, the Company agreed not to, for a period of 90 days after the date

of the January Placement Agency Agreement, with certain

exceptions, unless it has obtained the prior written consent of the Placement Agent, (i) offer, pledge, sell, contract to

sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant

to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock

of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock

of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers

to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Company received approximately $29,013,000 in net proceeds from the January Offering after deducting the discounts,

commissions and other estimated offering expenses payable by the Company.

The Company plans to use the net proceeds from the

January Offering for working capital, product development, order fulfillment and for general corporate purposes.

Direct Offering - On February 1, 2021,

the Company, pursuant a securities purchase agreement closed a registered direct offering (the “February

Offering”) of (i) 3,250,000 shares of Common Stock, (ii) pre-funded warrants to purchase up to 11,050,000

of Common Stock at an exercise price of $0.01 per share, issuable to investors

whose purchase of shares of Common Stock would otherwise result in such investor, together with its affiliates and certain

related parties, beneficially owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding

Common Stock immediately following the consummation of the February Offering;

and (iii) common stock purchase warrants

(“February Warrants”) to purchase up to an aggregate of 14,300,000 shares of Common Stock, which

are exercisable for a period of five years after issuance at an initial exercise price $3.25 per share, subject to certain

adjustments, as provided in the Warrants .

The February Offering was conducted pursuant to a placement

agency agreement, dated January 28, 2021 (the “February Placement Agency Agreement”), between the Company

and the Placement Agent.

The combined offering price of each share of Common Stock and accompanying February Warrant

in the February Offering was $2.80.

to the terms of the February Placement Agency Agreement,

the Company has agreed not to, for a period of 90 days after the date of the February Placement Agency Agreement,

with certain exceptions, unless it has obtained the prior written consent of the Placement Agent, (i) offer, pledge,

sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option,

right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of capital stock

of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(ii) file or cause to be filed any registration statement with the SEC relating to the offering of any shares of capital stock

of the Company or any securities convertible into or exercisable or exchangeable for shares of capital stock of the Company;

(iii) complete any offering of debt securities of the Company, or (iv) enter into any swap or other arrangement that transfers

to another, in whole or in part, any of the economic consequences of ownership of capital stock of the Company.

Company received approximately $37,447,100 in net proceeds from the February Offering after deducting the discounts,

commissions and other estimated offering expenses payable by the Company.

The Company plans to use the net proceeds from the

February Offering for working capital, product development, order fulfillment and for general corporate purposes.

believes that it has adequate funding to support its business operations for the foreseeable future as a result of the funds raised

by the January Offering and the February Offering.

Company has increased its addressable market to non-law enforcement customers and obtained new non-law enforcement contracts in

2020 and 2019, which contracts include recurring revenue during the period from 2020 to 2023.

The Company believes that its quality

control and cost cutting initiatives, expansion to non-law enforcement sales channels and new product introduction will eventually

restore positive operating cash flows and profitability, although it can offer no assurances in this regard.

The extent to which

our future operating results are affected by the COVID-19 pandemic will largely depend on future developments which cannot be

accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and

the impact on the global economy, our customers’

demand for our products and services, and our ability to provide our products

and services, particularly as a result of our employees working remotely and/or the closure of certain offices and facilities.

While these factors are uncertain, we believe that the COVID-19 pandemic and/or the perception of its effects will have a material

adverse effect on our business, financial condition, results of operations and cash flows.

March 3, 2020, the Company consummated an underwritten public offering of 2,521,740 shares of common stock (the “March

Offering”).

The shares of Common Stock in the March Offering were sold at a public offering price of $1.15

The gross proceeds to the Company from the March Offering, before deducting underwriting discounts and commissions

and other estimated offering expenses, and assuming the underwriters would not exercise their over-allotment option,

were approximately $2.9 million.

The net proceeds to the Company from the offering, a fter

deducting underwriting discounts and commissions and the non-accountable expense

reimbursement, but before deducting other expenses in connection with the offering, and assuming the Underwriters do not

exercise their option to purchase the option Shares , are approximately $2.67 million.

Company intends to use the net proceeds from this offering to fund the repayment of debt and for general corporate purposes.

had warrants outstanding exercisable to purchase 4,824,573 shares of common stock at a weighted average exercise price $5.15 per

share outstanding as of December 31, 2019.

In addition, there are common stock options outstanding exercisable to purchase 589,125

shares at an average price of $3.74 per share.

We could potentially use such outstanding warrants to provide near-term liquidity

if we could induce their holders to exercise their warrants by adjusting/lowering the exercise price on a temporary or permanent

basis if the exercise price was below the then market price of our common stock, although we can offer no assurances in this regard.

Ultimately, we must restore profitable operations and positive cash flows to provide liquidity to support our operations and,

if necessary, to raise capital on commercially reasonable terms in 2020, although we can offer no assurances in this regard.

Common Stock is currently listed on The Nasdaq Capital Market (“Nasdaq”).

In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including

those regarding director independence and independent committee requirements, minimum stockholders’

equity, minimum share

price, and certain corporate governance requirements.

There can be no assurances that we will be able to comply with the applicable

listing standards.

See “Nasdaq Listing”

on the uncertainties described above, we believe our business plan does not alleviate the existence of substantial doubt about

our ability to continue as a going concern within one year after the date that the audited consolidated financial statements in

this Report are filed with the Securities and Exchange Commission.

had $359,685 of available cash and equivalents and net working capital of $764,934 as of December 31, 2019.

working capital as of December 31, 2019 included approximately $1.1 million of accounts receivable and $5.3 million of current

reimbursement, but before deducting other expenses in connection with the offering, and assuming the underwriters would

not exercise their over-allotment option, were approximately $2.67 million.

The Company intends to use the net

proceeds from this offering to fund the repayment of debt and for general corporate purposes.

We had warrants outstanding

exercisable to purchase 3,388,364 shares of Common Stock at a weighted average exercise price $6.24 per share outstanding

as of December 31, 2020.

In addition, there are Common Stock options outstanding exercisable to purchase 838,313 shares

of Common Stock at an average price of $3.20 per share.

We could potentially use such outstanding warrants to provide near-term

liquidity if we could induce their holders to exercise their warrants by adjusting/lowering the exercise price on a temporary

or permanent basis if the exercise price was below the then market price of our Common Stock, although we can offer no

assurances in this regard.

Ultimately, we must restore profitable operations and positive cash flows to provide liquidity to support

our operations and, if necessary, to raise capital on commercially reasonable terms in 2021, although we can offer no assurances

in this regard.

On June 4, 2020, the

Company consummated an underwritten public offering (the “First June Offering”) of 3,090,909 shares of Common Stock.

The First June Offering was conducted pursuant to an underwriting agreement, dated June 2, 2020 (the “First June Underwriting

Agreement”), between the Company and Aegis Capital Corp., as representative of the underwriters (the “Underwriter”),

at a public offering price of $1.65 per share, for gross proceeds of approximately $5.1 million, before deducting underwriting

discounts and other offering expenses.

Pursuant to the First June Underwriting Agreement, the Company granted the Underwriters

a forty-five (45)-day option to purchase up to an additional 463,636 shares of Common Stock at the public offering price, less

underwriting discounts and commissions, to cover over-allotments, if any (the “First June Option Shares”).

8, 2020, the Underwriters fully exercised their over-allotment option to acquire the First June Option Shares at $1.65 per share,

and the offering of the First June Option Shares closed on June 8, 2020.

The exercise of such over-allotment option resulted in

additional gross proceeds, before deducting underwriting discounts and commissions and other estimated offering expenses, of $764,999.40,

which the Company used for working capital purposes throughout the year.

On June 10, 2020,

the Company consummated an underwritten public offering (the “Second June Offering”) of 2,325,581 shares of Common

The Second June Offering was conducted pursuant to the terms of an underwriting agreement, dated June 8, 2020 (the “Second

June Underwriting Agreement”), with the Underwriter, at a public offering price of $2.15 per share, for gross proceeds of

approximately $5.0 million, before deducting underwriting discounts and other offering expenses.

The Underwriters also fully exercised

their over-allotment option, under the terms of the Second June Underwriting Agreement, to acquire an additional 213,953 shares

of Common Stock (the “Second June Option Shares”) at the public offering price, for additional gross proceeds of $459,998.95,

before deducting underwriting discounts and other offering expenses.

The Company used the net proceeds from the Second June Offering

for working capital purposes throughout the year.

The First June Offering

and the Second June Offering were registered pursuant to the Company’s effective shelf registration statement on Form S-3

333-225227), which was initially filed with the SEC on May 25, 2018, and was declared effective on June 6, 2018, and

the related base prospectus included in such registration statement, as supplemented by the prospectus supplement dated June 2,

Our Common Stock is currently

listed on The Nasdaq Capital Market .

In order to maintain our

listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director

independence and independent committee requirements, minimum stockholders’

equity, minimum share price, and certain corporate

governance requirements.

There can be no assurances that we will be able to comply with the applicable listing standards.

“Nasdaq Listing”

We had $4,361,758 of

available cash and equivalents and net working capital of $14,109,500 as of December 31, 2020.

Net working capital as of December

31, 2020 included approximately $1.7 million of accounts receivable and $8.2 million of current inventory.

cash equivalents:

As of December 31, 2019, we had cash and cash equivalents with an aggregate balance of $359,685, a decrease

As of December 31, 2020, we had cash and cash equivalents with an aggregate balance of $4,361,758, an increase

from a balance of $359,685 at December 31, 2019.

Summarized immediately below and discussed in more detail in the subsequent

subsections are the main elements of the $3,239,122 net decrease in cash during the year ended December 31, 2019:

Summarized immediately below and discussed in more detail in the subsequent subsections

are the main elements of the $4,002,073 net increase in cash during the year ended December 31, 2020:

of net cash used in operating activities.

Net cash used in operating activities was $1,124,373 and $9,011,857 for

the years ended December 31, 2019 and 2018, respectively, an improvement of $7,887,484.

The improvement was primarily the

result of our improved operating results for the year ended December 31, 2019 compared to 2018 and increases in accounts payable

and decreases of accounts receivable offset by a decrease in accrued expenses.

Our goal is to increase revenues, return to

profitability and decrease our inventory levels during the 2020, thereby providing positive cash flows from operations, although

there can be no assurances that we will be successful in this regard.

cash used in operating activities was $13,274,715 and $1,124,373 for the years ended December 31, 2020 and 2019, respectively,

a deterioration of $12,150,342.

The deterioration is attributable to the net loss incurred for 2020, the non-cash gain

attributable to the change in value of the PIA obligation, the usage of cash to increase inventory, accounts receivable, other

operating assets and the reduction of accounts payable during the year ended December 31, 2020 compared to the same period

of net cash used in investing activities.

Cash used in investing activities was $266,144 and $70,948 for the years

ended December 31, 2019 and 2018 respectively.

In 2019 and 2018, we incurred costs for tooling of new products, an integrated

display system and for patent applications on our proprietary technology utilized in our new products and included in intangible

of net cash used in financing activities.

Cash used in financing activities was $1,884,605 and for the year ended

December 31, 2019 compared to cash provided by $12,126,900 for the year ended December 31, 2018.

On December 23, 2019, we

received proceeds of $300,000 from the issuance of the unsecured promissory note payable and on August 5, 2019, we received

net proceeds of $2,500,000 from the issuance of the 2019 secured convertible notes.

We also received $1,564,000 of proceeds

in 2019 from the exercise of common stock purchase warrants.

The primary reason for the cash used in financing activities

is related to the repayment of $6.0 million of the PIA obligation with proceeds from the WatchGuard patent litigation settlement

received in May 2019.

net result of these activities was a decrease in cash of $3,239,122 to $359,685 for the year ended December 31, 2019.

Cash used in investing activities was $1,499,189 and $266,144 for the

years ended December 31, 2020 and 2019 respectively.

In 2020 we incurred costs for:

(i) the purchase of a warehouse building;

(ii) the build out of the new leased office and warehouse space;

(iii) the tooling of new products;

(iv) patent applications

on our proprietary technology utilized in our new products and included in intangible assets;

(v) a $250,000 investment the

Company made in a private company;

and (vi) issuance of $800,000 in secured notes in other companies.

of net cash provided by financing activities.

Cash used in financing activities was $18,775,977 for the year ended December 31, 2020 compared to cash provided by

$1,848,605 for the year ended December 31, 2019.

In 2020, we closed several underwritten public offerings of our Common Stock,

which generated $12.8 million of cash, we received total proceeds of $5.2 million from the exercise of common stock purchase

warrants and we received a total of $1.6 million in borrowings under the PPP and EIDL programs administered by the SBA.

April 2020, we received net proceeds of $1,500,000 from the issuance of the convertible notes with detachable common stock

purchase warrants.

In addition, we received $419,000 in proceeds from the issuance of unsecured promissory notes payable during

the year ended December 31, 2020.

These 2020 financing cash inflows were offset by the extinguishment of the PIA obligation

and the repayment of principal on the secured convertible notes and unsecured promissory notes.

During 2019, we received $2,500,000

in proceeds from the issuance of convertible debt and $1,564,000 of proceeds from the exercise of common stock purchase warrants

offset by the $6 million payment on the PIA.

net result of these activities was an increase in cash of $4,002,073 to $4,361,758 for the year ended December 31, 2020.

had $4,361,758 of cash and cash equivalents and net positive working capital $14,109,500 as of December 31, 2020.

5 unchanged sentences

of total current and non-current inventory.

We are actively managing the level of inventory and our goal is to reduce

such level during 2020 by our sales activities, the increase of which should provide additional cash flow to help support our

operations during 2020.

We are actively managing the level of inventory and our goal is to reduce such level

during 2021 by our sales activities, the increase of which should provide additional cash flow to help support our operations

Expenditures .

We had no material commitments for capital expenditures at December 31, 2019.

commitments- The Company entered into an operating lease with a third party in September 2012 for office and warehouse

space in Lenexa, Kansas.

The terms of the lease include monthly payments ranging from $38,026 to $38,533 with a maturity date

of April 2020.

The Company has the option to renew for an additional three years beyond the original expiration date, which may

be exercised at the Company’s sole discretion.

The Company evaluated the renewal option at the lease commencement date to

determine if it is reasonably certain the exercise the option and concluded that it is not reasonably certain that any options

will be exercised.

The weighted average remaining lease term for the Company’s office and warehouse operating lease as of

December 31, 2019 was four months.

We had no material commitments for capital expenditures at December 31, 2020 however, on February 24, 2021

the Company entered into a contract to purchase a 71,361 square foot building located in Lenexa, Kansas, which is intended

to serve as the Company’s office and warehouse needs.

The building contains approximately 30,000 square foot of office space

and the remainder warehouse space.

The total purchase price is approximately $5.3 million and is expected to close on or around

On May 13, 2020, the Company entered into an operating lease for new warehouse and office space, which will

serve as its new principal executive office and primary business location.

The original lease agreement was amended on August

28, 2020 to correct the footage under lease and monthly payment amounts resulting from such correction.

The lease terms, as amended

include no base rent for the first nine months and monthly payments ranging from $12,398 to $14,741 thereafter, with a termination

date of December 2026.

The Company is responsible for property taxes, utilities, insurance and its proportionate share of common

area costs related to its new location.

The Company took possession of the leased facilities on June 15, 2020.

The remaining lease

term for the Company’s office and warehouse operating lease as of December 31, 2020 was seventy-one months.

The Company’s

previous office and warehouse space lease expired in April 2020 and the Company paid holdover rent for the time period until it

moved to and commenced occupying the new space on June 15, 2020.

Company entered into an operating lease with a third party in October 2019 for copiers used for office and warehouse purposes.

6 unchanged sentences

lease expense under the two operating leases was approximately $349,079 for the year ended December 31, 2020.

discount rate implicit within the Company’s operating leases was not generally determinable and therefore the Company determined

the discount rate based on its incremental borrowing rate on the information available at commencement date.

As of commencement

date, the operating lease liabilities reflect a weighted average discount rate of 8%.

discount rate implicit within the Company’s operating leases was not generally determinable, and therefore,

the Company determined the discount rate based on its incremental borrowing rate on the information available at commencement

As of commencement date, the operating lease liabilities reflect a weighted average discount rate of 8%.

following sets forth the operating lease right of use assets and liabilities as of December 31, 2020:

8 unchanged sentences

Total operating lease liability

We have several license agreements under which we have been assigned the rights to certain licensed materials

used in our products.

Certain of these agreements require us to pay ongoing royalties based on the number of products shipped

containing the licensed material on a quarterly basis.

Royalty expense related to these agreements aggregated $-0 and $2,083 for

the years ended December 31, 2019 and 2018, respectively.

time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us.

19 unchanged sentences

Proceedings,”

for information on our litigation.

Common Stock is currently listed on The Nasdaq Capital Market (“Nasdaq”).

In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including

those regarding director independence and independent committee requirements, minimum stockholders’

equity, minimum share

price, and certain corporate governance requirements.

There can be no assurances that we will be able to comply with the applicable

listing standards.

our Common Stock is delisted from Nasdaq and is not eligible for quotation on another

market or exchange, trading of our Common Stock could be conducted in the over-the-counter market or on an electronic bulletin

board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.

In such event, it could become more

difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and there would likely also be a reduction

in our coverage by securities analysts and the news media.

Also, it may be difficult for us to raise additional capital if we

are not listed on Nasdaq or a major exchange.

July 11, 2019, Nasdaq notified us that, for the previous 30 consecutive business days, the minimum Market Value of Listed Securities

(the “MVLS”) for our Common Stock was below the $35 million minimum MVLS requirement for continued listing on Nasdaq

under Nasdaq Listing Rule 5550(b)(2) (the “MVLS Rule”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(C),

we had 180 calendar days, or until January 7, 2020, to regain compliance with the MVLS Rule.

To regain compliance with the MVLS

Rule, the minimum MVLS for our Common Stock must have been at least $35 million for a minimum of ten consecutive business days

at any time during this 180-day period.

If we failed to regain compliance with such rule by January 7, 2020, we were subject to

being be delisted from Nasdaq .

If we were delisted from The

Nasdaq Capital Market , our Common Stock may lose liquidity, increase volatility, and lose market maker support.

January 8, 2020, we received a determination letter from the staff of Nasdaq stating that we had not regained compliance with

the MVLS Standard, since our Common Stock was below the $35 million minimum MVLS requirement for continued listing on Nasdaq under

the MLVS Rule and had not been at least $35 million for a minimum of ten consecutive business days at any time during the 180-day

grace period granted to us.

Pursuant to the letter, unless we requested a hearing to appeal this determination by January 15,

2020, our Common Stock would be delisted from Nasdaq and trading of our Common Stock would have been suspended at the opening

of business on January 17, 2020.

January 13, 2020, we requested a hearing before the Nasdaq Hearings Panel to appeal the Letter and the Staff of Nasdaq notified

us that a hearing was scheduled for February 20, 2020.

We were asked to provide the Panel with a plan to regain compliance with

the minimum MLVS requirement under the MLVS Rule, which needed to include a discussion of the events that we believe will enable

us to timely regain compliance with the minimum MLVS requirement.

On January 21, 2020, we submitted such a compliance plan.

On March 6, 2020, we received

notice from the NASDAQ hearing panel that we have been granted an extension until June 30, 2020 to regain compliance with

Rule 5550(b), which requires us to have at least i) $2.5 million in shareholder equity;

or ii) $35 million in market value of

listed securities, or iii) net income from continuing operations of at least $500,000 in the most recently completed fiscal year

or in two of the last three fiscal years.

Our goal is to meet the $2.5 million minimum shareholder equity requirement for continued

listing on NASDAQ.

There can be no assurance that we will regain compliance with the NASDAQ’s Listing Rule

regarding our $2.5 million minimum shareholder equity requirement on or prior to the June 30, 2020 required date.

even if we regain compliance on or prior to such date, we must thereafter continue to maintain compliance with such

continued listing rule.

of this Annual Report on Form 10-K for information on our litigation.

July 11, 2019, we were officially notified by The Nasdaq Stock Market LLC that, for the previous

30 consecutive business days, the minimum Market Value of Listed Securities (the “MVLS”) for our Common Stock was

below the $35 million minimum MVLS requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing

Rule 5550(b)(2) (the “MVLS Rule”).

In accordance with Nasdaq Listing

Rule 5810(c)(3)(C), we had 180 calendar days, or until January 7, 2020, to regain compliance with the MVLS Rule, or in the alternative,

the minimum stockholders’

equity requirement of $2,500,000.

To regain compliance with the MVLS Rule, the minimum MVLS for

our Common Stock must have been at least $35 million for a minimum of 10 consecutive business days at any time during this 180-day

If we failed to regain compliance with either the MVLS Rule or the minimum stockholders’

equity requirement by January

7, 2020, we could have been delisted from Nasdaq.

January 8, 2020, we received a determination letter (the “Letter”) from the staff of The

Nasdaq Stock Market LLC (the “Staff”) stating that we had not regained compliance with the MVLS Standard, since

our Common Stock was below the $35 million minimum MVLS requirement for continued listing on Nasdaq under the MLVS Rule and had

not been at least $35 million for a minimum of 10 consecutive business days at any time during the 180-day grace period granted

Pursuant to the Letter, unless we requested a hearing to appeal this determination by 4:00 p.m.

Eastern Time on

January 15, 2020, our Common Stock would have been delisted from the Nasdaq Capital Market, trading of our Common

Stock would have been suspended at the opening of business on January 17, 2020, and a Form 25-NSE would have been filed with the

SEC, which would have removed our Common Stock from listing and registration on The Nasdaq Stock Market LLC.

On January 13, 2020, we

requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to

appeal the Letter and a hearing was set for February 20, 2020.

In anticipation of such hearing, we were asked to provide

the Panel with a plan to regain compliance with the minimum MLVS requirement under the MLVS Rule, which needed to include a discussion

of the events that we believe will enable us to timely regain compliance with the minimum MLVS requirement, or in the alternative,

the minimum shareholders’

equity requirement.

On January 21, 2020, we submitted a compliance plan that we believed was sufficient

to permit us to regain compliance with the minimum stockholders’

equity requirement.

On February 20, 2020, we appeared

before the Panel to discuss our plan to regain compliance, including, but not limited to, complying with Nasdaq Listing Rule 5550(b)(1),

which is the minimum stockholders ’

equity standard for continued listing, which

requires that companies listed on the Nasdaq Capital Market maintain a minimum of $2,500,000 in stockholders ’

equity (“Rule 5550(b)(1)”

On March 6, 2020, we received written notice from

the Panel indicating that, based on the plan of compliance that we had presented at such hearing, the Panel granted our request

for the continued listing of our Common Stock on Nasdaq, subject to, among other things, us keeping the Staff updated on the progress

of our compliance plan and ultimately being able to evidence shareholder equity in an amount greater than or equal to $2,500,000

in accordance with Rule 5550(b)(1) no later than June 30, 2020.

During this time, our Common Stock remained listed and trading

on the Nasdaq Capital Market.

June 4, 2020 and June 10, 2020, we consummated underwritten public offerings identified above and raised aggregate gross

proceeds of approximately $11.3 million, before underwriting discounts and commissions and other estimated expenses of such offerings.

As a result of such offerings, we achieved compliance with Rule

5550(b)(1) and on June 18, 2020 we received written notice from the Staff stating that we

had regained compliance with such rule and the matter is now closed.

April 22, 2020, we received a written notification from The Nasdaq Stock Market LLC indicating that we were not in compliance

with Nasdaq Listing Rule 5550(a)(2), as the closing bid price for our Common Stock was below $1.00 per share for the last thirty

(30) consecutive business days.

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), we were granted a 180-calendar day compliance period

to regain compliance with the minimum bid price requirement.

Subsequently, the 180-day grace period to regain compliance with

such minimum bid price requirement under applicable Nasdaq Stock Market LLC rules was extended due to the global market impact

caused by COVID-19.

More specifically, The Nasdaq Stock Market LLC stated that the compliance periods for any company previously

notified about non-compliance would be suspended effective April 16, 2020, through June 30, 2020.

On July 1, 2020, companies

not in compliance would receive the balance of any pending compliance period exception to come back into compliance with such

minimum bid price requirement.

As a result of this extension, we had until December 28, 2020, to regain compliance with such minimum

bid price requirement.

During the compliance period, our Common Stock would still continue to be listed and traded on the

Nasdaq Capital Market.

To regain compliance, the closing bid price of the Common Stock had to have met or exceeded $1.00

per share for at least ten (10) consecutive business days by December 28, 2020.

2020, our Common Stock met such minimum bid price requirement, as the closing sale price

of our Common Stock had equaled or exceeded $1.00 per share on the Nasdaq Capital Market at the close of each trading

day since May 29, 2020, and we received written notice from the Staff stating that the Company regained compliance with such requirement

and the matter is now closed.

The Company sponsors a 401(k) retirement savings plan for the benefit of its employees.

The plan, as amended,

requires it to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation to the

plan and 50% matching contributions for employee’s elective deferrals on the next 2% of their contributions.

made matching contributions totaling $108,688 and $112,622 for the years ended December 31, 2019 and 2018, respectively.

participant is 100% vested at all times in employee and employer matching contributions.

requires the Company to provide 100% matching contributions for employees, who elect to contribute up to 3% of their compensation

to the plan and 50% matching contributions for employee’s elective deferrals on the next 2% of their contributions.

Company made matching contributions totaling $110,491 and $108,688 for the years ended December 31, 2020 and 2019, respectively.

Each participant is 100% vested at all times in employee and employer matching contributions.

and Distributor Agreements.

9 unchanged sentences

The agreement was renewed in January 2017 for a period of three years, subject to yearly minimum sales thresholds that would allow

the Company to terminate the contract if such minimums were not met.

the Company to terminate the contract if such minimums are not met.

As of December 31, 2020, the Company had advanced a total

of $274,731 pursuant to this agreement and established an allowance reserve of $224,731 for a net advance of $50,000.

sales threshold was not been met and the Company discontinued all advances, although the contract has not been formally terminated.

However, the exclusivity provisions of the agreement have been terminated.

June 1, 2018 the Company entered into an agreement with an individual that required it to make monthly payments that will be applied

to future commissions and/or consulting fees to be earned by the provider.

Under the agreement, the individual provides consulting

services for developing new distribution channels both inside and outside of law enforcement for its in-car and body-worn camera

systems and related cloud storage products to customers within and outside the United States.

The Company was required to advance

amounts to the individual as an advance against commissions of $7,000 per month plus necessary and reasonable expenses for the

period through August 31, 2018, which was extended to December 31, 2018 by mutual agreement of the parties at $6,000 per month.

of $274,731 pursuant to this agreement which has been fully reserved for a net advance of $-0-.

The minimum sales threshold was

not met, and the Company discontinued all advances, although the contract has not been formally terminated.

However, the exclusivity

provisions of the agreement have been terminated.

June 1, 2018, the Company entered into an agreement with an individual that required it to make monthly payments that will be

applied to future commissions and/or consulting fees to be earned by the provider.

Under the agreement, the individual provides

consulting services for developing new distribution channels both inside and outside of law enforcement for its in-car and body-worn

camera systems and related cloud storage products to customers within and outside the United States.

The Company was required

to advance amounts to the individual as an advance against commissions of $7,000 per month plus necessary and reasonable expenses

for the period through August 31, 2018, which was extended to December 31, 2018 by mutual agreement of the parties at $6,000 per

The parties have mutually agreed to further extend the arrangement on a monthly basis at $5,000 per month.

As of December 31,

2019, the Company had advanced a total of $53,332 pursuant to this agreement.

had advanced a total of $53,332 pursuant to this agreement, until September 2020 when the agreement was mutually terminated,

thus as of December 31, 2020 the Company had advanced $-0- pursuant to this agreement.

Accounting Policies

significant accounting policies are summarized in note 1 to our consolidated financial statements included in Item 1, “Financial

Statements”, of this report.

While the selection and application of any accounting policy may involve some level of subjective

judgments and estimates, we believe the following accounting policies are the most critical to our financial statements, potentially

involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing

Revenue Recognition / Allowance for Doubtful

Allowance for Excess and Obsolete Inventory;

Warranty Reserves;

Stock-based Compensation Expense;

Accounting for Income Taxes;

Determination of Fair Value Calculation for

Financial Instruments and Derivatives;

Going Concern Analysis.

significant accounting policies are summarized in Note 1, “Nature of Business and Summary of Significant Accounting

Policies ,”

to our consolidated financial statements.

While the selection and application of any accounting policy

may involve some level of subjective judgments and estimates, we believe the following accounting policies are the most critical

to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the

most susceptible to uncertainties and changing conditions:

Recognition / Allowance for Doubtful Accounts;

for Excess and Obsolete Inventory;

Compensation Expense;

for Income Taxes.

Recognition / Allowances for Doubtful Accounts.

Revenue is recognized for the shipment of products or delivery of service

when all four of the following conditions are met:

Identify the contract with the customer;

Identify the performance obligations in the

Determine the transaction price;

Allocate the transaction price to the performance

obligations in the contract;

Recognize revenue when a performance obligation

is satisfied.

when all five of the following conditions are met:

the contract with the customer;

the performance obligations in the contract;

the transaction price;

the transaction price to the performance obligations in the contract;

revenue when a performance obligation is satisfied.

consider the terms and conditions of the contract and our customary business practices in identifying our contracts under ASC

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Extended warranties are offered on selected products,

and when a customer purchases an extended warranty the associated proceeds are treated as contract liability and recognized over

the term of the extended warranty.

and when a customer purchases an extended warranty the associated proceeds are treated as contract liability and recognized

over the term of the extended warranty.

principal customers are state, local and federal law enforcement agencies, which historically have been low risks for uncollectible

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$238.9 million since we commenced deliveries during 2006.

As of December 31, 2019, and December 31, 2018, we had provided a reserve

As of December 31, 2020, and 2019, we had provided a reserve

for doubtful accounts of $123,224 and $123,224, respectively.

Our historical bad debts have been negligible, with less than $258,000

charged off as uncollectible on cumulative revenues of $238.9 million since we commenced deliveries during 2006.

As of December

31, 2019 and 2018, we had provided a reserve for doubtful accounts of $123,224 and $70,000, respectively.

periodically perform a specific review of significant individual receivables outstanding for risk of loss due to uncollectibility.

periodically perform a specific review of significant individual receivables outstanding for risk of loss due to uncollectability.

Based on such review, we consider our reserve for doubtful accounts to be adequate as of December 31, 2020.

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Total inventories

balance the need to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the

risk of inventory obsolescence due to changing technology and customer requirements.

As reflected above, our inventory reserves

represented 38.2% of the gross inventory balance at December 31, 2019, compared to 32.0% of the gross inventory balance at December

We had $4,144,013 and $3,287,771 in reserves for obsolete and excess inventories at December 31, 2019 and December

31, 2018, respectively.

Total raw materials and component parts were $4,481,611 and $4,969,786 at December 31, 2019 and December

31, 2018, respectively, a decrease of $488,175 (10%).

The reduction in raw materials was the result of tighter inventory controls

together with reductions in the level of FirstVU HD inventory levels.

Finished goods balances were $4,906,956 and $4,965,594 at

December 31, 2019 and December 31, 2018, respectively, a decrease of $58,638 (1%).

The decrease in finished goods was primarily

related to reductions in our DVM-750 product line, and test and evaluation and replacement inventory.

The increase in the inventory

reserve is primarily due a higher level of excess component parts of the older versions of our PCB boards and the phase out of

our DVM-750, DVM-500 Plus and LaserAlly legacy products.

We believe the reserves are appropriate given our inventory levels at

December 31, 2019.

We balance the need

to maintain strategic inventory levels to ensure competitive delivery performance to our customers against the risk of inventory

obsolescence due to changing technology and customer requirements.

As reflected above, our inventory reserves represented 19.3%

of the gross inventory balance at December 31, 2020, compared to 38.2% of the gross inventory balance at December 31, 2019.

had $1,960,351 and $4,144,013 in reserves for obsolete and excess inventories at December 31, 2020 and 2019, respectively.

raw materials and component parts were $3,186,427 and $4,481,611 at December 31, 2020 and 2019, respectively, a decrease of $1,295,185

During June 2020, the Company moved to new and smaller warehouse facilities and during the move sorted through its

entire inventory and disposed of all excess and obsolete inventory rather than moving such distressed products to the new location

which contributed to the significant decrease in the cost of raw materials and component parts.

We scrapped older version inventory

component parts that were mostly or fully reserved in 2020, which was the primary cause for the decrease in total raw materials

and component parts.

Finished goods balances were $6,974,291 and $4,906,956 at December 31, 2020 and 2019, respectively, an increase

of $2,067,335 (42%).

The increase in finished goods was primarily attributable to accumulating inventory for the new Shield and

ThermoVU product lines.

The decrease in the inventory reserve is primarily due to the scrapping of older version legacy products

that were mostly or fully reserved during 2020 as a result of moving our warehouse and office location.

The remaining reserve

for inventory obsolescence is generally provided for the level of component parts of the older versions of our printed circuit

boards and the phase out of our DVM-750, DVM-500 Plus and LaserAlly legacy products.

We believe the reserves are appropriate given

our inventory levels at December 31, 2020.

actual future demand or market conditions are less favorable than those projected by management or significant engineering changes

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to improve product quality and minimize claims.

Our warranty reserves were decreased to $17,838 as of December 31, 2019 compared

to $195,135 as of December 31, 2018 as we continue to reduce our warranty exposures through the roll-off of DVM-750 and DVM-800

Our warranty reserves were increased to $31,845 as of December 31, 2020 compared

to $17,838 as of December 31, 2019 as we begin to slow our warranty exposures through the roll-off of DVM-750 and DVM-800

units from warranty coverage.

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future periods should our assumptions regarding the generation of future taxable income not be realized.

Determination

of Fair Value for Financial Instruments and Derivatives.

During 2019 we entered into the 2019 secured convertible notes

and we elected to record them on their fair value basis.

During 2018 we entered into the Proceeds Investment Agreement (PIA) and

we elected to record the PIA, on its fair value basis.

In accordance with ASC Topic 820 —

Fair Value Measurements and

Disclosures (“ASC 820”), the Company utilizes the market approach to measure fair value for its financial assets

and liabilities.

The market approach uses prices and other relevant information generated by market transactions involving identical

or comparable assets, liabilities or a group of assets or liabilities, such as a business.

820 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three

broad levels.

The following is a brief description of those three levels:

Level 1 —

Quoted prices in active markets for identical assets and liabilities

Level 2 —

Other significant observable inputs (including quoted prices in active markets for similar assets or liabilities)

Level 3 —

Significant unobservable inputs (including the Company’s own assumptions in determining the fair value)

following table represents the Company’s hierarchy for its financial assets and liabilities measured at fair value on a

recurring basis as of December 31, 2019.

December 31, 2019

Proceeds investment agreement

Secured convertible notes

Concern Analysis.

accordance with ASU 2014-15, Presentation of Financial Statements- Going Concern (Subtopic 205-40) –

Disclosure of

Uncertainties about an Entity’s Ability to Continue as a Going Concern, we are required to evaluate whether there are conditions

or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one

year after the date that our financials are issued.

When management identifies conditions or events that raise substantial doubt

about their ability to continue as a going concern it should consider whether its plans to mitigate those relevant conditions

or events will alleviate the substantial doubt.

If conditions or events raise substantial doubt about an entity’s ability

to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the entity should

disclose information that enables user of financial statements to understand the principal events that raised the substantial

doubt, management’s evaluation of the significance of those conditions or events, and management’s plans that alleviated

substantial doubt about the entity’s ability to continue as a going concern.

performed the analysis and our overall assessment was there were conditions or events, considered in the aggregate as of December

31, 2019, which raised substantial doubt about our ability to continue as a going concern within the next year, but such doubt

was not adequately mitigated by our plans to address the substantial doubt as disclosed in Note 1:

Management’s Liquidity

Plan and going concern.

and Seasonality

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we generally generate higher revenues during the second half of the calendar year compared to the first half.

Quantitative and Qualitative Disclosures

About Market Risk.

and Qualitative Disclosures About Market Risk.

Statements and Supplementary Data.

financial statements are included in this Annual Report on Form 10-K commencing on page F-1.

in and Disagreements With Accountants on Accounting and Financial Disclosure.

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 5. Market for Registrant’s Common Equity