According to the American Public Transportation Association, there are approximately 76,000 passenger buses, 5,300 commuter rail vehicles, 1,450 light rail vehicles and 10,700 heavy rail vehicles in use in the United States. Additionally, the School Bus Information Council estimates that there are approximately 450,000 school buses transporting children to school daily and the Bureau of Transportation Statistics estimates there are approximately 511,000 interstate freight motor carriers in the United States.

There were approximately 420,000 law enforcement vehicles in the United States as of 2001. According to a 2005 market study prepared by Frost & Sullivan, the digital video recorder segment of the video surveillance equipment market should be the fastest growing segment through 2010. Frost & Sullivan estimates that the digital video recorder market should grow at a compound annual growth rate of 21.4% through 2010.

Digital technology provides numerous advantages over analog technology. Unlike analog videotape, digital tapes can be indexed and searched. Rather than sitting through hours of recorded video to view a recorded event, the use of digital technology allows the user to search for specific events. Recording on digital tape is accomplished at a higher resolution, allowing for better quality pictures and easier identification of images captured on tape, an important consideration when videos are used for suspect identification or introduced as evidence. Digital media can be recorded over many times without image degradation, allowing the same digital tape to be used many times without losing image quality. Finally digital media can be stored for long periods of time without degradation to the original picture. The use of digital tape also provides numerous advantages over the use of a hard drive only based storage system. Digital tape, unlike a hard drive can be removed and replaced without losing any video or other information even while the cartridge is being extracted and replaced. The last frame recorded on one tape will follow to the first frame on the next tape. No hard disk based system has this feature implemented.

ShiftWatch® products record to both an internal hard drive that is not removable, and the Company’s removable digital tape cartridge.

All of the Company’s products record to digital tape. Digital tape is easy to transport and comes in a variety of sizes. Originally, digital tape was used for backing up computer files and was not designed to write real time video data. The Company’s software creates the ability to write multiple simultaneous video, audio, Global Positioning Satellite, or GPS, and other information to digital tape in real time – in effect synchronizing the data to the video image.

The key features of the ShiftWatch® product line are: Pre- and Post-Event Recording – When an event is triggered or after the vehicle is turned off the recorder is running; Time Synchronized Replay – Because GPS information is stored on all of the recorders, each unit is time locked to every other unit in the system. This allows for the user to play back video from two or more vehicles or locations and synchronize the images to attempt to recreate the event from a variety of angles; Post-Production Capabilities – The user can leave the video on tape, or transfer it seamlessly to a storage area network, local area network, HDD, DVD or CD; Industry Standard Video Format – The user can playback the video on any DVD player or any PC with DVD software installed or Windows® MediaPlayer or like standards based video player; Independent Power System – All of the Company’s ShiftWatch® units include an option for an independent power system. This allows for the user to turn off their vehicle and have the Company’s unit run off of separate battery power. This feature is particularly useful in law enforcement vehicles, as many demands are placed upon the electrical system in a police cruiser; Redundant Mirrored Video Storage – All ShiftWatch® products have mirrored storage enabled. This is useful if an agency is concerned about the ability to retrieve video after different types of catastrophic incidents. The Company mirrors all data going to the digital tape cartridge on an internal hard drive accessible via a network connection.

Cost of sales for the three months ended March 31, 2005 totaled $53.0 thousand, which is a $43.0 thousand or 449% increase as compared to the three months ended March 31, 2004.

Selling, general and administrative expenses in the three months ended March 31, 2005, totaled $385.0 thousand, which is a $289.0 thousand or 301% increase as compared to the three months ended March 31, 2004.

Research and development expenses in the three months ended March 31, 2005 totaled $72.0 thousand, which is a $47.0 thousand or 184% increase as compared to the three months ended March 31, 2004.

Interest expense for the three months ended March 31, 2005, totaled $119.0 thousand, which is a $81.0 thousand or 214% increase as compared to the three months ended March 31, 2004.