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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b><i>1. Description of Business</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Stereotaxis designs, manufactures
and markets an advanced robotic navigation system for use in a hospital’s interventional surgical suite, or “interventional
lab”, that we believe revolutionizes the treatment of arrhythmias by enabling enhanced safety, efficiency, and efficacy for
catheter-based, or interventional, procedures. Our products include the Genesis RMN<sup>®</sup> (Robotic Magnetic Navigation)
System (“Genesis System”), the <i>Niobe</i> ES Robotic Magnetic Navigation System (“<i>Niobe </i>ES System”),
<i>Odyssey</i> Information Management Solution (“<i>Odyssey </i>Solution”), the <i>Vdrive</i> Robotic Navigation System
(“<i>Vdrive</i> System”), Stereotaxis Imaging Model S X-ray System, and related devices.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The <i>Genesis </i>and
<i>Niobe</i> Systems are designed to enable physicians to complete more complex interventional procedures by providing image-guided
delivery of catheters through the blood vessels and chambers of the heart to treatment sites. This is achieved using externally
applied magnetic fields that govern the motion of the working tip of the catheter, resulting in improved navigation, efficient
procedures, and reduced x-ray exposure. As of September 30, 2019, the Company had an installed base of 125 <i>Niobe </i>ES Systems.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">In addition to the robotic
magnetic navigation systems and their components, Stereotaxis also has developed the <i>Odyssey</i> Solution, which consolidates
all lab information enabling doctors to focus on the patient for optimal procedure efficiency. The system also features a remote
viewing and recording capability called <i>Odyssey Cinema</i>, which is an innovative solution that delivers synchronized content
for optimized workflow, advanced care, and improved productivity. This tool includes an archiving capability that allows clinicians
to store and replay entire procedures or segments of procedures. This information can be accessed from locations throughout the
hospital local area network and over the global <i>Odyssey</i> Network providing physicians with a tool for clinical collaboration,
remote consultation, and training.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Our <i>Vdrive</i> System
provides navigation and stability for diagnostic and therapeutic devices designed to improve interventional procedures. The <i>Vdrive</i>
System complements the robotic magnetic navigation systems’ control of therapeutic catheters for fully remote procedures
and enables single-operator workflow and is sold as two options, the <i>Vdrive</i> System and the <i>Vdrive Duo</i> System. In
addition to the <i>Vdrive</i> System and the <i>Vdrive Duo</i> System, we also manufacture and market various disposable components
which can be manipulated by these systems.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We promote our full suite
of products in a typical hospital implementation, subject to regulatory approvals or clearances. This implementation requires a
hospital to agree to an upfront capital payment and recurring payments. The upfront capital payment typically includes equipment
and installation charges. The recurring payments typically include disposable costs for each procedure, equipment service costs
beyond warranty period, and ongoing software updates. In hospitals where our full suite of products has not been implemented, equipment
upgrade or expansion can be implemented upon purchasing of the necessary upgrade or expansion.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The <i>Niobe</i> System<i>,
Odyssey Workstation, Cardiodrive,</i> and various disposable interventional devices have received regulatory clearance in the U.S.,
Europe, Canada, China, Japan and various other countries. We have received the regulatory clearance, licensing and/or CE Mark approvals
that allow us to market the <i>Vdrive</i> and <i>Vdrive Duo</i> Systems with the <i>V-CAS</i>, <i>V-Loop </i>and <i>V-Sono</i>
devices in the U.S., Canada and Europe. The <i>Genesis </i>System and the <i>V-CAS Deflect</i> catheter advancement system have
been CE Marked for sale in the Europe. Stereotaxis Imaging Model S System is CE marked and FDA cleared.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We have strategic relationships
with technology leaders in the global interventional market. Through these strategic relationships we provide compatibility between
our robotic magnetic system and digital imaging and 3D catheter location sensing technology, as well as disposable interventional
devices. The maintenance of these strategic relationships, or the establishment of equivalent alternatives, is critical to our
commercialization efforts. There are no guarantees that any existing strategic relationships will continue and efforts are ongoing
to ensure the availability of integrated next generation systems and/or equivalent alternatives. We cannot provide assurance as
to the timeline of the ongoing availability of such compatible systems or our ability to obtain equivalent alternatives on competitive
terms or at all.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>2. Summary of Significant Accounting
Policies</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Basis of Presentation </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The accompanying unaudited
financial statements of Stereotaxis, Inc. have been prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do not include all the disclosures required by U.S.
generally accepted accounting principles for complete financial statements. In the opinion of management, they include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.
Operating results for the nine month period ended September 30, 2019 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2019 or for future operating periods.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">These interim financial
statements and the related notes should be read in conjunction with the annual financial statements and notes included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission (SEC) on March
15, 2019.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Financial Instruments </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying value of such amounts reported
at the applicable balance sheet dates approximates fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company measures certain
financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair value measurement established
a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”) and
the lowest priority to unobservable inputs (“Level 3”).</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Revenue and Costs of Revenue </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company adopted Accounting
Standards Codification Topic 606 (“ASC 606”), <i>Revenue from Contracts with Customers</i>, on January 1, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We generate revenue from
initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from royalties
paid to the Company on the sale by Biosense Webster of co-developed catheters, and from other recurring revenue including ongoing
software updates and service contracts.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We account for a contract
with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are
identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our
revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that are
remitted to government authorities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">For contracts containing
multiple products and services the Company accounts for individual products and services as separate performance obligations if
they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if
a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes
revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">For multiple-element arrangements,
revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are
based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not
directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific
factors including, but not limited to, features and functionality of the products and services and market conditions. The Company
regularly reviews standalone selling prices and updates these estimates as necessary.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Systems:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Contracts related to the sale of
systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide
software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers
control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery
or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements
if and when available is recognized ratably over the first year following installation of the system as the customer receives the
right to software updates throughout the period and is included in Other Recurring Revenue. The Company’s system contracts
generally do not provide a right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs
were not material for the periods presented. Revenue from system delivery and installation represented 8% and 5% of revenue for
the nine months ended September 30, 2019 and 2018, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Disposables:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Revenue from sales of disposable
products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also
occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty
that provides for the return of defective products. Warranty costs were not material for the periods presented. Disposable revenue
represented 33% of revenue for the nine months ended September 30, 2019 and 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Royalty:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">The Company is entitled to royalty
payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters. Royalty revenue
from the co-developed catheters represented 10% of revenue for the nine months ended September 30, 2019 and 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Other Recurring Revenue:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Other recurring revenue includes
revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide software enhancements
if and when available for one year following installation. Revenue from services and software enhancements is deferred and amortized
over the service or update period, which is typically one year. Revenue related to services performed on a time-and-materials basis
is recognized when performed. Other recurring revenue represented 46% and 52% of revenue for the nine months ended September 30,
2019 and 2018, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Sublease Revenue:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">The adoption of new lease accounting
guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning in 2019. Sublease revenue represented
3% of revenue for the nine months ended September 30, 2019.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Three Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Nine Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 40%"><font style="font-size: 10pt">Systems</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">1,696,964</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">715,484</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">1,755,015</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 12%; text-align: right"><font style="font-size: 10pt">1,043,510</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Disposables, service and accessories</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">6,258,252</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">6,839,995</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">19,515,125</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">21,035,002</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Sublease</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">246,532</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">739,593</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">-</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total revenue</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">8,201,748</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">7,555,479</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">22,009,733</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">22,078,512</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Transaction price allocated
to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been
recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that will be
recognized as revenue in future periods. These obligations are generally satisfied within two years after contract inception but
may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations on system
contracts was approximately $1.0 million as of September 30, 2019. Performance obligations arising from contracts for disposables,
royalty and service are generally expected to be satisfied within one year after entering into the contract.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following information
summarizes the Company’s contract assets and liabilities:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>September 30, 2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>December 31, 2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 62%"><font style="font-size: 10pt">Contract Assets - Unbilled Receivables</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">314,494</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 16%; text-align: right"><font style="font-size: 10pt">251,867</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Customer deposits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">41,860</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">487,086</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Product shipped, revenue deferred</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">645,199</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">645,199</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Deferred service and license fees</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">5,157,232</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">5,100,402</font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Total deferred revenue</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">5,844,291</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">6,232,687</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 1.5pt; text-align: justify"><font style="font-size: 10pt">Less: Long-term deferred revenue</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(560,508</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(407,151</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font-size: 10pt">Total current deferred revenue</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">5,283,783</font></td>
<td> </td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">5,825,536</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company invoices its
customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between
the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on
the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred
revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually,
and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts,
the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred
revenue is recognized when the remaining performance obligations are satisfied. The Company did not have any impairment losses
on its contract assets for the periods presented.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Revenue recognized for
the nine months ended September 30, 2019 and 2018, that was included in the deferred revenue balance at the beginning of each reporting
period was $5.4 million and $5.1 million respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Assets Recognized from the Costs to Obtain
a Contract with a Customer</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company has determined
that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company expects
to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction.
The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance
sheet was $0.3 million as of September 30, 2019. The Company did not incur any impairment losses during any of the periods presented.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Costs of systems revenue
include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and product maintenance
costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty
costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Share-Based Compensation
</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company accounts for
its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and for its employee stock
purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles
require the determination of the fair value of the share-based compensation at the grant date and the recognition of the related
expense over the period in which the share-based compensation vests.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company utilizes the
Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights at the date of grant.
The resulting compensation expense is recognized over the requisite service period, which is generally four years. Restricted shares
and units granted to employees are valued at the fair market value at the date of grant. The Company amortizes the fair market
value to expense over the service period. If the shares are subject to performance objectives, the resulting compensation expense
is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Net Income (Loss)
per Common Share (“EPS”)</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Basic net income (loss)
per share is computed by dividing net income (loss) attributable to common shareholders by the number of common shares outstanding
during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted net income
(loss) per share of common stock, as our Convertible Preferred Stock is a participating security. The two-class method is an earnings
allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to
common stockholders. In periods where there is a net loss, the two-class method of computing earnings per share does not apply
as our Convertible Preferred Stock does not contractually participate in our losses. We compute diluted net income (loss) per common
share using net income (loss) as the “control number” in determining whether potential common shares are dilutive,
after giving consideration to all potentially dilutive common shares, including stock options, warrants, unvested restricted stock
units outstanding during the period and potential issuance of stock upon the conversion of our Convertible Preferred Stock issued
and outstanding during the period, except where the effect of such securities would be antidilutive.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following table sets
forth the computation of basic and diluted EPS:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Three Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Nine Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 32%"><font style="font-size: 10pt">Net income (loss)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">43,748</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(116,295</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(3,506,790</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">686,730</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Cumulative dividend on convertible preferred stock</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(360,647</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(361,447</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,071,351</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,072,553</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net loss attributable to common stockholders</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(316,899</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(477,742</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(4,578,141</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(385,823</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Weighted average number of common shares and equivalents:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">64,294,153</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">59,008,219</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">61,405,083</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">49,733,553</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Basic EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Diluted EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company did not include
any portion of unearned restricted stock units, outstanding options, stock appreciation rights, or warrants in the calculation
of diluted loss per common because all such securities are anti-dilutive for all periods presented. <font style="background-color: white">The
Company had no unearned restricted shares during any period.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">As of September 30, 2019,
the Company had 1,944,256 shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights
at a weighted average exercise price of $2.13 per share, 584,616 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $0.70 per share, 43,175,861 shares of common stock issuable upon the conversion
of Series A Convertible Preferred Stock, 5,610,121 shares of common stock issuable upon the conversion of Series B Convertible
Preferred Stock and accumulated dividends, and 844,087 shares of unvested restricted share units.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Recently Issued
Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">Effective
January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2016-02, <i>Leases (Topic 842)</i>, and all subsequent ASUs that modified Topic 842, which sets out the principles
for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e. lessees and lessors).
The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on
the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines whether
lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease, respectively.
A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months
regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous guidance for
operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to
previous guidance for sales-type leases, direct financing leases and operating leases. Accounting Standards Codification (“ASC
842”) supersedes the previous lease standard, ASC 840 Leases. The Company adopted ASU 2016-02 using the alternative modified
transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized
on the date of adoption with prior periods not restated. There was no cumulative-effect adjustment recorded on January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package of practical
expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease
classification, and initial direct costs. In addition, the new standard provides practical expedients for an entity’s ongoing
accounting. The Company elected the practical expedients for ongoing accounting of (1) the election for certain classes of underlying
asset to not separate non-lease components from lease components and (2) the election for short-term lease recognition exemption
for all leases that qualify. For the Company, as a lessee, the primary impact of adopting ASC 842 was the balance sheet recognition
of the right-of-use asset and lease liability for the operating leases. Under the new standard, as a lessor, the Company will
record the sublease proceeds as Sublease revenue and the related cost as Sublease cost of revenue. See Note 6 for additional details.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Basis of Presentation</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The accompanying unaudited
financial statements of Stereotaxis, Inc. have been prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q. Accordingly, they do not include all the disclosures required by U.S.
generally accepted accounting principles for complete financial statements. In the opinion of management, they include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented.
Operating results for the nine month period ended September 30, 2019 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2019 or for future operating periods.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">These interim financial
statements and the related notes should be read in conjunction with the annual financial statements and notes included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the Securities and Exchange Commission
(SEC) on March 15, 2019.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Financial Instruments</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Financial instruments
consist of cash and cash equivalents, accounts receivable, accounts payable, and debt. The carrying value of such amounts reported
at the applicable balance sheet dates approximates fair value.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company measures
certain financial assets and liabilities at fair value on a recurring basis. General accounting principles for fair value measurement
established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (“Level 1”)
and the lowest priority to unobservable inputs (“Level 3”).</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Share-Based Compensation</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company accounts for
its grants of stock options, stock appreciation rights, restricted shares, and restricted stock units and for its employee stock
purchase plan in accordance with the provisions of general accounting principles for share-based payments. These accounting principles
require the determination of the fair value of the share-based compensation at the grant date and the recognition of the related
expense over the period in which the share-based compensation vests.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company utilizes
the Black-Scholes valuation model to determine the fair value of stock options and stock appreciation rights at the date of grant.
The resulting compensation expense is recognized over the requisite service period, which is generally four years. Restricted
shares and units granted to employees are valued at the fair market value at the date of grant. The Company amortizes the fair
market value to expense over the service period. If the shares are subject to performance objectives, the resulting compensation
expense is amortized over the anticipated vesting period and is subject to adjustment based on the actual achievement of objectives.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Net Income (Loss)
per Common Share (“EPS”)</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Basic net income (loss)
per share is computed by dividing net income (loss) attributable to common shareholders by the number of common shares outstanding
during the period. In periods where there is net income, we apply the two-class method to calculate basic and diluted net income
(loss) per share of common stock, as our Convertible Preferred Stock is a participating security. The two-class method is an earnings
allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to
common stockholders. In periods where there is a net loss, the two-class method of computing earnings per share does not apply
as our Convertible Preferred Stock does not contractually participate in our losses. We compute diluted net income (loss) per common
share using net income (loss) as the “control number” in determining whether potential common shares are dilutive,
after giving consideration to all potentially dilutive common shares, including stock options, warrants, unvested restricted stock
units outstanding during the period and potential issuance of stock upon the conversion of our Convertible Preferred Stock issued
and outstanding during the period, except where the effect of such securities would be antidilutive.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following table sets
forth the computation of basic and diluted EPS:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Three Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Nine Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 32%"><font style="font-size: 10pt">Net income (loss)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">43,748</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(116,295</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(3,506,790</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">686,730</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Cumulative dividend on convertible preferred stock</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(360,647</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(361,447</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,071,351</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,072,553</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net loss attributable to common stockholders</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(316,899</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(477,742</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(4,578,141</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(385,823</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Weighted average number of common shares and equivalents:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">64,294,153</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">59,008,219</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">61,405,083</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">49,733,553</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Basic EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Diluted EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company did not include
any portion of unearned restricted stock units, outstanding options, stock appreciation rights, or warrants in the calculation
of diluted loss per common because all such securities are anti-dilutive for all periods presented. <font style="background-color: white">The
Company had no unearned restricted shares during any period.</font></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">As of September 30, 2019,
the Company had 1,944,256 shares of common stock issuable upon the exercise of outstanding options and stock appreciation rights
at a weighted average exercise price of $2.13 per share, 584,616 shares of common stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $0.70 per share, 43,175,861 shares of common stock issuable upon the conversion
of Series A Convertible Preferred Stock, 5,610,121 shares of common stock issuable upon the conversion of Series B Convertible
Preferred Stock and accumulated dividends, and 844,087 shares of unvested restricted share units.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i>Recently Issued
Accounting Pronouncements</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">Effective
January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update
(“ASU”) 2016-02, <i>Leases (Topic 842)</i>, and all subsequent ASUs that modified Topic 842, which sets out the
principles for the recognition, measurement, presentation, and disclosure of leases for both parties to a contract (i.e. lessees
and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases
based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification determines
whether lease expense is recognized based on an effective interest method or on a straight line basis over the term of the lease,
respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater
than 12 months regardless of their classification. Leases with a term of 12 months or less are accounted for similar to previous
guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially
equivalent to previous guidance for sales-type leases, direct financing leases and operating leases. Accounting Standards Codification
(“ASC 842”) supersedes the previous lease standard, ASC 840 Leases. The Company adopted ASU 2016-02 using the alternative
modified transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is
recognized on the date of adoption with prior periods not restated. There was no cumulative-effect adjustment recorded on January
1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the ‘package
of practical expedients’, which permits it not to reassess under the new standard its prior conclusions about lease identification,
lease classification, and initial direct costs. In addition, the new standard provides practical expedients for an entity’s
ongoing accounting. The Company elected the practical expedients for ongoing accounting of (1) the election for certain classes
of underlying asset to not separate non-lease components from lease components and (2) the election for short-term lease recognition
exemption for all leases that qualify. For the Company, as a lessee, the primary impact of adopting ASC 842 was the balance sheet
recognition of the right-of-use asset and lease liability for the operating leases. Under the new standard, as a lessor, the Company
will record the sublease proceeds as Sublease revenue and the related cost as Sublease cost of revenue. See Note 6 for additional
details.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three Months Ended September 30,</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Nine Months Ended September 30,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2018</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 41%"><font style="font: 10pt Times New Roman, Times, Serif">Systems</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,696,964</font></td>
<td style="width: 1%"> </td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">715,484</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,755,015</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,043,510</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Disposables, service and accessories</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,258,252</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,839,995</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">19,515,125</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">21,035,002</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Sublease</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">246,532</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">739,593</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total revenue</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,201,748</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">7,555,479</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22,009,733</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22,078,512</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following information
summarizes the Company’s contract assets and liabilities:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 63%"><font style="font: 10pt Times New Roman, Times, Serif">Contract Assets - Unbilled Receivables</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">314,494</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">251,867</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Customer deposits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">41,860</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">487,086</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Product shipped, revenue deferred</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">645,199</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">645,199</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Deferred service and license fees</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,157,232</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,100,402</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total deferred revenue</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,844,291</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,232,687</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Long-term deferred revenue</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(560,508</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(407,151</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total current deferred revenue</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,283,783</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,825,536</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>3. Inventories</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in">Inventories consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,831,977</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,686,870</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Work in process</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">275,745</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,594</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,308,165</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,963,013</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Reserve for obsolescence</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(3,869,171</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(4,460,811</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total inventory</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,546,716</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,191,666</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in">Inventories consist of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Raw materials</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,831,977</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,686,870</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Work in process</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">275,745</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,594</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Finished goods</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,308,165</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,963,013</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Reserve for obsolescence</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(3,869,171</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(4,460,811</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total inventory</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,546,716</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,191,666</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>4. Prepaid Expenses and Other Assets</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in">Prepaid expenses and other assets consist of
the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid expenses</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">500,537</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">401,972</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Prepaid commissions</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">331,523</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">304,585</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Deposits</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">404,304</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">455,508</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total prepaid expenses and other assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,236,364</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,162,065</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Less: Noncurrent prepaid expenses and other assets</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(214,042</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(198,365</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total current prepaid expenses and other assets</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,022,322</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">963,700</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in">Prepaid expenses and other assets consist of
the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Prepaid expenses</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">500,537</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">401,972</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Prepaid commissions</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">331,523</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">304,585</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Deposits</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">404,304</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">455,508</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total prepaid expenses and other assets</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,236,364</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,162,065</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Less: Noncurrent prepaid expenses and other assets</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(214,042</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(198,365</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total current prepaid expenses and other assets</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,022,322</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">963,700</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>5. Property and Equipment</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Equipment</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,389,366</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,739,939</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Leasehold improvements</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,488,505</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,684,065</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,877,871</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">9,424,004</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Accumulated depreciation</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(8,607,120</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(9,080,311</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Net property and equipment</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">270,751</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">343,693</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in">Certain prior year amounts have been reclassified
to conform to the 2019 presentation.</p>
<p style="margin: 0pt"></p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Equipment</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,389,366</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,739,939</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Leasehold improvements</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,488,505</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,684,065</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,877,871</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">9,424,004</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Accumulated depreciation</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(8,607,120</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(9,080,311</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Net property and equipment</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">270,751</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">343,693</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>7. Accrued Liabilities</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Accrued liabilities consist
of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued salaries, bonus, and benefits</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,481,466</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,491,844</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued licenses and maintenance fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">483,879</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">577,389</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued warranties</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">146,468</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued taxes</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">204,679</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">192,268</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued professional services</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">216,938</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">489,017</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Other</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">368,771</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">383,960</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total accrued liabilities</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,902,201</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">3,283,942</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Long term accrued liabilities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(260,947</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(641,461</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total current accrued liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,641,254</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,642,481</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Certain prior year amounts
have been reclassified to conform to the 2019 presentation.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Accrued liabilities consist
of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Accrued salaries, bonus, and benefits</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,481,466</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,491,844</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued licenses and maintenance fees</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">483,879</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">577,389</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued warranties</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">146,468</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued taxes</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">204,679</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">192,268</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrued professional services</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">216,938</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">489,017</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Other</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">368,771</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">383,960</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total accrued liabilities</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,902,201</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">3,283,942</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Long term accrued liabilities</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(260,947</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(641,461</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total current accrued liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,641,254</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,642,481</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>8. Long-Term Debt and Credit Facilities</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><i> </i></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company has had a
working capital line of credit with its primary lender, Silicon Valley Bank, since 2004. The working capital line of credit matures
on June 30, 2020. The revolving line of credit is secured by substantially all of the Company’s assets. The maximum available
under the line is $5.0 million subject to the value of collateralized assets and the interest rate is equal to the prime rate subject
to a floor of 4.5%. The Company is required under the revolving line of credit to maintain its primary operating account and the
majority of its cash and investment balances in accounts with its primary lender.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">On June 27, 2019, the
Company entered into a Second Amendment to and Reinstatement of Third Amended and Restated Loan and Security Agreement with Silicon
Valley Bank to extend the maturity of the revolving line of credit to June 30, 2020 under substantially identical terms to the
prior agreement.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">As
of September 30, 2019, the Company had no outstanding balance under the revolving line of credit. Draws on the line of credit
were made based on the borrowing capacity one week in arrears. As of September 30, 2019, the Company had a borrowing capacity
of $2.4 million based on the Company’s collateralized assets. The Company’s total liquidity as of September 30, 2019,
was $34.1 million which included cash and cash equivalents of $31.7 million.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>9. Convertible Preferred Stock and Stockholders’
Equity</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The holders of common
stock are entitled to one vote for each share held and to receive dividends whenever funds are legally available and when declared
by the Board of Directors subject to the rights of holders of all classes of stock having priority rights as dividends and the
conditions of the revolving line of credit agreement. No dividends have been declared or paid as of September 30, 2019.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 23.8pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>2019 Equity Financing and Series B Convertible
Preferred Stock</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">On August 7, 2019, the
Company entered into a Securities Purchase Agreement with certain institutional and other accredited investors, whereby it, in
a private placement, agreed to issue and sell to the investors an aggregate of 6,585,000 shares of the Company’s common stock,
$0.001 par value per share, at a price of $2.05 per share and 5,610,121 shares of the Company’s Series B Convertible Preferred
Stock, $0.001 par value per share which are convertible into shares of the Company’s Common Stock, at a price of $2.05 per
share. The Series B Preferred Stock, which is a Common Stock equivalent but non-voting and with a blocker on conversion if the
holder would exceed a specified threshold of voting security ownership, is convertible into Common Stock on a one-for-one basis,
subject to adjustment for events such as stock splits, combinations and the like as provided in the Purchase Agreement. The Series
B Convertible Preferred Stock is reported in the stockholder’s equity section of the Company’s Balance Sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company received net
proceeds of approximately $23.1 million, after offering expenses. The Company plans to use the funds for general corporate purposes.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white"><b><i>Series
A Convertible Preferred Stock and Warrants</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">In
September 2016, the Company issued 24,000 shares of Series A Convertible Preferred Stock, par value $0.001 with a stated value
of $1,000 per share which are convertible into shares of the Company’s common stock at an initial conversion rate of $0.65
per share and (ii) warrants to purchase an aggregate of 36,923,078 shares of common stock. The convertible preferred shares are
entitled to vote on an as-converted basis with the common stock, subject to specified beneficial ownership issuance limitations.
The convertible preferred shares bear dividends at a rate of six percent (6%) per annum, which are cumulative and accrue daily
from the date of issuance on the $1,000 stated value. Such dividends will not be paid in cash except in connection with any liquidation,
dissolution or winding up of the Company or any redemption of the convertible preferred shares. Each holder of convertible preferred
shares has the right to require us to redeem such holder’s convertible preferred shares upon the occurrence of specified
events, which include certain business combinations, the sale of all or substantially all of the Company’s assets, or the
sale of more than 50% of the outstanding shares of the Company’s common stock. In addition, the Company has the right to
redeem the convertible preferred shares in the event of a defined change of control. The convertible preferred shares rank senior
to our common stock as to distributions and payments upon the liquidation, dissolution, and winding up of the Company. Since the
convertible preferred shares are subject to conditions for redemption that are outside the Company’s control, the convertible
preferred shares are presently reported in the mezzanine section of the balance sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.3in; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">The
warrants issued in conjunction with the convertible preferred stock (the “SPA Warrants”) have an exercise price equal
to $0.70 per share subject to adjustments as provided under the terms of the warrants. The warrants are exercisable through September
29, 2021, subject to specified beneficial ownership issuance limitations. The warrants were originally puttable upon the occurrence
of certain events outside of the Company’s control, and were classified as liabilities under Accounting Standards Codification
(“ASC”) Topic 480-10. The calculated fair value of the warrants was periodically re-measured with any changes in value
recognized in “Other income (expense)” in the Statements of Operations.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white">The
warrants were modified on February 28, 2018 to allow for a reduction in the exercise price from $0.70 per share to $0.28 per share
for a period between March 1, 2018 and March 5, 2018. Any holder who exercised warrants at the reduced strike price was required
to enter into a lock-up agreement with the Company agreeing not to sell the warrants or the common shares received upon exercise
of the warrants for a period of 18 months following March 12, 2018. Additionally, the beneficial ownership limitation related to
the warrants was modified and the right of holders to require the Company to redeem their SPA Warrants in exchange for cash in
certain circumstances was eliminated. Following these modifications, the warrants were no longer subject to liability accounting
and were reclassified to equity. During the restricted exercise period, Stereotaxis received exercise notices for 35,791,927 warrants
and received an aggregate of $10.0 million in cash from the warrant exercise. As a result of these transactions, total stockholders’
equity increased by $27 million and common shares outstanding increased by 35,791,927 shares. The Consent and Amendment and the
Amended and Restated Form of Warrants are available in a Form 8-K filed with the Securities and Exchange Commission on March 6,
2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in; background-color: white"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Stock Award Plans</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company has various
stock plans that permit the Company to provide incentives to employees and directors of the Company in the form of equity compensation.
In July 2012, the Compensation Committee of the Board of Directors adopted the 2012 Stock Incentive Plan (the “Plan”)
which was subsequently approved by the Company’s shareholders. This plan replaced the 2002 Stock Incentive Plan which expired
on March 25, 2012.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">On June 5, 2013, June
10, 2014, May 24, 2016, and May 23, 2017, the shareholders approved amendments to the Plan, which were previously approved and
adopted by the Compensation Committee of the Board of Directors of the Company. Under each of the amendments on June 5, 2013 and
June 10, 2014, the number of shares authorized for issuance under the Plan was increased by one million shares. The amendment on
May 24, 2016 increased the number of shares authorized for issuance under the Plan by 1.5 million shares, and the amendment on
May 23, 2017 increased the number of shares authorized for issuance under the Plan by 4.0 million shares. At September 30, 2019,
the Company had 3,203,531 remaining shares of the Company’s common stock to provide for current and future grants under its
various equity plans.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">At September 30, 2019,
the total compensation cost related to options, stock appreciation rights, and non-vested stock granted to employees under the
Company’s stock award plans but not yet recognized was approximately $1.7 million. This cost will be amortized over a period
of up to four years over the underlying estimated service periods and will be adjusted for subsequent changes in actual forfeitures
and anticipated vesting periods.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">A summary of the option
and stock appreciation rights activity for the nine month period ended September 30, 2019 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.3in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number of Options/SARs</b></font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Range of Exercise Price</b></font></td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted Average Exercise Price per Share</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, December 31, 2018</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,165,086</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 13%; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $43.90</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.54</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">992,000</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$2.03 - $2.89</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.04</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(35,328</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $2.15</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.90</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(177,502</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $43.90</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4.50</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, September 30, 2019</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,944,256</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $36.20</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.13</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.3in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">A summary of the restricted
stock unit activity for the nine month period ended September 30, 2019 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 22.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number of<br />
Restricted Stock<br />
Units</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted Average<br />
Grant Date Fair<br />
Value per Unit</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, December 31, 2018</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"> </td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">647,649</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.83</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">420,000</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.98</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(206,962</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.36</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(16,600</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.76</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, September 30, 2019</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">844,087</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.28</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">A summary of the option
and stock appreciation rights activity for the nine month period ended September 30, 2019 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.3in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number of Options/SARs</b></font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Range of Exercise Price</b></font></td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted Average Exercise Price per Share</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 50%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, December 31, 2018</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"> </td>
<td style="width: 14%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,165,086</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 13%; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $43.90</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.54</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">992,000</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$2.03 - $2.89</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.04</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Exercised</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(35,328</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $2.15</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.90</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(177,502</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $43.90</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4.50</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, September 30, 2019</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,944,256</font></td>
<td> </td>
<td> </td>
<td style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif">$0.74 - $36.20</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2.13</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">A summary of the restricted
stock unit activity for the nine month period ended September 30, 2019 is as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 22.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Number of<br />
Restricted Stock<br />
Units</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Weighted Average<br />
Grant Date Fair<br />
Value per Unit</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td>
<td> </td>
<td colspan="2"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, December 31, 2018</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"> </td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">647,649</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.83</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Granted</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">420,000</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.98</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Vested</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(206,962</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.36</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Forfeited</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(16,600</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">0.76</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Outstanding, September 30, 2019</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"> </td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">844,087</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1.28</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>10. Product Warranty Provisions</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company’s standard
policy is to warrant all capital systems against defects in material or workmanship for one year following installation. The Company’s
estimate of costs to service the warranty obligations is based on historical experience and current product performance trends.
A regular review of warranty obligations is performed to determine the adequacy of the reserve and adjustments are made to the
estimated warranty liability as appropriate.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Accrued warranty, which
is included in other accrued liabilities, consists of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.3in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Warranty accrual, beginning of the fiscal period</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">164,365</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrual adjustment for product warranty</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">41,023</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">34,253</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Payments made</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(44,019</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(49,154</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Warranty accrual, end of the fiscal period</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">146,468</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Accrued warranty, which
is included in other accrued liabilities, consists of the following:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.3in"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 60%"><font style="font: 10pt Times New Roman, Times, Serif">Warranty accrual, beginning of the fiscal period</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 16%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">164,365</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Accrual adjustment for product warranty</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">41,023</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">34,253</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Payments made</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(44,019</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(49,154</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Warranty accrual, end of the fiscal period</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">146,468</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">149,464</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
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<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>6. Leases</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">A lease is defined as
a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period
of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 <i>“Leases” (Topic
842)</i> and all subsequent ASUs that modified Topic 842. The Company determines if an arrangement contains a lease at inception.
For the Company, Accounting Standards Codification (“ASC 842”) primarily affected the accounting treatment for operating
lease agreements in which the Company is the lessee.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company leases its
facilities under operating leases, which were previously not recognized on the Company’s balance sheets. With the adoption
of ASC 842, operating lease agreements are required to be recognized on the balance sheet as a right-of-use (“ROU”)
asset and a corresponding lease liability. These leases do not have significant rent escalation holidays, concessions, leasehold
improvement incentives, or other build-out clauses. Further, the leases do not contain contingent rent provisions. Many of our
leases include both lease (i.e., fixed payments including rent, taxes, and insurance costs) and non-lease components (i.e., common-area
or other maintenance costs) which are accounted for as a single lease component as we have elected the practical expedient to group
lease and non-lease components for all leases. A portion of our principal executive office is subleased to a third party through
2021. The sublease does not have significant rent escalation holidays, concessions, leasehold improvement incentives, or other
build-out clauses. In addition, the sublease does not contain contingent rent provisions nor are there options to extend or terminate
the sublease.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company’s lease
agreements often include one or more options to renew at the Company’s discretion. If at lease inception, the Company considers
the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the
ROU asset and lease liability. The Company elected not to include short-term leases (i.e. leases with initial terms of twelve months
or less) on the balance sheet.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The calculated amounts
of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the
present value of the minimum lease payments. ASC 842 requires the use of the discount rate implicit in the lease whenever this
rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease
inception. At September 30, 2019, the weighted average discount rate for operating leases was 9.0% and the weighted average remaining
lease term for operating lease term is 2.25 years.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following table represents
lease costs and other lease information.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three Months Ended</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Nine Months Ended</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%"><font style="font: 10pt Times New Roman, Times, Serif">Operating lease cost</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">585,588</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,756,759</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Short-term lease cost</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">19,671</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">58,311</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Sublease income</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(246,532</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(739,593</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total lease cost</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">358,727</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,075,477</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Cash paid within operating cash flows</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">612,533</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,840,023</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The initial recognition
of the right of use assets was $6.2 million. Variable lease costs consist primarily of taxes, insurance, and common area or other
maintenance costs for our leased facilities and equipment which are paid based on actual costs incurred.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Future minimum payments
for operating leases with initial or remaining terms of one year or more as of September 30, 2019, excluding sublease income, were
as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">572,612</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,339,810</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,382,662</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">2022 and thereafter</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Total lease payments</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,295,084</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt"><font style="font: 10pt Times New Roman, Times, Serif">Less: Interest</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(485,150</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Present value of lease liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4,809,934</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The undiscounted future
cash flows to be received under the sublease are $0.2 million in 2019, $1.0 million in 2020 and $1.0 million in 2021.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>11. Commitments and Contingencies</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company at times
becomes a party to claims in the ordinary course of business. Management believes that the ultimate resolution of pending or threatened
proceedings will not have a material effect on the financial position, results of operations or liquidity of the Company.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following table sets
forth the computation of basic and diluted EPS:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Three Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>Nine Months Ended September 30,</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2019</b></font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="padding-bottom: 1.5pt"> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font-size: 10pt"><b>2018</b></font></td>
<td style="padding-bottom: 1.5pt"> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 32%"><font style="font-size: 10pt">Net income (loss)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">43,748</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(116,295</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">(3,506,790</font></td>
<td style="width: 1%"><font style="font-size: 10pt">)</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font-size: 10pt">$</font></td>
<td style="width: 14%; text-align: right"><font style="font-size: 10pt">686,730</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">Cumulative dividend on convertible preferred stock</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(360,647</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(361,447</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,071,351</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 1.5pt"> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font-size: 10pt">(1,072,553</font></td>
<td style="padding-bottom: 1.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">Net loss attributable to common stockholders</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(316,899</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(477,742</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(4,578,141</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td>
<td style="padding-bottom: 2.5pt"> </td>
<td style="border-bottom: black 2.25pt double"><font style="font-size: 10pt">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font-size: 10pt">(385,823</font></td>
<td style="padding-bottom: 2.5pt"><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Weighted average number of common shares and equivalents:</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">64,294,153</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">59,008,219</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">61,405,083</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font-size: 10pt">49,733,553</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font-size: 10pt">Basic EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font-size: 10pt">Diluted EPS</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.00</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.07</font></td>
<td><font style="font-size: 10pt">)</font></td>
<td> </td>
<td><font style="font-size: 10pt">$</font></td>
<td style="text-align: right"><font style="font-size: 10pt">(0.01</font></td>
<td><font style="font-size: 10pt">)</font></td></tr>
</table>
<p style="margin: 0pt"></p>
4771187
6200000
2574469
2235465
739593
246532
1380695
382
207
465611
1380488
465993
145549
425713
33
88
425680
145461
382356
206962
32500
88444
-120
216028
-75
135990
30726
-30726
216
30510
19204
-19204
136
19068
-1718010
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>12. Subsequent Events</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 11.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">None.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following table represents
lease costs and other lease information.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three Months Ended</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Nine Months Ended</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 58%"><font style="font: 10pt Times New Roman, Times, Serif">Operating lease cost</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 18%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">585,588</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,756,759</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Short-term lease cost</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">19,671</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">58,311</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Sublease income</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(246,532</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(739,593</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total lease cost</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">358,727</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,075,477</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Cash paid within operating cash flows</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">612,533</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,840,023</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
22009733
1755015
19515125
1043510
21035002
22078512
7555479
1696964
715484
6258252
6839995
8201748
0.090
P2Y2M30D
4809934
1756759
585588
58311
19671
1075477
358727
1840023
612533
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i>Assets Recognized from the Costs to Obtain
a Contract with a Customer</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b><i> </i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company has determined
that sales incentive programs for the Company’s sales team meet the requirements to be capitalized as the Company expects
to generate future economic benefits from the related revenue generating contracts after the initial capital sales transaction.
The costs capitalized as contract acquisition costs included in prepaid expenses and other assets, in the Company’s balance
sheet was $0.3 million as of September 30, 2019. The Company did not incur any impairment losses during any of the periods presented.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Costs of systems revenue
include direct product costs, installation labor and other costs, estimated warranty costs, and initial training and product maintenance
costs. These costs are recorded at the time of sale. Costs of disposable revenue include direct product costs and estimated warranty
costs and are recorded at the time of sale. Cost of revenue from services and license fees are recorded when incurred.</p>
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.15in"><b><i>Revenue and Costs of Revenue</i></b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.35in"><b> </b></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company adopted Accounting
Standards Codification Topic 606 (“ASC 606”), <i>Revenue from Contracts with Customers</i>, on January 1, 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We generate revenue from
initial capital sales of systems as well as recurring revenue from the sale of our proprietary disposable devices, from royalties
paid to the Company on the sale by Biosense Webster of co-developed catheters, and from other recurring revenue including ongoing
software updates and service contracts.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">We account for a contract
with a customer when there is a legally enforceable contract between the Company and the customer, the rights of the parties are
identified, the contract has commercial substance, and collectability of the contract consideration is probable. We record our
revenue based on consideration specified in the contract with each customer, net of any taxes collected from customers that are
remitted to government authorities.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">For contracts containing
multiple products and services the Company accounts for individual products and services as separate performance obligations if
they are distinct, which is if a product or service is separately identifiable from other items in the bundled package, and if
a customer can benefit from it on its own or with other resources that are readily available to the customer. The Company recognizes
revenues as the performance obligations are satisfied by transferring control of the product or service to a customer.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">For multiple-element arrangements,
revenue is allocated to each performance obligation based on its relative standalone selling price. Standalone selling prices are
based on observable prices at which the Company separately sells the products or services. If a standalone selling price is not
directly observable, then the Company estimates the standalone selling price considering market conditions and entity-specific
factors including, but not limited to, features and functionality of the products and services and market conditions. The Company
regularly reviews standalone selling prices and updates these estimates as necessary.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Systems:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Contracts related to the sale of
systems typically contain separate obligations for the delivery of system(s), installation and an implied obligation to provide
software enhancements if and when available for one year following installation. Revenue is recognized when the Company transfers
control to the customer, which is generally at the point when acceptance occurs that indicates customer acknowledgment of delivery
or installation, depending on the terms of the arrangement. Revenue from the implied obligation to deliver software enhancements
if and when available is recognized ratably over the first year following installation of the system as the customer receives the
right to software updates throughout the period and is included in Other Recurring Revenue. The Company’s system contracts
generally do not provide a right of return. Systems are generally covered by a one-year assurance type warranty; warranty costs
were not material for the periods presented. Revenue from system delivery and installation represented 8% and 5% of revenue for
the nine months ended September 30, 2019 and 2018, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Disposables:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Revenue from sales of disposable
products is recognized when control is transferred to the customers, which generally occurs at the time of shipment, but can also
occur at the time of delivery depending on the customer arrangement. Disposable products are covered by an assurance type warranty
that provides for the return of defective products. Warranty costs were not material for the periods presented. Disposable revenue
represented 33% of revenue for the nine months ended September 30, 2019 and 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Royalty:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">The Company is entitled to royalty
payments from Biosense Webster, payable quarterly based on net revenues from sales of the co-developed catheters. Royalty revenue
from the co-developed catheters represented 10% of revenue for the nine months ended September 30, 2019 and 2018.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Other Recurring Revenue:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">Other recurring revenue includes
revenue from product maintenance plans, other post warranty maintenance, and the implied obligation to provide software enhancements
if and when available for one year following installation. Revenue from services and software enhancements is deferred and amortized
over the service or update period, which is typically one year. Revenue related to services performed on a time-and-materials basis
is recognized when performed. Other recurring revenue represented 46% and 52% of revenue for the nine months ended September 30,
2019 and 2018, respectively.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"><u>Sublease Revenue:</u></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.35in; text-align: justify">The adoption of new lease accounting
guidance as of January 1, 2019 requires the Company to record sublease income as revenue beginning in 2019. Sublease revenue represented
3% of revenue for the nine months ended September 30, 2019.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Three Months Ended September 30,</b></font></td>
<td> </td>
<td> </td>
<td colspan="6" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>Nine Months Ended September 30,</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2018</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 41%"><font style="font: 10pt Times New Roman, Times, Serif">Systems</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 12%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,696,964</font></td>
<td style="width: 1%"> </td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">715,484</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,755,015</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 11%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">1,043,510</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Disposables, service and accessories</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,258,252</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,839,995</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">19,515,125</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">21,035,002</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Sublease</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">246,532</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">739,593</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total revenue</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">8,201,748</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">7,555,479</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22,009,733</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">22,078,512</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Transaction price allocated
to remaining performance obligations relates to amounts allocated to products and services for which the revenue has not yet been
recognized. A significant portion of this amount relates to the Company’s systems contracts and obligations that will be
recognized as revenue in future periods. These obligations are generally satisfied within two years after contract inception but
may occasionally extend longer. Transaction price representing revenue to be earned on remaining performance obligations on system
contracts was approximately $1.0 million as of September 30, 2019. Performance obligations arising from contracts for disposables,
royalty and service are generally expected to be satisfied within one year after entering into the contract.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The following information
summarizes the Company’s contract assets and liabilities:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>December 31, 2018</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 63%"><font style="font: 10pt Times New Roman, Times, Serif">Contract Assets - Unbilled Receivables</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">314,494</font></td>
<td style="width: 1%"> </td>
<td style="width: 1%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 15%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">251,867</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"> </td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Customer deposits</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">41,860</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">487,086</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Product shipped, revenue deferred</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">645,199</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">645,199</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">Deferred service and license fees</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,157,232</font></td>
<td> </td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,100,402</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">Total deferred revenue</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,844,291</font></td>
<td> </td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">6,232,687</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Less: Long-term deferred revenue</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(560,508</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(407,151</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="text-align: justify"><font style="font: 10pt Times New Roman, Times, Serif">Total current deferred revenue</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,283,783</font></td>
<td> </td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,825,536</font></td>
<td> </td></tr>
</table>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-indent: 24.5pt"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">The Company invoices its
customers based on the billing schedules in its sales arrangements. Contract assets primarily represent the difference between
the revenue that was earned but not billed on service contracts and revenue from system contracts that was recognized based on
the relative selling price of the related performance obligations and the contractual billing terms in the arrangements. Deferred
revenue is primarily related to service contracts, for which the service fees are billed up-front, generally quarterly or annually,
and for amounts billed in advance for system contracts for which some performance obligations remain outstanding. For service contracts,
the associated deferred revenue is generally recognized ratably over the service period. For system contracts, the associated deferred
revenue is recognized when the remaining performance obligations are satisfied. The Company did not have any impairment losses
on its contract assets for the periods presented.</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in"> </p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Revenue recognized for
the nine months ended September 30, 2019 and 2018, that was included in the deferred revenue balance at the beginning of each
reporting period was $5.4 million and $5.1 million respectively.</p>
2020-06-30
0.045
35791927
572612
2339810
2382662
5295084
485150
739592
246531
34100000
Yes
Yes
false
1000000
300000
66721079
1756757
-1449
6585000
5610121
2.05
2.05
23100000
5610
0.001
0.001
23780
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5610121
133329
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10626328
5610
5610
<p style="margin: 0pt"></p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.35in">Future minimum payments
for operating leases with initial or remaining terms of one year or more as of September 30, 2019, excluding sublease income, were
as follows:</p>
<p style="font: 10pt Times New Roman, Times, Serif; margin: 0"> </p>
<table cellspacing="0" cellpadding="0" style="font: 11pt Calibri, Helvetica, Sans-Serif; width: 100%; border-collapse: collapse">
<tr style="vertical-align: bottom">
<td> </td>
<td> </td>
<td colspan="2" style="border-bottom: black 1.5pt solid; text-align: center"><font style="font: 10pt Times New Roman, Times, Serif"><b>September 30, 2019</b></font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="width: 79%"><font style="font: 10pt Times New Roman, Times, Serif">2019</font></td>
<td style="width: 2%"> </td>
<td style="width: 1%"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="width: 17%; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">572,612</font></td>
<td style="width: 1%"> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">2020</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,339,810</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td><font style="font: 10pt Times New Roman, Times, Serif">2021</font></td>
<td> </td>
<td> </td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">2,382,662</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td><font style="font: 10pt Times New Roman, Times, Serif">2022 and thereafter</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">-</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Total lease payments</font></td>
<td> </td>
<td><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">5,295,084</font></td>
<td> </td></tr>
<tr style="vertical-align: bottom; background-color: white">
<td style="padding-left: 20pt"><font style="font: 10pt Times New Roman, Times, Serif">Less: Interest</font></td>
<td> </td>
<td style="border-bottom: black 1.5pt solid"> </td>
<td style="border-bottom: black 1.5pt solid; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">(485,150</font></td>
<td><font style="font: 10pt Times New Roman, Times, Serif">)</font></td></tr>
<tr style="vertical-align: bottom; background-color: #CCEEFF">
<td style="padding-left: 10pt"><font style="font: 10pt Times New Roman, Times, Serif">Present value of lease liabilities</font></td>
<td> </td>
<td style="border-bottom: black 2.25pt double"><font style="font: 10pt Times New Roman, Times, Serif">$</font></td>
<td style="border-bottom: black 2.25pt double; text-align: right"><font style="font: 10pt Times New Roman, Times, Serif">4,809,934</font></td>
<td> </td></tr>
</table>
<p style="margin: 0pt"></p>
5929749
5960475
1
12935740
7117
1
12928623
7117276
666
31650559
3686302
11570566
10796072
200000
1000000
1000000
Represents the adjustments related to the adoption of new accounting standards. See Note 2 for details.