NOTES
TO THE (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
Iveda
has been offering real-time IP video surveillance technologies to our customers since 2005. While we still offer video surveillance technologies,
our core product line has evolved to include AI intelligent search technology that provide true intelligence to any video surveillance
system and IoT (Internet of Things) devices and platforms. Our evolution is in response to digital transformation demands from many cities
and organizations across the globe. Our IvedaAI intelligent video search technology adds critical intelligence to normally passive video
surveillance systems. IvedaAI provides AI functions to any IP camera and most popular network video recorders (NVR) and video management
systems (VMS). IvedaAI comes with an appliance or server, preconfigured with multiple AI functions based on the end user requirements.
AI
Functions
|
● |
Object
Search |
|
● |
Face
Search (No Database Required) |
|
● |
Face
Recognition (from a Database) |
|
● |
License
Plate Recognition (100+ Countries), includes make and model |
|
● |
Intrusion
Detection |
|
● |
Weapon
Detection |
|
● |
Fire
Detection |
|
● |
People
Counting |
|
● |
Vehicle
Counting |
|
● |
Temperature
Detection |
|
● |
Public
Health Analytics (Facemask Detection, |
|
● |
QR
and Barcode Detection |
Key
Features
|
● |
Live
Camera View |
|
● |
Live
Tracking |
|
● |
Abnormality
Detection – Vehicle/Person wrong direction detection |
|
● |
Vehicle/Person
Loitering Detection |
|
● |
Fall
Detection |
|
● |
Illegal
Parking Detection |
|
● |
Heatmap
Generation |
IvedaAI
consists of deep-learning video analytics software running in a computer/server environment that can either be deployed at an edge level
or data center for centralized cloud model. We combined hardware and artificial intelligence software for fast and efficient video search
for objects stored in an external (NVR) or storage device and live-streaming video data from any IP camera.
IvedaAI
works with any ONVIF-compliant IP cameras and most popular NVR/VMS (Video Management System) platforms, enabling accurate search across
dozens to thousands of cameras in less than 1 second. IvedaAI products are designed to maximize efficiency, save time, and cut cost.
Users can set up alerts instead of watching hours of video recording after-the-fact.
Iveda
offers many IoT sensors and devices for a variety of applications such as energy management, smart home, smart building, smart
community, and patient/elder care. Together, our gateway and station serve as the main hub for sensors and devices in any
given area. They are equipped with high-level communication protocols such as Zigbee, WiFi, Bluetooth, and USB. They connect to the Internet
via Ethernet or cellular data network. We provide IoT platforms that enable centralized device management and push digital services on
a massive scale. Our smart devices include water sensor, environment sensor, entry sensor, smart plug, siren, body temperature pad, care
watch and tracking devices.
We
also offer smart power technology for office buildings, schools, shopping centers, hotels, hospitals, and smart city projects. Our smart
power hardware is equipped with an RS485 communication interface allowing the meters to be connected to various third-party SCADA software
for monitoring and control purposes. This line of product includes smart power, water meter, smart lighting controls systems, and smart
payment system.
Iveda’s
Cerebro manages all the components of our smart power technology including statistics on energy consumption. Cerebro is a software platform
designed to integrate multiple unconnected energy, security and safety applications and devices and control them through one comprehensive
user interface.
Cerebro’s
roadmap includes dashboard for all of Iveda’s platforms for central device management. Cerebro is system
agnostic and will support cross-platform interoperability. The common unified user interface will allow remote control of platforms,
sensors and subsystems throughout an entire environment. This integration and unification of all subsystems enable acquisition and analysis
of all information on one central command center, allowing comprehensive, effective, and overall management and protection of a city.
Iveda’s
Utilus smart pole technology is a smart power management and wireless mesh communications network deployed on new or existing light pole
structures. The Utilus network uses WiFi, 4G and 5G small cell capabilities, and other wireless protocols to provide distributed video
surveillance with AI video search technology and remote management of local devices such as trackers, water meters, electrical meters,
valves, circuit breakers and sensors.
In
the last few years, smart city has been a hot topic among municipalities across the globe. With little to no human interaction,
technology increases efficiency, expedites decision making, and reduces response time. Dwindling public safety budgets and resources
has necessitated the transformation. More and more municipalities are using next-generation technologies to improve the safety and security
of its citizens. Our response is our complete suite of IoT technologies, including AI intelligent video search technology, smart sensors,
tracking devices, video surveillance systems, and smart power.
Historically,
we sold and installed video surveillance equipment, primarily for security purposes and secondarily for operational efficiencies and
marketing. We also provided video hosting, in-vehicle streaming video, archiving, and real-time remote surveillance services to a variety
of businesses and organizations. While we only used off-the shelf camera systems from well-known camera brands, we now source our own
cameras using manufacturers in Taiwan in order for us to be more flexible in fulfilling our customer needs. We now have the capability
to provide IP cameras and NVRs based on customer specifications. We still utilize ONVIF (Open Network Video Interface Forum) cameras
which is a global standard for the interface of IP-based physical security products.
In
2014, we changed our revenue model from direct project-based sales to licensing our platform and selling IoT hardware to service providers
such as telecommunications companies, integrators and other technology resellers already providing services to an existing customer base.
Partnering with service providers that have an existing loyal subscriber base allows us to focus on servicing just a handful of our partners
and concentrating on our technology offering. Service providers leverage their end-user infrastructure to sell, bill, and provide customer
service for Iveda’s product offering. This business model provides dual revenue streams – one from hardware sales and the
other from monthly licensing fees.
Our
Taiwan-based subsidiary Iveda Taiwan, formerly known as
MEGAsys, our wholly-owned subsidiary, specializes in deploying new, and integrating existing, video surveillance systems for airports,
commercial buildings, government customers, data centers, shopping centers, hotels, banks, and safe city. Iveda Taiwan combines
security surveillance products, software, and services to provide integrated security solutions to the end user. Through Iveda Taiwan,
we have access not only to Asian markets but also to Asian manufacturers and engineering expertise. Iveda Taiwan is our research
and development arm, working with a team of developers in Taiwan.
Consolidation
Effective
April 30, 2011, we completed our acquisition of Taiwan-based Sole Vision Technologies (dba Iveda Taiwan). We consolidate
our financial statements with the financial statements of Iveda Taiwan. All intercompany balances and transactions have been eliminated
in consolidation.
Going
Concern
The
accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates
the realization of assets and the liquidation of liabilities in the normal course of business. We generated accumulated losses of approximately
$42 million from January 2005 through March 31, 2021 and have insufficient working capital and cash flows to support operations. These
factors raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities
that might result from this uncertainty.
Impairment
of Long-Lived Assets
We
have a significant amount of property and equipment, consisting primarily of leased equipment. We review the recoverability of the carrying
value of long-lived assets using the methodology prescribed in ASC 360 “Property, Plant and Equipment.” We review our long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not
be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset
to the undiscounted future net operating cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. We did
not make any impairment for the three months ended March 31, 2022 and year ended December 31, 2021.
Basis
of Accounting
Our
consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally
accepted in the United States of America.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from these estimates.
Revenue
and Expense Recognition
The
Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers, and all
related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers
in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies
the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract,
(3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize
revenue when a performance obligation is satisfied.
The
Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the
customer. In situations where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company
holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract,
the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company
considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the
transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which
it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient
under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction
price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is
considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar
circumstances. Revenue is recognized when control of the product is transferred to the customer (i.e., when the Company’s
performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred,
the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred
to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive
repair services or replacement product. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions
for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less
than one year.
The
Company sells its products and services primarily to municipalities and commercial customers in the following manner:
|
● |
The
majority of Iveda Taiwan sales are project sales to Taiwan customers and are made direct to the end customer (typically a
municipality or a commercial customer) through its sales force, which is composed of its employees. Revenue is recorded when the
equipment is shipped to the end customer and charged for service when installation or maintenance work is performed. |
Revenues
from fixed-price equipment installation contracts (project sales) are recognized on the percentage-of-completion method. The percentage
completed is measured by the percentage of costs incurred to date to estimated total costs for each contract. This method is used because
management considers expended costs to be the best available measure of progress on these contracts. Because of inherent uncertainties
in estimating costs and revenues, it is at least reasonably possible that the estimates used will change.
Contract
costs include all direct material, subcontractors, labor costs, and equipment costs and those indirect costs related to contract performance.
General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result
in revisions to costs and income and are recognized in the period in which the revisions are determined. Changes in estimated job profitability
resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements are accounted for
as changes in estimates in the current period. Profit incentives are included in revenues when their realization is reasonably assured.
Claims are included in revenues when realization is probable, and the amount can be reliably estimated.
|
● |
The
majority of Iveda US hardware sales are to international customers and are made through independent distributors or integrators who
purchase products from the Company at a wholesale price and sell to the end user (typically municipalities or a commercial customer)
at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor or integrator
generally maintains product inventory or product is drop shipped from the manufacturer, customer receivables and all related risks
and rewards of ownership. Accordingly, upon application of steps one through five above, revenue is recorded when the product is
shipped to the distributor or as directed by the distributor consistent with the terms of the distribution agreement. |
|
|
|
|
● |
Iveda
US also sells software that include licensing fees that are paid either monthly or yearly. The revenues are recorded monthly, annual
license revenue will be recorded as deferred revenue and amortized on a straight-line basis over the respective time period.
|
Comprehensive
Loss
Comprehensive
loss is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among
other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income
are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Our current
component of other comprehensive income is the foreign currency translation adjustment.
Concentrations
Financial
instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and cash equivalents and trade
accounts receivable.
Substantially
all cash is deposited in two financial institutions, one in the United States and one in Taiwan. At times, amounts on deposit in the
United States may be in excess of the FDIC insurance limit. Deposits in Taiwan financial institutions are insured by CDIC (Central Deposit
Insurance Corporation) with maximum coverage of NTD 3 million. At times, amounts on deposit in Taiwan may be in excess of the CDIC Insurance
limit.
Accounts
receivables are unsecured, and we are at risk to the extent such amount becomes uncollectible. We perform periodic credit evaluations
of our customers’ financial condition and generally do not require collateral. One customer (Chunghwa Telecom) represented approximately
95% of total accounts receivable of $492,752 as of December 31, 2021. This customer is a longtime customer, and we don’t expect
any problem with collectability of these accounts receivable.
We
had revenue from two customers with greater than 10% of total revenues during the three months ended March 31, 2022 and the year ended
December 31, 2021 that represented approximately 39% and 55% of total revenues, respectively. We had $58,086 revenues (25%) from Chunghwa
Telecom and $29,013 revenues (13%) from Taiwan Stock Exchange Corporation of total revenues of $230,857 for the three months ended March
31, 2022.
We
had $786,686 revenues (41%) from Chunghwa Telecom and $260,946 revenues (14%) from Taiwan Stock Exchange Corporation of total revenues
of $1,917,848 for the year ended December 31, 2021.
No
other customers represented greater than 10% of total revenues in the three months ended March 31, 2022 and year ended December 31, 2021.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, we consider all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Accounts
Receivable
We
provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information,
and existing economic conditions. For our U.S.-based segment, receivables past due more than 120 days are considered delinquent. For
our Taiwan-based segment, receivables over one year are considered delinquent. Delinquent receivables are written off based on individual
credit valuation and specific circumstances of the customer. As of March 31, 2022 and December 31, 2021 no allowance for uncollectible
accounts was deemed necessary for our U.S.-based segment.
Deposits
– Current
Our
current deposits represent tender deposits placed with local governments and major customers in Taiwan during the bidding process for
new proposed projects.
Other
Current Assets
Other
current assets represent cash paid in advance to insurance companies and vendors for service coverage extending into subsequent periods.
Inventories
We
review our inventories for excess or obsolete products or components based on an analysis of historical usage and an evaluation of estimated
future demand, market conditions, and alternative uses for possible excess or obsolete parts. The allowance for slow-moving and obsolete
inventory is $0 as of March 31, 2022 and December 31, 2021.
Property
and Equipment
Property
and equipment are stated at cost. Depreciation is computed primarily using the straight-line method over estimated useful lives of three
to seven years. Expenditures for routine maintenance and repairs are charged to expense as incurred. Depreciation expense for the three
months ended March 31, 2022 was $4,657 and for the year ended December 31, 2021 was $15,016.
Intangible
Assets
Intangible
assets consist of trademarks and other intangible assets associated with the purchase price allocation of Iveda Taiwan. Such assets
are fully amortized at December 31, 2021.
Deposits—Long-Term
Long-term
deposits consist of a deposit related to the leases of Iveda Taiwan’ office space, and tender deposits placed with local
governments and major customers in Taiwan as part of the bidding process, which are anticipated to be held more than one year if the
bid is accepted.
Income
Taxes
Deferred
income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary
differences arise from sales cut-off, depreciation, deferred rent expense, and net operating losses. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount that represents our best estimate of such deferred tax assets that, more likely
than not, will be realized. Income tax expense is the tax payable for the year and the change during the year in deferred tax assets
and liabilities. During 2021, we reevaluated the valuation allowance for deferred tax assets and determined that no current benefits
should be recognized for the year ended December 31, 2021.
We
are subject to U.S. federal income tax as well as state income tax.
Our
U.S. income tax returns are subject to review and examination by federal, state, and local authorities. Our U.S. tax returns for the
years 2017 to 2021 are open to examination by federal, local, and state authorities.
Our
Taiwan tax returns are subject to review and examination by the Taiwan Ministry of Finance. Our Taiwan tax return for the years 2017
to 2021 are open to examination by the Taiwan Ministry of Finance.
Restricted
Cash
Restricted
cash represents time deposits on account to secure short-term bank loans in our Taiwan-based segment.
Accounts
and Other Payables
SCHEDULE OF ACCOUNTS AND OTHER PAYABLES
| |
March 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Accounts Payable | |
$ | 138,228 | | |
$ | 62,889 | |
Accrued Expenses | |
| 2,757,814 | | |
| 2,834,726 | |
Deferred Revenue and Customer Deposits | |
| 95,687 | | |
| 58,211 | |
Accounts and Other Payables | |
$ | 2,991,729 | | |
$ | 2,955,826 | |
Deferred
Revenue
Advance
payments received from customers on future installation projects are recorded as deferred revenue.
Stock-Based
Compensation
On
January 1, 2006, we adopted the fair value recognition provisions of ASC 718, “Share-Based Payment,” which requires the recognition
of an expense related to the fair value of stock-based compensation awards. We elected the modified prospective transition method as
permitted by ASC 718. Under this transition method, stock-based compensation expense includes compensation expense for stock-based compensation
granted on or after the date ASC 718 was adopted based on the grant-date fair value estimated in accordance with the provisions of ASC
718. We recognize stock-based compensation expense on a straight-line basis over the requisite service period of the award. The fair
value of stock-based compensation awards granted prior to, but not yet vested as of March 31, 2021 and December 31, 2021, were estimated
using the “minimum value method” as prescribed by original provisions of ASC 718, “Accounting for Stock-Based Compensation.”
Therefore, no compensation expense is recognized for these awards in accordance with ASC 718. We recognized $67,500 and $801,908 of stock-based
compensation expense for the three months ended March 31, 2022 and December 31, 2021, respectively.
Fair
Value of Financial Instruments
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of March 31,
2022 and December 31, 2021. The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values.
These financial instruments include cash, accounts receivable, 0 payable, accrued expenses, and amounts due to related parties. Fair
values were assumed to approximate carrying values for these financial instruments because they are short-term in nature and their carrying
amounts approximate their fair values or because they are receivable or payable on demand.
Segment
Information
We
conduct operations in various geographic regions. The operations conducted and the customer bases located in the foreign countries are
similar to the business conducted and the customer bases located in the United States. The net revenues and net assets (liabilities)
for other significant geographic regions are as follows:
SCHEDULE OF NET REVENUE AND NET ASSETS (LIABILITIES) FOR OTHER SIGNIFICANT GEOGRAPHIC REGIONS
| |
March 31, 2022 (Unaudited) | |
| |
Net Revenue | | |
Net Assets (Liabilities) | |
United States | |
$ | 7,882 | | |
$ | (2,606,975 | ) |
Republic of China (Taiwan) | |
$ | 324,698 | | |
$ | 763,867 | |
Furthermore,
due to operations in various geographic locations, we are susceptible to changes in national, regional, and local economic conditions,
demographic trends, consumer confidence in the economy, and discretionary spending priorities that may have a material adverse effect
on our future operations and results.
We
are required to collect certain taxes and fees from customers on behalf of government agencies and remit them back to the applicable
governmental agencies on a periodic basis. The taxes and fees are legal assessments to the customer, for which we have a legal obligation
to act as a collection agent. Because we do not retain the taxes and fees, we do not include such amounts in revenue. We record a liability
when the amounts are collected and relieve the liability when payments are made to the applicable governmental agencies.
Reclassification
Certain
amounts in 2021 have been reclassified to conform to the 2022 presentation.
New
Accounting Standards
No
new relevant accounting standards
NOTE
2 RELATED PARTIES
SCHEDULE OF RELATED PARTY TRANSACTIONS
| |
March 31, 2022 (Unaudited) | | |
December 31, 2021 | |
| |
| | |
| |
On August 28, 2014, we entered into a debenture agreement with Mr. Gregory Omi, formerly a member of our Board of Directors of the company for $200,000, at 9.5% interest per annum with interest and principal payable on the extended maturity date of December 31, 2016. As consideration for the extension of the debenture, we granted Mr. Omi options to purchase 2,500 shares of our common stock with an exercise price of $6.16 per share. This debenture was extended to December 31, 2022. Mr. Omi is currently the CTO of the company. | |
| 200,000 | | |
| 200,000 | |
| |
| | | |
| | |
On November 19, 2012, we entered into a convertible debenture agreement with Mr. Robert Gillen, a member of our Board of Directors, for $100,000 (the “Gillen I Debenture”), under his company Squirrel-Away, LLC. Under the original terms of the agreement, interest is payable at 10% per annum and became due on December 19, 2014. Gillen I Debenture was extended to January 5, 2015. On June 20, 2013, interest of $5,000 was paid on the debenture. As consideration for agreeing to extend the maturity date of the debenture to December 31, 2015, we granted Mr. Gillen options to purchase 1,250 shares of common stock at an exercise price of $6.16 per share This debenture was extended to December 31, 2022. | |
$ | 100,000 | | |
$ | 100,000 | |
| |
| | | |
| | |
Total Due to Related Parties | |
$ | 300,000 | | |
| 300,000 | |
Less Current Portion | |
| (300,000 | ) | |
| (300,000 | ) |
Total Long-Term | |
$ | - | | |
$ | - | |
NOTE
3 SHORT-TERM AND LONG-TERM DEBT
The
short-term debt balances were as follows:
SCHEDULE OF SHORT-TERM DEBT
| |
March 31, 2022 (Unaudited) | |
|
December 31, 2021 | |
| |
| |
|
| |
Debenture agreements with a shareholder at 10% interest rate beginning in February 2019 - December 2019, one year maturity, were due February 2020 – December 2020, principal and interest convertible at $2.80 per share into common stock at the option of the holder until repaid. All principal and accrued interest converted during 2021 except one remaining $50,000 debenture and accrued interest of $12,079. | |
$ | 50,000 | |
|
$ | 50,000 | |
Loan Agreement with Shanghai Bank at 2.68% interest rate per annum due January 2023. | |
| 69,850 | |
|
| - | |
Loan agreement with Hua Nam bank at 2,42% interest rate per annum due September 2022. | |
| 104,789 | |
|
| - | |
| |
| | |
|
| | |
Balance at end of period | |
$ | 224,648 | |
|
$ | 50,000 | |
Long-term
debt balances were as follows:
SCHEDULE OF LONG-TERM DEBT
| |
March 31, 2022 (Unaudited) | | |
December 31. 2021 | |
| |
| | |
| |
Loans from Shanghai Bank with interest rates 1.00% - 1.5% per annum due February 2024 – November 2026 | |
| 415,275 | | |
| 469,087 | |
| |
| | | |
| | |
Current Portion of Long-term debt | |
| (116,432 | ) | |
| (120,284 | ) |
| |
| | | |
| | |
Balance at end of period | |
$ | 298,843 | | |
$ | 338,803 | |
NOTE
4 PREFERRED STOCK
We
are currently authorized to issue up to 12,500,000 shares of preferred stock, par value $0.00001 per share, 1,250,000 shares of which
are designated as Series A Preferred Stock and 500 shares of which are designated as Series B Preferred Stock. Our Articles of Incorporation
authorize the issuance of shares of preferred stock with designations, rights, and preferences determined from time to time by our Board
of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the stockholders of
our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging,
delaying, or preventing a change in control of our company.
NOTE
5 EQUITY
Common
Stock
We
are authorized to issue up to 37,500,000 shares of common stock, par value $0.00001 per share. All outstanding shares of our common stock
are of the same class and have equal rights and attributes. The holders of our common stock are entitled to one vote per share on all
matters submitted to a vote of the stockholders of our company. Our common stock does not have cumulative voting rights. Persons who
hold a majority of the outstanding shares of our common stock entitled to vote on the election of directors can elect all of the directors
who are eligible for election. Holders of our common stock are entitled to share equally in dividends, if any, as may be declared from
time to time by our Board of Directors. In the event of liquidation, dissolution, or winding up of our company, subject to the preferential
liquidation rights of any series of preferred stock that we may from time to time designate, the holders of our common stock are entitled
to share ratably in all of our assets remaining after payment of all liabilities and preferential liquidation rights. Holders of our
common stock have no conversion, exchange, sinking fund, redemption, or appraisal rights (other than such as may be determined by the
Board of Directors in its sole discretion) and have no preemptive rights to subscribe for any of our securities.
NOTE
6 STOCK OPTION PLAN AND WARRANTS
Stock
Options
On
October 15, 2009, we adopted the 2009 Stock Option Plan (the “2009 Option Plan”), with an aggregate number of 187,500 shares
of common stock issuable under the plan. The purpose of the 2009 Option Plan was to assume options that were already issued in the 2006
and 2008 Option plans under Iveda Corporation after the merger with Charmed Homes.
On
January 18, 2010, we adopted the 2010 Stock Option Plan (the “2010 Option Plan”), which allows the Board to grant options
to purchase up to 125,000 shares of common stock to directors, officers, key employees, and service providers of our company. In 2011,
the 2010 Option Plan was amended to increase the number of shares issuable under the 2010 Option Plan to 375,000 shares. In 2012, 2010
Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to 1,625,000 shares. The shares issuable
pursuant to the 2010 Option Plan are registered with the SEC under Forms S-8 filed on February 4, 2010 (No. 333- 164691), June 24, 2011
(No. 333-175143), and December 4, 2013 (No. 333-192655). The 2010 Option Plan expired on January 18, 2020.
We
adopted a new plan called Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan will have a maximum of 10 million
option shares authorized with similar terms and conditions to the 2010 Option Plan. This plan has not been approved by the shareholders.
As
of December 31, 2021, there were 893,438 options outstanding under all the option plans.
Stock
options may be granted as either incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986,
as amended (the “Code”), or as options not qualified under Section 422 of the Code. All options are issued with an exercise
price at or above the fair market value of the common stock on the date of the grant as determined by our Board of Directors. Incentive
stock option plan awards of restricted stock are intended to qualify as deductible performance-based compensation under Section 162(m)
of the Code. Incentive Stock Option awards of unrestricted stock are not designed to be deductible to us under Section 162(m). Under
the plans, stock options will terminate on the tenth anniversary date of the grant or earlier if provided in the grant.
We
have also granted non-qualified stock options to employees and contractors. All non-qualified options are generally issued with an exercise
price no less than the fair value of the common stock on the date of the grant as determined by our Board of Directors. Options may be
exercised up to ten years following the date of the grant, with vesting schedules determined by us upon grant. Vesting schedules vary
by grant, with some fully vesting immediately upon grant to others that ratably vest over a period of time up to four years. Standard
vested options may be exercised up to three months following date of termination of the relationship unless alternate terms are specified
at grant. The fair values of options are determined using the Black-Scholes option-pricing model. The estimated fair value of options
is recognized as expense on the straight-line basis over the options’ vesting periods. At December 31, 2021, we had approximately
$4,500 unrecognized stock-based compensation.
Stock
option transactions during 2021 and 2020 were as follows:
SCHEDULE OF STOCK OPTION TRANSACTIONS
| |
2021 | | |
2020 | |
| |
Shares | | |
Weighted- Average Exercise Price | | |
Shares | | |
Weighted- Average Exercise Price | |
| |
| | |
| | |
| | |
| |
Outstanding at Beginning of Year | |
| 952,025 | | |
$ | 5.76 | | |
| 842,650 | | |
$ | 6.24 | |
Granted | |
| 141,875 | | |
| 11.76 | | |
| 312,500 | | |
| 2.96 | |
Exercised | |
| (62,500 | ) | |
| 4.72 | | |
| (158,750 | ) | |
| 1.28 | |
Forfeited or Canceled | |
| (137,963 | ) | |
| 7.44 | | |
| (44,375 | ) | |
| 8.96 | |
Outstanding at End of Year | |
| 893,438 | | |
| 6.80 | | |
| 952,025 | | |
| 5.76 | |
| |
| | | |
| | | |
| | | |
| | |
Options Exercisable at Year-End | |
| 891,563 | | |
| 6.80 | | |
| 952,025 | | |
| 5.76 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted-Average Fair Value of Options Granted During the Year | |
$ | 5.68 | | |
| | | |
$ | 2.00 | | |
| | |
Information
with respect to stock options outstanding and exercisable at December 31, 2021 is as follows:
SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE
| |
Options Outstanding | | |
Options Exercisable | |
Range of Exercise Prices | |
Number Outstanding
at December 31, 2021 | | |
Weighted- Average Remaining Contractual Life | | |
Weighted- Average Exercise Price | | |
Number Exercisable
at December 31, 2021 | | |
Weighted- Average Exercise Price | |
$0.32 - $16.24 | |
| 893,438 | | |
| 6.2 | | |
$ | 6.80 | | |
| 891,563 | | |
$ | 6.80 | |
The
fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for options granted.
SCHEDULE OF BLACK-SCHOLES OPTION-PRICING MODEL
| |
2021 | | |
2020 | |
Expected Life | |
| 5 yrs | | |
| 5 yrs | |
Dividend Yield | |
| 0 | % | |
| 0 | % |
Expected Volatility | |
| 90 | % | |
| 90 | % |
Risk-Free Interest Rate | |
| 1.00 | % | |
| 0.18 | % |
Warrant
transactions during 2021 and 2020 were as follows:
SCHEDULE OF WARRANT TRANSACTIONS
| |
2021 | | |
2020 | |
| |
Shares | | |
Weighted- Average Exercise Price | | |
Shares | | |
Weighted- Average Exercise Price | |
| |
| | |
| | |
| | |
| |
Outstanding at Beginning of Year | |
| 543,754 | | |
$ | 3.04 | | |
| 695,439 | | |
$ | 3.04 | |
Granted | |
| 509,732 | | |
| 2.96 | | |
| 123,732 | | |
| 2.80 | |
Exercised | |
| (78,102 | ) | |
| 2.80 | | |
| | | |
| | |
Forfeited or Canceled | |
| (103,125 | ) | |
| 2.80 | | |
| (275,416 | ) | |
| 2.88 | |
Outstanding at End of Year | |
| 872,259 | | |
| 3.04 | | |
| 543,754 | | |
| 3.04 | |
| |
| | | |
| | | |
| | | |
| | |
Warrant Exercisable at Year-End | |
| 872,259 | | |
| 3.04 | | |
| 543,754 | | |
| 3.04 | |
| |
| | | |
| | | |
| | | |
| | |
Weighted-Average Fair Value of Warrants Granted During the Year | |
$ | 1.12 - $3.92 | | |
| | | |
$ | 0.80
- $2.08 | | |
| | |
Information
with respect to warrants outstanding and exercisable at December 31, 2021 is as follows:
SUMMARY OF WARRANTS OUTSTANDING AND EXERCISABLE INFORMATION
| |
Warrants Outstanding | | |
Warrants Exercisable | |
Range of
Exercise Prices | |
Number
Outstanding
at December 31, 2021 | | |
Weighted- Average Remaining Contractual Life | | |
Weighted- Average Exercise Price | | |
Number
Exercisable
at December 31, 2021 | | |
Weighted- Average Exercise Price | |
$2.80 - $13.20 | |
| 872,259 | | |
| 1.5 | | |
$ | 3.04 | | |
| 872,259 | | |
$ | 3.04 | |
The
fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for options granted.
SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE
| |
2021 | |
|
2020 | |
Expected Life | |
| 1.5 yrs | |
|
| 1.5 yrs | |
Dividend Yield | |
| 0 | % |
|
| 0 | % |
Expected Volatility | |
| 90 | % |
|
| 90 | % |
Risk-Free Interest Rate | |
| 0.18 - 1.00 | % |
|
| 0.19 - 1.59 | % |
NOTE
7 INCOME TAXES
U.S.
Federal Corporate Income Tax
Temporary
differences between financial statement carrying amounts and the tax basis of assets and liabilities and tax credit and operating loss
carryforward that create deferred tax assets and liabilities are as follows:
SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| |
2021 | | |
2020 | |
Tax Operating Loss Carryforward - USA | |
$ | 10,800,000 | | |
$ | 9,800,000 | |
Other | |
| - | | |
| - | |
Valuation Allowance - USA | |
| (10,800,000 | ) | |
| (9,800,000 | ) |
Deferred Tax Assets,
Net | |
$ | - | | |
$ | - | |
The
valuation allowance increased approximately $0.5 million, primarily as a result of the increased net operating losses of our U.S.- based
segment.
As
of December 31, 2021, we had federal net operating loss carryforwards for income tax purposes of approximately $29 million which will
begin to expire in 2025. We also have Arizona net operating loss carryforwards for income tax purposes of approximately $2.0 million
which expire after five years. These carryforwards have been utilized in the determination of the deferred income taxes for financial
statement purposes. The following table accounts for federal net operating loss carryforwards only.
SUMMARY OF OPERATING LOSS CARRYFORWARDS
Year Ending | |
Net Operating | | |
Year of | |
December 31, | |
Loss: | | |
Expiration | |
2021 | |
$ | 1,000,000 | | |
| 2041 | |
2020 | |
| 590,000 | | |
| 2040 | |
2019 | |
| 260,000 | | |
| 2039 | |
2018 | |
| 160,000 | | |
| 2038 | |
2017 | |
| 140,000 | | |
| 2037 | |
2016 | |
| 1,640,000 | | |
| 2036 | |
2015 | |
| 3,400,000 | | |
| 2035 | |
2014 | |
| 5,230,000 | | |
| 2034 | |
2013 | |
| 5,600,000 | | |
| 2033 | |
2012 | |
| 2,850,000 | | |
| 2032 | |
2011 | |
| 2,427,000 | | |
| 2031 | |
2010 | |
| 1,799,000 | | |
| 2030 | |
2009 | |
| 1,750,000 | | |
| 2029 | |
2008 | |
| 1,308,000 | | |
| 2028 | |
2007 | |
| 429,000 | | |
| 2027 | |
2006 | |
| 476,000 | | |
| 2026 | |
2005 | |
| 414,000 | | |
| 2025 | |
Taiwan
(Republic of China) Corporate Tax
Sole-Vision
Technologies, Inc. is a subsidiary of the Company which is operating in Taiwan as a profit-seeking enterprise. Its applicable corporate
income tax rate is 17%. In addition, Taiwan’s corporate tax system allows the government to levy a 10% profit retention tax on
undistributed earnings for the prior year. This tax will not be provided if the company distributed the earnings before the ended of
the fiscal year.
According
to the Taiwan corporate income tax (“TCIT”) reporting system, the TCIT sales cut-off base is concurrent with the business
tax classified as value-added type (“VAT”) which will be reported to the Ministry of Finance (“MOF”) on a bi-monthly
basis. Since the VAT and TCIT are accounted for on a VAT tax basis that recorded all sales on business tax on a VAT tax reporting system,
the Company is bound to report the TCIT according to the MOF prescribed tax reporting rules. Under the VAT tax reporting system, sales
cut-off did not take the accrual base but rather on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual
basis, the sales cut-off TCIT timing difference which derived from the VAT reporting system will create a temporary sales cut-off timing
difference and this difference is reflected in the deferred tax assets or liabilities calculations.
NOTE
8 EARNINGS (LOSS) PER SHARE
The
following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations,
as required by ASC No. 260, “Earnings per Share.”
Basic
earnings per share (“EPS”) is computed by dividing reported earnings available to stockholders by the weighted average shares
outstanding. We had net losses for the three months ended March 31, 2022 and 2021 and the effect of including dilutive securities in
the earnings per common share would have been anti-dilutive for the purpose of calculating EPS. Accordingly, all options, warrants, and
shares potentially convertible into common shares were excluded from the calculation of diluted earnings per share for the Three months
ended March 31, 2022 and 2021.
SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED
| |
March 31, 2022
(Unaudited) | | |
March 31, 2021 (Unaudited) | |
| |
| | |
| |
Basic EPS | |
| | | |
| | |
Net Loss | |
$ | (666,798 | ) | |
$ | (634,714 | ) |
Weighted Average Shares | |
| 9,672,508 | | |
| 7,209,589 | |
Basic Loss Per Share | |
$ | (0.07 | ) | |
$ | (0.09 | ) |
NOTE
9 CONTINGENT LIABILITIES—TAIWAN
Pursuant
to certain contracts with Siemens, Chung-Hsin Electric and Machinery Manufacturing Corp, Iveda Taiwan is required to provide after-project
services. If Iveda Taiwan fails to provide these after-project services in the future, other parties of the related contract would
have recourse. The financial exposure to Iveda Taiwan in the event of failure to provide after- project services in the future
as of December 31, 2021 is $61,435.
NOTE
10 SUBSEQUENT EVENTS
The Company evaluates
subsequent events and transactions that occur after the balance sheet date up to the date that the financial statements are available
to be issued. Any material events that occur between the balance sheet date and the date that the financial statements were available
for issuance are disclosed as subsequent events, while the financial statements are adjusted to reflect any conditions that existed at
the balance sheet date. Based upon this review, except as disclosed within the footnotes or as discussed below, the Company did not identify
any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements
On
April 5, 2022 we closed the Stock and Warrant Offering that was committed to by Underwriting Agreement effective March 31, 2022 for $8,011,250.
Item
2. Financial Information.