ITEM
1 – BUSINESS
History
Iveda
Solutions, Inc. (“Iveda”, or the “Company”) was incorporated in Nevada as Charmed Homes, Inc. in June 2006. On
October 15, 2009, IntelaSight, d/b/a Iveda, a Washington corporation, became a wholly owned subsidiary of the Company. In December 2010,
IntelaSight merged with and into the Company and the Company became the surviving company. Iveda offered the first cloud hosting of streaming
and recorded video from security cameras for its customers and real-time remote surveillance service utilizing intervention specialists
to watch our customers’ cameras in real time, 24/7.
In
April 2011, Iveda completed the acquisition of the Taiwan-based company Sole-Vision Technologies (doing business as Iveda Taiwan).
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 business 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 customer 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.
Iveda
Taiwan, our subsidiary in Taiwan, 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. The company depends on Iveda Taiwan as the majority of the company’s revenues have come from
Iveda Taiwan since we acquired them in April 2011.
Overview
Iveda
specializes in AI and digital transformation technologies with real-world applications that improve quality of life and safety worldwide.
Iveda,
through its wholly-owned subsidiary IntelaSight, Inc. has been offering real-time IP video surveillance technologies to our customers
since 2005, prior to its merger with the company. While we still offer video surveillance technologies, our core product line has evolved
to include AI intelligent video 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 worldwide.
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.
In
the last few years, the concept of a smart city has been a hot topic among cities 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
have 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.
Technology
/ Products
Iveda
offers AI intelligent video search, smart utility, smart sensors, gateways and trackers, and IoT platforms (Products).
IvedaAI
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.
Instead of watching hours of video recording after-the-fact, users can set up alerts.
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 |
IvedaPinpoint
IvedaPinpoint
centrally manages Bluetooth trackers and sensors and displays them on a map for exact location. Trackers and sensors are small devices
that can track assets and people such as medical equipment at hospitals, students at schools, workers at factories, and dementia patients
at senior care facilities. The same platform manages TempPad sensors to monitor temperature of patients at hospitals for increased nurse
productivity and employees and students for initial COVID-19 screening and contact tracing.
Iveda
offers many IoT sensors and devices for various applications such as energy management, smart home, smart building, smart community and
patient/elder care. 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.
Sentir
Video
Sentir
Video is Iveda’s video surveillance solution for all kinds of applications. Serving our customers over the past seventeen years
has allowed us to validate the best in video surveillance technologies and methodologies, including IP network cameras, NVRs, wireless
systems, and other components necessary to deploy a scalable, efficient, and effective video surveillance system. Iveda designs, builds,
and delivers highly secure turnkey video surveillance systems featuring our ZEE IP Cameras and Sentir NVRs.
Cerebro
IoT Platform
Cerebro
is a software technology platform that integrates a multitude of disparate systems for central access and management of applications,
subsystems, and devices throughout an entire environment. It is system agnostic and will support cross-platform interoperability. Cerebro’s
roadmap includes a dashboard for all of Iveda’s platforms for central management of all devices. It provides remote access to a
Dashboard for a single user interface, providing convenient anywhere, anytime access and analysis of relevant information in a timely
manner for managing an entire organization or city. Cerebro links city systems and subsystems inseparably to each other. This integration
and unification of all subsystems enable acquisition and analysis of all information on one central entity allowing comprehensive, effective
and overall management and protection of a city.
IvedaSPS
IvedaSPS
is our smart power solution, utilizing our Cerebro IoT platform. This completes our digital transformation solution crucial in smart
city deployments as well as in large organizations. We offer smart power technology for office buildings, schools, shopping centers,
hotels, hospitals, and smart city projects. This line of product includes smart power, water meter, smart lighting controls systems,
and smart payment system. 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.
IvedaCare
IvedaCare
is a simple, easy to use suite of wireless health and wellness devices intended to help you monitor the health and activities of your
loved ones, even when you can’t be there yourself. Our mission is to help ensure your loved one’s safety and independence. Stay connected
to your elderly loved ones with our advanced IoT devices. Real-time monitoring, fall detection, medication reminders and more. With IvedaCare,
you not only can monitor your home and loved ones from afar, but potentially life-saving decisions can be made using the app. Cloud-based,
wireless sensors collect real-time data that is shared with the entire family circle within the app. Customers may add a subscription
service for Pro Monitoring.If the Trusted Circle is unavailable, our emergency call center will dispatch emergency services quickly.
Utilus
Utilus
is our smart pole solution, utilizing our Cerebro IoT platform. This completes our digital transformation solution crucial in smart city
deployments as well as in large organizations. Iveda leverages infrastructure already available in most modern cities – Light poles
with power
We
equip existing poles with Utilus. Utilus consists of power and Internet, establishing a communication network for access and management
of sensors and devices that the city requires to keep its citizens safe and secure and to effectively manage utility consumption.
Our
smart pole offering is also ideal for government or large-scale city deployments.
Supporting
and Improving City Services
Reducing
Emergency Response Times
Crime
& Hazard Protection
Monitoring
and Improving Air Quality
Sound
Detection
Traffic
Monitoring and Mobility as a Service
Data
Analytics and Monetization Opportunities
Customers
Our
business model in the US is to license our software to organizations already providing services to an existing customer base and facilitating
hardware acquisition through third party partners. This business model provides dual revenue streams – one from surveillance camera
and analytics hardware sales to the service providers and the other from software licensing fees.
Iveda
Taiwan continues to service its enterprise and government clients on a per-project basis. Some of its customers include Chunghwa Telecom,
the Taiwan Stock Exchange, New Taipei City Police Department, Chicony Power Technology Co, Ltd. and Taiwan Energy Systems.
Here
is a sample list of our present customers and partners
Seasonality
of Business
There
is no significant seasonality in our business.
Research
and Development
Our
CTO is spearheading the continued development of Cerebro, our proprietary IoT platform, utilizing internal resources and outsourced software
engineers.
Intellectual
Property
We
regard certain aspects of our internal operations, products, and documentation as proprietary and rely on a combination of copyright
and trademark (federal and common) laws, trade secrets, software security measures, license agreements, and nondisclosure agreements
to protect our proprietary information. We do not own any patents, but in November 2012 we licensed, through our subsidiary, Sole-Vision
Technologies, Inc., the right to use U.S. Patent No. 8,719,442 (as well as its Taiwanese and Chinese counterparts) ITRI with respect
to the development of cloud-video technologies. We also recognize common law trademarks for “Iveda Solutions” and “Iveda”
and its logo. We have pending trademarks applications before the U.S. Patent and Trademark Office for these marks.
We
cannot guarantee that our protections will be adequate or that our competitors will not independently develop technologies that are substantially
equivalent or superior to our system. Nonetheless, we intend to vigorously defend our proprietary technologies, trademarks, and trade
secrets. We have required and will continue to require existing and future members of management, employees, and consultants to sign
non-disclosure and invention assignment agreements for work performed on our behalf.
We
are currently developing Cerebro IoT platform. Cerebro is a federated software platform for smart city management. It consists of power
management, traffic management, location-based asset tracking, security systems management and AI intelligent video search management.
We may consider patent protection for Cerebro based on the unique features we are developing. We are using a combination of open source
and proprietary code for all our source coding.
We
do not believe that our proprietary rights infringe the intellectual property rights of third parties. However, we cannot guarantee that
third parties will not assert infringement claims against us with respect to current or future technology or that any such assertion
may not require us to enter into royalty arrangements or result in costly litigation. Furthermore, our proposed future products and services
may not be proprietary and other companies may already be providing these products and services.
Environmental
Issues
Our
business currently does not implicate any environmental regulation.
Industry
Overview
Iveda
is in AI space providing critical intelligence to video surveillance systems and IoT space providing digital transformation solutions
to cities around the world. Both industry segments are projected to grow significantly. According to International Data Corporation (IDC)
Worldwide Artificial Intelligence Spending Guide, global spending on AI is forecast to double over the next four years from USD 50.1
billion in 2020 to more than USD110 billion in 2024. Spending on AI systems will accelerate over the next several years as organizations
deploy artificial intelligence as part of their digital transformation efforts and to remain competitive in the digital economy.
According
to Fortune Business Insights, the global IoT market size was USD 308.97 billion in 2020, exhibiting a growth of 23.1% in 2020 compared
to the average year-on-year growth during 2017-2019. The market is projected to grow from USD 381.30 billion in 2021 to USD 1,854.76
billion in 2028.
Corporate
Information
Our
principal executive office is located at 1744 S. Val Vista Drive, Ste. 213, Mesa, Arizona 85204. The telephone number of our principal
executive offices is (480) 307-8700. Our registered agent is CT Corporation System and their office is located at 701 S Carson Street,
Suite 200, Carson City, NV, 89701. Information contained on our website on that can be accessed through our website is not incorporated
by reference in this prospectus.
Government
Regulation
The
security and surveillance industry and consumer data privacy are subject to government regulation. Future changes in laws or regulations
could require us to change the way we operate, which could increase costs or otherwise disrupt operations. In addition, failure to comply
with any applicable laws or regulations could result in substantial fines or revocation of any required operating permits and licenses.
If laws and regulations change or we fail to comply in the future, our business, financial condition, and results of operations could
be materially and adversely affected.
Employees
As
of December 31, 2022, we had 7 full-time employees in the United States and 25 full-time employees in Taiwan. Our future success will
depend, in part, on our ability to attract, retain, and motivate highly qualified security, sales, marketing, technical, and management
personnel. From time to time, we employ independent consultants or contractors to support our development, marketing, sales and support,
and administrative needs. Our employees are not represented by any collective bargaining unit.
Insurance
We
maintain insurance, including comprehensive general liability coverage, in amounts and types of coverage that we believe are customary
in our industry. Special coverage is sometimes added in response to unique customer requirements. We also maintain compliance with applicable
state workers’ compensation laws. A certificate of insurance, which meets individual contract specifications, is made available
to every customer.
Our
History
We
were incorporated in Nevada in June 2006 under the name Charmed Homes, Inc. and engaged in the construction and marketing of custom homes
in Alberta, Canada. As a result of the unfavorable housing market and a lack of available funding, we ceased operations in 2008. On October
15, 2009, we completed a reverse merger with IntelaSight, Inc. doing business as Iveda Solutions, a Washington corporation (“IntelaSight”),
pursuant to which IntelaSight became a wholly owned subsidiary of our company. Thereafter, we changed our name to Iveda Corporation.
After the reverse merger, all of our operations were conducted under IntelaSight until December 31, 2010, at which time IntelaSight merged
with and into our company, with our company surviving. At that time, we changed our name to Iveda Solutions, Inc. On April 30, 2011,
we completed our acquisition of Iveda Taiwan, which was incorporated in the Republic of China (Taiwan) on July 5, 1999.
Our
common stock is listed on NASDAQ under the symbol “IVDA.”
Available
Information
Our
principal executive offices are located at 1744 Val Vista, Suite 213, Mesa, Arizona 85204 and our telephone number is (480) 307-8700.
Iveda Taiwan’s headquarters is located at 2F,-15, No. 14, Lane 609, Sec. 5, Chongxin Rd., Sanchong City, Taipei County 241, Taiwan
(R.O.C.). We have two website addresses: www.iveda.com and www.mega-sys.com. The information contained on our websites does
not constitute a part of this Annual Report on Form 10-K.
We
electronically file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to these reports and other information with the Securities and Exchange Commission (the “SEC”). Through our website, we make
available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments
to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
The
public can also obtain copies of any materials we file with, or furnish to, the SEC by visiting the SEC’s Public Reference Room
at 100 F Street NE, Washington, DC 20549 on official business days during the hours of 10:00 a.m. to 3:00 p.m. or by calling the SEC
at 1-800-SEC-0330. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC.
ITEM
1A – RISK FACTORS
An
investment in our common stock involves a high degree of risk. Before deciding whether to invest in our securities, you should consider
carefully the risks described below, together with all of the other information set forth in this prospectus, including the section titled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial
statements and related notes. If any of these risks actually occurs, our business, financial condition, results of operations or cash
flow could be materially and adversely affected, which could cause the trading price of our common stock to decline, resulting in a loss
of all or part of your investment. The risks described below and in the documents referenced above are not the only ones that we face.
Additional risks not presently known to us or that we currently deem immaterial may also affect our business. You should only consider
investing in our securities if you can bear the risk of loss of your entire investment.
Risks
Related to Our Company and Business
We
Have Incurred Significant Net Losses Since Our Inception And May Not Be Able To Achieve Or Maintain Profitability On An Annual Basis
In The Future.
We
have incurred significant net losses since our inception. For the years ended December 31, 2022 and 2021, we incurred net losses of approximately
$3.3 million and $3.0 million, respectively, and had accumulated losses of approximately $44 million through December 31, 2022. We cannot
predict if we will achieve or maintain annual profitability in the near future or at all. The expected growth due to the recent change
in our revenue model may not be sustainable or may decrease, and we may not generate sufficient revenue to achieve or maintain annual
profitability. Our ability to achieve and maintain annual profitability depends on a number of factors, including our ability to attract
and service customers on a profitable basis and the growth of the video surveillance industry. If we are unable to achieve or maintain
annual profitability, we may not be able to execute our business plan, our prospects may be harmed, and our stock price could be materially
and adversely affected.
We
Have Incurred A Significant Reduction In Revenues During 2020 and First Quarter 2021 Related To The Global Effects That The COVID-19
Pandemic Have Had On The Worldwide Economy.
The
COVID-19 pandemic represents a fluid situation that presents a wide range of potential impacts of varying durations for different global
geographies, including locations where the Company has offices, employees, customers, vendors and other suppliers and business partners.
Like
most businesses, the COVID-19 pandemic and efforts to mitigate the same began to have impacts on our business in March 2020. By that
time, much of our first fiscal quarter was completed. During the remainder of 2020 and the first quarter of 2021, the Company observed
decreases in demand from certain customers, including primarily municipalities and commercial customers in Taiwan as well as delays in
project timelines in Taiwan. The Company subsequently experienced an increase in demand for the last half of 2021, compared to the last
half of 2020.
Given
the fact that the Company’s products are sold through a variety of distribution channels, the Company expects its sales will experience
more volatility as a result of the changing and less predictable operational needs of many customers as a result of the COVID-19 pandemic.
The Company is aware that many companies, including many of its suppliers and customers, are reporting or predicting negative impacts
from COVID-19 on future operating results. Although the Company observed significant declines in demand for its products from certain
customers during 2020 and the first quarter of 2021, the Company believes that the impact of the COVID-19 remains too fluid and unknown,
hindering the Company from determining the long-term demand for current products. The Company also cannot be certain how demand may shift
over time as the impacts of the COVID-19 pandemic may go through several phases of varying severity and duration.
The
Company does not expect there to be material changes to its assets on its balance sheet or its ability to timely account for those assets.
The Company has also reviewed the potential impacts on future risks to the business as it relates to collections, returns and other business-related
items.
To
date, travel restrictions and border closures have not materially impacted its ability to obtain inventory or manufacture or deliver
products or services to customers. However, if such restrictions become more severe, they could negatively impact those activities in
a way that would harm the business over the long term. Travel restrictions impacting people can restrain our ability to assist its customers
and distributors as well as impact its ability to develop new distribution channels, but at present the Company does not expect these
restrictions on personal travel to be material to our business operations or financial results. The Company has taken steps to restrain
and monitor its operating expenses and therefore it does not expect any such impacts to materially change the relationship between costs
and revenues.
Like
most companies, the Company has taken a range of actions with respect to how it operates to assure it complies with government restrictions
and guidelines as well as best practices to protect the health and well-being of its employees and its ability to continue operating
its business effectively. To date, the Company has been able to operate its business effectively using these measures and to maintain
internal controls as documented and posted. The Company also has not experienced challenges in maintaining business continuity and does
not expect to incur material expenditures to do so. However, the impacts of COVID-19 and efforts to mitigate the same have remained unpredictable
and it remains possible that challenges may arise in the future.
The
actions the Company has taken so far during the COVID-19 pandemic include, but are not limited to requiring all employees who can work
from home to work from home and increasing its IT networking capability to best assure employees can work effectively outside the office.
Revenue
for the year ending December 31, 2021 was negatively impacted due to the conditions noted. If business interruptions resulting from the
COVID-19 pandemic were to be prolonged or expanded in scope, the business, financial condition, results of operations and cash flows
will continue to be negatively impacted. The Company will continue to actively monitor this situation and will implement actions necessary
to maintain business continuity.
We
Depend On Certain Key Personnel.
Our
future success is dependent on the efforts of key management personnel, particularly David Ly, our Chairman and Chief Executive Officer,
Sid Sung, our President, Robert J. Brilon, our Chief Financial Officer, and Gregory Omi, our Chief Technology Officer, each of whom is
employed by us at will. Mr. Ly’s relationships within our industry are vital to our continued operations, and if Mr. Ly were no
longer actively involved with us, we would likely be unable to continue our operations. The loss of one or more of our other key employees
could also have a material adverse effect on our business, financial condition, and results of operations.
We
also believe that our future success will be largely dependent on our ability to attract and retain highly qualified management, sales,
and marketing personnel. We cannot assure investors that we will be able to attract and retain such personnel and our inability to retain
such personnel or to train them rapidly enough to meet our expanding needs could cause a decrease in the overall quality and efficiency
of our staff, which could have a material adverse effect on our business, financial condition, and results of operations.
Demand
For Our Products May Be Lower Than We Anticipate.
We
have limited resources to undertake reseller distribution activities. We cannot predict with certainty the potential customer demand
for our intelligent video search, smart utility, smart sensors, gateways and trackers, and IoT platforms (Products) or the degree to
which we will meet that demand. If demand for our Products does not develop to the extent or as quickly as expected, we might not be
able to generate enough revenue to become profitable.
We
are currently targeting the sale of our Products to telecommunications companies and technology and systems integrators. Our strategy
to target those organizations is based upon their interest and a number of assumptions, some or all of which could prove to be incorrect.
Even
if markets for our Products develop, we could achieve a smaller share of those markets than we currently anticipate. Achieving market
share will require substantial investment in technical, marketing, project management, and engineering functions to support the deployment
of our Products. We cannot assure investors that our efforts will result in the attainment of sufficient market share to become profitable.
We
Believe Industry Trends Support Our Open Source Systems, But If Trends Reverse We May Experience Decreased Demand.
The
security and surveillance industry is characterized by rapid changes in technology and customer demands. We believe that the existing
market preference for open source systems (systems capable of integrating a wide range of products and services through community and
private-based cooperation, such as the Internet, Linux, and certain cameras used in our business) is strong and will continue for the
foreseeable future. We cannot assure investors that customer demand for our products and the market’s preference for open source
systems will continue. A lack of customer demand or a decline in the preference of open source systems could have a material adverse
effect on our business, financial condition, and results of operations.
A
Relatively Small Number Of Key Customers Account For A Significant Portion Of Our Revenue.
Historically,
a significant portion of our revenue has come from a limited number of key customers. Revenue from two customers out of 42 total customers
represented approximately 52% of total revenue for the year ended December 31, 2022. These specific customers were 1) Chunghwa Telecom
with 21%, 2) Chicony Power Technology Co Ltd with 31%, (both Taiwan companies). Revenue from two customers out of 36 total customers
represented approximately 55% of total revenue for the year ended December 31, 2021. These specific customers were 1) Chunghwa Telecom
with 41%, 2) Taiwan Stock Exchange with 14%, (both Taiwan companies). Total number of customers were 42 and 36, for the years ended December
31, 2022 and 2021, respectively. 52% of the total accounts receivable at December 31, 2022 was from one customer out of a total of 36
customer accounts receivable accounts. This specific customer was Chicony Power Technology Co Ltd. Our accounts receivables are unsecured,
and we are at risk to the extent such amounts become uncollectible. Although we perform periodic evaluations of our customers’
credit and financial condition, we generally do not require collateral in exchange for our products and services provided on credit.
Our
licensing business, in particular, may be susceptible to concentration of revenue, if through our licensing customers’ large consumer
bases of end users. The loss of a key service provider customer, the delay, reduction, or cancellation of a significant order, or difficulty
collecting on our accounts receivable from our service provider customers could have a material adverse effect on our business, financial
condition, and results of operations.
Payment
terms for our U.S.-based segment require prepayment for our Products before they are shipped. For our U.S.-based segment, accounts receivable
that are more than 120 days past due are considered delinquent. Payment terms for our Taiwan-based segment vary based on our agreements
with our customers. Generally, we receive payment for our Products and services within one year of commencing the project, except that
we retain 5% of the total payment amount and release such amount one year after the completion of the project. Iveda Taiwan provides
an allowance for doubtful accounts for any receivables that will not be paid within one year, which excludes such retained amounts. We
have set up no doubtful accounts receivable allowances for our Taiwan-based and U.S.-based segments, respectively, as of the years ended
December 31, 2022 and 2021. We deem our accounts receivable to be collectible based on certain factors, including the nature of the customer
contracts and past experience with similar customers.
We
Rely On Iveda Taiwan, Our Taiwan Subsidiary, For A Significant Portion Of Our Revenue.
We
rely on Iveda Taiwan, our Taiwan subsidiary, for a significant portion of our revenue. For the years ended December 31, 2022 and 2021,
Iveda Taiwan’s operations accounted for 79% and 93% of our total revenue, respectively. If Iveda Taiwan experiences a decline in
customer demand for its services, an increase in supplier pricing, currency fluctuations, or general economic or governmental instability,
our business, financial condition, and results of operations may be materially and adversely affected.
Rapid
Growth May Strain Our Resources.
As
we continue the commercialization of our Products, we expect to experience significant and rapid growth in the scope and complexity of
our business, which may place a significant strain on our senior management team and our financial and other resources. Such growth,
if experienced, may expose us to greater costs and other risks associated with growth and expansion. We may be required to hire a broad
range of additional employees, including engineers, project managers, and other support personnel, among others, in order to successfully
advance our operations. We may also be required to expand and enhance our technology to accommodate customized customer solutions. We
may be unsuccessful in these efforts or we may be unable to project accurately the rate or timing of these increases.
The
nature of our distribution channel business does not require us to increase our leased space. Our licensing partners may host our platforms
in their own data centers or public cloud such as Amazon or Google. Our ability to manage our rapid growth effectively will require us
to continue to improve our operations, to improve our financial and management information systems, and to train, motivate, and manage
our employees.
This
growth may place a strain on our management and operational resources. The failure to develop and implement effective systems, or to
hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our business,
or the failure to manage growth effectively, could have a materially adverse effect on our business, financial condition, and results
of operations. In addition, difficulties in effectively managing the budgeting, forecasting, and other process control issues presented
by such a rapid expansion could harm our business, financial condition, and results of operations.
We
Depend On Third Party Manufacturers and Suppliers For The Products We Sell.
We
have relationships with a number of third party manufacturers and suppliers that provide all of the hardware components of our Products.
We have direct relationships with camera manufacturers in Taiwan for camera systems. Risks associated with our dependence upon third
party manufacturers include the following: (i) reduced control over delivery schedules; (ii) lack of control over quality assurance;
(iii) poor manufacturing yields and high costs; (iv) potential lack of adequate capacity during periods of excess demand; and (v) potential
misappropriation of our intellectual property. Although we depend on third party manufacturers and suppliers for the Products we sell,
risks are minimized because we do not depend exclusively on any one manufacturer or supplier. We utilize an open platform, which means
that in order to deliver our services, we do not discriminate based on camera brand or manufacturer and our services can be used with
a wide array of products.
We
do not know if we will be able to maintain third party manufacturing and supply contracts on favorable terms, if at all, or if our current
or future third-party manufacturers and suppliers will meet our requirements for quality, quantity, or timeliness. Our success depends
in part on whether our manufacturers are able to fill the orders we place with them in a timely manner. If our manufacturers fail to
satisfactorily perform their contractual obligations or fill purchase orders we place with them, we may be required to pursue replacement
manufacturer relationships.
While
we believe we would be able to find replacement sources for all of our third-party manufacturers and suppliers, if we are unable to find
replacements on a timely basis, or at all, we may be forced to either temporarily or permanently discontinue the sale of certain products
and associated services, which could expose us to legal liability, loss of reputation, and risk of loss or reduced profit. We believe
that our present suppliers offer products that are superior to comparable products available from other suppliers. In addition, we have
development partner relationships with many of our present suppliers, which provide us with greater control over future enhancements
to the products we sell. Our business, financial condition, results of operation, and reputation could be adversely impacted if we are
unable to provide quality products to our customers in a timely manner.
We
could also be adversely affected by an increase in our manufacturers’ prices for our product components or a significant decline
in our manufacturers’ financial condition. Our manufacturers’ prices may increase as a result of internal price determinations,
fluctuations in the prices of raw materials, natural disasters, raw material shortages, or other events beyond our control. If our relationship
with any one of our manufacturers is terminated and we cannot successfully establish a relationship with an alternative manufacturer
that offers similar services at similar prices, our costs could increase, adversely affecting our operations.
We
Operate In A Highly Competitive Industry And Our Failure To Compete Effectively May Adversely Affect Our Ability To Generate Revenue.
We
believe that our products offer more functions and priced better than our competitors. However, some companies may be developing a similar
product, including companies that may have significantly greater financial, technical, and marketing resources, larger distribution networks,
and that generate greater revenue and have greater name recognition than we do. Those companies may develop products that are superior
to those that we offer. Such competition may potentially affect our chances of achieving profitability.
Some
of our competitors may conduct more extensive promotional activities and may offer lower prices to customers than we can, which could
allow them to gain greater market share or prevent us from increasing our market share. In the future, we may need to decrease our prices
to remain competitive. Our competitors may be able to respond more quickly to new or changing opportunities, technologies, and customer
requirements. To be successful, we must carry out our business plan, establish and strengthen our brand awareness through marketing,
effectively differentiate our services from those of our potential competitors, and build our network of service providers, while maintaining
a superior platform and level of service, which we believe will ultimately differentiate our Products from those of our competitors.
We may have to substantially increase marketing and development activities to compete effectively.
If
Our Information Security Measures Are Breached And Unauthorized Access Is Obtained, Existing And Potential Service Providers May Not
Perceive Our Software And Services As Being Secure And May Terminate Their Licensing Agreements Or Fail To Order Additional Products
And Services.
Our
software involves the monitoring of cameras that may be recording sensitive areas of end users’ facilities and the storage of sensitive
data obtained from such cameras. Our software utilizes data and other security measures that are comparable to those used by financial
institutions. However, because we no longer host the platform at our own data centers, information security risks associated with data
centers are borne by the service providers. If we or any of our service providers or their end-users experience any breach of security
in our software, we may be required to expend significant capital and resources to help restore our service providers’ systems.
Furthermore, because techniques used to obtain unauthorized access to information systems change frequently and generally are not recognized
until launched against a target, we may not be able to anticipate those techniques or to implement adequate preventative measures. Given
the nature of our business and the business of the service providers we serve, if unauthorized parties gain access to our or our service
providers’ information systems or such information is used in an unauthorized manner, misdirected, lost, or stolen during transmission,
any theft or misuse of such information could result in, among other things, unfavorable publicity, governmental inquiry and oversight,
difficulty in marketing our software, allegations by our service providers that we have not performed our contractual obligations, termination
of services by existing customers, litigation by affected parties, and possible financial obligations for damages related to the theft
or misuse of such information, any of which could have a material adverse effect on our business, financial condition, and results of
operations.
Our
Property And Business Interruption Insurance Coverage Is Limited And May Not Compensate Us Fully For Losses That May Occur As A Result
Of A Disruption To Our Business.
Our
property and business interruption insurance coverage is limited and is subject to deductibles and coverage limits. In the event that
we experience a disruption to our business, our insurance coverage may not compensate us fully for losses that may occur. Any damage
or failure that causes interruptions to our business could have a material adverse effect on our business, financial condition, and results
of operations.
The
Timing Of Our Revenue Can Vary Depending On How Long Customers Take To Evaluate Our Platform.
It
is difficult to forecast the timing of revenue because the development period for a customized system or solution may be lengthy. In
addition, our larger customers may need a significant amount of time to evaluate our products before purchasing them, and our governmental
customers are subject to budgetary and other bureaucratic processes that may affect the timing of payment. The period between initial
customer contact and a purchase by a customer varies greatly depending on the customer and historically has taken several months. During
the evaluation period, customers may defer or reduce proposed orders of products or systems for various reasons, including (i) changes
in budgets and purchasing priorities, (ii) decreased market adoption expectations, (iii) a reduced need to upgrade existing systems,
(iv) introduction of products by competitors, and (v) general market and economic conditions.
We
Are Subject To Certain Risks Inherent In Managing And Operating Businesses In Taiwan.
We
have significant international operations in Taiwan that involve matters central to our business, including those relating to e-commerce,
privacy and data protection, live streaming services, intellectual property, computer security, anti-money laundering, anti-corruption
and anti-bribery, currency control regulations, data protection, privacy, consumer protection, competition, telecommunications and product
liability. There are risks inherent in operating and selling products and services internationally, including the following: different
regulatory environments and reimbursement systems; difficulties in enforcing agreements and collecting receivables through certain foreign
legal systems; foreign customers who may have longer payment cycles than customers in the United States; fluctuations in foreign currency
exchange rates; tax rates in certain foreign countries that may exceed those in the United States and foreign earnings that may be subject
to withholding requirements; the imposition of tariffs, exchange controls, or other trade restrictions; general economic and political
conditions in countries where we operate or where our customers reside; government control of capital transactions, including the borrowing
of funds for operations or the expatriation of cash; potential adverse tax consequences; security concerns and potential business interruption
risks associated with political or social unrest in foreign countries where our facilities or assets are located; difficulties associated
with managing a large organization spread throughout various countries; difficulties in enforcing intellectual property rights and weaker
intellectual property rights protection in some countries; required compliance with a variety of foreign laws and regulations; and differing
customer preferences. The factors described above may have a material adverse effect on our business, financial condition, and results
of operations.
Because
the majority of the Company’s revenues come from our Iveda Taiwan subsidiary, which is located in Taiwan, the Company is subject
to the risks of doing business in Taiwan, including periodic foreign economic downturns and political instability, which may adversely
affect the Company’s revenue and cost of doing business in Taiwan.
Sole-Vision
Technologies (doing business as Iveda Taiwan) is the Company’s wholly-owned subsidiary and generates the majority of the Company’s
revenues. Iveda Taiwan’ primary place of business is in Taiwan, Republic of China, and the Company has certain key employees in
Taiwan. Foreign economic downturns may affect our results of operations in the future. Additionally, other facts relating to the operation
of the Company’s business outside of the U.S. may have a material adverse effect on the Company’s business, financial condition
and results of operations, including:
|
● |
international
economic and political changes; |
|
● |
the
imposition of governmental controls or changes in government regulations, including tax laws, regulations, and treaties; |
|
● |
changes
in, or impositions of, legislative or regulatory requirements regarding the pharmaceutical industry; |
|
● |
compliance
with U.S. and international laws involving international operations, including the Foreign Corrupt Practices Act and export control
laws; |
|
● |
restrictions
on transfers of funds and assets between jurisdictions; and |
|
● |
China-
Taiwan geo-political instability. |
As
the Company continues to operate its business in Taiwan, our success will depend in part, on our ability to anticipate and effectively
manage these risks. The impact of any one or more of these factors could materially adversely affect our business, financial condition
and results of operations.
Recent
Geopolitical issues, conflicts and other global events could adversely affect our results of operations and financial condition.
Because
a substantial portion of our business is conducted outside of the United States, our business is subject to global political issues and
conflicts. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition
if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which
we do business could have a material adverse effect on our results of operations and financial condition. For example, the recent and
continuing conflict arising from the invasion of Ukraine by Russia could adversely impact macroeconomic conditions, give rise to regional
instability and result in heightened economic tariffs, sanctions and import-export restrictions from the U.S. and the international community
in a manner that adversely affects us, including to the extent that any such actions cause material business interruptions, restrict
our ability to conduct business with certain suppliers or vendors, utilize the banking system, or repatriate cash.
We
face risks associated with increased political uncertainty.
The
recent invasion of Ukraine by Russia and the sanctions, bans and other measures taken by governments, organizations and companies against
Russia and certain Russian citizens in response thereto has increased the political uncertainty in Europe and has strained the relations
between Russia and a significant number of governments, including the U.S. The duration and outcome of this conflict, any retaliatory
actions taken by Russia and the impact on regional or global economies is unknown, but could have a material adverse effect on our business,
financial condition and results of our operations.
In
the U.S., the change in the U.S. government to the Biden administration has resulted in uncertainty regarding potential changes in regulations,
fiscal policy, social programs, domestic and foreign relations and international trade policies. In addition, potential changes in relationships
among the U.S. and China and other countries including Taiwan could have significant impacts on global trade and regional economic conditions,
among other things. In addition, changes in the relationships between the U.S. and its neighbors, such as Mexico, could have significant,
potentially negative, impacts on commerce. Further, anti-American sentiment could harm the reputation and success of U.S. companies doing
business abroad.
Our
ability to respond to these developments or comply with any resulting new legal or regulatory requirements, including those involving
economic and trade sanctions, could reduce our sales, increase our costs of doing business, reduce our financial flexibility and otherwise
have a material adverse effect on our business, financial condition and results of our operations.
Our
supply chain may be disrupted by changes in U.S. trade policy.
We
rely on domestic and foreign suppliers to provide us with products in a timely manner and at favorable prices. We have experienced, and
expect to continue to experience, increased international transit times. A disruption in the flow of our imported products or a material
increase in the cost of those goods or transportation without any offsetting price increases may significantly decrease our profits.
U.S. tariffs or other actions against foreign nations including China and any responses by such nations including China, could impair
our ability to meet customer demand and could result in lost sales or an increase in our cost of products This would have a material
adverse impact on our business and results of operations.
Our
business activities may be subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and similar anti-bribery and anti-corruption
laws of other countries in which we operate, as well as U.S. and certain foreign export controls, trade sanctions, and import laws and
regulations. Compliance with these legal requirements could limit our ability to compete in foreign markets and subject us to liability
if we violate them.
If
we further expand our operations outside of the United States, we must dedicate additional resources to comply with numerous laws and
regulations in each jurisdiction in which we plan to operate. Our business activities may be subject to the FCPA and similar anti-bribery
or anti-corruption laws, regulations or rules of other countries in which we operate. The FCPA generally prohibits companies and their
employees and third party intermediaries from offering, promising, giving or authorizing the provision of anything of value, either directly
or indirectly, to a non-U.S. government official in order to influence official action or otherwise obtain or retain business. The FCPA
also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation
and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves
significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, hospitals
owned and operated by the government, and doctors and other hospital employees would be considered foreign officials under the FCPA.
Recently the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) have increased their FCPA enforcement activities
with respect to biotechnology and pharmaceutical companies. There is no certainty that all of our employees, agents or contractors, or
those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these
laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, disgorgement,
and other sanctions and remedial measures, and prohibitions on the conduct of our business. Any such violations could include prohibitions
on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international
activities, our ability to attract and retain employees and our business, prospects, operating results and financial condition.
In
addition, our products and technology may be subject to U.S. and foreign export controls, trade sanctions and import laws and regulations.
Governmental regulation of the import or export of our products and technology, or our failure to obtain any required import or export
authorization for our products, when applicable, could harm our international sales and adversely affect our revenue. Compliance with
applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international
markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and
economic sanctions prohibit the shipment of certain products and services to countries, governments, and persons targeted by U.S. sanctions.
If we fail to comply with export and import regulations and such economic sanctions, penalties could be imposed, including fines and/or
denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement
or scope of existing regulations, or in the countries, persons, or products targeted by such regulations, could result in decreased use
of our products by, or in our decreased ability to export our products to existing or potential customers with international operations.
Any decreased use of our products or limitation on our ability to export or sell access to our products would likely adversely affect
our business.
We
Rely On Service Providers To Distribute Our Products To Customers.
We
rely on service providers such as telecommunications companies, security integrators and other technology integrators to purchase and
distribute our Products to their customers. We plan to continue this method of our internal sales activity for the foreseeable future
to service large service providers and government accounts. While we believe we will be able to find alternate service providers if our
relationship with any of our larger service providers is terminated and we are not successful in establishing a relationship with an
alternative service provider that offers similar services at similar prices, our business could decline.
We
have acquired, and may in the future acquire, assets, businesses and technologies as part of our business strategy. If we acquire companies
or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value, and adversely
affect our operating results and the value of our common stock.
As
part of our business strategy, we may acquire, enter into joint ventures with, or make investments in complementary or synergistic companies,
services, and technologies in the future. Acquisitions and investments involve numerous risks, including without limitation:
|
● |
difficulties
in identifying and acquiring products, technologies, proprietary rights or businesses that will help our business; |
|
● |
difficulties
in integrating operations, technologies, services, and personnel; |
|
● |
diversion
of financial and managerial resources from existing operations; |
|
● |
the
risk of entering new development activities and markets in which we have little to no experience; |
|
● |
risks
related to the assumption of known and unknown liabilities; |
|
● |
risks
related to our ability to raise sufficient capital to fund additional operating activities; and |
|
● |
the
issuance of our securities as partial or full payment for any acquisitions and investments could result in material dilution to our
existing stockholders. |
If
we fail to integrate any acquired business into our operations, or if we fail to properly evaluate acquisitions or investments, we may
not achieve the anticipated benefits of any such acquisitions, we may incur costs in excess of what we anticipate, and management resources
and attention may be diverted from other necessary or valuable activities.
Any
acquisitions we make could disrupt our business and seriously harm our financial condition.
We
have in the past made (and may, from time to time, consider) acquisitions of complementary companies, products or technologies. Acquisitions
involve numerous risks, including difficulties in the assimilation of the acquired businesses, the diversion of our management’s
attention from other business concerns and potential adverse effects on existing business relationships. In addition, any acquisitions
could involve the incurrence of substantial additional indebtedness. We cannot assure you that we will be able to successfully integrate
any acquisitions that we pursue or that such acquisitions will perform as planned or prove to be beneficial to our operations and cash
flow. Any such failure could seriously harm our business, financial condition and results of operations.
Our
Ability To Use Our Net Operating Loss Carryforwards And Certain Other Tax Attributes May Be Limited, Which Could Potentially Result In
Increased Tax Liabilities To Us In The Future.
In
prior years, we have suffered losses, for tax and financial statement purposes that generated significant federal and state net operating
loss carryforwards. As of December 31, 2022, we had approximately $32.0 million of federal and $5.0 million of state net operating loss
carryforwards, which we believe could offset otherwise taxable income in the United States and Arizona. Our federal net operating loss
carryforwards begin to expire in 2025. Our state net operating loss carryforwards, which are applicable in California and Arizona, began
to expire in 2014. Although these net operating loss carryforwards may be used against taxable income in future periods, we will not
receive any tax benefits from the losses we incurred unless, and only to the extent that, we have taxable income during the period prior
to their expiration. In addition, our ability to use the net operating loss carryforwards would be severely limited in the event we complete
a transaction that results in an ownership change under Section 382 of the Internal Revenue Code of 1986, as amended.
Risks
Related to Our Intellectual Property
We
Could Incur Substantial Costs Defending Against Claims That Our Products Infringe On The Proprietary Rights Of Others.
We
do not own any patents. While we do not believe that our products infringe on the proprietary rights of any third parties, the intellectual
property rights that we do have may not be sufficient to prevent infringement claims against us or claims that we have violated the intellectual
property rights of third parties. We were named as a defendant in two patent-related lawsuits, both of which have been settled.
Competitors
may have filed patent applications for or may have been issued patents and may obtain additional patents or other proprietary rights
relating to products or processes that compete with or are related to our products and services. The scope and viability of these patents
and other proprietary rights, the extent to which we may be required to obtain licenses under these patents or under other proprietary
rights, and the cost and availability of licenses are unknown, but these factors may limit our ability to market our products and services.
While
we do not believe that our products infringe on the proprietary rights of any third parties, third parties may claim infringement by
us with respect to any patents or other proprietary rights that they hold, and we cannot assure investors that we would prevail in any
such proceeding as the intellectual property status of our current and future competitors’ products and services is uncertain.
Any infringement claim against us, whether meritorious or not, could be time-consuming, result in costly litigation or arbitration and
diversion of technical and management personnel, or require us to develop non-infringing technology or to enter into royalty or licensing
agreements.
We
may not be successful in developing or otherwise acquiring rights to non-infringing technologies. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us, or at all, and could significantly harm our business and operating results.
A successful claim of infringement against us or our failure or inability to license the infringed or similar technology could require
us to pay substantial damages and could harm our business because we would not be able to continue operating our products without incurring
significant additional expense.
In
addition, to the extent we have agreed to or will agree to indemnify customers or other third parties against infringement of the intellectual
property rights of others, a claim of infringement could require us to incur substantial time, effort, and expense to indemnify these
customers and third parties and could disrupt or terminate their ability to use, market, or sell our products. Furthermore, our suppliers
may not provide us with indemnification in the event that their products are found to infringe upon the intellectual property rights
of any third parties, and if they do not, we would be forced to bear any resulting expense.
We
Depend On Our Intellectual Property.
Our
success and ability to compete depends in part on our proprietary Cerebro Smart IoT Platform and IvedaAI intelligent video search technology.
We rely on a combination of copyright and trademark (federal and common) laws, trade secrets, software security measures, license agreements,
and nondisclosure agreements to protect our proprietary information. We licensed, through our subsidiary, Sole-Vision Technologies, Inc.,
the right to use U.S. Patent No. 8,719,442 (as well as its Taiwanese and Chinese counterparts) from Industrial Technology Research Institute
(ITRI) with respect to the development of cloud-video technologies. If any of our competitors copy or otherwise gain access to our proprietary
technology or develop similar technologies independently, we may not be able to compete as effectively. We consider our proprietary platform
invaluable to our ability to continue to develop and maintain the goodwill and recognition associated with our brand. We do not currently
own any patents. The measures we take to protect our technologies and other intellectual property rights, which presently are based upon
trade secrets, may not be adequate to prevent their unauthorized use.
If
we are unable to protect our intellectual property, our competitors could use our intellectual property to market products, services,
and technologies similar to ours, which could reduce demand for our Products, services, and technologies. We may be unable to prevent
unauthorized parties from attempting to copy or otherwise obtaining and using our products or technology. Policing unauthorized use of
our technology is difficult, and we may not be able to prevent misappropriation of our technology, particularly in foreign countries
where the laws may not protect our intellectual property as fully as those in the United States. Others may circumvent the trade secrets,
trademarks, and copyrights that we currently or in the future may own. We do not have patent protection with respect to our software
or systems, although we are considering seeking such protection.
We
seek to protect our proprietary intellectual property, which includes intellectual property that may only be protectable as a trade secret,
in part by confidentiality agreements with our employees, consultants, and business partners. These agreements afford only limited protection
and may not provide us with adequate remedies for any breach or prevent other persons or institutions from asserting rights to intellectual
property arising out of these relationships. See “Business – Intellectual Property.”
We
Could Incur Substantial Costs Defending Our Intellectual Property From Infringement By Others.
Unauthorized
parties may attempt to copy aspects of our proprietary software or to obtain and use our other proprietary information. Litigation may
be necessary to enforce our intellectual property rights, to protect our trade secrets, and to determine the validity and scope of the
proprietary rights of others. We may not have the financial resources to prosecute any infringement claims that we may have. Any litigation
could result in substantial costs and diversion of resources with no assurance of success.
Risk
Related to Ownership of Our Securities
We
May Not Be Able To Access The Equity Or Credit Markets.
We
face the risk that we may not be able to access various capital sources, including investors, lenders, or suppliers. Failure to access
the equity or credit markets from any of these sources could have a material adverse effect on our business, financial condition, results
of operations, and future prospects.
Future
Sales Of Our Common Stock In The Public Market By Our Existing Stockholders, Or The Perception That Such Sales Might Occur, Could Depress
The Market Price Of Our Common Stock.
The
market price of our common stock could decline as a result of the sales of a large number of shares of our common stock in the market
by the selling stockholders, and even the perception that these sales could occur may depress the market price of our common stock.
Future
Sales And Issuances Of Our Common Stock Or Rights To Purchase Common Stock By Us, Including Pursuant To Acquisitions, Investments, Financings
or Our Equity Incentive Plans, Could Result In Additional Dilution Of Percentage Ownership Of Our Stockholders And Could Cause Our Stock
Price To Fall.
We
intend to issue additional securities pursuant to our equity incentive plans and may issue equity or convertible securities in the future
in connection with acquisitions, investments and/or additional financings. To the extent we do so, our stockholders may experience substantial
dilution. We may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a
manner we determine from time to time. If we sell common stock, convertible securities, or other equity securities in more than one transaction,
investors may be materially diluted by subsequent sales and new investors could gain rights superior to our existing stockholders.
There
Is A Limited Market For Our Common Stock.
Our
common stock is listed on the Nasdaq Capital Markets under the symbol “IVDA”. No assurance can be given that an active trading
market for our shares will be maintained. In the absence of an active trading market for our common stock, the ability of our stockholders
to sell their shares could be limited.
Our
Warrants are speculative in nature.
Our
Warrants do not confer any rights of common stock ownership on its holders, such as voting rights or the right to receive dividends,
but rather merely represent the right to acquire common stock at a fixed price for a limited period of time. Commencing on the date of
issuance, holders of the Warrants may exercise their rights to acquire the common stock and pay an exercise price of $4.25 per share,
subject to certain adjustments, prior to the fifth anniversary of the date of issuance, after which date any unexercised Warrants will
expire and have no further value.
Our
Reporting Obligations As A Public Company Are Costly.
As
a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), and the Securities Act. These rules, regulations
and requirements are extensive. We may incur significant costs associated with our public company corporate governance and reporting
requirements. This may divert management’s attention from other business concerns, which could have a material adverse effect on
our business, financial condition and results of operations. We also expect that these applicable rules and regulations may make it more
difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy
limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified individuals to serve on our board of directors or as executive officers.
Future
Changes in Financial Accounting Standards or Practices May Cause Adverse Unexpected Financial Reporting Fluctuations and Affect Reported
Results of Operations.
A
change in accounting standards or practices can have a significant effect on our reported results and may even affect our reporting of
transactions completed before the change is effective. New accounting pronouncements and varying interpretations of accounting pronouncements
have occurred and may occur in the future. Changes to existing rules or the questioning of current practices may adversely affect our
reported financial results or the way we conduct business.
If
we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial
results or prevent fraud and our business may be harmed and our stock price may be adversely impacted.
Effective
internal controls over financial reporting are necessary for us to provide reliable financial reports and to effectively prevent fraud.
Any inability to provide reliable financial reports or to prevent fraud could harm our business. The Sarbanes-Oxley Act of 2002 (the
“Sarbanes-Oxley Act”) requires management to evaluate and assess the effectiveness of our internal control over financial
reporting. In order to continue to comply with the requirements of the Sarbanes-Oxley Act, we are required to continuously evaluate and,
where appropriate, enhance our policies, procedures and internal controls. We have in the past failed, and may in the future fail, to
maintain the adequacy of our internal controls over financial reporting. Such failure could subject us to litigation or regulatory scrutiny
and investors could lose confidence in the accuracy and completeness of our financial reports. We cannot provide any assurance that in
the future we will be able to fully comply with the requirements of the Sarbanes-Oxley Act or that management will conclude that our
internal control over financial reporting is effective. If we fail to fully comply with the requirements of the Sarbanes-Oxley Act, our
business may be harmed and our stock price may decline. For example, our assessment, testing and evaluation of the design and operating
effectiveness of our internal control over financial reporting resulted in our conclusion that as of December 31, 2022 our internal control
over financial reporting was not effective, due to the Company not having adequate controls related to change management within the technology
that support the Company’s financial reporting function.
Our
financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a
public company, could materially harm our stock price.
We
require significant financial resources to maintain our public reporting status. We cannot assure you we will be able to maintain adequate
resources to ensure that we will not have any future material weakness in our system of internal controls. The effectiveness of our controls
and procedures may in the future be limited by a variety of factors including:
|
● |
faulty
human judgment and simple errors, omissions or mistakes; |
|
● |
fraudulent
action of an individual or collusion of two or more people; |
|
● |
inappropriate
management override of procedures; and |
|
● |
the
possibility that any enhancements to controls and procedures may still not be adequate to assure timely and accurate financial information. |
Our
internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles
in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect
on the financial statements.
Despite
these controls, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Furthermore, smaller reporting companies like us face additional limitations. Smaller reporting companies employ fewer individuals and
can find it difficult to employ resources for complicated transactions and effective risk management. Additionally, smaller reporting
companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
If
we fail to have effective controls and procedures for financial reporting in place, we could be unable to provide timely and accurate
financial information and be subject to investigation by the Securities and Exchange Commission and civil or criminal sanctions.
We
Do Not Intend To Pay Dividends On Our Common Stock So Any Returns Will Be Limited To The Value Of Our Stock.
We
have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain any future earnings for
the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable
future. Any return to stockholders will be limited to the value of their stock.
Our
common stock is subject to price volatility unrelated to our operations.
The
market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability
to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock,
changes in general conditions in the economy and the financial markets or other developments affecting the Company’s competitors
or the Company itself.
A
decline in the price of our common stock could affect our ability to raise working capital and adversely impact our ability to continue
operations.
A
prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. A decline in the price of our common stock could be especially detrimental to our liquidity, our operations
and strategic plans. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect
on our business plan and operations, including our ability to develop new services and continue our current operations. If our common
stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient
to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue
our normal operations.
If
we are not able to comply with the applicable continued listing requirements or standards of the Nasdaq Capital Market, Nasdaq could
delist our securities.
We
are listed on The Nasdaq Capital Market under the symbol “IVDA”. We also list the Warrants under the symbol “IVDAW.”
We cannot assure you that our securities will continue to be, listed on The Nasdaq Capital Market in the future. In order to maintain
that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director
independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance
requirements. We may not be able to comply with the applicable listing standards and Nasdaq could delist our securities as a result.
We
cannot assure you that our common stock and/or Warrants, if delisted from The Nasdaq Capital Market, will be listed on another national
securities exchange. If our common stock and/or Warrants are delisted by The Nasdaq Capital Market, they would likely trade on the OTCQB
where an investor may find it more difficult to sell our securities or obtain accurate quotations as to the market value of our common
stock and/or Warrants.
Techniques
employed by short sellers may drive down the market price of the common stock.
Short
selling is the practice of selling securities that the seller does not own but rather has borrowed from a third party with the intention
of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value
of the securities between the sale of the borrowed securities and the purchase of the replacement shares, as the short seller expects
to pay less in that purchase than it received in the sale.
As
it is in the short seller’s interest for the price of the security to decline, many short sellers publish, or arrange for the publication
of, negative opinions regarding the relevant issuer and its prospects to create negative market momentum and generate profits for themselves
after selling a security short. These short attacks have, in the past, led to selling of shares in the market.
It
is not clear what effect such negative publicity could have on us. If we were to become the subject of any unfavorable allegations, whether
such allegations are proven to be true or untrue, we could have to expend significant resources to investigate such allegations and/or
defend ourselves.
While
we would strongly defend against any such short seller attacks, we may be constrained in the manner in which we can proceed against the
relevant short seller by principles of freedom of speech, applicable state law or issues of commercial confidentiality. Such a situation
could be costly and time-consuming, and could distract our management from growing our business. Even if such allegations are ultimately
proven to be groundless, allegations against us could severely impact our business, and any investment in the common stock could be greatly
reduced or even rendered worthless.
If
securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market
price for the common stock and trading volume could decline.
The
trading market for the common stock will depend in part on the research and reports that securities or industry analysts publish about
us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who
covers us downgrades the common stock or publishes inaccurate or unfavorable research about our business, the market price for the common
stock would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly,
we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the common stock
to decline.
Our
articles of incorporation contain anti-takeover provisions that could materially adversely affect the rights of holders of our common
stock.
We
have adopted an amended and restated memorandum and articles of incorporation that contain provisions to limit the ability of others
to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could deprive our shareholders
of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain
control of our company in a tender offer or similar transaction.
Our
board of directors has the authority, subject to any resolution of the shareholders to the contrary, to issue preferred shares in one
or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights
and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption
and liquidation preferences, any or all of which may be greater than the rights associated with our common stock. Preferred shares could
be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult.
If our board of directors decides to issue preferred shares, the price of our common stock may fall and the voting and other rights of
the holders of our common stock may be materially adversely affected.