Iveda Solutions, Inc S-1, filed Aug 23, 2022
Iveda Solutions, Inc. (IVDA)
As filed with the U.S. Securities and Exchange Commission on August 23, 2022
Registration No. 333-________
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(Primary
Standard Industrial Classification Code Number) |
(I.R.S.
Employer Identification Number) |
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With a Copy to:
Peter Campitiello, Esq.
McCarter & English, LLP
Two Tower Center Blvd.
East Brunswick, New Jersey 08816
(732) 867-9741
Approximate date of commencement of proposed sale to the public: Promptly after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933
Emerging
growth company
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
| The information in this preliminary prospectus is not complete and may be changed. We may not sell the securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting any offer to buy these securities in any jurisdiction where such offer or sale is not permitted. |
| SUBJECT TO COMPLETION | PRELIMINARY PROSPECTUS DATED AUGUST 23, 2022 |
Iveda Solutions, Inc.
1,100,000 Shares of Common Stock
Up to 3,289,474 Shares of Common Stock Underlying Warrants up to 2,189,474 Shares of Common Stock Underlying Pre-Funded Warrants
This prospectus relates to the resale from time to time of up to an aggregate of 6,578,948 shares of our common stock, par value $0.00001 per share (the “common stock”) of which (i) 1,100,000 shares were issued to a certain investor in a private placement offering consummated on August 11, 2022; (ii) 3,289,474 shares are underlying common stock purchase warrants (the “Common Warrants”) sold to the investor described in (i) and an additional investor (the “Selling Shareholders”); and (iii) 2,189,474 shares are underlying pre-funded common stock Purchase Warrants sold to the Selling Shareholders (the “Pre-Funded Warrants,” and together with the Common Warrants, the “Warrants”). We are registering these shares as required by registration rights agreements that we entered into with the Selling Shareholders. The Selling Shareholders may offer and sell their shares in public or private transactions, or both. These sales may occur at fixed prices, at market prices prevailing at the time of sale, at prices related to prevailing market price, or at negotiated prices.
The Selling Shareholders may sell all or a portion of shares through underwriters, broker dealers or agents, who may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholder, the purchasers of the shares, or both. See “Plan of Distribution” for a more complete description of the ways in which the shares may be sold. We will not receive any of the proceeds from the sale of the shares by the selling shareholder. However, in the case of the Common Warrants, upon exercise of the Common Warrants for cash, the selling shareholders would pay us an exercise price of $1.40 per share of common stock, subject to any adjustment pursuant to the terms of the Common Warrants, or an aggregate of approximately $4.6 million if the Warrants are exercised in full for cash. Upon exercise of the Pre-Funded Warrants for cash, the selling shareholder would pay us an exercise price of $0.0001 per share of common stock, subject to adjustment, pursuant to the terms of the Pre-Funded Warrants, or an aggregate of approximately $219. The Warrants are also exercisable on a cashless basis, and if the Warrants are exercised on a cashless basis, we would not receive any cash payment from the Selling Shareholders upon any such exercise of the warrants We have agreed to bear the expenses (other than underwriting discounts, commissions or agent’s commissions and legal expenses of the selling shareholder) in connection with the registration of the common stock being offered under this prospectus by the selling shareholder.
We will pay the expenses of registering these shares, but all selling and other expenses incurred by the selling stockholder will be paid by the selling stockholder. See “Plan of Distribution.”
Our common stock is quoted on The NASDAQ Capital Market under the symbol “IVDA.” On August 22, 2022, the last reported sale price of our common stock on The NASDAQ Capital Market was $1.20 per share.
You should read this prospectus, together with additional information described under the headings “Incorporation of Certain Information by Reference” and “Where You Can Find More Information,” carefully before you invest in any of our securities.
Investing in the securities involves a high degree of risk. See “Risk Factors” beginning on page 6 of this prospectus.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the securities offered hereby or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus is ____, 2022
TABLE OF CONTENTS
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ABOUT THIS PROSPECTUS
The registration statement on Form S-1, of which this prospectus forms a part and that we have filed with the Securities and Exchange Commission (the “SEC”), includes exhibits that provide more detail of the matters discussed in this prospectus.
Additionally, we incorporate by reference important information into this prospectus. You may obtain the information incorporated by reference without charge by following the instructions under the section of this prospectus entitled “Where You Can Find More Information.” You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the headings “Incorporation of Certain Information by Reference” and “Where You Can Find More Information.”
You should rely only on the information contained in this prospectus and in any free writing prospectus prepared by or on behalf of us. We have not, and the selling stockholder has not, authorized anyone to provide you with information different from, or in addition to, that contained in this prospectus or any related free writing prospectus. This prospectus is an offer to sell only the securities offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date. Our business, financial condition, results of operations and prospects may have changed since that date.
Neither we nor the selling stockholder are offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. Neither we nor the selling stockholder have done anything that would permit this Offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the jurisdiction of the United States who come into possession of this prospectus and any free writing prospectus related to this Offering are required to inform themselves about and to observe any restrictions relating to this Offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.
Unless the context otherwise requires, the terms “Iveda,” the “Company,” “we,” “us” and “our” refer to Iveda Solutions, Inc. and our subsidiary. We have registered our certain of our names, logo and the trademarks in the United States. Other service marks, trademarks and trade names referred to in this prospectus are the property of their respective owners. Except as set forth above and solely for convenience, the trademarks and trade names in this prospectus are referred to without the ®, © and TM symbols, but such references should not be construed as any indicator that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto.
This prospectus includes industry and market data and other information, which we have obtained from, or is based upon, market research, independent industry publications or other publicly available information. Although we believe each such source to have been reliable as of its respective date, we have not independently verified the information contained in such sources. Any such data and other information is subject to change based on various factors, including those described below under the heading “Risk Factors” and elsewhere in this prospectus.
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Prospectus contains forward looking statements that involve risks and uncertainties. All statements other than statements of historical fact contained in this Form S-1, including statements regarding future events, our future financial performance, business strategy, and plans and objectives for future operations, are forward-looking statements. In many cases, you can identify forward-looking statements by terminology such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors, including the risks outlined under “Risk Factors”, “Liquidity and Capital Resources” with respect to our ability to continue to generate cash from operations or new investment, or elsewhere in this prospectus or discussed in our audited consolidated financial statements for the year ended December 31, 2021, which may cause our or our industry’s actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements.
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We describe material risks, uncertainties and assumptions that could affect our business, including our financial condition and results of operations, under “Risk Factors.” We base our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may, and are likely to, differ materially from what is expressed, implied or forecast by our forward-looking statements. Accordingly, you should be careful about relying on any forward-looking statements. Except as required under the federal securities laws, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this prospectus, whether as a result of new information, future events, changes in assumptions, or otherwise.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and the related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our common stock discussed under “Risk Factors,” “Business,” and information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” before deciding whether to buy the common stock and warrants.
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.
Products/Technology
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.
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.
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.
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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.
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.
Implications of Being a Smaller Reporting Company
We are a “smaller reporting company” and accordingly may provide less public disclosure than larger public companies, including the inclusion of only two years of audited financial statements and only two years of management’s discussion and analysis of financial condition and results of operations disclosure. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.
Going Concern
Our auditor has included a “going concern” explanatory paragraph in its report on our consolidated financial statements for the fiscal year ended December 31, 2020, expressing substantial doubt about our ability to continue as an ongoing business for the next twelve months. Our consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty. If we cannot secure the financing needed to continue as a viable business, our shareholders may lose some or all of their investment in us.
Recent Developments
On August 9, 2022, the Company and certain accredited investors (each an “Investor” and collectively, the “Investors”) entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company agreed to sell and issue to the Investors in a private placement (the “Private Placement”) (i) an aggregate of 1,100,000 shares (the “Shares”) of the Company’s common stock, par value $0.00001 per share (the “Common Stock”), at a purchase price of $1.52 per share and associated warrant, (ii) an aggregate of 3,289,474 warrants to purchase Common Stock at an execution price of $1.40 per warrant share which are immediately exercisable and remain exercisable for a term of five and a half (5.5) years from the issuance (the “Common Warrants”), and (iii) in lieu of shares of Common Stock, 2,189,474 pre-funded warrants to purchase Common Stock, with an exercise price of $0,0001 per share of Common Stock, which are immediately exercisable and remain exercisable until exercised in full (the “Pre-Funded Warrants,” and together with the “Common Warrants, the “Warrants,” and collectively with the Shares, the “Securities”). The exercise prices of the Warrants are subject to adjustment for stock splits, reverse splits, and similar capital transactions as described in the Warrants.
The Private Placement closed on August 11, 2022. The Company received gross proceeds from the Private Placement of approximately five million dollars ($5,000,000), before deducting offering expenses payable by the Company. The Company intends to use the net proceeds of the Private Placement for working capital and other general corporate purposes.
The Company engaged Maxim Group LLC (“Maxim”) as the Company’s placement agent for the Private Placement pursuant to a Placement Agency Agreement (the “PAA”) dated as of August 9, 2022. Pursuant to the PAA, the Company agreed to pay Maxim a cash placement fee equal to 7.0% of the gross proceeds of the Private Placement, plus reimbursement of certain expenses and legal fees.
In connection with the Private Placement, the Company and the Investors entered into a Registration Rights Agreement dated August 9, 2022 (the “Registration Rights Agreement”), providing for the registration for resale of the Securities (including the shares of Common Stock underlying the Warrants) that are not then registered on an effective registration statement, pursuant to a registration statement (the “Registration Statement”) to be filed with the Securities and Exchange Commission (the “SEC”) on or prior to August 24, 2022 (the “Filing Date”). The Company has agreed to use its best efforts to cause the Registration Statement to be declared effective as soon as possible, but in no event later than forty-five (45) days of the closing of the Private Placement (or seventy-five (75) days in the event of a full review of the Registration Statement by the SEC) (the “Effectiveness Date”), and to keep the Registration Statement continuously effective for a period that extends from the first date on which the SEC issues an order of effectiveness in relation to the Registration Statement until such date that all registrable securities (as such term is defined in the Registration Rights Agreement) covered by the Registration Statement have been sold thereunder or pursuant to Rule 144 or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144.
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Corporate Information
Our principal executive office is located at 1744 S. Val Vista Drive, Suite 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.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. In accordance with the Exchange Act, we file reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information filed by us are available to the public free of charge at www.sec.gov. Copies of certain information filed by us with the SEC are also available in the investors section of our website at www.iveda.com. You may also read and copy any document we file with the SEC, including the registration statement on Form S-3 and the exhibits thereto, at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330.
This prospectus omits some information contained in the registration statement of which this prospectus forms a part in accordance with SEC rules and regulations. You should review the information and exhibits in the registration statement for further information about us and the securities we are offering. Statements in this prospectus concerning any document we filed as an exhibit to the registration statement or that we otherwise filed with the SEC are not intended to be comprehensive and are qualified by reference to these filings. You should review the complete document to evaluate these statements.
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THE OFFERING
This prospectus relates to the resale from time to time by the selling stockholders identified herein of up to 6,752,948 shares of our common stock. We are not offering any shares for sale under the registration statement of which this prospectus is a part.
| Common stock outstanding prior to this offering: | 12,777,265 |
| Common stock offered by the selling stockholders hereunder: | 6,578,948 (2) |
| Common stock to be outstanding after this offering: | 18,256,213 (1) |
| Use of Proceeds: | We will not receive any proceeds from the sale of our common stock offered by the selling stockholders under this prospectus. However, in the case of the warrants issued to the selling shareholders on August 11, 2022, upon exercise of the Warrants for cash, the selling shareholders would pay us an exercise price of $1.40 per share of common stock, subject to any adjustment pursuant to the terms of the warrants, or an aggregate of approximately $4.6 million if the Warrants are exercised in full for cash. If the Selling Shareholder exercised the 2,189,474 pre-funded warrants for cash, we would receive additional proceeds of approximately $218. The proceeds to us of such warrant exercises, if any, are expected to be used for working capital and general corporate purposes. The Warrants are also exercisable on a cashless basis, and if the Warrants are exercised on a cashless basis, we would not receive any cash payment from the selling shareholders upon any such exercise of the Warrants. |
| Offering Price: | The selling shareholders may sell all or a portion of their shares through public or private transactions at prevailing market prices or at privately negotiated prices. |
| Risk Factors: | Investing in our securities involves a high degree of risk and purchasers may lose their entire investment. See the disclosure under the heading “Risk Factors” beginning on page 9 of this prospectus. |
| NASDAQ Trading Symbol: | IVDA |
| (1) | The above discussion is based on 12,777,265 shares of common stock outstanding as of August 23, 2022 and includes the 1,100,000 shares of common stock issued on August 11, 2022 but excludes: |
● 925,938 shares of common stock issuable upon the exercise of outstanding options from all option plans with an average exercise price $6.57 per share.
● 3,152,928 shares of common stock issuable upon the exercise of warrants with an average exercise price of $3.95 per share.
● up to 3,289,474 shares of common stock issuable upon the exercise of the Warrants offered hereby; and
● up to 2,189,474 shares of common stock issuable upon exercise of the pre-funded warrants for $218 cash..
Unless otherwise stated, all information in this prospectus assumes no exercise of the underwriter’s option to purchase additional securities.
| (2) | Compromised of 1,100,000 shares of Common Stock outstanding sold in this offering, 3,289,474 shares of Common Stock underlying warrants sold in this offering and 2,189,474 shares of Common Stock underlying pre-funded warrants sold in this offering. |
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SELECTED FINANCIAL DATA
The following tables set forth selected historical statements of operations and balance sheet data for the fiscal years ended December 31, 2021 and 2020, which have been derived from our audited financial statements for those periods. Our historical results are not necessarily indicative of the results that may be expected in the future. You should read this data together with our consolidated financial statements and related notes appearing elsewhere in this prospectus as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” appearing elsewhere in the prospectus.
For the Nine Months Ended June 30, 30, 2022 | For the Nine Months Ended June 30, 30, 2021 | |||||||
| Statement of Operation Data: | ||||||||
| REVENUE | 882,269 | 1,484,235 | ||||||
| COST OF REVENUE | 552,826 | 991,558 | ||||||
| GROSS PROFIT | 329,443 | 492,677 | ||||||
| GENERAL AND ADMINISTRATIVE | 2,039,247 | 1,721,420 | ||||||
| BENEFIT (PROVISION) FOR INCOME TAXES | (3,058 | ) | - | |||||
| NET LOSS | (1,731,698 | ) | (1,602,303 | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE | (0.16 | ) | (0.25 | ) | ||||
| WEIGHTED AVERAGE SHARES | 10,676,956 | 6,464,862 | ||||||
| Balance Sheet data: | ||||||||
| CURRENT ASSETS | 7,328,114 | 985,249 | ||||||
| TOTAL ASSETS | 7,591,628 | 1,245,566 | ||||||
| TOTAL LIABILITIES | 3,020,755 | 4,952,134 | ||||||
| TOTAL SHAREHOLDERS’ EQUITY (DEFICIT) | 4,570,873 | (3,706,568 | ) | |||||
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
Our Financial Statements Contain A Going Concern Opinion.
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 $43 million from January 2005 through June 30, 2022 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.
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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, 2021 and 2020, we incurred net losses of approximately $3.0 million and $1.6 million, respectively, and had accumulated losses of approximately $41 million through December 31, 2021. 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.
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We Need To Raise Significant Additional Funding.
At our current estimated burn rate, we have sufficient capital to continue our operations for only a short period of time. Accordingly, we must raise capital to continue as a going concern. In December 2020, our Board of Directors approved a new private financing round to accredited investors up to $5 million. As of December 31, 2021, we raised approximately $4.0 million through the sale of our Common Stock. In April 2020, we consummated an underwritten public offering of stock and warrants for $8 million. There is no assurance that we can raise additional funding to continue as a going concern or to operate profitably. Any inability to obtain additional financing when needed could require us to significantly curtail or cease operations.
Even if funding is available to us, we cannot assure investors that additional financing will be available on terms that are favorable to us or to our existing stockholders. Additional funding may be accomplished through the issuance of equity or debt securities that could be significantly dilutive to the percentage ownership of our existing stockholders. In addition, these newly issued securities may have rights, preferences, or privileges senior to those of existing stockholders. Accordingly, such a financing transaction could materially and adversely impact the price of our common stock.
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, Luz Berg our Chief Operating Officer and Chief Marketing 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.
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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 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). Chunghwa Telecom revenues represented 39% of total revenue for the year ended December 31, 2020, and Siemens represented 11%of total revenues for the year ended December 31, 2020. Total number of customers were 36, and 35, for the years ended December 31, 2021 and 2020, respectively. 95% of the total accounts receivable at December 31, 2021 was from one customer out of a total of 20 customer accounts receivable accounts. This specific customer was Chunghwa Telecom.. Our accounts receivable 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.
The Chunghwa Telecom agreement provides for an initial contract period of one year January 1, 2021 through December 31, 2021 and is renewable automatically for additional one-year periods. Pursuant to the Chunghwa Telecom agreement, the Company provides hardware/software system maintenance as required, including an 8-hour response time during office hours and hardware and software is billed as required. The agreement may be terminated due to a breach of the contract that is not cured within 10 days.
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. MEGAsys 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 doubtful accounts receivable allowances of $0 and $0 for our Taiwan-based and U.S.-based segments, respectively, as of the years ended December 31, 2021 and 2020. We deem the rest of 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 MEGAsys, Our Taiwan Subsidiary, For A Significant Portion Of Our Revenue.
We rely on MEGAsys, our Taiwan subsidiary, for a significant portion of our revenue. For the years ended December 31, 2021 and 2020, MEGAsys’s operations accounted for 93% and 71% of our total revenue, respectively. If MEGAsys 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.
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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.
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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.
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Because the majority of the Company’s revenues come from our MEGASys 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 MEGAsys) is the Company’s wholly-owned subsidiary and generates the majority of the Company’s revenues. MEGASys’ 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.
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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.
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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, 2021, we had approximately $29.0 million of federal and $2.0 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.
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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.
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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
Unless Or Until We List Our Common Stock On NASDAQ Or Another Securities Exchange, Our Common Stock Will Be Deemed A “Penny Stock,” Which Makes It More Difficult For Our Investors To Sell Their Shares.
Unless or until our common stock lists on the Nasdaq Capital Market or another securities exchange, our common stock is subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The penny stock rules generally apply to companies whose common stock is not listed on a national securities exchange and trades at less than $5.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stocks to persons other than “established customers” complete certain documentation, make suitability inquiries of investors, and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our common stock. If our common stock is subject to the penny stock rules, investors will find it more difficult to dispose of our common stock.
There can be no assurances that the Warrants will be listed on The Nasdaq Capital Market. If our Warrants are not listed, you will own Warrants for which is there no public market.
We intend to apply to list the Warrants on the Nasdaq Capital Market. An approval of our listing application by Nasdaq will be subject to, among other things, our fulfilling all of the listing requirements of Nasdaq. There is currently no market for the Warrants and if our application is rejected there will be no public market for the Warrants sold in this offering and the liquidity of the Warrants will be limited. Failure to develop an active trading market could make it difficult for you to sell your Warrants or recover any part of your investment in us. Our ability to issue additional securities for financing or other purposes, or otherwise to arrange for any financing we may need in the future, may also be materially and adversely affected if our Warrants are not traded on a national securities exchange.
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.
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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 quoted on OTC Markets under the symbol “IVDA”. We have applied to list our common stock on the Nasdaq Capital Markets. No assurance can be given that our application will be approved or that, if approved an active trading market for our shares will develop or be maintained. If our common stock is not approved for listing on the Nasdaq Capital Market, we will not complete this offering. Even if our common stock is approved for listing on the Nasdaq Capital Market, an active trading market for our common stock may not develop or be sustained. In the absence of an active trading market for our common stock, the ability of our stockholders to sell their shares could be limited.
The Warrants are speculative in nature.
The 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 $9.68 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.
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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, 2021 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.
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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 have applied to have our common stock listed on The Nasdaq Capital Market under the symbol “IVDA” and we anticipate that our common stock will begin trading on The Nasdaq Capital Market immediately following the completion of this offering. We also, intend to apply to list the Warrants sold in this Offering under the symbol “IVDAW.” Although, after giving effect to this offering we expect to meet the minimum initial listing standards set forth in the Nasdaq Listing Standards, we cannot assure you that our securities will be, or 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.
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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.
USE OF PROCEEDS
We will not receive any proceeds from the sale of our common stock offered by the selling shareholders under this prospectus. However, in the case of the warrants issued to the selling shareholders on August 11, 2022, upon exercise of the Common Warrants for cash, the selling shareholders would pay us an exercise price of $1.40 per share of common stock, subject to any adjustment pursuant to the terms of the warrants, or an aggregate of $4.6 million if the Common Warrants are exercised in full for cash. Upon exercise of the Pre-Funded Warrants for cash, the selling shareholders would pay us an exercise price of $0.0001 per share of common stock, subject to any adjustment pursuant to the terms of the warrants, or an aggregate of $219 if the Pre-Funded Warrants are exercised in full for cash The proceeds to us of such warrant exercises, if any, are expected to be used for working capital and general corporate purposes. The Warrants are also exercisable on a cashless basis, and if the Warrants are exercised on a cashless basis, we would not receive any cash payment from the selling shareholders upon any such exercise of the Warrants.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and expansion of our business, and therefore we do not anticipate paying cash dividends on our Common Stock in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our board of directors.
MARKET PRICE AND DIVIDENDS ON COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Currently, our shares of Common Stock are listed on the Nasdaq Capital Market under the symbol “IVDA”.
As of the date of this prospectus, there were 101 holders of record of our shares of Common Stock.
We have not paid any cash dividends on our Common Stock and do not plan to pay any cash dividends on our Common Stock in the foreseeable future. Our board of directors will determine our future dividend policy on the basis of many factors, including results of operations, capital requirements, and general business conditions, subject to any restrictions under our credit facility.
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SELLING STOCKHOLDERS
The common stock being offered by the selling shareholders are those previously issued to the selling shareholders, and those issuable to the selling shareholders, upon exercise of the warrants. For additional information regarding the issuances of those shares of common stock and warrants, see “Private Placement of Shares of Common Stock and Warrants” above. We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time. Except for the ownership of the shares of common stock and the warrants, the selling shareholders have not had any material relationship with us within the past three years.
The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders. The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of common stock and warrants, as of August 23, 2022, assuming exercise of the warrants held by the selling shareholders on that date, without regard to any limitations on exercises.
The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.
In accordance with the terms of a registration rights agreement with the selling shareholders, this prospectus generally covers the resale of the sum of (i) the number of shares of common stock issued to the selling shareholders in the “Private Placement of Shares of Common Stock and Warrants” described above and (ii) the maximum number of shares of common stock issuable upon exercise of the related warrants, determined as if the outstanding warrants were exercised in full as of the trading day immediately preceding the date this registration statement was initially filed with the SEC, each as of the trading day immediately preceding the applicable date of determination and all subject to adjustment as provided in the registration right agreement, without regard to any limitations on the exercise of the warrants. The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.
Under the terms of the warrants, a selling shareholder may not exercise warrants to the extent such exercise would cause such selling shareholder, together with its affiliates and attribution parties, to beneficially own a number of shares of common stock which would exceed 4.99% or 9.99%, as applicable, of our then outstanding common stock following such exercise, excluding for purposes of such determination shares of common stock issuable upon exercise of such warrants which have not been exercised. The number of shares in the second and fourth columns do not reflect this limitation. The selling shareholders may sell all, some or none of their shares in this offering. See “Plan of Distribution.”
| Name of Selling Shareholder | Number of shares of Common Stock Owned Prior to Offering | Maximum Number of shares of Common Stock to be Sold Pursuant to this Prospectus | Number of shares of Common Stock Owned After Offering | |||||||||
| Armistice Master Fund Ltd. | 3,434,474 | (1) | 3,289,474 | (2) | 145,000 | (4)(5) | ||||||
| Sabby Volatility Warrant Master Fund, Ltd. | 3,289,474 | (3) | 3,289,474 | (3) | — | (5) | ||||||
(1) Consists of 1,100,000 shares of common stock, 544,737 shares of common stock underlying pre-funded common stock purchase warrants, 1,644,737 shares of common stock underlying common stock purchase warrants and 145,000 shares of common stock underlying warrants not registered pursuant to this prospectus.
(2) The securities to be sold pursuant to this prospectus include 1,100,000 shares of common stock, 544,737 shares of common stock underlying pre-funded warrants, and 1,644,737 shares of common stock underlying common stock purchase warrants, all of which are directly held by Armistice Capital Master Fund Ltd. (the “Master Fund”), a Cayman Islands exempted company, and may be deemed to be indirectly beneficially owned by Armistice Capital, LLC (“Armistice”), as the investment manager of the Master Fund; and (ii) Steven Boyd, as the Managing Member of Armistice Capital. Armistice and Steven Boyd disclaim beneficial ownership of the reported securities except to the extent of their respective pecuniary interest therein. The pre-funded warrants are subject to a 9.99% beneficial ownership limitation and the purchase warrants are subject to a 4.99% beneficial ownership limitation, which limitations prohibit the Master Fund from exercising any portion of either warrant if, following such exercise, the Master Fund’s ownership of our common shares would exceed the applicable ownership limitation. The address of the Master Fund is c/o Armistice Capital, LLC, 510 Madison Avenue, 7th Floor, New York, NY 10022.
(3) Consists of 1,644,737, shares of common stock underlying pre-funded common stock purchase warrants and 1,644,737 shares of common stock underlying common stock purchase warrants. Sabby Management, LLC, the investment manager of Sabby Volatility Warrant Master Fund, Ltd., and Hal Mintz, manager of Sabby Management, LLC, may be deemed to share voting and dispositive power with respect to these securities. Each of Sabby Management, LLC and Hal Mintz disclaims beneficial ownership over the securities listed except to the extent of their pecuniary interest therein.
(4) Consists of 145,000 shares of common stock underlying common stock purchase warrants not registered pursuant to this prospectus.
(5) Assumes the sale of all shares offered by the selling shareholders pursuant to this prospectus.
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PLAN OF DISTRIBUTION
Each Selling Stockholder (the “Selling Stockholders”) of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; | |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; | |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; | |
| ● | an exchange distribution in accordance with the rules of the applicable exchange; | |
| ● | privately negotiated transactions; | |
| ● | settlement of short sales; | |
| ● | in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security; | |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; | |
| ● | a combination of any such methods of sale; or | |
| ● | any other method permitted pursuant to applicable law. |
The Selling Stockholders may also sell securities under Rule 144 or any other exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2121; and in the case of a principal transaction a markup or markdown in compliance with FINRA Rule 2121.
In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.
The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
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Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2022:
| ● | on an actual basis; | |
| ● | on a as adjusted basis to reflect the issuance and sale of Compromised of 1,100,000 shares of Common Stock outstanding sold in this offering at $1.52 per common share, 3,289,474 shares of Common Stock underlying warrants exercisable at $1.40 sold in this offering and 2,189,474 shares of Common Stock underlying pre-funded warrants at $1.5199 per common share sold in this offering. Estimated cost of financing for this offering is $450,000. |
You should read this information together with our audited consolidated financial statements appearing elsewhere in this prospectus and the information set forth under the sections titled “Selected Consolidated Financial Data,” “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
| As of June 30, 2022 | ||||||||
| Actual | As Adjusted | |||||||
| $ | $ | |||||||
| Common Stock, $.00001 par value, 37,500,000 shares authorized, 11,677,265 actual shares issued and outstanding, 18,256,213 pro forma as adjusted shares issued and outstanding | 117 | 183 | ||||||
| Additional Paid in Capital | 47,862,427 | 57,017,625 | ||||||
| Accumulated Deficit | (43,093,099 | ) | (43,093,099 | ) | ||||
| Accumulated other comprehensive loss | (198,572 | ) | (198,572 | ) | ||||
| Total Shareholders’ Equity (Deficit) | 4,570,873 | 13,726,137 | ||||||
| Total Equity | 4,570,873 | 13,726,137 | ||||||
| Total Capitalization | 4,570,873 | 13,726,137 | ||||||
The above discussion excludes these securities outstanding at June 30, 2022:
● 925,938 shares of common stock issuable upon the exercise of outstanding options from all option plans with an average exercise price $6.57 per share.
● 3,152,928 shares of common stock issuable upon the exercise of warrants with an average exercise price of $3.95 per share.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Financial Data” our condensed and consolidated financial statements for the six months ended June 30, 22; and our combined and consolidated audited financial statements and the related notes thereto for the years ended December 31, 2021 and 2020 included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
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.
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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 a dashboard for all 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.
We license our platform and sell 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.
In April, 2011, we completed our acquisition of Iveda Taiwan, a company founded in 1998 by a group of sales and research and development professionals from Taiwan Panasonic Company. Iveda 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 initiatives in Taiwan and other neighboring countries. 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. Iveda Taiwan also houses the application engineering team that supports Sentir implementation for our service provider customers in Asia. The Company depends on Iveda Taiwan as the majority of the company’s revenues have come from Iveda Taiwan since the acquisition in April 2011. For the years ended December 31, 2021 and 2020, Iveda Taiwan’s operations accounted for 93% and 71% of our total revenue, respectively.
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The acquisition of Iveda Taiwan provided the following benefits to our business:
| ● | An established presence and credibility in Asia and access to the Asian market. | |
| ● | Relationships in Asia for cost-effective research and development of new product offerings and securing the best pricing for end user devices. | |
| ● | Sourcing of products directly using Iveda Taiwan’s product sourcing expertise to enhance our custom integration capabilities. | |
| ● | Enhancements to the global distribution potential for our products and services. |
In November 2012, we signed a cooperation agreement with ITRI, a research and development organization based in Taiwan. Together with ITRI, we have developed cloud-video services. Pursuant to the cooperation agreement, 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) with respect to the development of cloud-video technologies.
In June and August 2014, in collaboration with our local partner in the Philippines, we shipped our ZEE cloud plug-and-play cameras for delivery to the Philippine Long Distance Telephone Company (“PLDT”) for distribution to its customers with a cloud video surveillance service offering, utilizing our Sentir platform.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Conditions and Results of Operations is based upon our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. A description of our critical accounting policies and related judgments and estimates that affect the preparation of our financial statements is set forth in our audited consolidated financial statements for the year ended December 31, 2020. Such policies are unchanged.
New Accounting Standards
There were no new standards recently issued which would have an impact on our operations or disclosures.
Results of Operations for the Three and Six Months Ended June 30, 2022 Compared with the Three and Six Months Ended June 30, 2021
Net Revenue
We recorded net consolidated revenue of $0.65 million for the three months ended June 30, 2022, compared with $0.56 million for the three months ended June 30, 2021, an increase of $0.1 million, or 16%. For the three months ended June 30, 2022, our service revenue was $.06 million, or 9% of net revenue, and our equipment sales and installation revenue was $.59 million, or 91% of net revenue. In fiscal 2021, our service revenue was $.08, or 15% of consolidated net revenue, and our equipment sales and installation revenue was $.475 million, or 85% of net revenue. The increase in total revenue in 2022 compared with the same period in fiscal 2021 is attributable primarily to increased equipment sales from Iveda US operations.
We recorded net consolidated revenue of $0.88 million for the six months ended June 30, 2022, compared with $0.89 million for the six months ended June 30, 2021, a decrease of ($0.01) million, or (1%). For the six months ended June 30, 2022, our service revenue was $0..10, or 12% of net revenue, and our equipment sales and installation revenue was $0.78, or 88% of net revenue. In fiscal 2021, our service revenue was $0.11, or 13% of consolidated net revenue, and our equipment sales and installation revenue was $0.78, or 87% of net revenue. The minimal decrease in total revenue in 2022 compared with the same period in fiscal 2021 is attributable primarily to decreased service revenue from Iveda Taiwan.
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Cost of Revenue
Total cost of revenue was $0.46 million (71% of revenue; gross margin of 29%) for the three months ended June 30, 2022, compared with $0..43 million (76% of revenue; 34% gross margin) for the three months ended June 30, 2021, an increase of $0.035 million, or 8%. The increase in cost of revenue was primarily driven by increased Iveda US revenue. The increase in overall gross margin was also primarily attributed to increased margin Iveda Taiwan revenue as a result of additional long-term contracts awarded and started during 2021.
Total cost of revenue was $0.55 million (63% of revenue; gross margin of 37%) for the six months ended June 30, 2022, compared with $0.65 million (72% of revenue; 28% gross margin) for the six months ended June 30, 2021, a decrease of ($0.09 million), or (14%). The decrease in cost of revenue was primarily driven by increased gross margins for Iveda Taiwan revenue. The increase in overall gross margin was also primarily attributed to increased margin Iveda Taiwan revenue as a result of additional long-term contracts awarded and started during 2021.
Operating Expenses
Operating expenses were $1.25 million for the three months ended June 30, 2022, compared with $0.77 million for the three months ended June 30, 2021, an increase of $0.47 million, or 61%. This net increase in operating expenses in 2022 compared with 2021 is due primarily related to a ramp up in personnel in the US based administrative, sales and technical support personnel as well as research and development expenses for IvedaAI.
Operating expenses were $2.0 million for the six months ended June 30, 2022, compared with $1.3 million for the six months ended June 30, 2021, an increase of $0.7 million, or 52%. This net increase in operating expenses in 2022 compared with 2021 is due primarily related to a ramp up in personnel in the US based administrative, sales and technical support personnel as well as research and development expenses for IvedaAI.
Loss from Operations
Loss from operations increased to $1.06 million for the three months ended June 30, 2022, compared with $0.64 million for the three months ended June 30, 2021, an increase of $0.42 million, or 65%. A majority of the increase in loss from operations was primarily due to increased operating expenses.
Loss from operations increased to $1.7 million for the six months ended June 30, 2022, compared with $1.1 million for the six months ended June 30, 2021, an increase of $0.6 million, or 56%. A majority of the increase in loss from operations was primarily due to increased operating expenses.
Other Expense-Net
Other expense-net was $6,790 for the three months ended June 30, 2022, compared with $45,162 for the three months ended June 30, 2021, a decrease of $38,372, or 85%. The majority of the other expense for 2021 was interest expense accrued for convertible debentures, valuation of the convertible debenture features and the value of warrants given as incentive for the convertible debentures during 2021.
Other expense-net was $18,836 for the six months ended June 30, 2022, compared with $227,256 for the six months ended June 30, 2021, a decrease of $208,420, or 92%. The majority of the other expense for 2021 was interest expense accrued for convertible debentures, valuation of the convertible debenture features and the value of warrants given as incentive for the convertible debentures during 2021.
Net Loss
Net loss was $1.1 million for the three months ended June 30, 2022, compared with $0.64 million for the three months ended June 30, 2021. The increase of $0.38 million, or 55%, in net loss was caused primarily by an increase in operating expenses related to a ramp up in personnel in the US-based administrative, sales and technical support personnel as well as research and development expenses for IvedaAI.
Net loss was $1.7 million for the six months ended June 30, 2022, compared with $1.3 million for the six months ended June 30, 2021. The increase of $0.41 million, or 31%, in net loss was caused primarily by a increase in operating expenses related to a ramp up in personnel in the US-based administrative, sales and technical support personnel as well as research and development expenses for IvedaAI.
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Liquidity and Capital Resources
As of June 30, 2022, we had cash and cash equivalents of $6.2 million compared to $0.82 million as of June 30, 2021. This increase in our cash and cash equivalents is primarily a result of our stock offering that closed April 5, 2022 offset by the operating losses during the six months ended June 30, 2022. There are no legal or economic factors that materially impact our ability to transfer funds between our U.S.-based and Taiwan-based segments.
Net cash used in operating activities during the six months ended June 30, 2022 was $2.2 million compared to $0.77 million net cash used during the six months ended June 30, 2021. Net cash used in operating activities for the six months ended June 30, 2022 consisted primarily of the $1.7 million net loss including $0.26 million of non-cash charges (primarily common stock for services and stock option compensation), $0.29 million of increased inventory and a decrease by $0.8 million in accrued expenses offset by a decrease of $0.37 million in accounts receivable. Cash used in operating activities for the six months ended June 30, 2021 consisted primarily of the $1.3 million net loss including $0.31 million of non-cash charges (primarily common stock for services, interest value of convertible debt features, value of warrants issued for interest and stock option compensation) offset primarily by $0.5 million in additional accounts payable and accrued expenses.
Net cash used in investing activities for the six months ended June 30, 2022 was $1,964. Net cash used by investing activities during the six months ended June 30, 2021 was $0.
Net cash provided by financing activities for the six months ended June 30, 2022 was $7.05 million compared with $1.05 million provided during the six months ended June 30, 2021. Net cash provided by financing activities in 2022 is primarily a result of the proceeds from equity offering underwritten by Maxim Group in April 2022 for the six months ended June 30, 2022. Net cash provided by financing activities in 2021 consisted primarily of $0.82 million unregistered common stock sold at the U.S based operations.
We have experienced significant operating losses since our inception. At June 30, 2022, we had approximately $29 million in net operating loss carryforwards available for federal income tax purposes, which will begin to expire in 2025. We did not recognize any benefit from the federal net operating loss carryforwards in 2021 or 2020. We also had approximately $2.0 million in state net operating loss carryforwards, which expire after five years.
We have limited liquidity and have not yet established a stabilized source of revenue sufficient to cover operating costs, based on our current estimated burn rate. Accordingly, our continuation as a going concern is dependent upon our ability to generate greater revenue through increased sales and/or our ability to raise additional funds through the capital markets. No assurance can be given that we will be successful in future financing and revenue-generating efforts. Even if funding is available, we cannot assure investors that it will be available on terms that are favorable to our existing stockholders. Additional funding may be achieved through the issuance of equity or debt securities that could be significantly dilutive to the percentage ownership of our existing stockholders. In addition, these newly issued securities may have rights, preferences, or privileges senior to those of our existing stockholders. Accordingly, such a financing transaction could materially and adversely impact the price of our common stock.
Substantially all of our cash is deposited in three financial institutions, two 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.
Our accounts receivable 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.
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We provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. Payment terms for our U.S.-based segment require prepayment for most products before they are shipped and monthly Sentir licensing fees, which are due in advance on the first day of each month. 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. For our U.S.-based segment, we had no doubtful accounts receivable allowances for the six months ended June 30, 2022 and year ended December 31, 2021. For our Taiwan-based segment, we set up no doubtful accounts receivable allowances for the six months ended June 30, 2022 and year ended December 31, 2021. We deem the rest of our accounts receivable to be collectible based on certain factors, including the nature of the customer contracts and past experience with similar customers. Delinquent receivables are written off based on individual credit valuation and specific circumstances of the customer, and we generally do not charge interest on past due receivables.
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 estimates that the COVID-19 pandemic resulted in decreases of approximately $1.2 million revenues and $0.3 million gross profit contribution for the twelve months ended March 31, 2021 and $0.2 million revenues and $0.05 million gross profit contribution for the three months ended March 31, 2021. However, the Company is beginning to experience an increase in demand for the twelve months ended March 31, 2022, 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.
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The Company currently believes revenue for the year ending December 31, 2021 has been impacted due to the conditions noted. Based on the Company’s current cash position and its projected cash flow from operations, the Company believes that it will have sufficient capital and or have access to sufficient capital through public and private equity and debt offerings to sustain operations for a period of one year following the date of this filing. 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 would be negatively impacted. The Company will continue to actively monitor this situation and will implement actions necessary to maintain business continuity.
Effects of Inflation
For the periods for which financial information is presented, we do not believe that the current levels of inflation in the United States have had a significant impact on our operations. Likewise, we do not believe that the current levels of inflation in Taiwan have had a significant impact on the operations of Iveda Taiwan.
Off Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.
BUSINESS
Overview
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 MEGAsys).
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.
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MEGAsys, 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. MEGAsys combines security surveillance products, software, and services to provide integrated security solutions to the end user. Through MEGAsys, we have access not only to Asian markets but also to Asian manufacturers and engineering expertise. MEGAsys is our research and development arm, working with a team of developers in Taiwan. The company depends on MEGAsys as the majority of the company’s revenues have come from MEGAsys 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 |
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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.
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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.
MEGAsys 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, 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 new 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.
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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.
DESCRIPTION OF CAPITAL STOCK
Common Stock
The Company’s outstanding shares of common stock have a par value of $0.00001 per share. The Company’s Articles of Incorporation (the “Articles of Incorporation”) authorizes 37,500,000 shares of common stock. As of the date of this registration statement, we had 12,777,265 shares of our Common Stock issued and outstanding of which approximately 8.7 million are in the public float. The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. Holders of common stock do 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.
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 of which no shares are issued and outstanding as of the date of this registration statement. 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.
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Warrants
As of the date of this registration statement, the Company has warrants to acquire 6,442,402(1) shares of the Company’s common stock outstanding. The warrants have exercise prices ranging from $1.40 to $13.20, a weighted average exercise price of $2.65 and expire through February 2028.
(1) This amount does not include 2,189,474 pre-funded warrants at an exercise price of $0.0001 per share.
Outstanding Stock Options
As of the date of this registration statement, there were options to acquire a total of 925,938 shares of Common Stock granted pursuant to all our equity incentive plans at a weighted-average exercise price of $6.57.
Anti-Takeover Effects of Nevada Law
Business Combinations
The “business combination” provisions of Sections 78.411 to 78.444, inclusive, of the Nevada Revised Statutes (“NRS”) generally prohibit a Nevada corporation with at least 200 stockholders from engaging in various “combination” transactions with any interested stockholder for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status or the combination is approved by the board of directors and thereafter is approved at a meeting of the stockholders by the affirmative vote of stockholders representing at least 60% of the outstanding voting power held by disinterested stockholders, and extends beyond the expiration of the two-year period, unless:
| ● | the combination was approved by the board of directors prior to the person becoming an interested stockholder or the transaction by which the person first became an interested stockholder was approved by the board of directors before the person became an interested stockholder or the combination is later approved by a majority of the voting power held by disinterested stockholders; or | |
| ● | if the consideration to be paid by the interested stockholder is at least equal to the highest of: (a) the highest price per share paid by the interested stockholder within the two years immediately preceding the date of the announcement of the combination or in the transaction in which it became an interested stockholder, whichever is higher, (b) the market value per share of common stock on the date of announcement of the combination and the date the interested stockholder acquired the shares, whichever is higher, or (c) for holders of preferred stock, the highest liquidation value of the preferred stock, if it is higher. |
A “combination” is generally defined to include mergers or consolidations or any sale, lease exchange, mortgage, pledge, transfer, or other disposition, in one transaction or a series of transactions, with an “interested stockholder” having: (a) an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation, (b) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, (c) 10% or more of the earning power or net income of the corporation, and (d) certain other transactions with an interested stockholder or an affiliate or associate of an interested stockholder.
In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within two years, did own) 10% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire our company even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.
Control Share Acquisitions
The “control share” provisions of Sections 78.378 to 78.3793, inclusive, of the NRS apply to “issuing corporations” that are Nevada corporations with at least 200 stockholders, including at least 100 stockholders of record who are Nevada residents, and that conduct business directly or indirectly in Nevada. The control share statute prohibits an acquirer, under certain circumstances, from voting its shares of a target corporation’s stock after crossing certain ownership threshold percentages, unless the acquirer obtains approval of the target corporation’s disinterested stockholders. The statute specifies three thresholds: one-fifth or more but less than one-third, one-third but less than a majority, and a majority or more, of the outstanding voting power. Generally, once an acquirer crosses one of the above thresholds, those shares in an offer or acquisition and acquired within 90 days thereof become “control shares” and such control shares are deprived of the right to vote until disinterested stockholders restore the right. These provisions also provide that if control shares are accorded full voting rights and the acquiring person has acquired a majority or more of all voting power, all other stockholders who do not vote in favor of authorizing voting rights to the control shares are entitled to demand payment for the fair value of their shares in accordance with statutory procedures established for dissenters’ rights.
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A corporation may elect to not be governed by, or “opt out” of, the control share provisions by making an election in its articles of incorporation or bylaws, provided that the opt-out election must be in place on the 10th day following the date an acquiring person has acquired a controlling interest, that is, crossing any of the three thresholds described above. We have not opted out of the control share statutes, and will be subject to these statutes if we are an “issuing corporation” as defined in such statutes.
The effect of the Nevada control share statutes is that the acquiring person, and those acting in association with the acquiring person, will obtain only such voting rights in the control shares as are conferred by a resolution of the stockholders at an annual or special meeting. The Nevada control share law, if applicable, could have the effect of discouraging takeovers of our company.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
Listing
We have applied to list our common stock on the Nasdaq Capital Market under the symbol “IVDA”. No assurance can be given that our listing application will be approved. If the Nasdaq Capital Market does not approve the listing of our common stock, we will not consummate this offering.
PROPERTIES
We currently rent for our principal executive offices approximately 3,000 square feet until February 2025 for approximately $4,500 per month. We believe that our current office space is adequate for the foreseeable future.
MEGAsys leases for its principal executive offices in Taiwan, comprised of two suites totaling approximately 4,838 square feet. MEGAsys pays an aggregate of approximately $2,541 per month under the terms of the two leases, which expire on June 30, 2022.
LEGAL PROCEDURES
From time to time we may become involved in various legal proceedings that arise in the ordinary course of business, including actions related to our intellectual property. Although the outcomes of these legal proceedings cannot be predicted with certainty, we are currently not aware of any such legal proceedings or claims that we believe, either individually or in the aggregate, will have a material adverse effect on our business, financial condition, or results of operations.
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DIRECTORS, EXECUTIVE, OFFICERS AND CORPORATE COMMITTEE
Executive Officers and Directors
Set forth below is information concerning our directors, director nominees, executive officers and other key employees.
| Name | Age | Position | ||
| David Ly | 46 | Chief Executive Officer and Chairman of the Board of Directors | ||
| Chi Kuang Sid Sung | 60 | President | ||
| Robert J. Brilon | 61 | Chief Financial Officer and Treasurer | ||
| Luz A. Berg | 59 | Chief Operating Officer, Chief Marketing Officer and Corporate Secretary | ||
| Gregory Omi | 60 | Chief Technology Officer | ||
| Joseph Farnsworth | 62 | Director | ||
| Alejandro Franco | 68 | Director | ||
| Robert D. Gillen | 67 | Director |
David Ly founded our company and has served as our Chief Executive Officer and Chairman of the Board of Directors since October 2009. Mr. Ly also served as our President from October 2009 to February 2014. Mr. Ly served in Business-to-Business Sales for T-Mobile USA, a wireless network and communications company, from August 2002 to September 2003. From September 2001 to July 2002, Mr. Ly served as Market Manager of Door To Door Storage, a moving and portable storage company. Mr. Ly served as an Applications Engineer at Metricom, Inc., the first micro cellular data network, from November 1998 to August 2001. Mr. Ly holds a Bachelor of Science Degree in Civil Engineering with a minor in International Business from San Francisco State University. We believe Mr. Ly’s position as our Chief Executive Officer, his extensive knowledge and understanding of the video surveillance and AI industries, and his business and engineering expertise and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors.
Sid Sung has served as our President since January 2020. Mr. Sung was President from July 2017 to December 2019 and a director from March 2015 to December 2019 of People Power Company, an IoT platform solutions provider. He served as Board Advisor and IoT Consultant from February 2014 to December 2019 at CVS Capital, a venture capital company focusing on IT & semiconductor field and Twoway Communications, a CATV and fiber communications equipment provider, and Xingtera, a home networking semiconductor and IoT solution provider. Mr. Sung was the Cofounder and Chief Operating Officer at Connected IO, a machine-to-machine product and solution provider for telcos, from October 2013 to October 2017. He was also Vice President from May 2011 to January 2014 at Lite ON Technology, an OEM/ODM contract manufacturer. Mr. Sung served as General Manager at SMC Networks, a leading cable gateway and home security solutions provider, from August 2007 to July 2010 and as Vice President at Accton Technology, a global provider of networking and communications solution, from March 2006 to August 2007. Mr. Sung was the founder and CEO of Alpha Telecom, a next generation CPE provider, from September 1994 to March 2006. Mr. Sung holds a master’s degree in Electrical Engineering at the University of Alabama Huntsville and a Bachelor of Science Degree in Atmospheric Science at National Taiwan University.
Robert J. Brilon has served as our Chief Financial Officer since December 2013. He was also our President from February 2014 to July 2018 and Treasurer from December 2013 to July 2018 and was appointed Treasurer again on December 15, 2021. Mr. Brilon served as our Executive Vice President of Business Development from December 2013 to February 2014 and as our interim Chief Financial Officer and Treasurer from December 2008 to August 2010. Mr. Brilon joined New Gen Management Services, Inc. in July 2017 as the CFO (subsequently becoming President and CFO of New Gen in July 2018). Mr. Brilon was the President, Chief Financial Officer, Corporate Secretary, and Director of both Vext Science, Inc and New Gen until he resigned in February 2020. Mr. Brilon served as Chief Financial Officer and Executive Vice President of Business Development of Brain State Technologies, a brainwave optimization software licensing and hardware company, from August 2010 to November 2013. From January 2010 to August 2010, Mr. Brilon served as Chief Financial Officer of MD Helicopters, a manufacturer of commercial and light military helicopters. Mr. Brilon also served as Chief Executive Officer, President, and Chief Financial Officer of InPlay Technologies (NASDAQ: NPLA), formerly, Duraswitch (NASDAQ: DSWT), a company that licensed patented electronic switch technology and manufactured digital pen technology, from November 1998 to June 2007. Mr. Brilon served as Chief Financial Officer of Gietz Master Builders from 1997 to 1998, Corporate Controller of Rental Service Corp. (NYSE: RRR) from 1995 to 1996, Chief Financial Officer and Vice President of Operations of DataHand Systems, Inc. from 1993 to 1995, and Chief Financial Officer of Go-Video (AMEX:VCR) from 1986 to 1993. Mr. Brilon is a certified public accountant and practiced with several leading accounting firms, including McGladrey Pullen, Ernst and Young and Deloitte and Touche. Mr. Brilon holds a Bachelor of Science degree in Business Administration from the University of Iowa.
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Luz A. Berg has served as our Chief Marketing Officer and Corporate Secretary since October 2009 and General Manager from April 2018 to December 2021. Ms. Berg also served in various roles at our company including Chief Operating Officer from October 2009 to September 2014 and from December 2021, Senior Vice President of Operations & Marketing from May 2007 to October 2009, and Vice President of Marketing from November 2004 to May 2007. Ms. Berg served as Director of Marketing of Cygnus Business Media, a technology business-to-business media company, from January 2003 to July 2004. From October 2001 to January 2003, Ms. Berg served as Director of Marketing for Penton Business Media, a business-to-business media company. Ms. Berg also served as Marketing Programs and Channel Marketing Manager of Metricom, the first micro cellular data network, from March 1999 to August 2001 and as a Marketing Communications Specialist for Spectra-Physics Lasers, manufacturer of industrial and scientific lasers, from October 1991 to March 1999. Ms. Berg holds a Bachelor of Arts degree in Management from St. Mary’s College in California.
Gregory Omi has served is our new Chief Technology Officer since May 2021. Prior, Mr. Omi served as director of our company from October 2009 to November 2016. Mr. Omi served as a senior programmer for Zynga, an online and mobile social gaming company, from November 2009 to March 2014 and then again briefly in 2016 and 2019 as architect. Mr. Omi served as senior engineer at Tesla, an electric vehicle manufacturer, from October 2016 to October 2017. Prior to that, Mr. Omi served as a programmer for Monkey Gods, LLC, a video game developer, from January 2009 to November 2009. Mr. Omi also served as Senior Programmer for Flektor, Inc., a developer of online audio and video editing tools, from October 2006 to January 2009. From October 1996 to June 2006, Mr. Omi served as a Senior Programmer for Naughty Dog, a computer game developer. Prior to that, Mr. Omi served in programming roles for 3DO from 1992 to 1996, TekMagic in 1992, Epyx from 1986 to 1992, Atari in 1991, Nexa from 1982 to 1983 and 1985 to 1986, and HES in 1983. Mr. Omi attended DeVry Institute in Phoenix, Arizona from 1979 to 1980 where he studied industrial electronics engineering.
Joseph Farnsworth has served as a director of our company since January 2010. Mr. Farnsworth has served as President and as a director of Farnsworth Realty & Management Co., an Arizona-based privately held real estate company, and as a director of Farnsworth Development, a closely held real estate developer, since 1995. Mr. Farnsworth has also served as a director of The Farnsworth Companies since 2008. From 1990 to 1995, Mr. Farnsworth served as President of Alfred’s International, with operations in China and Korea. Prior to that, Mr. Farnsworth served as President of Farnsworth International, a real estate investment company based in Taipei, Taiwan from 1987 to 1991. Mr. Farnsworth holds a Bachelor of Science degree in Real Estate Finance from Brigham Young University and is a licensed real estate broker in Arizona. We believe Mr. Farnsworth’s experience leading companies with operations in Asia and his business and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors.
Alejandro Franco has served as a director of our company since November 2011. Mr. Franco has also served as a consultant to our company since 2011, advising on business development and strategic partnership opportunities in Mexico. Mr. Franco is the founder and has served as President of Amextel, a telecommunications company in Mexico, since June 2003. Mr. Franco founded the Mexican American Business Council, a non-profit organization facilitating border relationships to increase business, support trade growth and investments, and has been the CEO since June 2015. Mr. Franco also founded and served as President of Bela Corp., a cloud technology and services company, from 1988 to 2000. Prior to that, Mr. Franco founded and served as President of TVM, Inc., a television and technology company in Mexico, from 1985 to 1988. Mr. Franco attended UNAM University, Mexico where he studied Economics. Mr. Franco also attended IBERO University, Mexico, where he studied Industrial Design. Mr. Franco holds a Master degree in Theology from the Oblate School of Theology in San Antonio, Texas. We believe Mr. Franco’s experience leading businesses with operations in Asia and Mexico, his experience as a consultant for our company, his extensive knowledge and understanding of the telecommunications and cloud technology industries, and his business and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors.
Robert D. Gillen has served as a director of our company since November 2011. Mr. Gillen founded and has served as President of the Law Offices of Robert D. Gillen, Ltd., a law firm located in Scottsdale, Arizona and Naperville, Illinois, which specializes in advising small- and medium-size businesses on domestic and international tax planning, since 1979. Mr. Gillen retired in October 2014. Mr. Gillen holds a Bachelor of Science degree in Business Administration from the University of Illinois and a J.D. from the Illinois Institute of Technology – Chicago Kent College of Law. Mr. Gillen also has extensive experience educating, CPAs, attorneys, and other financial and business professionals about asset protection and tax planning. We believe Mr. Gillen’s experience advising, clients operating the cellular industry, his experience leading a business involved in the lease and sale of cellular sites, his experience navigating international business and legal issues, and his prior board experience provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors.
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Family Relationships
There are no family relationships among any of our directors, director nominees or executive officers.
Terms of Directors and Executive Officers
The number of directors of the Company shall be not less than one nor more than thirteen. Each of our directors holds office until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified, until his or her resignation, or until his or her office is otherwise vacated in accordance with our articles of incorporation.
Our officers are elected by and serve at the discretion of the board of directors.
Board of Directors and Board Committees
Our board of directors consists of four directors, three of whom are independent as such term is defined by the Nasdaq Capital Market. We have determined that Joseph Farnsworth, Alejandro Franco and Robert D. Gillen satisfy the “independence” requirements under NASDAQ Rule 5605.
Board Committees
We have established three committees under the board of directors: an audit committee, a compensation committee and a nomination and corporate governance committee, and adopted a charter for each of the three committees. Copies of our committee charters are posted on our corporate investor relations website.
Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Farnsworth is the chair of our audit committee. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; | |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; | |
| ● | discussing the annual audited financial statements with management and the independent auditors; | |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; | |
| ● | reviewing and approving all proposed related party transactions; | |
| ● | meeting separately and periodically with management and the independent auditors; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
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Compensation Committee. Our compensation committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Farnsworth is the chair of our compensation committee. The compensation committee will be responsible for, among other things:
| ● | reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; | |
| ● | reviewing and recommending to the shareholders for determination with respect to the compensation of our directors; | |
| ● | reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and | |
| ● | selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. |
Nominations and Corporate Governance Committee. Our Nominations and Corporate Governance committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Gillen is the chair of our Nominations and Corporate Governance committee. The nominating and corporate governance committee is responsible for, among other things, (i) determining the qualifications, qualities and skills required to be a director of the Company and evaluating, selecting and approving nominees to serve as directors, (ii) periodically reviewing, assessing and making recommendations for changes to the Board of Directors and its committees and (iii) overseeing the process for evaluation of the Board of Directors. Pursuant to the nominating and corporate governance committee charter, the nominating and corporate governance committee has the authority to delegate all or a portion of its duties and responsibilities to a subcommittee of the nominating and corporate governance committee. In addition, the nominating and corporate governance committee has unrestricted access to and assistance from our officers, employees and independent auditors and the authority to employ experts, consultants and professionals to assist with performance of their duties. The nominating and corporate governance committee is also responsible for establishing procedures regarding director nominees put forward by stockholders. The committee is also responsible for establishing procedures for shareholder communications with the Board of Directors.
Involvement in Certain Legal Proceedings
None of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics which is applicable to all of our directors, executive officers and employees. A copy of the code of business conduct and ethics will be posted on our corporate investor relations website prior to our listing on the Nasdaq Capital Market.
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EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to compensation for the years ended December 31, 2021, 2020 and 2019, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the “named executive officers”).
| Name and Principal Position | Year | Salary (1) | Warrants Awards (2) | Option Awards (3) | All Other Compensation (4) | Total | ||||||||||||||||||
| David Ly | 2021 | $ | 190,000 | $ | 211,500 | $ | 11,968 | $ | 413,468 | |||||||||||||||
| Chairman and Chief Executive Officer | 2020 | $ | 190,000 | $ | 175,000 | $ | 11,968 | $ | 376,968 | |||||||||||||||
| 2019 | $ | 190,000 | $ | 40,000 | $ | 11,968 | $ | 241,968 | ||||||||||||||||
| Sid Sung | 2021 | $ | 150,000 | $ | 150,500 | $ | 300,500 | |||||||||||||||||
| President | 2020 | $ | 150,000 | $ | 25,000 | $ | 175,000 | |||||||||||||||||
| 2019 | $ | 12,376 | $ | 20,000 | $ | 32,376 | ||||||||||||||||||
| Robert J. Brilon | 2021 | $ | 180,000 | $ | 141,000 | $ | 321,000 | |||||||||||||||||
| Chief Financial Officer and Treasurer | 2020 | $ | 180,000 | $ | 50,000 | $ | 230,000 | |||||||||||||||||
| 2019 | $ | 180,000 | $ | 4,000 | $ | 184,000 | ||||||||||||||||||
| Luz A. Berg Chief Operating Officer | 2021 | $ | 165,000 | $ | 141,000 | $ | 306,000 | |||||||||||||||||
| Chief Marketing Officer and Corporate Secretary | 2020 | $ | 165,000 | $ | 175,000 | $ | 340,000 | |||||||||||||||||
| 2019 | $ | 165,000 | $ | 30,000 | $ | 195,000 | ||||||||||||||||||
| Gregory Omi | 2021 | - | $ | 219,000 | $ | 219,000 | ||||||||||||||||||
| Chief Technology Officer | 2020 | $ | 0 | |||||||||||||||||||||
| 2019 | $ | 0 | ||||||||||||||||||||||
| (1) | The amounts in this column reflect the amounts earned during the fiscal year, whether or not actually paid during such year. |
| (2) | The amounts in this column reflect the aggregate probable grant date fair value of warrants awards to our named executive officers during the fiscal year calculated in accordance with FASB ASC Topic 718, Stock Compensation. The amounts reported in this column do not correspond to the actual economic value that may be received by our named executive officers from their option awards. |
| (3) | The amounts in this column reflect the aggregate probable grant date fair value of option awards to our named executive officers during the fiscal year calculated in accordance with FASB ASC Topic 718, Stock Compensation. The amounts reported in this column do not correspond to the actual economic value that may be received by our named executive officers from their option awards. |
| (4) | The amounts in this column reflect the amount of perquisites related to a vehicle allowance. |
Employments Agreements – The company has no employment agreements with any of its executive officers.
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Outstanding Equity Awards as of December 31, 2021
The following table provides information regarding outstanding equity awards held by our named executive officers as of December 31, 2021.
Outstanding Equity Awards at Fiscal Year Ended December 31, 2021
| Name and Principal Position | Grant Date | Number of Securities Underlying Unexercised Options/Warrants (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | ||||||||||||||
| David Ly | ||||||||||||||||||||
| Chairman and | 12/18/2012 | 6,250 | (1) | - | - | $ | 8.80 | 12/18/2022 | ||||||||||||
| Chief Executive Officer | 12/31/2013 | 6,250 | (1) | - | - | $ | 14.00 | 12/31/2023 | ||||||||||||
| 12/31/2014 | 6,250 | (1) | - | - | $ | 9.20 | 12/31/2024 | |||||||||||||
| 2/25/2015 | 12,500 | (1) | - | - | $ | 6.16 | 2/25/2025 | |||||||||||||
| 12/11/2015 | 25,000 | (1) | - | - | $ | 5.76 | 12/11/2025 | |||||||||||||
| 12/15/2020 | 87,500 | (1) | - | - | $ | 2.96 | 12/15/2030 | |||||||||||||
| 12/30/2021 | 18,750 | (1) | - | - | $ | 16.24 | 12/31/2031 | |||||||||||||
| Robert J. Brilon | 12/1/2013 | 37,500 | (1) | - | - | $ | 8.00 | 12/1/2023 | ||||||||||||
| Chief Financial Officer | 12/8/2014 | 12,500 | (1) | - | - | $ | 8.00 | 12/8/2024 | ||||||||||||
| 5/2/2014 | 12,500 | (1) | - | - | $ | 8.00 | 5/2/2024 | |||||||||||||
| 12/31/2014 | 6,250 | (1) | - | - | $ | 9.20 | 12/31/2024 | |||||||||||||
| 12/30/2021 | 12,500 | (1) | - | - | $ | 16.24 | 12/31/2031 | |||||||||||||
| Luz Berg | ||||||||||||||||||||
| Chief Operating Officer, Chief Marketing Officer | 12/18/2012 | 3,125 | (1) | - | - | $ | 8.80 | 12/18/2022 | ||||||||||||
| and Corporate Secretary | 12/31/2013 | 3,125 | (1) | - | - | $ | 14.00 | 12/31/2023 | ||||||||||||
| 12/31/2014 | 3,125 | (1) | - | - | $ | 9.20 | 12/31/2024 | |||||||||||||
| 12/11/2015 | 3,125 | (1) | - | - | $ | 5.76 | 12/11/2025 | |||||||||||||
| 12/15/2020 | 87,500 | (1) | - | - | $ | 2.96 | 12/15/2030 | |||||||||||||
| 12/30/2021 | 12,500 | (1) | - | - | $ | 16.24 | 12/30/2031 | |||||||||||||
| Sid Sung | 8/9/2019 | 18,750 | (1) | - | - | $ | 2.80 | 8/9/2022 | ||||||||||||
| President | 12/20/2019 | 12,500 | (1) | - | - | $ | 2.24 | 12/20/2029 | ||||||||||||
| 12/15/2020 | 12,500 | (1) | - | - | $ | 2.96 | 12/15/2030 | |||||||||||||
| 12/30/2021 | 12,500 | (1) | - | - | $ | 16.24 | 12/30/2031 | |||||||||||||
| (1) | The options became fully vested on the date of grant. |
Equity Compensation Plans
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. As of December 31, 2021, 464,063 options were outstanding under the 2010 Option Plan.
On December 15, 2020, we adopted the Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan has a maximum of 1,250,000 shares authorized with similar terms and conditions to the 2010 Option Plan. As of December 31, 2021, 429,375 options were outstanding under the 2020 Option Plan.
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.
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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.
We have periodically issued warrants to purchase shares of our common stock as equity compensation to officers, directors, employees, and consultants. As of December 31, 2021, warrants to purchase 872,259 shares of our common stock were outstanding, which were issued for services or incentive for the purchase of convertible debentures or common stock subscription. Terms of these warrants are comparable to the terms of the outstanding options.
Director Compensation
Non-employee directors receive stock-based compensation for their service on our Board of Directors and are reimbursed for their cost of attending meetings. For the year ended December 31, 2021, Joseph Farnsworth received 9,375 options and Alejandro Franco and Robert Gillen received 6,250 options to purchase shares of our common stock as compensation for services during the year ended December 31, 2021. For the year ended December 31, 2020, Joseph Farnsworth received 37,500 options and Alejandro Franco and Robert Gillen received 12,500 options to purchase shares of our common stock as compensation for services during the year ended December 31, 2020. We do not pay additional compensation to our directors for their service, either as Chair or as a member, on the Audit Committee, Compensation Committee, or Nominations and Corporate Governance Committee.
| Name | Fees Earned or paid in Cash $ | Stock Awards $ | 2021 Options Awards $ | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings $ | All Other Compensation $ | Total $ | |||||||||||||||||||||
| Joseph Farnsworth | - | - | $ | 105,750 | (1) | - | - | - | $ | 105,750 | ||||||||||||||||||
| Alejandro Franco | - | - | $ | 35,250 | (2) | - | - | - | $ | 35,250 | ||||||||||||||||||
| Robert Gillen | - | - | $ | 35,250 | (3) | - | - | - | $ | 35,250 | ||||||||||||||||||
| (1) | As of December 31, 2021, Mr. Farnsworth had outstanding options to purchase 109,375 shares of our common stock. |
| (2) | As of December 31, 2021, Mr. Franco had outstanding options to purchase 68,750 shares of our common stock. |
| (3) | As of December 31, 2021, Mr. Gillen had outstanding options to purchase 73,750 shares of our common stock. |
| 43 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table and accompanying footnotes set forth as of the date of this registration statement, certain information regarding the beneficial ownership of shares of our common stock by: (i) each person who is known by us to own beneficially more than 5% of such stock; (ii) each member of our Board of Directors, and each of our named executive officers and (iii) all of our directors and executive officers as a group. Except as otherwise indicated, all Common Stock is owned directly, and the beneficial owners listed in the table below possess sole voting and investment power with respect to the stock indicated, and the address for each beneficial owner is c/o Iveda Solutions, Inc., 1744 S. Val Vista Drive, Suite 213, Mesa, Arizona 85204. The applicable percentage ownership is based on 9,668,369 shares of our common stock, excluding shares held by the Company as treasury stock, issued and outstanding as of the date of this prospectus. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, we consider all shares of unvested restricted stock to be outstanding because the holders of unvested restricted stock have the right to vote such stock.
| Name of Beneficial Owner | Common Shares | % of Common Shares | ||||||
| Directors and Officers | ||||||||
| David Ly (1) | 650,648 | 6.6 | % | |||||
| Sid Sung (2) | 62,500 | 0.5 | % | |||||
| Robert J. Brilon (3) | 242,999 | 2.5 | % | |||||
| Luz A. Berg (4) | 267,773 | 2.7 | % | |||||
| Gregory Omi (5) | 176,732 | 1.8 | % | |||||
| Joseph Farnsworth (6) | 216,317 | 2.2 | % | |||||
| Alejandro Franco (7) | 100,000 | 1.0 | % | |||||
| Robert D. Gillen (8) | 247,756 | 2.5 | % | |||||
| All Directors and Officers | 1,964,725 | 20.3 | % | |||||
| 5% Stockholders | ||||||||
| John Lambert (9) | 754,185 | 7.6 | % | |||||
| Benjamin Tran | 625,000 | 6.5 | % | |||||
| Philip & Wendy Wyatt (10) | 723,435 | 7.4 | % | |||||
| All 5% Stockholders | 2,100,120 | 20.9 | % | |||||
| (1) | Includes options to purchase 162,500 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| (2) | Consists of (a) options to purchase 31,250 shares of common stock, which are exercisable within 60 days of December 31, 2021, (b) warrants to purchase 18,750 shares of common stock, which are exercisable within 60 days of December 31, 2021, Stock. |
| (3) | Includes options to purchase 81,250 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| (4) | Includes options to purchase 2112,500 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| (5) | Includes options to purchase 63,750 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| (6) | Consists of (a) options to purchase 109,375 shares of common stock, which are exercisable within 60 days of December 31, 2021, and b) 19,925 shares of common stock held by Farnsworth Realty, an entity owned by Mr. Farnsworth. |
| (7) | Consists of (a) options to purchase 68,750 shares of common stock, which are exercisable within 60 days of December 31, 2021, and (b) 31,250 shares of common stock held by Amextel S.A. De C.V. an entity owned by Mr. Franco. |
| (8) | Consists (a) options to purchase 73,750 shares of common stock, which are exercisable within 60 days of December 31, 2021, and (b) 162,643 shares of common stock and c) 11,346 common stock upon conversion of debenture, held by Squirrel Away, an entity owned by Mr. Gillen. |
| (9) | Includes warrants to purchase 262,500 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| (10) | Includes warrants to purchase 126,321 shares of common stock, which are exercisable within 60 days of December 31, 2021. |
| 44 |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS SECTION
Other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive and Director Compensation.”, since January 1, 2020 there are no transactions to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of $120,000 of one percent (1%) of our average total assets at year-end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, had or will have a direct or indirect material interest.
EXPENSES RELATING TO THIS OFFERING
Set forth below is an itemization of the total expenses, excluding underwriting discounts and commissions, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, all amounts are estimates.
LEGAL MATTERS
The validity of the securities offered by this registration statement will be passed upon for us by McCarter & English, LLP, East Brunswick, New Jersey.
EXPERTS
The consolidated financial statements for the years ended December 31, 2021 and 2020, included in this Registration Statement have been so included in reliance on the report of BF Borgers, CPA, P.C., an independent registered public accounting firm, given on the authority of said firm in auditing and accounting.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock and the Warrants offered under this prospectus. This prospectus, which constitutes a part of the registration statement on Form S-1, does not contain all of the information contained in the registration statement. You should read our registration statements and their exhibits and schedules for further information with respect to us and the common stock and the Warrants offered in this prospectus. The registration statement, including its exhibits and schedules, are also available by mail from the Public Reference Branch of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. In addition, the SEC maintains a website (www.sec.gov) from which interested persons can electronically access the registration statement, including the exhibits and schedules to the registration statement.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with the SEC. As a foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
| 45 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an itemization of the total expenses, excluding underwriting discounts and advisory fees, that we expect to incur in connection with this offering. With the exception of the SEC registration fee, all amounts are estimates.
| Securities and Exchange Commission Registration Fee | $ | 799 | ||
| Legal Fees and Expenses | 20,000 | |||
| Accounting Fees and Expenses | 10,000 | |||
| Printing and Engraving Expenses | 2,500 | |||
| Miscellaneous Expenses | 2,500 | |||
| Total Expenses | $ | 35,799 |
These expenses will be borne by us. Underwriting discounts will be borne by us in proportion to the number of shares of common stock sold in the offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.138 of the Nevada Revised Statutes provides that, unless the corporation’s articles of incorporation provide otherwise, a director or officer will not be individually liable unless it is proven that (i) the director’s or officer’s acts or omissions constituted a breach of his or her fiduciary duties, and (ii) such breach involved intentional misconduct, fraud, or a knowing violation of the law.
Section 78.7502 of the NRS permits a company to indemnify its directors and officers against expenses, judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with a threatened, pending, or completed action, suit, or proceeding, if the officer or director (i) is not liable pursuant to Section 78.138 of the NRS, or (ii) acted in good faith and in a manner the officer or director reasonably believed to be in or not opposed to the best interests of the corporation and, if a criminal action or proceeding, had no reasonable cause to believe the conduct of the officer or director was unlawful. Section 78.7502 of the NRS also precludes indemnification by the corporation if the officer or director has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court determines that in view of all the circumstances, the person is fairly and reasonably entitled to indemnity for such expenses and requires a corporation to indemnify its officers and directors if they have been successful on the merits or otherwise in defense of any claim, issue, or matter resulting from their service as a director or officer.
Section 78.751 of the NRS permits a Nevada corporation to indemnify its officers and directors against expenses incurred by them in defending a civil or criminal action, suit, or proceeding as they are incurred and in advance of final disposition thereof, upon determination by the stockholders, the disinterested board members, or by independent legal counsel. Section 78.751 of the NRS provides that the articles of incorporation, the bylaws, or an agreement may require a corporation to advance expenses as incurred upon receipt of an undertaking by or on behalf of the officer or director to repay the amount if it is ultimately determined by a court of competent jurisdiction that such officer or director is not entitled to be indemnified by the corporation if so provided in the corporation’s articles of incorporation, bylaws, or other agreement. Section 78.751 of the NRS further permits the corporation to grant its directors and officers additional rights of indemnification under its articles of incorporation, bylaws, or other agreement.
Section 78.752 of the NRS provides that a Nevada corporation may purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee, or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. The Company expects to obtain insurance policies insuring its directors and officers against certain liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on the Company’s behalf, may also pay amounts for which the Company has granted indemnification to the directors or officers.
| II-1 |
The foregoing discussion of indemnification merely summarizes certain aspects of indemnification provisions and is limited by reference to the full text of the above discussed sections of the NRS.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below are the sales of all securities by the Company within the past three years which were not registered under the Securities Act. The Company believes that each of such issuances was exempt from registration under the Securities Act in reliance on Section 4(a)(2) of the Securities Act and/or Regulation S under the Securities Act.
Between January 1. 2018 and December 31, 2019 the Company issued and sold an aggregate of 22,707 shares of common stock to investors for aggregate proceeds of approximately $64,000 in gross proceeds.
Between January 1, 2020 and December 31, 2021 the Company issued and sold an aggregate of 835,757 shares of common stock to investors for aggregate proceeds of approximately $2,790,000 in gross proceeds.
Between January 1, 2020 and December 3, 2021 the Company issued 439,527 shares of common stock to convertible debt holders upon conversion of $1,294,580 in principal and interest.
On August 11, 2022, the Company sold to certain accredited investors (i) an aggregate of 1,100,000 shares Common Stock at a purchase price of $1.52 per share and associated warrant, (ii) an aggregate of 3,289,474 warrants to purchase Common Stock at an execution price of $1.40 per warrant share, and (iii) in lieu of shares of Common Stock, 2,189,474 pre-funded warrants to purchase Common Stock, with an exercise price of $0.0001 per share of Common Stock for gross proceeds of approximately five million dollars ($5,000,000.00), before deducting offering expenses payable by the Company.
All of the securities referred to, above, were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on the exemptions provided by Section 4(a)(2) of the Securities Act as provided in Rule 506(b) of Regulation D promulgated thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
* Filed herewith.
| (b) | Financial Statement Schedules |
Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the Consolidated Financial Statements or the Notes thereto.
| II-2 |
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the “Securities Act”);
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.; provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for purposes of determining any liability under the Securities Act, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(6) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to any charter provision, by law or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
| II-3 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mesa, State of Arizona, on August 23, 2022.
| IVEDA SOLUTIONS, INC. | ||
| By: | /s/ David Ly | |
| Name: | David Ly | |
| Title: | Chief Executive Officer and Chairman of the Board | |
| (Principal Executive Officer) | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ David H. Ly | Chief Executive Officer and Chairman of the Board | August 23, 2022 | ||
| Name: David H. Ly | (Principal Executive Officer) | |||
| /s/ Robert J. Brilon | Chief Financial Officer and Treasurer | August 23, 2022 | ||
| Name: Robert J. Brilon | (Principal Accounting and Financial Officer) | |||
| /s/ Chi Kuang Sid Sung | President | August 23, 2022 | ||
| Name: Sid Sung | ||||
| /s/ Luz Berg | Chief Operating Officer, Chief Marketing Officer and Corporate Secretary | August 23, 2022 | ||
| Name: Luz Berg | ||||
| /s/ Joseph Farnsworth | Director | August 23, 2022 | ||
| Name: Joseph Farnsworth | ||||
| /s/ Alejandro Franco | Director | August 23, 2022 | ||
| Name: Alejandro Franco | ||||
| /s/ Robert D. Gillen | Director | August 23, 2022 | ||
| Name: Robert D. Gillen | ||||
| II-4 |
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
Condensed Consolidated Financial Statements For the six months ended June 30 2022 |
||
| Balance Sheet as of June 30, 2022 and 2021 | F-2 | |
| Statements of Operations for the Three and Six Months Ended June 30 2022 and 2021 | F-3 | |
| Statement of Stockholders’ Equity as of June 30, 2022 and 2021 | F-4 | |
| Statement of Cashflows for the Six Months Ended June 30, 2022 and 2021 | F-5 | |
| Notes to the Financial Statements | F-7 |
| Page | ||
Condensed Consolidated Financial Statements For the years ended December 31, 2021 and 2020 |
||
| Report of Independent Registered Public Accounting Firm | F-20 | |
| Balance Sheet as of December 31, 2021 and 2020 | F-21 | |
| Statements of Operations for the Years Ended December 31, 2021 and 2020 | F-22 | |
| Statement of Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 | F-23 | |
| Statement of Cashflows for the Years Ended December 31, 2021 and 2020 | F-24 | |
| Notes to the Financial Statements | F-26 |
| F-1 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2022 AND DECEMBER 31, 2021
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash | ||||||||
| Accounts Receivable, Net | ||||||||
| Inventory, Net | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| OTHER ASSETS | ||||||||
| Intangible Assets, Net | ||||||||
| Other Assets | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts and Other Payables | $ | $ | ||||||
| Due to Related Parties | ||||||||
| Short Term Debt | ||||||||
| Current Portion of Long-Term Debt | ||||||||
| Total Current Liabilities | ||||||||
| LONG-TERM DEBT | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, $par value; shares authorized Series B Preferred Stock, $par value; shares authorized, shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Common Stock, $par value; shares authorized; and , shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Subscription Receivable | ||||||||
| Accumulated Comprehensive Loss | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-2 |
IVEDA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
| For
the Three Months ended June 30, 2022 | For
the Three Months ended June 30, 2021 | For
the Six Months ended June 30, 2022 | For
the Six Months ended June 30, 2021 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| REVENUE | ||||||||||||||||
| Equipment Sales | $ | $ | $ | $ | ||||||||||||
| Service Revenue | ||||||||||||||||
| Other Revenue | ||||||||||||||||
| TOTAL REVENUE | ||||||||||||||||
| COST OF REVENUE | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General & Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||
| Miscellaneous Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest Income | ||||||||||||||||
| Interest Expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Other Income (Expense) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| BENEFIT (PROVISION) FOR INCOME TAXES | ( | ) | ||||||||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| BASIC AND DILUTED LOSS PER SHARE | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE SHARES | ||||||||||||||||
| * | All share amounts and per share amounts reflect a reverse stock split of the outstanding shares of our Common Stock at a ratio of 1-for-8 effected on March 31, 2022. |
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-3 |
IVEDA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Shares | Common Stock Amount | Preferred Shares | Additional Paid-in-Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (loss) | Total
Stockholders’ Equity(Deficit) | ||||||||||||||||||||||
| BALANCE AT December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Common Stock Issued for Cash | ||||||||||||||||||||||||||||
| Costs of Capital | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock Based Compensation | ||||||||||||||||||||||||||||
| Common Stock for Accounts Payable | ||||||||||||||||||||||||||||
| Common Stock for Costs of Financing | ||||||||||||||||||||||||||||
| Warrants for Services | ||||||||||||||||||||||||||||
| Warrants for Interest Expense | ||||||||||||||||||||||||||||
| Convertible Debenture Value | ||||||||||||||||||||||||||||
| Preferred Stock - Series B for Dividend | ||||||||||||||||||||||||||||
| Preferred Stock - Series B Shares and Dividend Payable to Common Stock | ( | ) | ||||||||||||||||||||||||||
| Dividends - P/S Series B | ( | ) | ( | ) | ||||||||||||||||||||||||
| Conversion of Debt & Interest to Common Stock | ||||||||||||||||||||||||||||
| Exercise of options and warrants | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Comprehensive Loss | ||||||||||||||||||||||||||||
| BALANCE AT December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Costs of Capital | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock Based Compensation | ||||||||||||||||||||||||||||
| Common Stock issued for conversion error | ||||||||||||||||||||||||||||
| Common Stock issued for services | ||||||||||||||||||||||||||||
| Exercise of options and warrants | ||||||||||||||||||||||||||||
| Common Stock Offering for Cash | ||||||||||||||||||||||||||||
| Warrants sold in Over allotment | ||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Comprehensive Loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| 8 for 1 conversion | ||||||||||||||||||||||||||||
| adjustment | ||||||||||||||||||||||||||||
| 8 for 1 conversion adjustment | ||||||||||||||||||||||||||||
| BALANCE AT June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| * | All share amounts and per share amounts reflect a reverse stock split of the outstanding shares of our Common Stock at a ratio of 1-for-8 effected on March 31, 2022. |
See accompanying Notes to Condensed Consolidated Financial Statements
| F-4 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDING JUNE 30, 2022 AND 2021
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities | ||||||||
| Depreciation and Amortization | ||||||||
| Interest Value of Convertible Debt Issued | ||||||||
| Stock Option Compensation | ||||||||
| Common Stock Issued for Services | ||||||||
| Common Stock Warrants Issued for Services | ||||||||
| Common Stock Warrants Issued for Interest | ||||||||
| (Increase) Decrease in Operating Assets | ||||||||
| Accounts Receivable | ) | |||||||
| Inventory | ( | ) | ( | ) | ||||
| Other Current Assets | ( | ) | ( | ) | ||||
| Other Assets | ||||||||
| Increase (Decrease) in Accounts and Other Payables | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Property and Equipment | ( | ) | ( | ) | ||||
| Net Cash Provided by (Used in) Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Changes in Restricted Cash | ( | ) | ||||||
| Proceeds from (Payments on) Short-Term Notes Payable/Debt | ||||||||
| Proceeds from (Payments to) Due to Related Parties | ( | ) | ||||||
| Proceeds from (Payments to) Long-Term Debt | ( | ) | ||||||
| Payments for Deferred Finance Costs | ||||||||
| Common Stock Issued, Net of (Cost of Capital) | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ||||||||
| Cash and Cash Equivalents- Beginning of Period | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-5 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE SIX MONTHS ENDING JUNE 30, 2022 AND 2021
| 2022 | 2021 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Interest Paid | $ | $ | ||||||
| Income Tax Paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Common Stock issued for Consulting Agreements related to Cost of Capital | $ | $ | ||||||
| Debenture Accrued Interest converted to Common Stock | $ | $ | ||||||
| Debenture Principal converted to Common Stock | $ | $ | ||||||
| Rent Accounts Payable to related Party converted to Common Stock | $ | $ | ||||||
| Accrued Dividends converted to Common Stock | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-6 |
IVEDA SOLUTIONS, INC.
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 provides 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 a 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.
| F-7 |
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 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.
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 originally 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
$
| F-8 |
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 six months ended June 30, 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.
| F-9 |
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
| F-10 |
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
We
had revenue from one customer with greater than
No
other customers represented greater than
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 June 30, 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 $
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 six
months ended June 30, 2022 was $
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.
Intangible assets consist of trademarks and other intangible assets associated with the purchase price allocation of MEGAsys. Such assets are fully amortized at December 31, 2021. Current year amortization of trademarks was as follows:
| F-11 |
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
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Deferred Revenue and Customer Deposits | ||||||||
| Accounts and Other Payables | $ | $ | ||||||
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 June 30, 2022 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 $93,900 and $801,908 of stock-based compensation expense for the six months ended June 30, 2022 and December 31, 2021, respectively.
| F-12 |
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of June 30, 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, accounts 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
| June 30, 2022 (Unaudited) | ||||||||
| Net Revenue | Net Assets (Liabilities) | |||||||
| United States | $ | $ | ||||||
| Republic of China (Taiwan) | $ | $ | ||||||
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
| F-13 |
NOTE 2 RELATED PARTIES
SCHEDULE OF RELATED PARTY TRANSACTIONS
| June 30, 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 $ | ||||||||
| On November 19, 2012, we entered into a
convertible debenture agreement with Mr. Robert Gillen, a member of our Board of Directors, for $ | $ | $ | ||||||
| Total Due to Related Parties | $ | |||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Total Long-Term | $ | $ | ||||||
NOTE 3 SHORT-TERM AND LONG-TERM DEBT
The short-term debt balances were as follows:
SCHEDULE OF SHORT-TERM DEBT
| June 30, 2022 (Unaudited) | December 31, 2021 | |||||||
| $ | $ | ||||||
| Debenture agreements with a shareholder at % interest rate beginning in February 2019 - December 2019, , principal and interest convertible at $per share into common stock at the option of the holder until repaid. All principal and accrued interest converted during 2021 except one remaining $debenture and accrued interest of $. | $ | $ | ||||||
| Loan Agreement with Shanghai Bank at | ||||||||
| Loan agreement with
Hua Nam bank at | ||||||||
| Balance at end of period | $ | $ | ||||||
Long-term debt balances were as follows:
SCHEDULE OF LONG-TERM DEBT
| June
30, 2022 (Unaudited) | December 31. 2021 | |||||||
| Loans from Shanghai Bank with interest rates
| ||||||||
| Current Portion of Long-term debt | ( | ) | ( | ) | ||||
| Balance at end of period | $ | $ | ||||||
NOTE 4 PREFERRED STOCK
We are currently authorized to issue up to shares of preferred stock, par value $per share, shares of which are designated as Series A Preferred Stock and 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.
| F-14 |
NOTE 5 EQUITY
Common Stock
We
are authorized to issue up to
shares of common stock, par value $per share. All outstanding shares of our common
stock are of the same class and have equal rights and attributes.
Stock Options
On October 15, 2009, we adopted the 2009 Stock Option Plan (the “2009 Option Plan”), with an aggregate number of 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 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 shares. In 2012, 2010 Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to shares. The shares issuable pursuant to the 2010 Option Plan were 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 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 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 $unrecognized stock-based compensation.
| F-15 |
SCHEDULE OF STOCK OPTION TRANSACTIONS
| 2021 | 2020 | |||||||||||||||
| Shares | Weighted-
Average Exercise Price | Shares | Weighted-
Average Exercise Price | |||||||||||||
| Outstanding at Beginning of Year | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited or Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding at End of Year | ||||||||||||||||
| Options Exercisable at Year-End | ||||||||||||||||
| Weighted-Average Fair Value of Options Granted During the Year | $ | $ | ||||||||||||||
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 | |||||||||||||||
| $- $ | $ | $ | ||||||||||||||||||
SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS
| 2021 | 2020 | |||||||
| Expected Life | yrs | yrs | ||||||
| Dividend Yield | % | % | ||||||
| Expected Volatility | % | % | ||||||
| Risk-Free Interest Rate | % | % | ||||||
| F-16 |
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 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited or Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding at End of Year | ||||||||||||||||
| Warrant Exercisable at Year-End | ||||||||||||||||
| Weighted-Average Fair Value of Warrants Granted During the Year | $ - $ | $ - $ | ||||||||||||||
Information with respect to warrants outstanding and exercisable at December 31, 2021 is as follows:
SUMMARY OF WARRANTS OUTSTANDING AND EXERCISABLE
| 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 | |||||||||||||||
| $ | $ | $ | ||||||||||||||||||
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 STOCK WARRANT, VALUATION ASSUMPTIONS
| 2021 | 2020 | |||||||
| Expected Life | yrs | yrs | ||||||
| Dividend Yield | % | % | ||||||
| Expected Volatility | % | % | ||||||
| Risk-Free Interest Rate | - | % | - | % | ||||
| F-17 |
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 | $ | $ | ||||||
| Other | ||||||||
| Valuation Allowance - USA | ( | ) | ( | ) | ||||
| Deferred Tax Assets, Net | $ | $ | ||||||
The
valuation allowance increased approximately $
As
of December 31, 2021, we had federal net operating loss carryforwards for income tax purposes of approximately $
SUMMARY OF OPERATING LOSS CARRYFORWARDS
| Year Ending | Net Operating | Year of | ||||||
| December 31, | Loss: | Expiration | ||||||
| 2021 | $ | |||||||
| 2020 | ||||||||
| 2019 | ||||||||
| 2018 | ||||||||
| 2017 | ||||||||
| 2016 | ||||||||
| 2015 | ||||||||
| 2014 | ||||||||
| 2013 | ||||||||
| 2012 | ||||||||
| 2011 | ||||||||
| 2010 | ||||||||
| 2009 | ||||||||
| 2008 | ||||||||
| 2007 | ||||||||
| 2006 | ||||||||
| 2005 | ||||||||
Taiwan (Republic of China) Corporate Tax
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.
| F-18 |
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 six months ended June 30, 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 six months ended June 30, 2022 and 2021.
| June
30, 2022 (Unaudited) | June 30, 2021 (Unaudited) | |||||||
| Basic EPS | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares | ||||||||
| Basic Loss Per Share | $ | ( | ) | $ | ( | ) | ||
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 $
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
August 9, 2022, the Company and certain accredited investors (each an “Investor” and collectively, the “Investors”)
entered into a securities purchase agreement (the “Securities Purchase Agreement”) pursuant to which the Company agreed to
sell and issue to the Investors in a private placement (the “Private Placement”) (i) an aggregate of shares (the “Shares”) of the Company’s
common stock, par value $per share (the “Common Stock”), at
a purchase price of $per share and associated warrant, (ii) an aggregate
of
The
Private Placement closed on August 11, 2022. The Company received gross proceeds from the Private Placement of approximately five million
dollars ($
The
Company engaged Maxim Group LLC (“Maxim”) as the Company’s placement agent for the Private Placement pursuant to a
Placement Agency Agreement (the “PAA”) dated as of August 9, 2022. Pursuant to the PAA, the Company agreed to pay Maxim a
cash placement fee equal to
In connection with the Private Placement, the Company and the Investors entered into a Registration Rights Agreement dated August 9, 2022 (the “Registration Rights Agreement”), providing for the registration for resale of the Securities (including the shares of Common Stock underlying the Warrants) that are not then registered on an effective registration statement, pursuant to a registration statement (the “Registration Statement”) to be filed with the Securities and Exchange Commission (the “SEC”) on or prior to August 24, 2022 (the “Filing Date”). The Company has agreed to use its best efforts to cause the Registration Statement to be declared effective as soon as possible, but in no event later than forty-five (45) days of the closing of the Private Placement (or seventy-five (75) days in the event of a full review of the Registration Statement by the SEC) (the “Effectiveness Date”), and to keep the Registration Statement continuously effective for a period that extends from the first date on which the SEC issues an order of effectiveness in relation to the Registration Statement until such date that all registrable securities (as such term is defined in the Registration Rights Agreement) covered by the Registration Statement have been sold thereunder or pursuant to Rule 144 or may be sold without volume or manner-of-sale restrictions pursuant to Rule 144 and without the requirement for the Company to be in compliance with the current public information requirement under Rule 144.
| F-19 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Iveda Solutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iveda Solutions, Inc. as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S/ BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor since 2021
Lakewood, CO
March 9, 2022
| F-20 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021 AND 2020
| December 31, 2021 | December 31, 2020 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash | ||||||||
| Accounts Receivable, Net | ||||||||
| Inventory, Net | ||||||||
| Other Current Assets | ||||||||
| Total Current Assets | ||||||||
| PROPERTY AND EQUIPMENT, NET | ||||||||
| OTHER ASSETS | ||||||||
| Intangible Assets, Net | ||||||||
| Other Assets | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts and Other Payables | $ | $ | ||||||
| Due to Related Parties | ||||||||
| Short Term Debt | ||||||||
| Current Portion of Long-Term Debt | ||||||||
| Total Current Liabilities | ||||||||
| LONG-TERM DEBT | ||||||||
| LONG-TERM DIVIDENDS PAYABLE | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, $ par value; shares authorized | ||||||||
| Series B Preferred Stock, $par value; shares authorized, and shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | - | - | ||||||
| Preferred stock value | ||||||||
| Common Stock, $ par value; shares authorized; and shares issued and outstanding as of December 31, 2021 and December 31, 2020, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Comprehensive Loss | ( | ) | ( | ) | ||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-21 |
IVEDA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||||
| REVENUE | ||||||||
| Equipment Sales | $ | $ | ||||||
| Service Revenue | ||||||||
| Other Revenue | ||||||||
| TOTAL REVENUE | ||||||||
| COST OF REVENUE | ||||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES | ||||||||
| General & Administrative | ||||||||
| Total Operating Expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Miscellaneous Income (Expense) | ||||||||
| Interest Income | ||||||||
| Interest Expense | ( | ) | ( | ) | ||||
| Total Other Income (Expense) | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| BENEFIT (PROVISION) FOR INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| BASIC AND DILUTED LOSS PER SHARE | $ | ( | ) | $ | ( | ) | ||
| WEIGHTED AVERAGE SHARES | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-22 |
IVEDA SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common Shares | Common Stock Amount | Preferred Shares | Additional Paid-in-Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (loss) | Total
Stockholders’ Equity(Deficit) | |||||||||||||||||||||||
| BALANCE AT December 31, 2019 | $ | $ | ( | ) | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Common Stock Issued for Cash | - | ||||||||||||||||||||||||||||
| Costs of Capital | - | ||||||||||||||||||||||||||||
| Stock Based Compensation | - | - | |||||||||||||||||||||||||||
| Warrants for Services | - | ||||||||||||||||||||||||||||
| Warrants for Interest Expense | |||||||||||||||||||||||||||||
| Convertible Debenture Value | |||||||||||||||||||||||||||||
| Preferred Stock - Series B | |||||||||||||||||||||||||||||
| Preferred Stock - Series B for Dividend | |||||||||||||||||||||||||||||
| Dividends - P/S Series B | ( | ) | ( | ) | |||||||||||||||||||||||||
| Conversion of Debt to stock | |||||||||||||||||||||||||||||
| Exercise of options and warrants | |||||||||||||||||||||||||||||
| Payment on Stockholder Prom Note | |||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | |||||||||||||||||||||||||
| Comprehensive Loss | |||||||||||||||||||||||||||||
| BALANCE AT December 31, 2020 | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||
| Common Stock Issued for Cash | |||||||||||||||||||||||||||||
| Costs of Capital | ( | ) | ( | ) | |||||||||||||||||||||||||
| Stock Based Compensation | |||||||||||||||||||||||||||||
| Common Stock for Accounts Payable | |||||||||||||||||||||||||||||
| Common Stock for Costs of Financing | |||||||||||||||||||||||||||||
| Warrants for Services | |||||||||||||||||||||||||||||
| Warrants for Interest Expense | |||||||||||||||||||||||||||||
| Convertible Debenture Value | |||||||||||||||||||||||||||||
| Preferred Stock - Series B for Dividend | |||||||||||||||||||||||||||||
| Preferred Stock - Series B Shares and Dividend Payable to Common Stock | ( | ) | |||||||||||||||||||||||||||
| Dividends - P/S Series B | ( | ) | ( | ) | |||||||||||||||||||||||||
| Conversion of Debt & Interest to Common Stock | |||||||||||||||||||||||||||||
| Exercise of options and warrants | |||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | |||||||||||||||||||||||||
| Comprehensive Loss | |||||||||||||||||||||||||||||
| BALANCE AT December 31, 2021 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balance | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements
| F-23 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2021 AND 2020
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities | ||||||||
| Depreciation and Amortization | ||||||||
| Interest Value of Convertible Debt Issued | ||||||||
| Stock Option Compensation | ||||||||
| Common Stock Warrants Issued for Services | ||||||||
| Common Stock Warrants Issued for Interest | ||||||||
| (Increase) Decrease in Operating Assets | ||||||||
| Accounts Receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Other Current Assets | ( | ) | ||||||
| Other Assets | ( | ) | ( | ) | ||||
| Increase (Decrease) in Accounts and Other Payables | ||||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of Property and Equipment | ( | ) | ( | ) | ||||
| Net Cash Provided by (Used in) Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Changes in Restricted Cash | ( | ) | ||||||
| Proceeds from (Payments on) Short-Term Notes Payable/Debt | ( | ) | ||||||
| Proceeds from (Payments to) Due to Related Parties | ( | ) | ( | ) | ||||
| Proceeds from (Payments to) Long-Term Debt | ||||||||
| Payments for Deferred Finance Costs | ( | ) | ||||||
| Common Stock Issued, Net of (Cost of Capital) | ||||||||
| Net Cash Provided by Financing Activities | ||||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | ||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | ( | ) | ||||||
| Cash and Cash Equivalents- Beginning of Period | ||||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-24 |
IVEDA SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE YEARS ENDING DECEMBER 31, 2021 AND 2020
2021 | 2020 | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Interest Paid | $ | $ | ||||||
| Income Tax Paid | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Debenture Principal converted to Common Stock | $ | $ | ||||||
| Debenture Accrued Interest converted to Common Stock | $ | $ | ||||||
| Rent Accounts Payable to related Party converted to Common Stock | $ | $ | ||||||
| Accounts Payable converted to Common Stock | $ | $ | ||||||
| Common Stock issued for Consulting Agreements related to Cost of Capital | $ | $ | ||||||
| Dividends Paid with Series B Preferred Stock | $ | $ | ||||||
| Accrued Dividends converted to Common Stock | $ | $ | ||||||
| Warrants Issued for Services | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
| F-25 |
IVEDA SOLUTIONS, INC.
NOTES TO THE 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. Instead of watching hours of video recording after-the-fact, users can set up alerts.
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.
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.
| F-26 |
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 management of all devices. 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.
In the last few years, 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 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.
MEGAsys, 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. MEGAsys combines security surveillance products, software, and services to provide integrated security solutions to the end user. Through MEGAsys, we have access not only to Asian markets but also to Asian manufacturers and engineering expertise. MEGAsys is our research and development arm, working with a team of developers in Taiwan.
Consolidation
Effective April 30, 2011, we completed our acquisition of Sole Vision Technologies (dba MEGAsys), a company based in Taiwan. We consolidate our financial statements with the financial statements of MEGAsys. 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
$
| F-27 |
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
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.
| F-28 |
The Company sells its products and services primarily to municipalities and commercial customers in the following manner:
| ● | The majority of MEGAsys 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, if the license is paid yearly the 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
| F-29 |
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
We
had revenue from two customers with greater than 10% of total revenues during 2021 that represented approximately
We
had revenue from two customers with greater than 10% of total revenues during 2020 that represented approximately
No
other customers represented greater than
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 December 31, 2021 and 2020, respectively, an allowance for uncollectible
accounts of $
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 $
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 years
ended December 31, 2021 and 2020 was $
| F-30 |
Intangible Assets
Intangible assets consist of trademarks and other intangible assets associated with the purchase price allocation of MEGAsys. Such assets are fully amortized at December 31, 2021. Current year amortization of trademarks was as follows:
SCHEDULE OF FUTURE AMORTIZATION OF TRADEMARKS
| 2021 | $ | |||
| Total | $ |
Deposits—Long-Term
Long-term deposits consist of a deposit related to the leases of MEGAsys’ 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
| December 31, 2021 | December 31, 2020 | |||||||
| Accounts Payable | $ | $ | ||||||
| Accrued Expenses | ||||||||
| Deferred Revenue and Customer Deposits | ||||||||
| Accounts and Other Payables | $ | $ | ||||||
Deferred Revenue
Advance payments received from customers on future installation projects are recorded as deferred revenue.
| F-31 |
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 December 31, 2020 and 2019, 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 $and $of stock-based compensation expense for the years ended December 31, 2021 and 2020, 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 December 31, 2021 and December 31, 2020. 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
| December 31, 2021 | ||||||||
| Net Revenue | Net Assets (Liabilities) | |||||||
| United States | $ | $ | ( | ) | ||||
| Republic of China (Taiwan) | $ | $ | ||||||
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 2020 have been reclassified to conform to the 2021 presentation.
New Accounting Standards
No new relevant accounting standards
| F-32 |
NOTE 2 RELATED PARTIES
SCHEDULE OF RELATED PARTY TRANSACTIONS
| December 31, 2021 | December 31, 2020 | |||||||
| During 2020 one of the three MEGAsys directors loaned money to MEGAsys at no interest. | ||||||||
| On
October 18, 2018, we entered into a debenture agreement for $ | ||||||||
| On
September 10, 2014, we entered into a debenture agreement with Mr. Alex Kuo, a member of the Board of Directors, for $ | * | |||||||
| On
September 8, 2014, we entered into a debenture agreement with Mr. Kuo’s wife, Li-Min Hsu, for $ | * | |||||||
| 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 $ | ||||||||
| On
November 19, 2012, we entered into a convertible debenture agreement with Mr. Robert Gillen, a member of our Board of Directors,
for $ | $ | $ | ||||||
| Total Due to Related Parties | $ | |||||||
| Less Current Portion | ( | ) | ( | ) | ||||
| Less: Debt Discount | ||||||||
| Total Long-Term | $ | $ | ||||||
| F-33 |
NOTE 3 SHORT-TERM AND LONG-TERM DEBT
The short-term debt balances were as follows:
SCHEDULE OF SHORT-TERM DEBT
| December 31, 2021 | December 31, 2020 | |||||||
| Unsecured loan from a shareholder in April 2018 for $at a % interest rate and . principal and interest convertible at $per share into common stock at the option of the holder until repaid. | $ | $ | ||||||
| Loan
from Hua Nan Bank in 2020 at | ||||||||
| Debenture agreements with various shareholders at % interest rate - December 2019, one year maturity, were due February 2020 – December 2020, principal and interest convertible at $per share into common stock at the option of the holder until repaid. All principal and accrued interest converted during 2021 except one remaining $debenture and accrued interest of $. | ||||||||
| Debenture agreements with various shareholders at %-% interest rate beginning in January 2020 - February 2021, one year maturity, due January 2021 – February 2022, principal and interest convertible at $per share into common stock at the option of the holder until repaid. All principal and accrued interest converted during 2021. | ||||||||
| Short-term three month loan at % interest from a shareholder in June 2020, was due . | ||||||||
| Balance at end of period | $ | $ | ||||||
The Long-term debt balances were as follows:
SCHEDULE OF LONG-TERM DEBT
| Loans
from Shanghai Bank with interest rates | ||||||||
| Current Portion of Long-term debt | ( | ) | ||||||
| Balance at end of period | $ |
NOTE 4 PREFERRED STOCK
We are currently authorized to issue up to shares of preferred stock, par value $per share, shares of which are designated as Series A Preferred Stock and 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.
| F-34 |
Series A Preferred Stock
We
are authorized to issue up to shares of Series A Preferred Stock. Each share
of Series A Preferred Stock accrues cumulative dividends at a rate of
Each
share of Series A Preferred Stock is convertible at the option of the holder, at any time, into shares of our common stock equal to the
original issue price divided by an initial conversion price of $
The holders of Series A Preferred Stock have the same voting rights as, and vote as a single class with, the holders of our common stock. Each holder of our Series A Preferred Stock is entitled to the number of votes equal to the number of shares of our common stock into which such shares of Series A Preferred Stock may be converted. In addition, in the event we sell, grant, or issue any Common Stock Equivalent (as defined in our Articles of Incorporation) at a price per share that is lower than the then-applicable conversion price for the Series A Preferred Stock, the conversion price for the Series A Preferred Stock will be adjusted to account for the dilutive issuance. If we effectuate a stock split or subdivision of our common stock or our Board of Directors declares a dividend payable in our common stock, the conversion price for the Series A Preferred Stock will be appropriately decreased to protect the Series A Preferred Stock holders from any dilutive effect of the stock split, subdivision, or stock dividend. Similarly, if the number of shares of our common stock outstanding decreases due to a reverse stock split or other combination of the outstanding shares of our common stock, then the applicable conversion price of the Series A Preferred Stock will increase in order to proportionately decrease the number of shares issuable upon conversion. Holders of our Series A Preferred Stock have no sinking fund or redemption rights.
Series B Preferred Stock
We
are authorized to issue up to shares of Series B Preferred Stock. Each share
of Series B Preferred Stock accrues dividends at a rate of
In
the event of any liquidation, dissolution, or winding up of our company,
| F-35 |
The holders of Series B Preferred Stock have no voting rights, except as are expressly provided in our Articles of Incorporation or required by law. Without the approval of at least a majority of the outstanding Series B Preferred Stock, we may not authorize or issue (i) any additional or other shares of capital stock that are of senior rank to the shares of Series B Preferred Stock in respect of the preferences as to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of our company, (ii) any additional or other shares of capital stock that are of equal rank to the shares of Series B Preferred Stock in respect of the preferences as to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of our company, or (iii) any capital stock junior in preference to the Series B Preferred Stock having a maturity date that is prior to the maturity date of the Series B Preferred Stock. Furthermore, if we consummate a Fundamental Transaction (as defined in our Articles of Incorporation) while shares of our Series B Preferred Stock are outstanding, then the holders of those outstanding shares have the right to receive, upon conversion of the Series B Preferred Stock, the same amount and kind of securities, cash, or property as they would have received if they would have been holders of the number of shares of common stock issuable upon conversion in full of all shares of our Series B Preferred Stock immediately prior to the Fundamental Transaction.
In addition, in the event we sell, grant, or issue any Common Stock Equivalent (as defined in our Articles of Incorporation) at a price per share that is lower than the then-applicable conversion price for the Series B Preferred Stock (the “Effective Price”), the conversion price for the Series B Preferred Stock will be adjusted to the Effective Price.
If we effectuate a stock split or subdivision of our common stock or our Board of Directors declares a dividend payable in our common stock, the conversion price for the Series B Preferred Stock will be appropriately decreased to protect the Series B Preferred Stockholders from any dilutive effect of the stock split, subdivision, or stock dividend. Similarly, if the number of shares of our common stock outstanding decreases due to a reverse stock split or other combination of the outstanding shares of our common stock, then the applicable conversion price of the Series B Preferred Stock will increase in order to proportionately decrease the number of shares issuable upon conversion. Holders of our Series B Preferred Stock have no sinking fund rights. As of December 31, 2021, we have no outstanding shares of Series B Preferred Stock.
NOTE 5 EQUITY
Common Stock
We are authorized to issue up to shares of common stock, par value $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.
Stock Options
On October 15, 2009, we adopted the 2009 Stock Option Plan (the “2009 Option Plan”), with an aggregate number of 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 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 shares. In 2012, 2010 Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to 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.
| F-36 |
We adopted a new plan called Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan will have a maximum of 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 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 $unrecognized stock-based compensation.
SCHEDULE OF STOCK OPTION TRANSACTIONS
| 2021 | 2020 | |||||||||||||||
| Shares | Weighted-
Average Exercise Price | Shares | Weighted-
Average Exercise Price | |||||||||||||
| Outstanding at Beginning of Year | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Forfeited or Canceled | ( | ) | ( | ) | ||||||||||||
| Outstanding at End of Year | ||||||||||||||||
| Options Exercisable at Year-End | ||||||||||||||||
| Weighted-Average Fair Value of Options Granted During the Year | $ | $ | ||||||||||||||
SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Range
of Exericse 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 |
|||||||||||||||
| $- $ | $ | $ | ||||||||||||||||||
| F-37 |
| 2021 | 2020 | |||||||
| Expected Life | yrs | yrs | ||||||
| Dividend Yield | % | % | ||||||
| Expected Volatility | % | % | ||||||
| Risk-Free Interest Rate | % | % | ||||||
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 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ( | ) | ||||||||||||||
| Forfeited or Canceled | ( | ) | ( | ) | ||||||||||||
| Outstanding at End of Year | ||||||||||||||||
| Warrant Exercisable at Year-End | ||||||||||||||||
| Weighted-Average Fair Value of Warrants Granted During the Year | $- $ | $- $ | ||||||||||||||
Information with respect to warrants outstanding and exercisable at December 31, 2021 is as follows:
SUMMARY OF WARRANTS OUTSTANDING AND EXERCISABLE
| Warrants Outstanding | Warrants Exercisable | |||||||||||||||||||
| Range
of Exericse 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 | |||||||||||||||
| $ | $ | $ | ||||||||||||||||||
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 STOCK WARRANT, VALUATION ASSUMPTIONS
| 2021 | 2020 | |||||||
| Expected Life | yrs | yrs | ||||||
| Dividend Yield | % | % | ||||||
| Expected Volatility | % | % | ||||||
| Risk-Free Interest Rate | - % | - % | ||||||
| F-38 |
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 | $ | $ | ||||||
| Other | ||||||||
| Valuation Allowance - USA | ( |
) | ( |
) | ||||
| Deferred Tax Assets, Net | $ | $ | ||||||
The
valuation allowance increased approximately $
As
of December 31, 2021, we had federal net operating loss carryforwards for income tax purposes of approximately $
SUMMARY OF OPERATING LOSS CARRYFORWARDS
| Year Ending | Net Operating | Year of | ||||||
| December 31, | Loss: | Expiration | ||||||
| 2021 | $ | |||||||
| 2020 | ||||||||
| 2019 | ||||||||
| 2018 | ||||||||
| 2017 | ||||||||
| 2016 | ||||||||
| 2015 | ||||||||
| 2014 | ||||||||
| 2013 | ||||||||
| 2012 | ||||||||
| 2011 | ||||||||
| 2010 | ||||||||
| 2009 | ||||||||
| 2008 | ||||||||
| 2007 | ||||||||
| 2006 | ||||||||
| 2005 | ||||||||
Taiwan (Republic of China) Corporate Tax
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.
| F-39 |
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 years ended December 31, 2021 and 2020 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 periods ended December 31, 2021 and 2020.
| December
31, 2021 | December
31, 2020 | |||||||
| Basic EPS | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Shares | ||||||||
| Basic Loss Per Share | $ | ( | ) | $ | ( | ) | ||
NOTE 9 CONTINGENT LIABILITIES—TAIWAN
Pursuant
to certain contracts with Siemens, Chung-Hsin Electric and Machinery Manufacturing Corp, MEGAsys is required to provide after-project
services. If MEGAsys fails to provide these after-project services in the future, other parties of the related contract would have recourse.
The financial exposure to MEGAsys in the event of failure to provide after- project services in the future as of December 31, 2021 is
$
NOTE 10 SUBSEQUENT EVENTS
| F-40 |
Exhibit 5.1
 |
McCarter & English, LLP Two Tower Center Boulevard 24th Floor East Brunswick, NJ 08816 www.mccarter.com |
August 23, 2022
Iveda Solutions, Inc.
1744 S. Val Vista Drive, Ste. 213
Mesa, Arizona 85204
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have acted as special counsel to Iveda Solutions, Inc., a Nevada corporation (the “Company”), in connection with the preparation and filing of a registration statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement is being filed, on or about the date hereof, to register for resale from time to time by the selling stockholders of the Company, as detailed in the Registration Statement (the “Selling Stockholders”) an aggregate of 6,578,948 shares of the Company’s common stock, par value $0.00001 per share (the “Common Shares”). Of the Common Shares being registered, there are (i) 1,100,000 Common Shares are presently issued and outstanding and owned by the Selling Stockholders (the “Outstanding Shares”), (ii) 3,289,474 Common Shares (the “Common Warrant Shares”) issuable to such Selling Sjtockholders underlying common stock purchase warrants (the “Common Warrants”) and (iii) 2,189,474 Common Shares (the “Pre-Funded Warrant Shares,” and together with the Common Warrant Shares, the “Warrant Shares” and, collectively with the Outstanding Shares, the “Shares”) underlying pre-funded common stock purchase warrants (the “Pre-Funded Warrants” and together with the Common Warrants, the “Warrants”).
As such counsel and for purposes of our opinion set forth below, we have examined and relied upon originals or copies, certified or otherwise identified to our satisfaction, of such documents, resolutions, certificates and other instruments of the Company and corporate records furnished to us by the Company, and have reviewed certificates of public officials, statutes, records and such other instruments and documents as we have deemed necessary or appropriate as a basis for the opinion set forth below, including, without limitation:
(i) the Registration Statement;
(ii) the Amended and Restated Articles of Incorporation of the Company, as amended from time to time, as filed with the Office of the Secretary of State of the State of Nevada; and
(iii) the Amended and Restated Bylaws of the Company as presently in effect.
In addition to the foregoing, we have made such investigations of law as we have deemed necessary or appropriate as a basis for the opinion set forth in this opinion letter.
Iveda Solutions, Inc. August 23, 2022 Page 2 |
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In such examination and in rendering the opinion expressed below, we have assumed, without independent investigation or verification: (i) the genuineness of all signatures on all agreements, instruments, corporate records, certificates and other documents submitted to us; (ii) the authenticity and completeness of all agreements, instruments, corporate records, certificates and other documents submitted to us as originals; (iii) that all agreements, instruments, corporate records, certificates and other documents submitted to us as certified, electronic, facsimile, conformed, photostatic or other copies conform to originals thereof, and that such originals are authentic and complete; (iv) the legal capacity and authority of all persons or entities (other than the Company) executing all agreements, instruments, corporate records, certificates and other documents submitted to us; (v) the due authorization, execution and delivery of all agreements, instruments, corporate records, certificates and other documents by all parties thereto (other than the Company); (vi) that no documents submitted to us have been amended or terminated orally or in writing except as has been disclosed to us in writing; (vii) that the statements contained in the certificates and comparable documents of public officials, officers and representatives of the Company and other persons on which we have relied for the purposes of this opinion letter are true and correct; (viii) that there has not been any change in the good standing status of the Company from that reported in the Good Standing Certificate; and (ix) that each of the officers and directors of the Company has properly exercised his or her fiduciary duties. As to all questions of fact material to this opinion letter, and as to the materiality of any fact or other matter referred to herein, we have relied (without independent investigation or verification) upon representations and certificates or comparable documents of officers and representatives of the Company. Our knowledge of the Company and its legal and other affairs is limited by the scope of our engagement, which scope includes the delivery of this opinion letter. We do not represent the Company with respect to all legal matters or issues. The Company may employ other independent counsel and, to our knowledge, handles certain legal matters and issues without the assistance of independent counsel.
Based upon the foregoing, and in reliance thereon, and subject to the assumptions, limitations, qualifications and exceptions set forth herein, we are of the opinion that the Shares are validly issued, fully paid, and nonassessable.
Without limiting any of the other limitations, exceptions and qualifications stated elsewhere herein, we express no opinion with regard to the applicability or effect of the laws of any jurisdiction other than the Nevada Revised Statutes, as in effect on the date of this letter.
This opinion letter deals only with the specified legal issues expressly addressed herein, and you should not infer any opinion that is not explicitly stated herein from any matter addressed in this opinion letter.
This opinion letter is rendered solely in connection with the registration of the Shares for resale by the Selling Shareholders under the Registration Statement. This opinion letter is rendered as of the date hereof, and we assume no obligation to advise you or any other person with regard to any change after the date hereof in the circumstances or the law that may bear on the matters set forth herein after the effectiveness of the Registration Statement, even if the change may affect the legal analysis or a legal conclusion or other matters in this opinion letter.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement. In giving such consent, we do not hereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules or regulations of the Commission thereunder.
Iveda Solutions, Inc. August 23, 2022 Page 3 |
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In our capacity as counsel to the Company in connection with the matters referred to above, we have also examined copies of the following: (i) the Articles of Incorporation of the Company, as amended, the By-laws of the Company, as amended, and records of certain of the Company’s corporate proceedings as reflected in its minute books; (ii) the Registration Statement, in the form to be filed with the Commission through the date hereof; and (iii we have also examined such other documents and records, instruments and certificates of public officials, officers and representatives of the Company, and have made such other investigations as we have deemed necessary or appropriate under the circumstances.
This opinion is limited to the matters expressly set forth herein, and no opinion is to be implied or may be inferred beyond the matters expressly so stated. We disclaim any requirement to update this opinion subsequent to the date hereof or to advise you of any change in any matter set forth herein.
| Very truly yours, | ||
| McCARTER & ENGLISH, LLP | ||
| By: | /s/ McCarter & English, LLP | |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Form S-1- of our report dated March 9, 2022, relating to the financial statements of Iveda Solutions, Inc. as of December 31, 2021 and 2020 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Lakewood, CO
August 23, 2022