| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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. 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 ® 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
$ 38 million
from January 2005 through December 31, 2020 and have insufficient working capital and cash flows to support operations. These factors
raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might
result from this uncertainty. Impairment
of Long-Lived Assets We
have a significant amount of property and equipment, consisting primarily of leased equipment. We review the recoverability of the carrying
value of long-lived assets using the methodology prescribed in ASC 360 “Property, Plant and Equipment.” We review our long-lived
assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not
be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset
to the undiscounted future net operating cash flows expected to be generated by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. We did
no t
make any impairment for the nine months ended September 30, 2021 or the years ended December 31, 2020 and 2019. 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 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. 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 3
million. At times, amounts on deposit in Taiwan
may be in excess of the CDIC Insurance limit. Accounts
receivables are unsecured, and we are at risk to the extent such amount becomes uncollectible. We perform periodic credit evaluations
of our customers’ financial condition and generally do not require collateral. Two customers represented approximately 40%
and 77%
of total accounts receivable of $ 76,063
and $ 226,614
as of September 30, 2021 and December 31, 2020,
respectively. These customers are longtime customers, and we don’t expect any problem with collectability of these accounts receivable. We
had revenue from one customer with greater than 10% of total revenues during the nine months ended September 30, 2021 that represented
approximately 25%
of total revenues. We had $ 219,222
revenues ( 25% )
from Chunghwa Telecom. We
had revenue from two customers with greater than 10% of total revenues during 2020 that represented approximately 39%
of total revenues. We had $ 414,415
revenues ( 28% )
from Chunghwa Telecom and $ 159,048
revenues ( 11% )
from Siemens . No
other customers represented greater than 10%
of total revenues in nine months ended September
30, 2021 and 2020. 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 September 30, 2021 and December 31, 2020, respectively, an allowance
for uncollectible accounts of $ 0 and $ 0
was deemed necessary for our U.S.-based segment. Deposits
– Current Our
current deposits represent tender deposits placed with local governments and major customers in Taiwan during the bidding process for
new proposed projects. Other
Current Assets Other
current assets represent cash paid in advance to insurance companies and vendors for service coverage extending into subsequent periods. Inventories We
review our inventories for excess or obsolete products or components based on an analysis of historical usage and an evaluation of estimated
future demand, market conditions, and alternative uses for possible excess or obsolete parts. The allowance for slow-moving and obsolete
inventory is $ 0 and
$ 0 ,
as of September 30, 2021 and December 31, 2020, respectively. 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 nine
months ended September 30, 2021 and September 30, 2020 was $ 10,482
and $ 5,000 ,
respectively. Intangible
Assets Intangible
assets consist of trademarks and other intangible assets associated with the purchase price allocation of MEGAsys. Such assets are being
amortized over their estimated useful lives of nine
months to ten
years . Other intangible assets and trademarks
are fully amortized at September 30, 2021. Current year amortization of trademarks was as follows: SCHEDULE
OF FUTURE AMORTIZATION OF TRADEMARKS
2021 $ 6,666
2022 -
Total $ 6,666 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 2020, we reevaluated the valuation allowance for deferred tax assets and determined that no current benefits
should be recognized for the year ended December 31, 2020. 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 2016 to 2020 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 2016
to 2020 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
September
30, 2021 December
31, 2020
(Unaudited)
Accounts
Payable $ 473,977 $ 405,819
Accrued
Expenses 2,774,214 2,751,127
Deferred
Revenue and Customer Deposits 104,983 864
Accounts
and Other Payables $ 3,353,174 $ 3,157,810 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 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 $ 165,167
and $ 95,167
of stock-based compensation expense for the years
ended December 31, 2020 and 2019, respectively and $ 88,000
for the nine months ended September 30, 2021. Fair
Value of Financial Instruments Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of September
30, 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
September
30, 2021
Net
Revenue Net
Assets
United
States $ 59,200 $ (2,404,401 )
Republic
of China (Taiwan) $ 1,245,525 $ 710,225 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 | 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. 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
$ 38 Impairment
of Long-Lived Assets We
have a minimal 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 years ended December 31, 2020 and 2019. 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 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. 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 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 Accounts
receivable 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. Two customers represented approximately 77% 83% 226,614 895,769 We
had revenue from two customers with greater than 10% of total revenues during 2020 that represented approximately 39% 414,415 28% 159,048 11% We
had revenue from three customers with greater than 10% of total revenues during 2019 that represented approximately 76% 1,986,534 54% 389,888 11% 400,065 11% No
other customers represented greater than 10% of total revenues in 2020 and 2019. 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, 2020 and 2019, respectively, an allowance for uncollectible
accounts of $ 0 0 3,380 3,172 Trade
receivables, net are comprised of the following: SCHEDULE OF TRADE RECEIVABLES
2020 2019
Trade
receivables, gross $ 229,994 $ 898,941
Allowance
for doubtful accounts (3,380 ) (3,172 )
Trade
receivables, net $ 226,614 $ 895,769 Other
current assets are comprised of the following: SCHEDULE OF OTHER CURRENT ASSESTS
2020 2019
Notes
receivables $ - $ 115,305
Deposits-current 104,617 68,992
Advance
to suppliers 3,832 531
Prepaid
expenses and other current assets 13,652 27,095
Other
current assets $ 122,101 $ 211,923 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 $ 11,228 10,508 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, 2020 and 2019 was $ 5,695 5,804 Intangible
Assets Intangible
assets consist of trademarks and other intangible assets associated with the purchase price allocation of MEGAsys. Such assets are being
amortized over their estimated useful lives of six months to ten years. Other intangible assets are fully amortized at December 31, 2020.
Future amortization of trademarks is as follows: SCHEDULE OF FUTURE AMORTIZATION OF TRADEMARKS
-
2021 $ 6,666
Total $ 6,666 Other
Assets Other
assets are comprised of the following: SCHEDULE OF OTHER ASSETS COMPRISED
As
of December 31, 2020 2019
Deposits-long-term $ 60,476 $ 41,234
Deferred
tax assets $ 171,148 $ 160,653
Deferred
finance costs $ - $ -
Other
assets $ 162,381 $ 364,320 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 2020, we reevaluated the valuation allowance for deferred tax assets and determined that no current benefits
should be recognized for the year ended December 31, 2020. 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 2015 to 2019 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 2015
to 2019 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 Accounts
and other payables are comprised of the following: SCHEDULE OF ACCOUNTS AND OTHER PAYABLES
2020 2019
Accounts
Payable $ 405,819 $ 521,540
Accrued
Expenses 2,751,127 2,472,617
Deferred
Revenue 864 4,151
Accounts
and Other Payables $ 3,157,810 $ 2,998,308 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 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 $ 165,167 95,167 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,
2020 and 2019. 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
December
31, 2020
Net
Revenue Net
Assets (Liabilities)
United
States $ 435,608 $ (4,375,933 )
Republic
of China (Taiwan) $ 1,048,627 $ 669,365 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. We
operate two reportable business segments as defined in ASC 280, “Segment Reporting.” We have a U.S.-based segment, Iveda
Solutions, Inc., and a Taiwan-based segment, MEGAsys. Each segment has a chief operating decision maker and management personnel who
review their respective segment’s performance as it relates to revenue, operating profit, and operating expenses. SCHEDULE OF REPORTING SEGMENTS
Year
Ended Year
Ended Condensed
Dec.
31, 2020 Dec.
31, 2020 Consolidated
Iveda MEGAsys Total
Revenue $ 435,608 $ 1,048,627 $ 1,484,235
Cost
of Revenue 381,924 609,634 991,558
Gross
Profit 53,684 438,993 492,677
Depreciation
and Amortization 20,000 5,695 25,695
General
and Administrative 1,176,860 518,865 1,695,725
Gain
(Loss) from Operations (1,143,176 ) (85,567 ) (1,228,743 )
Foreign
Currency Gain - - -
Other
Misc Income 24,282 24,282
Gain
on Disposal of Assets, Net -
Interest
Income - 914 914
Interest
Expense (396,348 ) (2,408 ) (398,756 )
Gain
(Loss) Before Income Taxes (1,539,524 ) (62,779 ) (1,602,303 )
Benefit
(Provision) for Income Taxes - -
Net
Income (Loss) $ (1,539,524 ) $ (62,779 ) $ (1,602,303 ) Revenues
as shown below represent sales to external customers for each segment. Intercompany revenues have been eliminated and are immaterial. Additions
to long-lived assets as presented in the following table represent capital expenditures. Inventories
and property and equipment for operating segments are regularly reviewed by management and are therefore provided below. SCHEDULE
OF REVENUES,LONG-LIVED ASSETS, INVENTORY AND PROPERTY AND EQUIPMENT FOR OPERATING SEGMENTS
December
31,
2020 2019
Revenue
United
States $ 435,608 $ 178,886
Republic
of China (Taiwan) 1,069,926 3,461,910
Elimination
of intersegment revenues (21,299 ) -
Revenues $ 1,484,235 $ 3,640,796
December
31,
2020 2019
Operating
Earnings (Loss)
United
States $ (1,539,524 ) $ (1,331,274 )
Republic
of China (Taiwan) (62,779 ) 193,086
Operating
Earnings (Loss) $ (1,602,303 ) $ (1,138,188 )
December
31,
2020 2019
Property
and Equipment, Net
United
States $ 0 $ 0
Republic
of China (Taiwan) 22,027 5,807
Property
and Equipment, Net $ 22,027 $ 5,807
December
31,
2020 2019
Additions
to (Deletions from) Long-Lived Assets
United
States $ -
Republic
of China (Taiwan) 21,915 1,496
Additions
to (Deletions from) Long-Lived Assets $ 21,915 $ 1,496
December
31,
2020 2019
Inventory
United
States $ - $ -
Republic
of China (Taiwan) 221,868 132,747
Inventory $ 221,868 $ 132,747
December
31,
2020 2019
Total
Assets
United
States $ 40,141 $ 130,394
Republic
of China (Taiwan) 1,205,425 1,773,906
Total
Assets $ 1,245,566 $ 1,904,300 Reclassification Certain
amounts in 2019 have been reclassified to conform to the 2020 presentation. New
Accounting Standards No
new relevant standards |
