Iveda Solutions, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. IVEDA SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2021 ( Unaudited ) AND DECEMBER 31, 2020 September 30, 2021 December 31, 2020 (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 1,231,434 $ 249,521 Restricted Cash 224,354 165,145 Accounts Receivable, Net 76,063 226,614 Inventory, Net 458,636 221,868 Other Current Assets 450,187 122,101 Total Current Assets 2,440,674 985,249 PROPERTY AND EQUIPMENT, NET 28,897 22,027 OTHER ASSETS Intangible Assets, Net - 6,666 Other Assets 172,777 231,624 Total Other Assets 172,777 238,290 Total Assets $ 2,642,349 $ 1,245,566 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts and Other Payables $ 3,353,174 $ 3,157,810 Due to Related Parties 300,000 512,711 Short Term Debt 567,486 865,988 Current Portion of Long-Term Debt 47,944 - Total Current Liabilities 4,268,604 4,536,509 LONG-TERM DEBT 67,921 - LONG-TERM DIVIDENDS PAYABLE - 415,625 STOCKHOLDERS’ EQUITY Preferred Stock, $ 0.00001 par value; 100,000,000 shares authorized Series B Preferred Stock, $ 0.00001 par value; 500 shares authorized, 0 and 257.2 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively - - Common Stock, $ 0.00001 par value; 100,000,000 shares authorized; 74,070,292 and 52,671,395 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 741 527 Additional Paid-In Capital 38,576,077 34,768,615 Accumulated Comprehensive Loss ( 132,508 ) ( 153,254 ) Accumulated Deficit ( 40,138,485 ) ( 38,322,456 ) Total Stockholders’ Equity (Deficit) ( 1,694,175 ) ( 3,706,568 ) Total Liabilities and Stockholders’ Equity $ 2,642,349 $ 1,245,566 See accompanying Notes to Condensed Consolidated Financial Statements. 3 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 For the Three Months ended September 30, 2021 For the Three Months ended September 30, 2020 For the Nine Months ended September 30, 2021 For the Nine Months ended September 30, 2020 (Unaudited) (Unaudited) (Unaudited) (Unaudited) REVENUE Equipment Sales $ 300,756 $ 132,315 $ 1,079,861 $ 912,822 Service Revenue 106,434 143,945 219,414 244,296 Other Revenue 4,262 1,978 5,450 7,522 TOTAL REVENUE 411,452 278,238 1,304,725 1,164,640 COST OF REVENUE 136,887 447,248 781,895 1,007,321 GROSS PROFIT 274,565 ( 169,010 ) 522,830 157,319 OPERATING EXPENSES General & Administrative 698,717 411,286 2,042,022 1,264,945 Total Operating Expenses 698,717 411,286 2,042,022 1,264,945 LOSS FROM OPERATIONS ( 424,151 ) ( 580,296 ) ( 1,519,193 ) ( 1,107,626 ) OTHER INCOME (EXPENSE) Miscellaneous Income (Expense) - 12,225 ( 68 ) 20,001 Interest Income 58 69 193 265 Interest Expense ( 29,337 ) ( 32,125 ) ( 256,660 ) ( 98,133 ) Total Other Income (Expense) ( 29,280 ) ( 19,831 ) ( 256,535 ) ( 77,867 ) LOSS BEFORE INCOME TAXES ( 453,431 ) ( 600,127 ) ( 1,775,728 ) ( 1,185,493 ) BENEFIT (PROVISION) FOR INCOME TAXES - - - - NET LOSS $ ( 453,431 ) $ ( 600,127 ) $ ( 1,775,728 ) $ ( 1,185,493 ) BASIC AND DILUTED LOSS PER SHARE $ ( 0.01 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.02 ) WEIGHTED AVERAGE SHARES 68,459,430 51,401,395 69,581,603 51,401,395 See accompanying Notes to Condensed Consolidated Financial Statements 4 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Shares Common Stock Amount Preferred Shares Preferred Shares Additional Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Income (loss) Total Stockholders’ Equity(Deficit) Common Shares Common Stock Amount Preferred Shares Preferred Shares Additional Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Income (loss) Total Stockholders’ Equity(Deficit) BALANCE AT December 31, 2019 51,401,395 514 247 - $ 34,052,704 $ ( 36,493,300 ) ( 195,287 ) $ ( 2,635,369 ) Common Stock Issued for Cash - - Common Stock Issued for Cash, shares Costs of Capital - - Stock Based Compensation - - - - 165,167 165,167 Common Stock for Accounts Payable Common Stock for Accounts Payable , shares Common Stock for Costs of Financing Common Stock for Costs of Financing , shares Warrants for Services - - 11,475 11,475 Warrants for Interest Expense 136,110 136,110 Convertible Debenture Value 105,572 105,572 Preferred Stock - Series B - Preferred Stock - Series B for Dividend 10 95,000 95,000 Preferred Stock - Series B Shares and Dividend Payable to Common Stock Preferred Stock - Series B Shares and Dividend Payable to Common Stock , shares Dividends - P/S Series B ( 226,853 ) ( 226,853 ) Conversion of Debt & Interest to Common Stock Conversion of Debt & Interest to Common Stock , shares Conversion of Debt to stock - Exercise of options and warrants 1,270,000 13 202,587 202,600 Payment on Stockholder Prom Note - Net Loss ( 1,602,303 ) ( 1,602,303 ) Comprehensive Loss - 42,033 42,033 BALANCE AT December 31, 2020 52,671,395 527 257 - 34,768,615 ( 38,322,456 ) ( 153,254 ) ( 3,706,568 ) Common Stock Issued for Cash 5,355,238 54 2,112,946 2,113,000 Costs of Capital ( 1,932,736 ) ( 1,932,736 ) Stock Based Compensation 88,000 88,000 Common Stock for Accounts Payable 223,164 2 99,787 99,789 Common Stock for Costs of Financing 5,030,000 50 1,932,686 1,932,736 Warrants for Services 122,966 122,966 Warrants for Interest Expense 69,729 69,729 Convertible Debenture Value 69,729 69,729 Preferred Stock - Series B for Dividend 2 - 23,750 23,750 Preferred Stock - Series B Shares and Dividend Payable to Common Stock 8,720,119 87 ( 259 ) - 432,089 432,176 Dividends - P/S Series B ( 40,301 ) ( 40,301 ) Conversion of Debt & Interest to Common Stock 2,070,376 21 788,516 788,537 Exercise of options and warrants Net Loss ( 1,775,728 ) ( 1,775,728 ) Comprehensive Loss 20,746 20,746 BALANCE AT September 30, 2021 (Unaudited) 74,070,292 741 0 - $ 38,576,077 $ ( 40,138,485 ) ( 132,508 ) $ ( 1,694,175 ) See accompanying Notes to Condensed Consolidated Financial Statements 5 IVEDA SOLUTIONS, INC. CONSOLIDATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2021 AND 2020 September 30, 2021 (Unaudited) September 30, 2020 Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 1,775,728 ) $ ( 1,185,493 ) Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities Depreciation and Amortization 17,148 10,000 Amortization of Deferred Financing Costs - - Stock Option Compensation 88,000 Bad Debt Expense - - Convertible Debt Value 69,729 - Common Stock Warrants Issued for Services 122,966 - Common Stock Warrants Issued for Interest 69,729 - (Increase) Decrease in Operating Assets Accounts Receivable 150,551 646,046 Inventory ( 236,768 ) 132,747 Other Current Assets ( 328,086 ) ( 274,302 ) Other Assets 60,476 41,234 Increase (Decrease) in Accounts and Other Payables 582,310 535,074 Net Cash Used in Operating Activities ( 1,179,673 ) ( 94,695 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment ( 17,352 ) ( 35,305 ) Proceeds from Sale of Equipment - - Net Cash Provided by (Used in) Investing Activities ( 17,352 ) ( 35,305 ) CASH FLOWS FROM FINANCING ACTIVITIES Changes in Restricted Cash ( 59,209 ) ( 126,914 ) Proceeds from (Payments on) Short-Term Notes Payable/Debt 71,248 268,424 Proceeds from (Payments on) Long-Term Notes Payable/Debt 115,865 - Proceeds from Exercise of Stock Options - - Proceeds from (Payments to) Due to Related Parties ( 82,711 ) ( 69,327 ) Deferred Finance Costs, Net - - Common Stock Issued, Net of (Cost of Capital) 2,113,000 - Net Cash Provided by Financing Activities 2,158,193 72,183 EFFECT OF EXCHANGE RATE CHANGES ON CASH 20,745 15,739 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 981,913 ( 42,078 ) Cash and Cash Equivalents- Beginning of Period 249,521 256,970 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,231,434 $ 214,892 See accompanying Notes to Condensed Consolidation Financial Statements 6 IVEDA SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ( Unaudited ) - CONTINUED FOR THE NINE MONTHS ENDING SEPTEMBER 30, 2021 AND 2020 September 30, 2021 (Unaudited) September 30, 2020 (Unaudited) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid $ 2,096 $ 1,806 Income Tax Paid $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Debenture Principal converted to Common Stock $ 499,750 $ - Debenture Accrued Interest converted to Common Stock $ 288,787 $ - Rent Accounts Payable to related Party converted to Common Stock $ 99,789 $ - Common Stock issued for Consulting Agreements related to Cost of Capital $ 1,932,736 $ - Accrued Dividends converted to Common Stock $ 455,926 $ - See accompanying Notes to Condensed Consolidated Financial Statements. 7 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 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. 8 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. 9 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. In April 2009, after eighteen months of due diligence by the Department of Homeland Security (DHS), the DHS approved us as a Qualified Anti-Terrorism Technology (QATT) provider under a formal SAFETY Act Designation giving the technology a measure of liability protection. Due diligence included interviewing key employees responsible for developing and deploying our technology, partners, and customers. The purpose of completing the SAFETY Act Designation application is for the seller of a technology, to explain to the DHS how the technology qualifies for the system of risk management and litigation management under the SAFETY Act. The application is designed to elicit the information that will allow the DHS to understand exactly what the seller’s technology is, and how it relates to the criteria for Designation set forth in the SAFETY Act. A technology could not receive Certification status without having first received Designation status and holding that status for 5 years. To receive SAFETY Act Certification, the Department must conclude that the technology will perform as intended, conforms to the seller’s specifications, and is safe for use as intended. Similar to the Designation application process, due diligence included interviewing key employees responsible for developing and deploying our technology, partners, and customers. We applied for certification in 2014 and after additional months of due diligence by DHS in January 2016 our Designation was elevated to a Certification. SAFETY Act Certification provides sellers of a Qualified Anti-Terrorism Technology (QATT) with an additional measure of liability protection. This additional measure of liability protection is not specifically quantified by the Safety Act. The sellers of QATTs that receive SAFETY Act Certification are entitled to all of the liability protections that accompany SAFETY Act Designation as well as the rebuttable presumption that the government contractor defense applies to claims arising out of, relating to, or resulting from an act of terrorism. QATTs that received Certification are placed on the Approved Technologies list for Homeland Security. We submitted our renewal application in August 2019 prior to the expiration of our Certification in October 2019. During this time, we have been in constant communication with the Science and Technology Directorate at the SAFETY Act office related to updating our information. We are now awaiting final approval for recertification. Our products are not considered to be certified during the renewal process, but we don’t expect this to significantly impact our ability to sell our technology in the U.S. or international customers. Our SAFETY Act Certification covers the entire company. MEGAsys is our wholly-owned subsidiary and we use the same technology and products to provide solutions to our Customers. However, the liability protection is limited to the U.S, and we would not expect that the certification has had or will have any significant effect on the MEGAsys results of operations. 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. 10 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 , 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. 11 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. 12 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. 13 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. 14 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 (Unaudited) Net Revenue Net Assets (Liabilities) 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 15 NOTE 2 RELATED PARTIES SCHEDULE OF RELATED PARTY TRANSACTIONS September 30, 2021 December 31, 2020 (Unaudited) During 2020 one of the three MEGAsys directors loaned money to MEGAsys at no interest. - 37,711 On October 18, 2018, we entered into a debenture agreement for $ 50,000 with Quadrant International LLC (four partners, three of which are related parties) at 0.0 % interest per annum with interest and principal payable on the maturity date of December 31, 2019 . - 45,534 On September 10, 2014, we entered into a debenture agreement with Mr. Alex Kuo, a member of the Board of Directors, for $ 30,000 , through his wife, Li-Min Hsu, at 9.5 % interest per annum with interest and principal payable on the extended maturity date of December 31, 2015 . As consideration for the extension of the debenture, we granted Mrs. Hsu options to purchase 3,000 shares of our common stock with an exercise price of $ 0.77 per share. *No longer a Director - 30,000 * On September 8, 2014, we entered into a debenture agreement with Mr. Kuo’s wife, Li-Min Hsu, for $ 100,000 , at 9.5 % interest per annum with interest and principal payable on the extended maturity date of December 31, 2015 . As consideration for the extension of the debenture, we granted Mrs. Hsu options to purchase 10,000 shares of our common stock with an exercise price of $ 0.77 per share. *No longer a Director - 100,000 * On August 28, 2014, we entered into a debenture agreement with Mr. Gregory Omi, formerly a member of our Board of Directors of the company for $ 200,000 , at 9.5 % interest per annum with interest and principal payable on the extended maturity date of December 31, 2016 . As consideration for the extension of the debenture, we granted Mr. Omi options to purchase 20,000 shares of our common stock with an exercise price of $ 0.77 per share. This debenture was extended to December 31, 2016 . Mr. Omi is currently the CTO of the company. 200,000 200,000 On November 19, 2012, we entered into a convertible debenture agreement with Mr. Robert Gillen, a member of our Board of Directors, for $ 100,000 (the “Gillen I Debenture”), under his company Squirrel-Away, LLC. Under the original terms of the agreement, interest is payable at 10 % per annum and became due on December 19, 2014 . Gillen I Debenture was extended to January 5, 2015. On June 20, 2013, interest of $ 5,000 was paid on the debenture. As consideration for agreeing to extend the maturity date of the debenture to December 31, 2015 , we granted Mr. Gillen options to purchase 10,000 shares of common stock at an exercise price of $ 0.77 per share This debenture was extended to December 31, 2016. $ 100,000 $ 100,000 Total Due to Related Parties $ 300,000 $ 300,000 512,711 Less Current Portion ( 300,000 ) ( 512,711 ) Less: Debt Discount - - Total Long-Term $ - $ - 16 NOTE 3 SHORT-TERM AND LONG-TERM DEBT The short-term debt balances were as follows: SCHEDULE OF SHORT-TERM DEBT September 30, 2021 December 31, 2020 (Unaudited) $ - $ 100,000 Unsecured loan from a shareholder in April 2018 for $ 100,000 at a 50 % interest rate and six month maturity, was due October 2018 . principal and interest convertible at $ 0.35 per share into common stock at the option of the holder until repaid. $ - $ 100,000 Note Payable to Siemens due December 31, 2021 at 0 % interest. 82,486 Loan from Hua Nan Bank in 2020 at 2.42 % interest rate per annum and due December 2021 , 2019 loan at 2.61 % interest paid, February - April 2020 71,238 Debenture agreements with various shareholders at 10 % interest rate beginning in February 2019 - December 2019, one year maturity, were due February 2020 – December 2020 , principal and interest convertible at $ 0.35 per share into common stock at the option of the holder until repaid. 210,000 346,250 Debenture agreements with various shareholders at 10 % - 20 % interest rate beginning in January 2020 - February 2021, one year maturity, due January 2021 – February 2022 , principal and interest convertible at $ 0.35 per share into common stock at the option of the holder until repaid. 275,000 313,500 Short-term three month loan at 0 % interest from a shareholder in June 2020 , was due September 2020. - 35,000 Balance at end of period $ 567,486 $ 865,988 The Long-term debt balances were as follows: SCHEDULE OF LONG-TERM DEBT 115,865 - Loans from Shanghai Bank with interest rates 1.00 % per annum due February 2024 115,865 - Current Portion of Long-term debt ( 47,944 ) - Balance at end of period $ 67,921 - NOTE 4 PREFERRED STOCK We are currently authorized to issue up to 100,000,000 shares of preferred stock, par value $ 0.00001 per share, 10,000,000 shares of which are designated as Series A Preferred Stock and 500 shares of which are designated as Series B Preferred Stock. Our Articles of Incorporation authorize the issuance of shares of preferred stock with designations, rights, and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the stockholders of our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control of our company. 17 Series A Preferred Stock We are authorized to issue up to 10,000,000 shares of Series A Preferred Stock. Each share of Series A Preferred Stock accrues cumulative dividends at a rate of 9.5 % per annum of the original issue price of $ 1.00 per share. Accrued but unpaid dividends are payable by us, either in cash or in shares of our common stock, upon the occurrence of a Liquidation Event (as defined in our Articles of Incorporation) or upon conversion of the shares into shares of our common stock. In addition, in the event of any liquidation, dissolution, or winding up of our company, the holders of Series A Preferred Stock are entitled to receive distributions of any of the assets of our company prior and in preference to the holders of our common stock, but after distribution of any assets of our company to the holders of our Series B Preferred Stock in an amount equal to the Series B Preferred Stock’s original issue price plus any accrued but unpaid dividends. 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 $ 1.00 per share of Series A Preferred Stock, subject to certain adjustments. On June 30, 2017, all shares of Series A Preferred Stock not already converted automatically converted into shares of our common stock at the then-applicable conversion price. 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 500 shares of Series B Preferred Stock. Each share of Series B Preferred Stock accrues dividends at a rate of 9.5 % per annum of the original issue price of $ 10,000 per share. Dividends on the Series B Preferred Stock accrue daily and compound annually. All accrued but unpaid dividends on the Series B Preferred Stock must be paid, declared, or set aside prior to the declaration of any dividend on any class of stock that is junior in preference to the Series B Preferred Stock. Dividends on the Series B Preferred Stock are paid quarterly, beginning on July 1, 2015 in either cash or shares of our common stock. In addition, all accrued but unpaid dividends are payable by us, either in cash or in shares of our common stock, upon the occurrence of a Liquidation Event (as defined in our Articles of Incorporation) or upon the conversion of the shares into shares of our common stock. In the event of any liquidation, dissolution, or winding up of our company, the holders of Series B Preferred Stock are entitled to receive distributions of any of the assets of our company equal to 100% of the original issue price plus all accrued but unpaid dividends prior and in preference to the holders of Series A Preferred Stock and holders of our common stock. We also have the option to redeem all, but not less than all, of the Series B Preferred Stock, provided that certain conditions have been met. Should we choose to redeem the shares of our Series B Preferred Stock outstanding, we are required to pay the original purchase price plus all accrued but unpaid dividends. Each share of Series B 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 $ 0.75 per share of Series B Preferred Stock, subject to certain adjustments. 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. 18 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 September 30, 2021, we have no outstanding shares of Series B Preferred Stock. NOTE 5 EQUITY Common Stock We are authorized to issue up to 100,000,000 shares of common stock, par value $ 0.00001 per share. All outstanding shares of our common stock are of the same class and have equal rights and attributes. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders of our company. Our common stock does not have cumulative voting rights. Persons who hold a majority of the outstanding shares of our common stock entitled to vote on the election of directors can elect all of the directors who are eligible for election. Holders of our common stock are entitled to share equally in dividends, if any, as may be declared from time to time by our Board of Directors. In the event of liquidation, dissolution, or winding up of our company, subject to the preferential liquidation rights of any series of preferred stock that we may from time to time designate, the holders of our common stock are entitled to share ratably in all of our assets remaining after payment of all liabilities and preferential liquidation rights. Holders of our common stock have no conversion, exchange, sinking fund, redemption, or appraisal rights (other than such as may be determined by the Board of Directors in its sole discretion) and have no preemptive rights to subscribe for any of our securities. The Company raised $ 2,113,000 during the nine months ended September 30, 2021 issuing 5,355,238 shares of common stock and warrants to purchase common shares with a Fair Market Value of approximately $ 900,000 . 19 NOTE 6 STOCK OPTION PLAN AND WARRANTS Stock Options On October 15, 2009, we adopted the 2009 Stock Option Plan (the “2009 Option Plan”), with an aggregate number of 1,500,000 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 1,000,000 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 3,000,000 shares. In 2012, 2010 Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to 13,000,000 shares. The shares issuable pursuant to the 2010 Option Plan are registered with the SEC under Forms S-8 filed on February 4, 2010 (No. 333- 164691), June 24, 2011 (No. 333-175143), and December 4, 2013 (No. 333-192655). The 2010 Option Plan expired on January 18, 2020. We adopted a new plan called Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan will have a maximum of 10 million option shares authorized with similar terms and conditions to the 2010 Option Plan. This plan has not been approved by the shareholders and as of December 31, 2020 and 2,500,000 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. 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, 2020, we had no unrecognized stock- based compensation. Stock option transactions during 2020 and 2019 were as follows: SCHEDULE OF STOCK OPTION TRANSACTIONS 2020 2019 Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Outstanding at Beginning of Year 6,741,200 $ 0.78 6,046,200 $ 0.83 Granted 2,500,000 0.37 695,000 0.28 Exercised ( 1,270,000 ) 0.16 - - Forfeited or Canceled ( 355,000 ) 1.12 - - Outstanding at End of Year 7,616,200 0.73 6,741,200 0.78 Options Exercisable at Year-End 7,616,200 0.73 6,741,200 0.78 Weighted-Average Fair Value of Options Granted During the Year $ 0.25 $ 0.20 20 Information with respect to stock options outstanding and exercisable at December 31, 2020 is as follows: SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE Options Outstanding Options Exercisable Range of Exericse Prices Number Outstanding at December 31, 2020 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Number Exercisable at December 31, 2020 Weighted- Average Exercise Price $ 0.04 - $ 1.75 7,616,200 5.7 $ 0.73 7,616,200 $ 0.73 The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for options granted. SCHEDULE OF BLACK-SCHOLES OPTION-PRICING MODEL 2020 2019 Expected Life 5 yrs 5 yrs Dividend Yield 0 % 0 % Expected Volatility 90 % 90 % Risk-Free Interest Rate 0.18 % 1.67 % Warrant transactions during 2020 and 2019 were as follows: SCHEDULE OF WARRANT TRANSACTIONS 2020 2019 Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Outstanding at Beginning of Year 5,563,509 $ 0.38 4,796,876 $ 0.40 Granted 989,856 0.35 1,335,178 0.35 Exercised - Forfeited or Canceled ( 2,203,331 ) 0.36 ( 568,545 ) 0.45 Outstanding at End of Year 4,350,034 0.38 5,563,509 0.38 Warrant Exercisable at Year-End 4,350,034 0.38 5,563,509 0.38 Weighted-Average Fair Value of Warrants Granted During the Year $ 0.10 - $ 0.26 $ 0.00 - $ 0.22 Information with respect to warrants outstanding and exercisable at December 31, 2020 is as follows: SUMMARY OF WARRANTS OUTSTANDING AND EXERCISABLE INFORMATION Warrants Outstanding Warrants Exercisable Range of Exericse Prices Number Outstanding at December 31, 2020 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Number Exercisable at December 31, 2020 Weighted- Average Exercise Price $ 0.35 - $ 1.65 4,350,034 1.0 $ 0.38 4,350,034 $ 0.38 21 The fair value of each warrant granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for options granted. SCHEDULE OF WARRANTS OUTSTANDING AND EXERCISABLE 2020 2019 Expected Life 1.5 yrs 1.5 yrs Dividend Yield 0 % 0 % Expected Volatility 90 % 90 % Risk-Free Interest Rate 0.19 - 1.59 % 1.74 - 2.47 % 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 2020 2019 Tax Operating Loss Carryforward - USA $ 9,800,000 $ 9,600,000 Other - - Valuation Allowance - USA ( 9,800,000 ) ( 9,600,000 ) Deferred Tax Assets, Net $ - $ - The valuation allowance increased approximately $ 2.1 million, primarily as a result of the increased net operating losses of our U.S.- based segment. As of December 31, 2020, we had federal net operating loss carryforwards for income tax purposes of approximately $ 25.0 million which will begin to expire in 2025 . We also had Arizona and California net operating loss carryforwards for income tax purposes of approximately $ 19.4 million and $ 2.0 million, respectively, which began to expire in 2014 . These carryforwards have been utilized in the determination of the deferred income taxes for financial statement purposes. The following table accounts for federal net operating loss carryforwards only. SUMMARY OF OPERATING LOSS CARRYFORWARDS Year Ending Net Operating Year of December 31, Loss: Expiration 2020 $ 590,000 2040 2019 260,000 2039 2018 160,000 2038 2017 140,000 2037 2016 1,640,000 2036 2015 3,400,000 2035 2014 5,230,000 2034 2013 5,600,000 2033 2012 2,850,000 2032 2011 2,427,000 2031 2010 1,799,000 2030 2009 1,750,000 2029 2008 1,308,000 2028 2007 429,000 2027 2006 476,000 2026 2005 414,000 2025 Taiwan (Republic of China) Corporate Tax Sole-Vision Technologies, Inc. is a subsidiary of the Company which is operating in Taiwan as a profit-seeking enterprise. Its applicable corporate income tax rate is 17%. In addition, Taiwan’s corporate tax system allows the government to levy a 10% profit retention tax on undistributed earnings for the prior year. This tax will not be provided if the company distributed the earnings before the ended of the fiscal year. 22 According to the Taiwan corporate income tax (“TCIT”) reporting system, the TCIT sales cut-off base is concurrent with the business tax classified as value-added type (“VAT”) which will be reported to the Ministry of Finance (“MOF”) on a bi-monthly basis. Since the VAT and TCIT are accounted for on a VAT tax basis that recorded all sales on business tax on a VAT tax reporting system, the Company is bound to report the TCIT according to the MOF prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off did not take the accrual base but rather on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual basis, the sales cut-off TCIT timing difference which derived from the VAT reporting system will create a temporary sales cut-off timing difference and this difference is reflected in the deferred tax assets or liabilities calculations. NOTE 8 EARNINGS (LOSS) PER SHARE The following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share computations, as required by ASC No. 260, “Earnings per Share.” Basic earnings per share (“EPS”) is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding. We had net losses for the years ended December 31, 2020 and 2019 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 September 30, 2021 and 2020. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED September 30, 2021 September 30, 2020 (Unaudited) (Unaudited) Basic EPS Net Loss $ ( 1,775,728 ) $ ( 1,185,493 ) Weighted Average Shares 69,581,603 51,401,395 Basic Loss Per Share $ ( 0.03 ) $ ( 0.02 ) 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 September 30, 2021 is $ 61,435 . NOTE 10 SUBSEQUENT EVENTS From October 1, 2021 to November 8, 2021, short-term debenture holders converted $ 110,000 principal and $ 22,809 accrued interest into 384,454 shares of common stock, we sold 756,000 shares of unregistered restricted common stock at $ 0.75 for $ 567,000 of proceeds and a warrant to purchase 270,000 shares of common stock at $ 0.35 was exercised for $ 94,500 . 23 Item 2. Financial Information. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and associated notes appearing elsewhere in this Form 10-Q Quarterly Report and with our audited consolidated financial statements for the year ended December 31, 2020 included in this Form 10-Q Quarterly Report. Note Regarding Forward-Looking Information This Report on Form 10-Q Quarterly Report contains forward looking statements that involve risks and uncertainties. All statements other than statements of historical fact contained in this Form 10-Q Quarterly Report, 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 Report on Form 10-Q Quarterly Report or discussed in our audited consolidated financial statements for the year ended December 31, 2020, 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. 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. 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 24 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, the smart city concept 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. 25 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. In April 2009, after eighteen months of due diligence by the Department of Homeland Security (DHS), the DHS approved us as a Qualified Anti-Terrorism Technology (QATT) provider under a formal SAFETY Act Designation giving the technology a measure of liability protection. Due diligence included interviewing key employees responsible for developing and deploying our technology, partners, and customers. The purpose of completing the SAFETY Act Designation application is for the seller of a technology, to explain to the DHS how the technology qualifies for the system of risk management and litigation management under the SAFETY Act. The application is designed to elicit the information that will allow the DHS to understand exactly what the seller’s technology is, and how it relates to the criteria for Designation set forth in the SAFETY Act. A technology could not receive Certification status without having first received Designation status and holding that status for 5 years. To receive SAFETY Act Certification, the Department must conclude that the technology will perform as intended, conforms to the seller’s specifications, and is safe for use as intended. Similar to the Designation application process, due diligence included interviewing key employees responsible for developing and deploying our technology, partners, and customers. We applied for certification in 2014 and after additional months of due diligence by DHS, in January 2016, our Designation was elevated to a Certification. SAFETY Act Certification provides sellers of a Qualified Anti-Terrorism Technology (QATT) with an additional measure of liability protection. This additional measure of liability protection is not specifically quantified by the Safety Act. The sellers of QATTs that receive SAFETY Act Certification are entitled to all of the liability protections that accompany SAFETY Act Designation as well as the rebuttable presumption that the government contractor defense applies to claims arising out of, relating to, or resulting from an act of terrorism. QATTs that received Certification are placed on the Approved Technologies list for Homeland Security. We submitted our renewal application in August 2019 prior to the expiration of our Certification in October 2019. During this time, we have been in constant communication with the Science and Technology Directorate at the SAFETY Act office related to updating our information. We are now awaiting final approval for recertification. Our products are not considered to be certified during the renewal process, but we do not expect this to significantly impact our ability to sell our technology in the U.S. or international customers. We intend to communicate the results of this process to investors through a press release distributed via a news wire service and will be posted on our website. Our SAFETY Act Certification covers the entire company as a Qualified Anti-Terrorism Technology. The SAFETY Act creates certain liability limitations for “claims arising out of, relating to, or resulting from an Act of Terrorism” where Qualified Anti-Terrorism Technologies have been deployed. The term “act of terrorism” means any act that the Secretary determines meets the requirements under subparagraph (b) of the Act. An act meets the requirements of this subparagraph if the act- (i) is unlawful; (ii) causes harm to a person, property, or entity, in the United States, and (iii) uses or attempts to use instrumentalities, weapons or other methods designed or intended to cause mass destruction, injury or other loss to citizens or institutions of the United States. MEGAsys is our wholly owned subsidiary, and we use the same technology and products to provide solutions to our customers. The Certification, if renewed is granted by the U.S. government and the liability protection only applies to customers that are U.S.-based MEGAsys does not receive liability protection from the Certification. The Company believes the lack of liability protection from the Certification will have no significant effect on the MEGAsys results of operations. The Company believes the Certification has an intrinsic value for the company as a whole as a marketing tool but does not believe it will have a material effect on the results of operations if it is not renewed. 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. 26 In April, 2011, we completed our acquisition of MEGAsys ® , a company founded in 1998 by a group of sales and research and development professionals from Taiwan Panasonic Company. 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 initiatives in Taiwan and other neighboring countries. 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 and managing our relationship with the Industrial Technology Research Institute (“ITRI”) in Taiwan. MEGAsys also houses the application engineering team that supports Sentir implementation for our service provider customers in Asia. The Company depends on MEGAsys as the majority of the company’s revenues have come from MEGAsys since we acquired them in April 2011. For the nine months ended September 30, 2021 MEGAsys operations accounted for 95% of the total revenue. For the years ended December 31, 2020 and 2019, MEGAsys’s operations accounted for 71% and 95% of our total revenue, respectively. The acquisition of MEGAsys 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 MEGAsys’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 received the right to license some of ITRI’s patents that were used in the development. We also have exclusive rights to license the products and services we develop in cooperation with ITRI. New Accounting Standards There were no new standards recently issued which would have an impact on our operations or disclosures. Results of Operations Net Revenue. We recorded net consolidated revenue of $411,452 for the three months ended September 30, 2021, compared to $278,238 for the three months ended September 30, 2020, an increase of $133,214, or 48%. In the three months ended September 30, 2021, our recurring service revenue was $106,434, or 26% of net consolidated revenue, and our equipment sales and installation revenue was $300,756, or 73% of net consolidated revenue, compared to recurring service revenue of $143,945, or 52% of net consolidated revenue, and equipment sales and installation revenue of $132,315, or 48% of net consolidated revenue, for the same period in 2020. Our U.S.-based segment saw an increase of $11,748, or 42% in net consolidated revenue during the three months ended September 30, 2021, while our Taiwan-based segment revenue increased by $121,466, or 49% during the same period. The minimal increase in U.S.-based segment revenue was due to limited sales of equipment to our customers during our transition to IvedaAI products. The increase in Taiwan-based segment revenue was primarily due to additional long-term contracts awarded and started during the three months ended September 30, 2021. See COVID-19 effects discussion below in Liquidity and Capital Resources. We recorded net consolidated revenue of $1,304,725 for the nine months ended September 30, 2021, compared to $1,164,640 for the nine months ended September 30, 2020, an increase of 140,084 or 12%. For the nine months ended September 30, 2021 MEGAsys operations accounted for 95% of the total revenue. In the nine months ended September 30, 2021, our recurring service revenue was $219,414 or 17% of revenue, and our equipment sales and installation revenue was $1,079,861 or 83% of revenue, compared to recurring service revenue of $244,296 or 21% of revenue, and equipment sales and installation revenue of $912,822 or 78% of revenue for the same period in 2020. The increase in consolidated net revenue was primarily related to long-term contracts that were awarded starting in the second quarter of 2021 in Taiwan but the U.S.-based segment revenue decrease of ($376,306) was due to limited sales of equipment to our customers during our transition to IvedaAI products. See also COVID-19 effects discussion below in Liquidity and Capital Resources. 27 Cost of Revenue. Total cost of revenue was $136,887 (33% of revenue, representing a gross margin of 67%) for the three months ended September 30, 2021, compared to $447,248 (161% of revenue; representing a gross margin of (61%) for same period in 2020, a decrease of $310,361, or 69%. The U.S.-based segment decrease in cost of revenue corresponds with decreased equipment sales. The Taiwan-based segment significant decrease in cost of revenue were primarily due to cost reductions related to COVID-19 delays from the same period in 2020. Total cost of revenue was $781,895 (60% of revenues; gross margin of 40%) for the nine months ended September 30, 2021, compared to $1,007,321 (86% of revenues; representing a gross margin of 14%) for the nine months ended September 30, 2020, a decrease of $225,426 or 22%. The decrease of cost of revenue was primarily related to the reduction of low margin equipment sales in the U.S.-based segment and resulted in an increased of gross margin. The Taiwan based segment has seen positive momentum coming out of COVID-19 delays in large project revenues in 2020 during the nine months ended June 30, 2021. Operating Expenses. Operating expenses were $698,717 for the three months ended September 30, 2021, compared to $411,286 for the same period in 2020, an increase of $287,431, or 70%. The increase in operating expenses was 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. Additional professional expenses have been incurred during this period with an effort to get financial information filed with the OTC Markets and filing of the Form 10-12g registration statement. Operating expenses were $2,042,022 for the nine months ended September 30, 2021, compared to $1,264,945 for the nine months ended September 30, 2020, an increase of $777,077 or 66%. The increase in operating expenses was 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. Additional professional expenses have been incurred during this period with an effort to get financial information filed with the OTC Markets and filing of the Form 10-12g registration statement. Loss from Operations. As a result of Taiwan based segment increase in revenues and gross margins, loss from operations decreased to ($424,151) for the three months ended September 30, 2021, compared to ($580,296) for the same period in 2020, a decrease in loss of $156,145, or 27%). Primarily as a result of the increase in operating expenses the loss from operations increased to ($1,519,193) for the nine months ended September 30, 2021, compared to ($1,107,626) for the nine months ended September 2020, an increase in loss of ($411,567) or (37%). Other Expense-Net. Other expense-net was ($29,280) for the three months ended September 30, 2021, compared to ($19,831) for the same period in 2020, an increase of ($9,449), or (48%). The change is primarily due to the increase in interest expense related to US based debentures issued starting in 2019 to February 2021. Other expense-net was ($256,535) for the nine months ended September 30, 2021, compared to ($77,867) for the nine months ended September 30, 2020, an increase of ($178,668) or (229%) primarily related to the increase in interest expense from the US based debentures issued starting in 2019 to February 2021. A significant non-cash interest expense has been recorded for the value of convertible features of debentures issued as well as the warrants issued as incentives for the convertible debentures. Net Loss. Net loss was ($453,411) for the three months ended September 30, 2021, compared to ($600,127) for the same period in 2020. The decrease of $146,695, or 24%, was primarily due to the Taiwan based segment increase in revenues and gross margins offsetting the increase in operating expenses which was 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. Additional professional expenses have been incurred during this period with an effort to get financial information filed with the OTC Markets and filing of the Form 10-12g registration statement. 28 The Net loss was ($1,775,328) for the nine months ended September 30, 2021, compared to ($1,185,493) for the nine months ended September 30, 2020. The increase of ($590,235) or (50%) in net loss was primarily the effect of the increase in operating expenses which was 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. Additional professional expenses have been incurred during this period with an effort to get financial information filed with the OTC Markets and filing of the Form 10-12g registration statement. Liquidity and Capital Resources As of September 30, 2021, we had cash and cash equivalents of $939,399 in our U.S.-based segment and $292,035 in our Taiwan-based segment, compared to $32,574 in our U.S.-based segment and $216,947 in our Taiwan-based segment as of December 31, 2020. This increase in our cash and cash equivalents is primarily a result of the $2.1 million sale of Common Stock with Warrants during the nine months ended September 30, 2021. 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 nine months ended September 30, 2021 was $1.2 million compared to $0.1 million net cash used during the nine months ended September 30, 2020. Net cash used in operating activities for the nine months ended September 30, 2021 consisted primarily of the $1.8 million net loss, $0.3 million in inventory, $0.3 of prepaids and advances to suppliers offset by approximately $0.6 million in additional accrued expenses. Cash used in operating activities for the nine months ended September 30, 2020 consisted primarily of the net loss and offset by $0.6 million in additional accrued expenses as well as $0.6 million collection of accounts receivable. Net cash used in investing activities for the nine months ended September 30, 2021 was $17,352. Net cash used by investing activities during the nine months ended September 30, 2020 was $35,305. Net cash provided by financing activities for the nine months ended September 30, 2021 was $2.2 million compared with $0.1 million provided during the nine months ended September 30, 2020. Net cash provided by financing activities in 2021 is primarily a result of the $2.1 million sale of Common Stock with Warrants during the nine months ended September 30, 2021. Net cash provided by financing activities in 2020 consisted primarily of an increase in short-term debt balances at the U.S based operations. As of September 30, 2021, we had $485,000 outstanding Short-Term Debt on the Iveda US books and $385,000 is past the maturity date and the remaining $100,000 comes due February 2022. There are no penalties related to the past due Notes, interest continues to accrue until paid or converted to common Stock at $0.35 per share. During the nine months ended September 30, 2021, Noteholders converted $499,750 of principal and the company expects a significant portion of the remaining Short-Term Debt to be converted to common stock over the next twelve months. The company expects to pay the remaining Short-Term Debt, if any, from operations and future equity capital raises. There can be no assurance that the company will be able to generate enough operating cashflow or raise equity funds in a timely manner hence the entire Short-Term Debt balance would be past due as of the end of February 2022. We have experienced significant operating losses since our inception. At December 31, 2020, we had approximately $25 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 $2.8 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. 29 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. Taiwan-based segment revenue from three customers represented approximately 74% of total revenue for the quarter ended September 30, 2021, and accounts receivable from two customers represented approximately 59% of total accounts receivable at September 30, 2021. No other customers represented greater than 10% of total revenue in the quarter ended September 30, 2021. 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 service 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. Although our Taiwan-based segment had minimal gross accounts receivables aged over 180 days at September 30, 2021, we provide an allowance for doubtful accounts for any receivables that will not be paid within one year, which excludes such retained amounts. For our U.S.-based segment, we had no doubtful accounts receivable allowances for the quarters ended September 30, 2021 and 2020, respectively. For our Taiwan-based segment, we set up doubtful accounts receivable allowances of approximately $3,000 and $3,000 for the quarters ended September 30, 2021 and 2020, respectively. 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. However, the Company is beginning to experience an increase in demand for the six months ended September 30, 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. 30 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. The Company currently believes revenue for the year ending December 31, 2021 will still be 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 MEGAsys. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Not applicable.