Iveda Solutions, Inc. 10-K

ITEM 9A – CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, as of December 31, 2022, concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are not effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022 as required by Rule 13a-15(c) under the Exchange Act. We utilized the criteria and framework established by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control – Integrated Framework (2013) in performing this assessment. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2022. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K. Changes in Internal Control over Financial Reporting In December 2013, we hired Robert J. Brilon, as Chief Financial Officer who has experience in SEC reporting and disclosures. We have plans for hiring additional financial personnel and implementing additional controls and processes involving both of our financial personnel in order to ensure all transactions are accounted for and disclosed in an accurate and timely manner. There have not been any other changes in our internal control over financial reporting identified by management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 33 Limitations on the Effectiveness of Controls Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or Board override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Identified Material Weakness As of December 31, 2022, we need to hire additional employees at Iveda Taiwan that are knowledgeable in SEC accounting and reporting. Increased staffing at the subsidiary level will provide daily oversight of Iveda Taiwan’s operations and minimize the likelihood of any material error in reporting the subsidiary’s results. Action plans are in place to address this staffing need during 2023. Management’s Remediation Initiatives As our resources allow, we plan to add financial personnel at the subsidiary level to properly provide accurate and timely financial reporting. Segregation of Duties As of December 31, 2022, we had two employees knowledgeable in SEC accounting and reporting. Our management has put in place policies and procedures designed, to the extent possible, to segregate the duties of initiating transactions, maintaining custody over assets, and recording transactions. Due to our size and limited resources, segregation of all conflicting duties may not always be possible and may not be economically feasible. ITEM 9B – OTHER INFORMATION None. 34 PART III ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Executive Officers and Directors Set forth below is information concerning our directors, director nominees, executive officers and other key employees. Name Age Position David Ly 47 Chief Executive Officer and Chairman of the Board of Directors Chi Kuang Sid Sung 61 President Robert J. Brilon 62 Chief Financial Officer, Treasurer and Corporate Secretary Gregory Omi 61 Chief Technology Officer Joseph Farnsworth 63 Director Alejandro Franco 69 Director Robert D. Gillen 68 Director David Ly founded our company and has served as our Chief Executive Officer and Chairman of the Board of Directors since October 2009. Mr. Ly also served as our President from October 2009 to February 2014. Mr. Ly served in Business-to-Business Sales for T-Mobile USA, a wireless network and communications company, from August 2002 to September 2003. From September 2001 to July 2002, Mr. Ly served as Market Manager of Door To Door Storage, a moving and portable storage company. Mr. Ly served as an Applications Engineer at Metricom, Inc., the first micro cellular data network, from November 1998 to August 2001. Mr. Ly holds a Bachelor of Science Degree in Civil Engineering with a minor in International Business from San Francisco State University. We believe Mr. Ly’s position as our Chief Executive Officer, his extensive knowledge and understanding of the video surveillance and AI industries, and his business and engineering expertise and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Sid Sung has served as our President since January 2020. Mr. Sung was President from July 2017 to December 2019 and a director from March 2015 to December 2019 of People Power Company, an IoT platform solutions provider. He served as Board Advisor and IoT Consultant from February 2014 to December 2019 at CVS Capital, a venture capital company focusing on IT & semiconductor field and Twoway Communications, a CATV and fiber communications equipment provider, and Xingtera, a home networking semiconductor and IoT solution provider. Mr. Sung was the Cofounder and Chief Operating Officer at Connected IO, a machine-to-machine product and solution provider for telcos, from October 2013 to October 2017. He was also Vice President from May 2011 to January 2014 at Lite ON Technology, an OEM/ODM contract manufacturer. Mr. Sung served as General Manager at SMC Networks, a leading cable gateway and home security solutions provider, from August 2007 to July 2010 and as Vice President at Accton Technology, a global provider of networking and communications solution, from March 2006 to August 2007. Mr. Sung was the founder and CEO of Alpha Telecom, a next generation CPE provider, from September 1994 to March 2006. Mr. Sung holds a master’s degree in Electrical Engineering at the University of Alabama Huntsville and a Bachelor of Science Degree in Atmospheric Science at National Taiwan University. Robert J. Brilon has served as our Chief Financial Officer since December 2013. He was also our President from February 2014 to July 2018 and Treasurer from December 2013 to July 2018 and was appointed Treasurer again on December 15, 2021. Mr. Brilon served as our Executive Vice President of Business Development from December 2013 to February 2014 and as our interim Chief Financial Officer and Treasurer from December 2008 to August 2010. Mr. Brilon joined New Gen Management Services, Inc. in July 2017 as the CFO (subsequently becoming President and CFO of New Gen in July 2018). Mr. Brilon was the President, Chief Financial Officer, Corporate Secretary, and Director of both Vext Science, Inc and New Gen until he resigned in February 2020. Mr. Brilon served as Chief Financial Officer and Executive Vice President of Business Development of Brain State Technologies, a brainwave optimization software licensing and hardware company, from August 2010 to November 2013. From January 2010 to August 2010, Mr. Brilon served as Chief Financial Officer of MD Helicopters, a manufacturer of commercial and light military helicopters. Mr. Brilon also served as Chief Executive Officer, President, and Chief Financial Officer of InPlay Technologies (NASDAQ: NPLA), formerly, Duraswitch (NASDAQ: DSWT), a company that licensed patented electronic switch technology and manufactured digital pen technology, from November 1998 to June 2007. Mr. Brilon served as Chief Financial Officer of Gietz Master Builders from 1997 to 1998, Corporate Controller of Rental Service Corp. (NYSE: RRR) from 1995 to 1996, Chief Financial Officer and Vice President of Operations of DataHand Systems, Inc. from 1993 to 1995, and Chief Financial Officer of Go-Video (AMEX:VCR) from 1986 to 1993. Mr. Brilon is a certified public accountant and practiced with several leading accounting firms, including McGladrey Pullen, Ernst and Young and Deloitte and Touche. Mr. Brilon holds a Bachelor of Science degree in Business Administration from the University of Iowa. 35 Gregory Omi has served is our new Chief Technology Officer since May 2021. Prior, Mr. Omi served as director of our company from October 2009 to November 2016. Mr. Omi served as a senior programmer for Zynga, an online and mobile social gaming company, from November 2009 to March 2014 and then again briefly in 2016 and 2019 as architect. Mr. Omi served as senior engineer at Tesla, an electric vehicle manufacturer, from October 2016 to October 2017. Prior to that, Mr. Omi served as a programmer for Monkey Gods, LLC, a video game developer, from January 2009 to November 2009. Mr. Omi also served as Senior Programmer for Flektor, Inc., a developer of online audio and video editing tools, from October 2006 to January 2009. From October 1996 to June 2006, Mr. Omi served as a Senior Programmer for Naughty Dog, a computer game developer. Prior to that, Mr. Omi served in programming roles for 3DO from 1992 to 1996, TekMagic in 1992, Epyx from 1986 to 1992, Atari in 1991, Nexa from 1982 to 1983 and 1985 to 1986, and HES in 1983. Mr. Omi attended DeVry Institute in Phoenix, Arizona from 1979 to 1980 where he studied industrial electronics engineering. Joseph Farnsworth has served as a director of our company since January 2010. Mr. Farnsworth has served as President and as a director of Farnsworth Realty & Management Co., an Arizona-based privately held real estate company, and as a director of Farnsworth Development, a closely held real estate developer, since 1995. Mr. Farnsworth has also served as a director of The Farnsworth Companies since 2008. From 1990 to 1995, Mr. Farnsworth served as President of Alfred’s International, with operations in China and Korea. Prior to that, Mr. Farnsworth served as President of Farnsworth International, a real estate investment company based in Taipei, Taiwan from 1987 to 1991. Mr. Farnsworth holds a Bachelor of Science degree in Real Estate Finance from Brigham Young University and is a licensed real estate broker in Arizona. We believe Mr. Farnsworth’s experience leading companies with operations in Asia and his business and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Alejandro Franco has served as a director of our company since November 2011. Mr. Franco has also served as a consultant to our company since 2011, advising on business development and strategic partnership opportunities in Mexico. Mr. Franco is the founder and has served as President of Amextel, a telecommunications company in Mexico, since June 2003. Mr. Franco founded the Mexican American Business Council, a non-profit organization facilitating border relationships to increase business, support trade growth and investments, and has been the CEO since June 2015. Mr. Franco also founded and served as President of Bela Corp., a cloud technology and services company, from 1988 to 2000. Prior to that, Mr. Franco founded and served as President of TVM, Inc., a television and technology company in Mexico, from 1985 to 1988. Mr. Franco attended UNAM University, Mexico where he studied Economics. Mr. Franco also attended IBERO University, Mexico, where he studied Industrial Design. Mr. Franco holds a Master degree in Theology from the Oblate School of Theology in San Antonio, Texas. We believe Mr. Franco’s experience leading businesses with operations in Asia and Mexico, his experience as a consultant for our company, his extensive knowledge and understanding of the telecommunications and cloud technology industries, and his business and management skills provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. Robert D. Gillen has served as a director of our company since November 2011. Mr. Gillen founded and has served as President of the Law Offices of Robert D. Gillen, Ltd., a law firm located in Scottsdale, Arizona and Naperville, Illinois, which specializes in advising small- and medium-size businesses on domestic and international tax planning, since 1979. Mr. Gillen retired in October 2014. Mr. Gillen holds a Bachelor of Science degree in Business Administration from the University of Illinois and a J.D. from the Illinois Institute of Technology – Chicago Kent College of Law. Mr. Gillen also has extensive experience educating, CPAs, attorneys, and other financial and business professionals about asset protection and tax planning. We believe Mr. Gillen’s experience advising, clients operating the cellular industry, his experience leading a business involved in the lease and sale of cellular sites, his experience navigating international business and legal issues, and his prior board experience provide the requisite qualifications, skills, perspectives, and experience that make him well qualified to serve on our Board of Directors. 36 Family Relationships There are no family relationships among any of our directors, director nominees or executive officers. Terms of Directors and Executive Officers The number of directors of the Company shall be not less than one nor more than thirteen. Each of our directors holds office until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified, until his or her resignation, or until his or her office is otherwise vacated in accordance with our articles of incorporation. Our officers are elected by and serve at the discretion of the board of directors. Board of Directors and Board Committees Our board of directors consists of four directors, three of whom are independent as such term is defined by the Nasdaq Capital Market. We have determined that Joseph Farnsworth, Alejandro Franco and Robert D. Gillen satisfy the “independence” requirements under NASDAQ Rule 5605. Board Committees We have established three committees under the board of directors: an audit committee, a compensation committee and a nomination and corporate governance committee, and adopted a charter for each of the three committees. Copies of our committee charters are posted on our corporate investor relations website. Each committee’s members and functions are described below. Audit Committee. Our audit committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Farnsworth is the chair of our audit committee. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things: ● appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; ● reviewing with the independent auditors any audit problems or difficulties and management’s response; ● discussing the annual audited financial statements with management and the independent auditors; ● reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; ● reviewing and approving all proposed related party transactions; ● meeting separately and periodically with management and the independent auditors; and ● monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. Compensation Committee. Our compensation committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Farnsworth is the chair of our compensation committee. The compensation committee will be responsible for, among other things: ● reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and other executive officers; ● reviewing and recommending to the shareholders for determination with respect to the compensation of our directors; ● reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and ● selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to that person’s independence from management. 37 Nominations and Corporate Governance Committee. Our Nominations and Corporate Governance committee consists of Joseph Farnsworth, Alejandro Franco and Robert D. Gillen. Mr. Gillen is the chair of our Nominations and Corporate Governance committee. The nominating and corporate governance committee is responsible for, among other things, (i) determining the qualifications, qualities and skills required to be a director of the Company and evaluating, selecting and approving nominees to serve as directors, (ii) periodically reviewing, assessing and making recommendations for changes to the Board of Directors and its committees and (iii) overseeing the process for evaluation of the Board of Directors. Pursuant to the nominating and corporate governance committee charter, the nominating and corporate governance committee has the authority to delegate all or a portion of its duties and responsibilities to a subcommittee of the nominating and corporate governance committee. In addition, the nominating and corporate governance committee has unrestricted access to and assistance from our officers, employees and independent auditors and the authority to employ experts, consultants and professionals to assist with performance of their duties. The nominating and corporate governance committee is also responsible for establishing procedures regarding director nominees put forward by stockholders. The committee is also responsible for establishing procedures for shareholder communications with the Board of Directors. Involvement in Certain Legal Proceedings None of our directors or officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, nor has any been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Related Party Transactions,” our directors and officers have not been involved in any transactions with us or any of our affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC. Code of Business Conduct and Ethics We have adopted a code of business conduct and ethics which is applicable to all of our directors, executive officers and employees. A copy of the code of business conduct and ethics is posted on our corporate investor relations website as required for our listing on the Nasdaq Capital Market. ITEM 11 – EXECUTIVE COMPENSATION Summary Compensation Table We believe that it is important to design a compensation program that supports our business strategy. As a result, our compensation program emphasizes performance-based compensation and is designed to support our business goals, promote short- and long-term growth, and attract, retain, and motivate key talent. Our compensation program is comprised of three components: base salary, bonus awards, and long-term performance incentives. We believe that our executive officers and other key employees should have a portion of their potential annual compensation tied to our profitability and our other goals. Additionally, we seek to align the ability to earn long-term incentives directly with the interests of our stockholders through the use of equity-based incentives. We strive to ensure compensation is competitive with companies similar to us; however, we acknowledge that base salaries are currently below market. The following table sets forth certain information with respect to compensation for the years ended December 31, 2022 and 2021, earned by or paid to our chief executive officer and principal executive officer, our principal financial officer, and our other most highly compensated executive officers whose total compensation exceeded US$100,000 (the “named executive officers”). Name and Principal Position Year Salary (1) Warrants Awards (2) Option Awards (3) All Other Compensation (4) Total David Ly 2022 $ 190,000 $ 13,725 $ 11,968 $ 215,693 Chairman and Chief Executive Officer 2021 $ 190,000 $ 211,500 $ 11,968 $ 413,468 Sid Sung 2022 $ 150,000 $ 2,825 $ 152,825 President 2021 $ 150,000 $ 150,500 $ 300,500 Robert J. Brilon 2022 $ 180,000 $ 11,350 $ 191,350 Chief Financial Officer, Treasurer and Corporate Secretary 2021 $ 180,000 $ 141,000 $ 321,000 Luz A. Berg Former Chief Operating Officer 2022 $ 165,000 $ 8,100 $ 173,100 Chief Marketing Officer and Corporate Secretary (5) 2021 $ 165,000 $ 141,000 $ 306,000 Gregory Omi 2022 - $ 2,825 $ 2,825 Chief Technology Officer 2021 $ 219,000 $ 219,000 (1) The amounts in this column reflect the amounts earned during the fiscal year, whether or not actually paid during such year. (2) The amounts in this column reflect the aggregate probable grant date fair value of warrants awards to our named executive officers during the fiscal year calculated in accordance with FASB ASC Topic 718, Stock Compensation . The amounts reported in this column do not correspond to the actual economic value that may be received by our named executive officers from their option awards. (3) The amounts in this column reflect the aggregate probable grant date fair value of option awards to our named executive officers during the fiscal year calculated in accordance with FASB ASC Topic 718, Stock Compensation . The amounts reported in this column do not correspond to the actual economic value that may be received by our named executive officers from their option awards. (4) The amounts in this column reflect the amount of perquisites related to a vehicle allowance. (5) Resigned effective December 31, 2022. 38 Outstanding Equity Awards as of December 31, 2022 The following table provides information regarding outstanding equity awards held by our named executive officers as of December 31, 2022. Outstanding Equity Awards at Fiscal Year Ended December 31, 2022 Name and Principal Position Grant Date Number of Securities Underlying Unexercised Options/Warrants (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price ($) Option Expiration Date David Ly Chairman and 12/31/2013 6,250 (1) - - $ 14.00 12/31/2023 Chief Executive Officer 12/31/2014 6,250 (1) - - $ 9.20 12/31/2024 2/25/2015 12,500 (1) - - $ 6.16 2/25/2025 12/11/2015 25,000 (1) - - $ 5.76 12/11/2025 12/15/2020 87,500 (1) - - $ 2.96 12/15/2030 12/30/2021 18,750 (1) - - $ 16.24 12/31/2031 6/15/2022 12,500 (1) - - $ 1.42 6/15/2032 10/3/2022 5,000 (1) - - $ 0.75 10/3/2032 12/1/2022 15,000 (1) - - $ 0.54 12/1/2032 Robert J. Brilon Chief Financial Officer, 12/1/2013 37,500 (1) - - $ 8.00 12/1/2023 Treasurer and Corporate Secretary 12/8/2014 12,500 (1) - - $ 8.00 12/8/2024 5/2/2014 12,500 (1) - - $ 8.00 5/2/2024 12/31/2014 6,250 (1) - - $ 9.20 12/31/2024 12/30/2021 12,500 (1) - - $ 16.24 12/31/2031 6/15/2022 10,000 (1) - - $ 1.42 6/15/2032 10/3/2022 5,000 (1) - - $ 0.75 10/3/2032 12/1/2022 12,500 (1) - - $ 0.54 12/1/2032 Luz Berg Former Chief Operating Officer, 12/31/2013 3,125 (1) - - $ 14.00 12/31/2023 Chief Marketing Officer 12/31/2014 3,125 (1) - - $ 9.20 12/31/2024 and Corporate Secretary (resigned effective 12/31/2022) 12/11/2015 3,125 (1) - - $ 5.76 12/11/2025 12/15/2020 87,500 (1) - - $ 2.96 12/15/2030 12/30/2021 12,500 (1) - - $ 16.24 12/30/2031 6/15/2022 10,000 (1) - - $ 1.42 6/15/2032 10/3/2022 5,000 (1) - - $ 0.75 10/3/2032 Sid Sung President 12/20/2019 12,500 (1) - - $ 2.24 12/20/2029 12/15/2020 12,500 (1) - - $ 2.96 12/15/2030 12/30/2021 12,500 (1) - - $ 16.24 12/30/2031 10/3/2022 5,000 (1) - - $ 0.75 10/3/2032 12/1/2022 6,250 (1) - - $ 0.54 12/1/2032 (1) The options became fully vested on the date of grant. Equity Compensation Plans On October 15, 2009, we adopted the 2009 Stock Option Plan (the “2009 Option Plan”), with an aggregate number of 187,500 shares of common stock issuable under the plan. The purpose of the 2009 Option Plan was to assume options that were already issued in the 2006 and 2008 Option plans under Iveda Corporation after the merger with Charmed Homes. On January 18, 2010, we adopted the 2010 Stock Option Plan (the “2010 Option Plan”), which allows the Board to grant options to purchase up to 125,000 shares of common stock to directors, officers, key employees, and service providers of our company. In 2011, the 2010 Option Plan was amended to increase the number of shares issuable under the 2010 Option Plan to 375,000 shares. In 2012, 2010 Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to 1,625,000 shares. The shares issuable pursuant to the 2010 Option Plan are registered with the SEC under Forms S-8 filed on February 4, 2010 (No. 333- 164691), June 24, 2011 (No. 333-175143), and December 4, 2013 (No. 333-192655). The 2010 Option Plan expired on January 18, 2020. As of December 31, 2022, 361,313 options were outstanding under the 2010 Option Plan. On December 15, 2020, we adopted the Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan has a maximum of 1,250,000 shares authorized with similar terms and conditions to the 2010 Option Plan. As of December 31, 2022, 653,125 options were outstanding under the 2020 Option Plan. The shares issuable pursuant to the 2020 Option Plan are registered with the SEC under Forms S-8 filed on October 7, 2022 (No. 333- 267792) 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. 39 We have also granted non-qualified stock options to employees and contractors. All non-qualified options are generally issued with an exercise price no less than the fair value of the common stock on the date of the grant as determined by our Board of Directors. Options may be exercised up to ten years following the date of the grant, with vesting schedules determined by us upon grant. Vesting schedules vary by grant, with some fully vesting immediately upon grant to others that ratably vest over a period of time up to four years. Standard vested options may be exercised up to three months following date of termination of the relationship unless alternate terms are specified at grant. The fair values of options are determined using the Black-Scholes option-pricing model. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. At December 31, 2021, we had approximately $4,500 unrecognized stock- based compensation. We have periodically issued warrants to purchase shares of our common stock as equity compensation to officers, directors, employees, and consultants. As of December 31, 2021, warrants to purchase 872,259 shares of our common stock were outstanding, which were issued for services or incentive for the purchase of convertible debentures or common stock subscription. Terms of these warrants are comparable to the terms of the outstanding options. Director Compensation Non-employee directors receive stock-based compensation for their service on our Board of Directors and are reimbursed for their cost of attending meetings. For the year ended December 31, 2022, Joseph Farnsworth received 15,000 options and Alejandro Franco and Robert Gillen received 11,250 options to purchase shares of our common stock as compensation for services during the year ended December 31, 2021. For the year ended December 31, 2020, Joseph Farnsworth received 9,375 options and Alejandro Franco and Robert Gillen received 6,250 options to purchase shares of our common stock as compensation for services during the year ended December 31, 2021. We do not pay additional compensation to our directors for their service, either as Chair or as a member, on the Audit Committee, Compensation Committee, or Nominations and Corporate Governance Committee. Name Fees Earned or paid in Cash $ Stock Awards $ 2022 Options Awards $ Non-Equity Incentive Plan Compensation Nonqualified Deferred Compensation Earnings $ All Other Compensation $ Total $ Joseph Farnsworth - - $ 3,800 (1) - - - $ 105,750 Alejandro Franco - - $ 2,825 (2) - - - $ 35,250 Robert Gillen - - $ 2,825 (3) - - - $ 35,250 (1) As of December 31, 2022, Mr. Farnsworth had outstanding options to purchase 118,125 shares of our common stock. (2) As of December 31, 2022, Mr. Franco had outstanding options to purchase 73,760 shares of our common stock. (3) As of December 31, 2022, Mr. Gillen had outstanding options to purchase 78,750 shares of our common stock. 40 ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table and accompanying footnotes set forth as of December 31, 2022, certain information regarding the beneficial ownership of shares of our common stock by: (i) each person who is known by us to own beneficially more than 5% of such stock; (ii) each member of our Board of Directors, and each of our named executive officers and (iii) all of our directors and executive officers as a group. Except as otherwise indicated, all Common Stock is owned directly, and the beneficial owners listed in the table below possess sole voting and investment power with respect to the stock indicated, and the address for each beneficial owner is c/o Iveda Solutions, Inc., 1744 S. Val Vista Drive, Mesa, Arizona 85204. Name of Beneficial Owner Common Shares % of Common Shares Directors and Officers David Ly (1) 676,898 4.4 % Sid Sung (2) 55,000 0.4 % Robert J. Brilon (3) 270,499 1.8 % Gregory Omi (4) 181,732 1.2 % Joseph Farnsworth (5) 225,067 1.5 % Alejandro Franco (6) 105,000 0.7 % Robert D. Gillen (7) 241,393 1.6 % All Directors and Officers 1,755,588 11.0 % (1) Includes options to purchase 188,750 shares of common stock, which are exercisable within 60 days of December 31, 2022. (2) Includes options to purchase 55,000 shares of common stock, which are exercisable within 60 days of December 31, 2022. (3) Includes options to purchase 108,750 shares of common stock, which are exercisable within 60 days of December 31, 2022. (4) Includes options to purchase 68,750 shares of common stock, which are exercisable within 60 days of December 31, 2022. (5) Consists of (a) options to purchase 118,125 shares of common stock, which are exercisable within 60 days of December 31, 2022, and b) 19,925 shares of common stock held by Farnsworth Realty, an entity owned by Mr. Farnsworth. (6) Consists of (a) options to purchase 73,750 shares of common stock, which are exercisable within 60 days of December 31, 2022, and (b) 31,250 shares of common stock held by Amextel S.A. De C.V. an entity owned by Mr. Franco. (7) Consists (a) options to purchase 78,750 shares of common stock, which are exercisable within 60 days of December 31, 2022, and (b) 162,643 shares of common stock. 41 Shares Authorized for Issuance Under Equity Compensation Plans The following table shows the number of securities to be issued upon exercise of outstanding options under equity compensation plans approved by our stockholders and under equity compensation plans not approved by our stockholders as of December 31, 2022. Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans Equity compensation plans approved by stockholders (1) 361,313 $ 7.00 - Equity compensation plans approved by stockholders (2) 653,125 $ 4.84 571,875 Equity compensation plans not approved by stockholders (3) 6,233,660 $ 2.66 - Total 7,248,980 $ 3.07 571,875 (1) Consists of our 2010 and 2012 Option Plan. (2) Consists of our 2020 Option Plan (3) Warrants issued not under a plan ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Transactions with Related Persons, Promoters and Certain Control Persons Other than equity and other compensation, termination, change in control and other similar arrangements, which are described under “Executive and Director Compensation.”, since January 1, 2020 there are no transactions to which we were a party in which (i) the amount involved exceeded or will exceed the lesser of $120,000 of one percent (1%) of our average total assets at year-end for the last two completed fiscal years and (ii) any of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family of, or person sharing the household with, any of the foregoing persons, had or will have a direct or indirect material interest. Director Independence Our Board of Directors has undertaken a review of its composition, the composition of its committees, and the independence of each director. Our Board of Directors has determined, after considering all of the relevant facts and circumstances, that Messrs. Farnsworth, Franco, Gillen, and Omi do not have a relationship with us that would interfere with their exercise of independent judgment in carrying out their responsibilities as a director and that each of these directors is “independent” as that term is defined under the applicable rules and regulations of the SEC. In making this determination, our Board of Directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director. Our Board of Directors did not consider any relationship or transaction between our company and the independent directors not already disclosed in this Annual Report on Form 10-K in making this determination. Mr. Ly is an employee director. The Audit Committee currently consists of Messrs. Farnsworth (Chairman), Franco and Gillen, each of whom is an independent director of our company. The Compensation Committee currently consists of Messrs. Farnsworth (Chairman), Franco and Gillen, each of whom is an independent director of our company. The Nominations and Corporate Governance Committee currently consists of Messrs. Gillen (Chairman), Farnsworth, and Franco, each of whom is an independent director of our company. ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Paid to Independent Registered Public Accounting Firm In July 2021, with the approval of the Audit Committee of the Board of Directors, we appointed BF Borgers CPA PC (“BFB”) as our principal accounting firm. BFB has served as the principal audit firm for Iveda 2020 and 2019 Financial Statements, and 2021 Financial Statements since July 2021. We paid or accrued $119,000 and $100,000, during the year ended December 31, 2022 and 2021, respectively. Audit Committee Pre-Approval Policies As part of its responsibility for oversight of the independent registered public accountants, the Audit Committee has established a pre-approval policy for engaging audit and permitted non-audit services provided by our independent registered public accountants, BFB. In accordance with this policy, each type of audit, audit-related, tax and other permitted service to be provided by the independent auditors is specifically described and each such service, together with a fee level or budgeted amount for such service, is pre-approved by the Audit Committee. The Audit Committee has delegated authority to its Chairman to pre-approve additional non-audit services (provided such services are not prohibited by applicable law) up to a pre-established aggregate dollar limit. All services pre-approved by the Chairman of the Audit Committee must be presented at the next Audit Committee meeting for review and ratification. All of the services provided by BFB described above were approved by the Audit Committee pursuant to our Audit Committee’s pre-approval policy. Our principal accountants, BFB, did not engage any other persons or firms other than their respective full-time, permanent employees. 42 PART IV ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Financial Statements and Financial Statement Schedules 1. Consolidated Financial Statements are listed in the Index to Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K. 2. Other schedules are omitted because they are not applicable, not required, or because required information is included in the Consolidated Financial Statements or notes thereto. (b) Exhibits Exhibit Number Description of Exhibit 2.1 Agreement and Plan of Merger, dated March 21, 2011, by and among Iveda Solutions, Inc., a Nevada corporation, Sole-Vision Technologies, Inc. (doing business as MEGAsys), a corporation organized under the laws of the Republic of China, and the shareholders of MEGAsys (Incorporated by reference to the Form 10-K/A filed on 2/9/2012) 3.1 Articles of Incorporation of Charmed Homes Inc. (Incorporated by reference to the Form SB-2 filed on 4/27/2007) 3.2 Bylaws of Iveda Solutions, Inc. (Incorporated by reference to the Form 10-K filed on 3/31/2014) 3.3 Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on September 9, 2009 (Incorporated by reference to the Form 8-K filed on 10/21/2009) 3.4 Articles of Merger filed with the Secretary of State of Nevada on December 28, 2010, and dated effective December 31, 2010 (Incorporated by reference to the Form 8-K filed on January 4, 2010) 3.5 Certificate of Amendment to Articles of Incorporation filed with the Secretary of State of Nevada on December 9, 2014 containing the rights and preferences of the Series A Preferred Stock (Incorporated by reference to the Form 8-K filed on December 15, 2014) 3.6 Certificate of Amendment of Articles of Incorporation filed with the Secretary of State of Nevada on January 15, 2015, containing the Designation of the Preferences, Rights and Limitations of the Series B Preferred Stock (Incorporated by reference to the Form 8-K filed on January 23, 2015) 4.1 Specimen Stock Certificate (Incorporated by reference to the Form SB-2 filed on 4/27/2007) 4.2 Form of Stock Option Agreement under the IntelaSight, Inc. 2008 Stock Option Plan (Incorporated by reference to the Form S-4/A1 filed on 7/10/2009) 4.3 Form of Common Stock Purchase Warrant issued by IntelaSight, Inc. (Incorporated by reference to the Form S-4/A1 filed on 7/10/2009) 4.4 2009 Stock Option Plan, dated October 15, 2009 (Incorporated by reference to the Form 8-K filed on 10/21/2009) 4.5 Form of Common Stock Purchase Warrant issued by Iveda Corporation in conjunction with the Merger (Incorporated by reference to the Form 8-K filed on 10/21/2009) 4.6 2010 Stock Option Plan, dated January 18, 2010 (Incorporated by reference to the Form S-8 filed on 2/4/2010) 4.7 Form of Notice of Grant of Stock Option under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Form S-8 filed on 6/24/2011) 4.8 Form of Stock Option Agreement under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Form S-8 filed on 6/24/2011) 4.9 Form of Stock Option Exercise Notice under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Form S-8 filed on 6/24/2011) 43 4.10 Form of Tranche A Warrant (Incorporated by reference to the Form 8-K filed on 1/28/2015) 4.11 Form of Tranche B Warrant (Incorporated by reference to the Form 8-K filed on 1/28/2015) 4.12 Registration Rights Agreement dated January 16, 2015 (Incorporated by reference to the Form 8-K filed on 1/28/2015) 4.13 2020 Stock Option Plan, dated January 18, 2020 (filed with amended Form 10-12g filed on 10/25/2021 4.14 Form of Warrant to purchase common stock to officers, directors, employees, and consultants (Incorporated by reference to the Form S-1 filed on 12/30/2021) 4.15 Form of Convertible Debenture(Incorporated by reference to the Form S-1 filed on 12/30/2021) 4.16 Form of Warrant(Incorporated by reference to the Form S-1 filed on 12/30/2021) 10.1 Application Development Service Agreement dated July 14, 2006 by and between Axis Communications AB and IntelaSight, Inc. (Incorporated by reference to the Form S-4/A2 filed on 8/2/2009) 10.2 Partner Agreement dated January 30, 2007 by and between Milestone Systems, Inc. and IntelaSight, Inc. (Incorporated by reference to the Form S-4/A1 filed on 7/10/2009) 10.3 Solution Partner Agreement dated March 13, 2008 by and between Milestone Systems A/S and IntelaSight, Inc. (Incorporated by reference to the Form S-4/A1 filed on 7/10/2009) 10.4 Channel Partner Program Membership Agreement – Gold Solution Partner Level – dated June 23, 2009 by and between Axis Communications Inc. and IntelaSight, Inc. (Incorporated by reference to the Form S-4/A1 filed on 7/10/2009) 10.5 Stock Purchase Agreement, dated October 15, 2009, by and among Iveda Corporation, IntelaSight, Inc., Ian Quinn and Kevin Liggins (Incorporated by reference to the Form 8-K filed on 10/21/2009) 10.6 Subscription Agreement, dated July 26, 2010 (Incorporated by reference to Form 10-Q filed on November 12, 2010) 10.7 Line of Credit Promissory Note, dated September 15, 2010 (Incorporated by reference to Form 10-Q filed on November 12, 2010) 10.8 Agreement for Service, dated October 20, 2010 (Incorporated by reference to Form 10-Q filed on November 12, 2010) 10.9 Consulting Agreement, dated October 25, 2010 (Incorporated by reference to Form 10-Q filed on November 12, 2010) 10.10 Operating Level Agreement, dated October 25, 2010 (Incorporated by reference to Form 10-Q filed on November 12, 2010) 10.11 Side Letter, dated March 21, 2011, by and among Iveda Solutions, Inc., a Nevada corporation, Sole-Vision Technologies, Inc. (doing business as MEGAsys), a corporation organized under the laws of the Republic of China, and the shareholders of MEGAsys (Incorporated by reference to Form 10-K filed on 3/30/2011) 10.12 Non-Exclusive Strategic Collaboration Agreement between Iveda Solutions, Inc. and Telmex, U.S.A., LLC, dated October 28, 2011 (Incorporated by reference to Form 10-Q/A filed on 3/7/2012) 10.13 2010 Digital Video Remote Monitoring Recording System Procurement Contract between Sole-Vision Technology, Inc. and New Taipei City Police Department Purchasing Authority, dated January 9, 2012 (Incorporated by reference to Form 10-K filed on 3/30/2012) 10.14 Consulting Agreement between Iveda Solutions, Inc. and Amextel S.A. de C.V. dated November 2, 2011 (Incorporated by reference to Form 10-K/A filed on 5/11/2012) 10.15 Securities Purchase Agreement dated January 16, 2015 (Incorporated by reference to the Form 8-K filed on 1/28/2015) 10.17 Cooperation Agreement with Industrial Technology Research Institute dated November 2012 (Incorporated by reference to the Form S-1 filed on 12/30/2021) 10.18 Form of Subscription Agreement (Incorporated by reference to the Form S-1 filed on 12/30/2021) 14.1 Code of Conduct and Ethics (Incorporated by reference to the Form 10-K filed on 4/15/2010) 14.2 Code of Ethics for Chief Executive Officer and Senior Financial Officers (Incorporated by reference to the Form 10-K filed on 4/15/2010) 21 Subsidiaries of the Registrant (Incorporated by reference to Form 10-K filed on 3/30/2012) 31.1* Certification of Principal Executive Officer pursuant to Exchange Act Rule 15d-14(a) 31.2* Certification of Principal Financial Officer pursuant to Exchange Act Rule 15d-14(a) 32.1* Certification of Principal Executive Officer Pursuant to Section 1350 32.2* Certification of Principal Financial Officer Pursuant to Section 1350 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished herewith. † Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. 44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 31, 2023 IVEDA SOLUTIONS, INC. By: /s/ David Ly David Ly Chief Executive Officer and Chairman Date: March 31, 2023 IVEDA SOLUTIONS, INC. By: /s/ Robert J. Brilon Robert J. Brilon Chief Financial Officer and Treasurer Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ David Ly Chief Executive Officer and Chairman March 31, 2023 David Ly (Principal Executive Officer) /s/ Robert J. Brilon Chief Financial Officer, Treasurer March 31, 2023 Robert J. Brilon (Principal Financial and Accounting Officer) /s/ Joseph Farnsworth Director March 31, 2023 Joseph Farnsworth /s/ Alejandro Franco Director March 31, 2023 Alejandro Franco /s/ Robert D. Gillen Director March 31, 2023 Robert D. Gillen 45 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 5041 ) F-2 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2022 AND 2021 F-3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 F-4 CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8 F- 1 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Iveda Solutions, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Iveda Solutions, Inc. as of December 31, 2022 and 2021, the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /S/ BF Borgers CPA PC BF Borgers CPA PC (PCAOB ID 5041) We have served as the Company’s auditor since 2021 Lakewood, CO March 31, 2023 F- 2 IVEDA SOLUTIONS, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2022 AND 2021 December 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 7,312,095 $ 1,385,275 Restricted Cash 129,527 142,688 Accounts Receivable, Net 1,222,690 492,752 Inventory, Net 526,470 344,654 Other Current Assets 371,990 310,657 Total Current Assets 9,562,772 2,676,026 PROPERTY AND EQUIPMENT, NET 32,911 38,189 OTHER ASSETS Other Assets 267,387 273,419 Total Other Assets 267,387 273,419 Total Assets $ 9,863,070 $ 2,987,634 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts and Other Payables $ 1,638,727 $ 2,955,826 Due to Related Parties - 300,000 Short Term Debt 398,409 50,000 Current Portion of Long-Term Debt 65,408 120,284 Total Current Liabilities 2,102,544 3,426,110 LONG-TERM DEBT 190,776 338,803 LONG-TERM DIVIDENDS PAYABLE - - 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 December 31, 2022 and December 31, 2021, respectively - - Preferred stock, value Common Stock, $ 0.00001 par value; 100,000,000 shares authorized; 15,066,739 and 9,668,369 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 150 97 Additional Paid-In Capital 52,496,914 40,727,518 Accumulated Comprehensive Loss ( 220,643 ) ( 143,493 ) Accumulated Deficit ( 44,706,671 ) ( 41,361,401 ) Total Stockholders’ Equity (Deficit) 7,569,750 ( 777,279 ) Total Liabilities and Stockholders’ Equity $ 9,863,070 $ 2,987,634 See accompanying Notes to Consolidated Financial Statements. F- 3 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2022 AND 2021 2022 2021 REVENUE Equipment Sales $ 4,159,398 $ 1,647,996 Service Revenue 308,881 264,402 Other Revenue - 5,450 TOTAL REVENUE 4,468,279 1,917,848 COST OF REVENUE 3,504,778 1,085,593 GROSS PROFIT 963,501 832,255 OPERATING EXPENSES General & Administrative 4,292,820 3,557,603 Total Operating Expenses 4,292,820 3,557,603 LOSS FROM OPERATIONS ( 3,329,320 ) ( 2,725,349 ) OTHER INCOME (EXPENSE) Miscellaneous Income (Expense) ( 17,078 ) - Interest Income 57,397 354 Interest Expense ( 53,323 ) ( 273,649 ) Total Other Income (Expense) ( 13,004 ) ( 273,295 ) LOSS BEFORE INCOME TAXES ( 3,342,324 ) ( 2,998,644 ) BENEFIT (PROVISION) FOR INCOME TAXES ( 2,947 ) - NET LOSS $ ( 3,345,270 ) $ ( 2,998,644 ) BASIC AND DILUTED LOSS PER SHARE $ ( 0.26 ) $ ( 0.34 ) WEIGHTED AVERAGE SHARES 12,846,848 8,940,367 See accompanying Notes to Consolidated Financial Statements. F- 4 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Shares Common Stock Amount Preferred Shares Additional Paid-in-Capital Accumulated Deficit Accumulated Other Comprehensive Income (loss) Total Stockholders’ Equity(Deficit) BALANCE AT December 31, 2020 6,583,924 $ 66 257 - $ 34,769,076 $ ( 38,322,456 ) $ ( 153,254 ) $ ( 3,706,568 ) Common Stock Issued for Cash 757,655 8 2,661,992 2,662,000 Costs of Capital ( 2,091,101 ) ( 2,091,101 ) Stock Based Compensation 801,908 801,908 Common Stock for Accounts Payable 27,896 1 99,789 99,789 Common Stock for Costs of Financing 628,750 6 1,932,730 1,932,736 Warrants for Services 148,480 148,480 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 1,090,015 11 ( 259 ) 432,165 432,176 Dividends - P/S Series B ( 40,301 ) ( 40,301 ) Conversion of Debt & Interest to Common Stock 439,527 4 1,294,576 1,294,580 Exercise of options and warrants 140,602 1 514,696 514,697 Net Loss - - ( 2,998,644 ) ( 2,998,644 ) Comprehensive Loss 9,761 9,761 BALANCE AT December 31, 2021 9,668,369 97 0 - $ 40,727,518 $ ( 41,361,401 ) $ ( 143,493 ) $ ( 777,279 ) Balance, value 9,668,369 97 0 - $ 40,727,518 $ ( 41,361,401 ) $ ( 143,493 ) $ ( 777,279 ) Costs of Capital ( 1,613,470 ) ( 1,163,918 ) Stock Based Compensation 120,581 120,581 Common Stock issued for conversion error 65 - - - Common Stock issued for services 215,000 1 219,899 219,900 Warrants for Services 5,555 5,555 Exercise of options and warrants 8,215 - 23,000 23,000 Common Stock Offering for Cash 1,885,000 19 8,011,231 8,011,250 Common Stock and Pre-Funded Warrant Offering for Cash – August 2022 3,289,474 33 4,999,803 4,999,836 Warrants sold in Over allotment 2,797 2,797 Net Loss - - ( 3,345,270 ) ( 3,345,270 ) Comprehensive Loss ( 77,150 ) ( 77,150 ) 8 for 1 conversion adjustment 616 BALANCE AT December 31, 2022 15,066,739 $ 150 0 - $ 52,496,914 $ ( 44,706,671 ) $ ( 220,643 ) $ 7,569,750 Balance, value 15,066,739 $ 150 0 - $ 52,496,914 $ ( 44,706,671 ) $ ( 220,643 ) $ 7,569,750 * All share amounts and per share amounts reflect a reverse stock split of the outstanding shares of our Common Stock at a ratio of 1-for-8 effected on March 31, 2022. See accompanying Notes to Consolidated Financial Statements F- 5 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31, 2022 AND 2021 2022 2021 CASH FLOWS FROM OPERATING ACTIVITIES Net Loss $ ( 3,345,270 ) $ ( 2,998,644 ) Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities Depreciation and Amortization 17,801 15,016 Interest Value of Convertible Debt Issued - 69,729 Stock Option Compensation 120,581 801,908 Common Stock Warrants Issued for Services 5,555 148,480 Common Stock Warrants Issued for Interest - 69,729 Common Stock issued for Services 219,900 - (Increase) Decrease in Operating Assets Accounts Receivable ( 785,969 ) ( 266,138 ) Inventory ( 214,898 ) ( 122,786 ) Other Current Assets ( 168,122 ) ( 100,228 ) Other Assets ( 19,919 ) ( 41,795 ) Increase (Decrease) in Accounts and Other Payables ( 1,238,379 ) 452,636 Net Cash Used in Operating Activities ( 5,408,720 ) ( 1,972,093 ) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property and Equipment ( 14,165 ) ( 24,513 ) Net Cash Provided by (Used in) Investing Activities ( 14,165 ) ( 24,513 ) CASH FLOWS FROM FINANCING ACTIVITIES Changes in Restricted Cash ( 214 ) 22,457 Proceeds from (Payments on) Short-Term Notes Payable/Debt 358,888 ( 11,238 ) Proceeds from (Payments to) Due to Related Parties ( 300,000 ) ( 82,711 ) Proceeds from (Payments to) Long-Term Debt ( 164,093 ) 459,087 Payments for Deferred Finance Costs - ( 88,328 ) Common Stock Issued, Net of (Cost of Capital) 11,511,741 2,823,332 Net Cash Provided by Financing Activities 11,406,322 3,122,599 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 56,617 ) 9,761 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,926,820 1,135,754 Cash and Cash Equivalents- Beginning of Period 1,385,275 249,521 CASH AND CASH EQUIVALENTS - END OF PERIOD $ 7,312,095 $ 1,385,275 See accompanying Notes to Consolidated Financial Statements. F- 6 IVEDA SOLUTIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDING DECEMBER 31, 2022 AND 2021 2022 2021 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid $ 337,573 $ 2,565 Income Tax Paid $ - $ - SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES Debenture Principal converted to Common Stock $ - $ 934,750 Debenture Accrued Interest converted to Common Stock $ - $ 359,831 Rent Accounts Payable to related Party converted to Common Stock $ - $ 55,789 Accounts Payable converted to Common Stock $ - $ 44,000 Common Stock issued for Consulting Agreements related to Cost of Capital $ - $ 1,932,736 Dividends Paid with Series B Preferred Stock $ - $ - Accrued Dividends converted to Common Stock $ - $ 455,926 See accompanying Notes to Consolidated Financial Statements. F- 7 IVEDA SOLUTIONS, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Iveda has been offering real-time IP video surveillance technologies to our customers since 2005. While we still offer video surveillance technologies, our core product line has evolved to include AI intelligent search technology that provide true intelligence to any video surveillance system and IoT (Internet of Things) devices and platforms. Our evolution is in response to digital transformation demands from many cities and organizations across the globe. Our IvedaAI intelligent video search technology adds critical intelligence to normally passive video surveillance systems. IvedaAI provides AI functions to any IP camera and most popular network video recorders (NVR) and video management systems (VMS). IvedaAI comes with an appliance or server, preconfigured with multiple AI functions based on the end user requirements. AI Functions ● Object Search ● Face Search (No Database Required) ●  Face Recognition (from a Database) ● License Plate Recognition (100+ Countries), includes make and model ● Intrusion Detection ● Weapon Detection ● Fire Detection ● People Counting ● Vehicle Counting ● Temperature Detection ● Public Health Analytics (Facemask Detection, ● QR and Barcode Detection Key Features ● Live Camera View ● Live Tracking ● Abnormality Detection – Vehicle/Person wrong direction detection ● Vehicle/Person Loitering Detection ● Fall Detection ● Illegal Parking Detection ● Heatmap Generation IvedaAI consists of deep-learning video analytics software running in a computer/server environment that can either be deployed at an edge level or data center for centralized cloud model. We combined hardware and artificial intelligence software for fast and efficient video search for objects stored in an external (NVR) or storage device and live streaming video data from any IP camera. IvedaAI works with any ONVIF-compliant IP cameras and most popular NVR/VMS (Video Management System) platforms, enabling accurate search across dozens to thousands of cameras in less than 1 second. IvedaAI products are designed to maximize efficiency, save time, and cut cost. Instead of watching hours of video recording after-the-fact, users can set up alerts. Iveda offers many IoT sensors and devices for various applications such as energy management, smart home, smart building, smart community and patient/elder care. Our gateway and station serve as the main hub for sensors and devices in any given area. They are equipped with high-level communication protocols such as Zigbee, WiFi, Bluetooth, and USB. They connect to the Internet via Ethernet or cellular data network. We provide IoT platforms that enable centralized device management and push digital services on a massive scale. Our smart devices include water sensor, environment sensor, entry sensor, smart plug, siren, body temperature pad, care watch and tracking devices. We also offer smart power technology for office buildings, schools, shopping centers, hotels, hospitals, and smart city projects. Our smart power hardware is equipped with an RS485 communication interface allowing the meters to be connected to various third-party SCADA software for monitoring and control purposes. This line of product includes smart power, water meter, smart lighting controls systems, and smart payment system. F- 8 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. Utilus is our smart pole solution, utilizing our Cerebro IoT platform. This completes our digital transformation solution crucial in smart city deployments as well as in large organizations. Iveda leverages infrastructure already available in most modern cities – Light poles with power We equip existing poles with Utilus. Utilus consists of power and Internet, establishing a communication network for access and management of sensors and devices that the city requires to keep its citizens safe and secure and to effectively manage utility consumption. Our smart pole offering is also ideal for government or large scale city deployments Supporting and Improving City Services Reducing Emergency Response Times Crime & Hazard Protection Monitoring and Improving Air Quality Sound Detection Traffic Monitoring and Mobility as a Service Data Analytics and Monetization Opportunities IvedaCare launched in November 2022 is a simple, easy to use suite of wireless health and wellness devices intended to help you monitor the health and activities of your loved ones, even when you can’t be there yourself. Our mission is to help ensure your loved one’s safety and independence. Stay connected to your elderly loved ones with our advanced IoT devices. Real-time monitoring, fall detection, medication reminders and more. With IvedaCare, you not only can monitor your home and loved ones from afar, but potentially life-saving decisions can be made using the app. Cloud-based, wireless sensors collect real-time data that is shared with the entire family circle within the app. Customers may add a subscription service for Pro Monitoring. If the Trusted Circle is unavailable, our emergency call center will dispatch emergency services quickly. Historically, we sold and installed video surveillance equipment, primarily for security purposes and secondarily for operational efficiencies and marketing. We also provided video hosting, in-vehicle streaming video, archiving, and real-time remote surveillance services to a variety of businesses and organizations. While we only used off-the shelf camera systems from well-known camera brands, we now source our own cameras using manufacturers in Taiwan in order for us to be more flexible in fulfilling our customer needs. We now have the capability to provide IP cameras and NVRs based on customer specifications. We still utilize ONVIF (Open Network Video Interface Forum) cameras which is a global standard for the interface of IP-based physical security products. In 2014, we changed our revenue model from direct project-based sales to licensing our platform and selling IoT hardware to service providers such as telecommunications companies, integrators and other technology resellers already providing services to an existing customer base. Partnering with service providers that have an existing loyal subscriber base allows us to focus on servicing just a handful of our partners and concentrating on our technology offering. Service providers leverage their end-user infrastructure to sell, bill, and provide customer service for Iveda’s product offering. This business model provides dual revenue streams – one from hardware sales and the other from monthly licensing fees. MEGAsys, our subsidiary in Taiwan, specializes in deploying new, and integrating existing, video surveillance systems for airports, commercial buildings, government customers, data centers, shopping centers, hotels, banks, and Safe City. MEGAsys combines security surveillance products, software, and services to provide integrated security solutions to the end user. Through Iveda Taiwan, we have access not only to Asian markets but also to Asian manufacturers and engineering expertise. Iveda Taiwan is our research and development arm, working with a team of developers in Taiwan. Consolidation Effective April 30, 2011, we completed our acquisition of Sole Vision Technologies (fka MEGAsys and dba Iveda Taiwan), a company based in Taiwan. We consolidate our financial statements with the financial statements of Iveda Taiwan. All intercompany balances and transactions have been eliminated in consolidation. F- 9 Impairment of Long-Lived Assets We have a significant amount of property and equipment, consisting primarily of leased equipment. We review the recoverability of the carrying value of long-lived assets using the methodology prescribed in ASC 360 “Property, Plant and Equipment.” We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net operating cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying value of the assets exceeds their fair value. We did not make any impairment for the years ended December 31, 2022 and 2021. Basis of Accounting Our consolidated financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Revenue and Expense Recognition The Company applies the provisions of Accounting Standards Codification (ASC) 606-10, Revenue from Contracts with Customers , and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to its customers in an amount reflecting the consideration to which it expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when a performance obligation is satisfied. The Company considers customer purchase orders, which in some cases are governed by master sales agreements, to be the contracts with the customer. In situations where sales are to a distributor, the Company had concluded its contracts are with the distributor as the Company holds a contract bearing enforceable rights and obligations only with the distributor. As part of its consideration for the contract, the Company evaluates certain factors including the customers’ ability to pay (or credit risk). For each contract, the Company considers the promise to transfer products, each of which is distinct, to be the identified performance obligations. In determining the transaction price, the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which it expects to be entitled. As the Company’s standard payment terms are less than one year, it has elected the practical expedient under ASC 606-10-32-18 to not assess whether a contract has a significant financing component. The Company allocates the transaction price to each distinct product based on its relative standalone selling price. The product price as specified on the purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control of the product is transferred to the customer ( i.e. , when the Company’s performance obligations is satisfied), which typically occurs at shipment. Further in determining whether control has been transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer. Customers do not have a right to return the product other than for warranty reasons for which they would only receive repair services or replacement product. The Company has also elected the practical expedient under ASC 340-40-25-4 to expense commissions for product sales when incurred as the amortization period of the commission asset the Company would have otherwise recognized is less than one year. F- 10 The Company sells its products and services primarily to municipalities and commercial customers in the following manner: ● The majority of Iveda Taiwan sales are project sales to Taiwan customers and are made direct to the end customer (typically a municipality or a commercial customer) through its sales force, which is composed of its employees. Revenue is recorded when the equipment is shipped to the end customer and charged for service when installation or maintenance work is performed. Revenues from fixed-price equipment installation contracts (project sales) are recognized on the percentage-of-completion method. The percentage completed is measured by the percentage of costs incurred to date to estimated total costs for each contract. This method is used because management considers expended costs to be the best available measure of progress on these contracts. Because of inherent uncertainties in estimating costs and revenues, it is at least reasonably possible that the estimates used will change. Contract costs include all direct material, subcontractors, labor costs, and equipment costs and those indirect costs related to contract performance. General and administrative costs are charged to expense as incurred. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Changes in estimated job profitability resulting from job performance, job conditions, contract penalty provisions, claims, change orders, and settlements are accounted for as changes in estimates in the current period. Profit incentives are included in revenues when their realization is reasonably assured. Claims are included in revenues when realization is probable and the amount can be reliably estimated. ● The majority of Iveda US hardware sales are to international customers and are made through independent distributors or integrators who purchase products from the Company at a wholesale price and sell to the end user (typically municipalities or a commercial customer) at a retail price. The distributor retains the margin as its compensation for its role in the transaction. The distributor or integrator generally maintains product inventory or product is drop shipped from the manufacturer, customer receivables and all related risks and rewards of ownership. Accordingly, upon application of steps one through five above, revenue is recorded when the product is shipped to the distributor or as directed by the distributor consistent with the terms of the distribution agreement. ● Iveda US also sells software that include licensing fees that are paid either monthly or yearly. The revenues are recorded monthly, if the license is paid yearly the revenue will be recorded as deferred revenue and amortized on a straight-line basis over the respective time period. Comprehensive Loss Comprehensive loss is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Our current component of other comprehensive income is the foreign currency translation adjustment. Concentrations Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable. Substantially all cash is deposited in three financial institutions, two in the United States and one in Taiwan. At times, amounts on deposit in the United States may be in excess of the FDIC insurance limit. Deposits in Taiwan financial institutions are insured by CDIC (Central Deposit Insurance Corporation) with maximum coverage of NTD 3 million. At times, amounts on deposit in Taiwan may be in excess of the CDIC Insurance limit. F- 11 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. At December 31, 2022 one customer out of a total of 36 customer accounts receivable accounts was 52 % of the total accounts receivable. This specific customer was Chicony Power Technology Co Ltd. One customer (Chunghwa Telecom) represented approximately 95 % of total accounts receivable of $ 492,752 as of December 31, 2021. These customers are longtime customers, and we don’t expect any problem with collectability of these accounts receivable. Revenue from two customers out of 42 total customers represented approximately 52 % of total revenue for the year ended December 31, 2022. These specific customers were 1) We had $9 48,592 revenues ( 21 %) from Chunghwa Telecom, 2) We had $ 1,385,026 revenues ( 31 %) from Chicony Power Technology Co Ltd, (both Taiwan companies) of total revenues of $ 4,468,279 . We had revenue from two customers with greater than 10 % of total revenues for the year ended December 31, 2021 that represented approximately 55 % of total revenues. We had $ 786,686 revenues ( 41 %) from Chunghwa Telecom and $ 260,946 revenues ( 14 %) from Taiwan Stock Exchange Corporation of total revenues of $ 1,917,848 . No other customers represented greater than 10 % of total revenues in years ended December 31, 2022 and 2021. Cash and Cash Equivalents For purposes of the statement of cash flows, we consider all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Accounts Receivable We provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing economic conditions. For our U.S.-based segment, receivables past due more than 120 days are considered delinquent. For our Taiwan-based segment, receivables over one year are considered delinquent. Delinquent receivables are written off based on individual credit valuation and specific circumstances of the customer. As of December 31, 2022 and 2021, 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 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 December 31, 2022 and 2021, 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 years ended December 31, 2022 and 2021 was $ 17,801 and $ 15,016 , respectively. F- 12 Deposits—Long-Term Long-term deposits consist of a deposit related to the leases of Iveda Taiwan’ office space, and tender deposits placed with local governments and major customers in Taiwan as part of the bidding process, which are anticipated to be held more than one year if the bid is accepted. Income Taxes Deferred income taxes are recognized in the consolidated financial statements for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts based on enacted tax laws and statutory tax rates. Temporary differences arise from sales cut-off, depreciation, deferred rent expense, and net operating losses. Valuation allowances are established when necessary to reduce deferred tax assets to the amount that represents our best estimate of such deferred tax assets that, more likely than not, will be realized. Income tax expense is the tax payable for the year and the change during the year in deferred tax assets and liabilities. During 2021, we reevaluated the valuation allowance for deferred tax assets and determined that no current benefits should be recognized for the year ended December 31, 2022. 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 2018 to 2021 are open to examination by federal, local, and state authorities. Our Taiwan tax returns are subject to review and examination by the Taiwan Ministry of Finance. Our Taiwan tax return for the years 2018 to 2021 are open to examination by the Taiwan Ministry of Finance. Restricted Cash Restricted cash represents time deposits on account to secure short-term bank loans in our Taiwan-based segment. Accounts and Other Payables SCHEDULE OF ACCOUNTS AND OTHER PAYABLES December 31, 2022 December 31, 2021 Accounts Payable $ 360,395 $ 62,889 Accrued Expenses 1,243,027 2,834,726 Deferred Revenue and Customer Deposits 35,305 58,211 Accounts and Other Payables $ 1,638,727 $ 2,955,826 Deferred Revenue Advance payments received from customers on future installation projects are recorded as deferred revenue. F- 13 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, 2022 and 2021, were estimated using the “minimum value method” as prescribed by original provisions of ASC 718, “Accounting for Stock-Based Compensation.” Therefore, no compensation expense is recognized for these awards in accordance with ASC 718. We recognized $ 120,581 and $ 801,908 of stock-based compensation expense for the years ended December 31, 2022 and 2021, respectively. Fair Value of Financial Instruments Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of December 31, 2022 and December 31, 2021. The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accounts receivable, 0 payable, accrued expenses, and amounts due to related parties. Fair values were assumed to approximate carrying values for these financial instruments because they are short-term in nature and their carrying amounts approximate their fair values or because they are receivable or payable on demand. Segment Information We conduct operations in various geographic regions. The operations conducted and the customer bases located in the foreign countries are similar to the business conducted and the customer bases located in the United States. The net revenues and net assets (liabilities) for other significant geographic regions are as follows: SCHEDULE OF NET REVENUE AND NET ASSETS (LIABILITIES) FOR OTHER SIGNIFICANT GEOGRAPHIC REGIONS December 31, 2022 Net Revenue Net Assets (Liabilities) United States $ 918,465 $ 6,787,646 Republic of China (Taiwan) $ 3,549,814 $ 782,104 Furthermore, due to operations in various geographic locations, we are susceptible to changes in national, regional, and local economic conditions, demographic trends, consumer confidence in the economy, and discretionary spending priorities that may have a material adverse effect on our future operations and results. We are required to collect certain taxes and fees from customers on behalf of government agencies and remit them back to the applicable governmental agencies on a periodic basis. The taxes and fees are legal assessments to the customer, for which we have a legal obligation to act as a collection agent. Because we do not retain the taxes and fees, we do not include such amounts in revenue. We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable governmental agencies. Reclassification Certain amounts in 2021 have been reclassified to conform to the 2022 presentation. New Accounting Standards No new relevant accounting standards F- 14 NOTE 2 RELATED PARTIES SCHEDULE OF RELATED PARTY TRANSACTIONS December 31, 2022 December 31, 2021 - 200,000 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 2,500 shares of our common stock with an exercise price of $ 6.16 per share. This debenture was extended to December 31, 2022. Mr. Omi is currently the CTO of the company. - 200,000 On November 19, 2012, we entered into a convertible debenture agreement with Mr. Robert Gillen, a member of our Board of Directors, for $ 100,000 (the “Gillen I Debenture”), under his company Squirrel-Away, LLC. Under the original terms of the agreement, interest is payable at 10 % per annum and became due on December 19, 2014 . Gillen I Debenture was extended to January 5, 2015 . On June 20, 2013, interest of $ 5,000 was paid on the debenture. As consideration for agreeing to extend the maturity date of the debenture to December 31, 2015 , we granted Mr. Gillen options to purchase 1,250 shares of common stock at an exercise price of $ 6.16 per share This debenture was extended to December 31, 2022 . $ - $ 100,000 Total Due to Related Parties $ - 300,000 Less Current Portion - ( 300,000 ) Less: Debt Discount - - Total Long-Term $ - $ - NOTE 3 SHORT-TERM AND LONG-TERM DEBT The short-term debt balances were as follows: SCHEDULE OF SHORT-TERM DEBT December 31, 2022 December 31, 2021 - 50,000 Debenture agreements with a shareholder at 10 % interest rate beginning August 2019, one year maturity, was due August 2020 , principal and interest convertible at $ 2.80 per share into common stock at the option of the holder until repaid. All principal and accrued interest of $ 17,079 was repaid in December 2022. - 50,000 Loan Agreement with Shanghai Bank at 2.94 % interest rate per annum due September 2023 . 398,409 - Balance at end of period $ 398,409 $ 50,000 The Long-term debt balances were as follows: SCHEDULE OF LONG-TERM DEBT 256,184 469,087 Loans from Shanghai Bank with interest rates 1.50 % - 2.97 % per annum due February 2024 – November 2026 256,184 469,087 Current Portion of Long-term debt ( 65,408 ) ( 120,284 ) Balance at end of period $ 190,776 338,803 F- 15 NOTE 4 PREFERRED STOCK We are currently authorized to issue up to 12,500,000 shares of preferred stock, par value $ 0.00001 per share, 1,250,000 shares of which are designated as Series A Preferred Stock and 500 shares of which are designated as Series B Preferred Stock. Our Articles of Incorporation authorize the issuance of shares of preferred stock with designations, rights, and preferences determined from time to time by our Board of Directors. Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the stockholders of our common stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control of our company. NOTE 5 EQUITY Common Stock We are authorized to issue up to 37,500,000 shares of common stock, par value $ 0.00001 per share. All outstanding shares of our common stock are of the same class and have equal rights and attributes. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders of our company . Our common stock does not have cumulative voting rights. Persons who hold a majority of the outstanding shares of our common stock entitled to vote on the election of directors can elect all of the directors who are eligible for election. Holders of our common stock are entitled to share equally in dividends, if any, as may be declared from time to time by our Board of Directors. In the event of liquidation, dissolution, or winding up of our company, subject to the preferential liquidation rights of any series of preferred stock that we may from time to time designate, the holders of our common stock are entitled to share ratably in all of our assets remaining after payment of all liabilities and preferential liquidation rights. Holders of our common stock have no conversion, exchange, sinking fund, redemption, or appraisal rights (other than such as may be determined by the Board of Directors in its sole discretion) and have no preemptive rights to subscribe for any of our securities. NOTE 6 STOCK OPTION PLAN AND WARRANTS Stock Options On January 18, 2010, we adopted the 2010 Stock Option Plan (the “2010 Option Plan”), which allows the Board to grant options to purchase up to 125,000 shares of common stock to directors, officers, key employees, and service providers of our company. In 2011, the 2010 Option Plan was amended to increase the number of shares issuable under the 2010 Option Plan to 375,000 shares. In 2012, 2010 Option Plan was again amended to increase the number of shares issuable under the 2010 Option Plan to 1,625,000 shares. The shares issuable pursuant to the 2010 Option Plan are registered with the SEC under Forms S-8 filed on February 4, 2010 (No. 333- 164691), June 24, 2011 (No. 333-175143), and December 4, 2013 (No. 333-192655). The 2010 Option Plan expired on January 18, 2020. As of December 31, 2022 there were 361,313 options outstanding under the 2010 Option Plan. On December 15, 2020, we adopted the Iveda Solutions, Inc. 2020 Plan (the “2020 Plan”). The 2020 Plan has a maximum of 1,250,000 shares authorized with similar terms and conditions to the 2010 Option Plan. As of December 31, 2022 there were 653,125 options outstanding under the 2020 Option Plan. The shares issuable pursuant to the 2020 Option Plan are registered with the SEC under Forms S-8 filed on October 7, 2022 (No. 333- 267792) F- 16 As of December 31, 2022 and December 31, 2021, there were 1,014,438 and 907,188 options outstanding, respectively, under all the option plans. Stock options may be granted as either incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or as options not qualified under Section 422 of the Code. All options are issued with an exercise price at or above the fair market value of the common stock on the date of the grant as determined by our Board of Directors. Incentive stock option plan awards of restricted stock are intended to qualify as deductible performance-based compensation under Section 162(m) of the Code. Incentive Stock Option awards of unrestricted stock are not designed to be deductible to us under Section 162(m). Under the plans, stock options will terminate on the tenth anniversary date of the grant or earlier if provided in the grant. We have also granted non-qualified stock options to employees and contractors. All non-qualified options are generally issued with an exercise price no less than the fair value of the common stock on the date of the grant as determined by our Board of Directors. Options may be exercised up to ten years following the date of the grant, with vesting schedules determined by us upon grant. Vesting schedules vary by grant, with some fully vesting immediately upon grant to others that ratably vest over a period of time up to four years. Standard vested options may be exercised up to three months following date of termination of the relationship unless alternate terms are specified at grant. The fair values of options are determined using the Black-Scholes option-pricing model. The estimated fair value of options is recognized as expense on the straight-line basis over the options’ vesting periods. At December 31, 2022, we had approximately $ 93,887 unrecognized stock-based compensation. Stock option transactions during 2022 and 2021 were as follows: SCHEDULE OF STOCK OPTION TRANSACTIONS 2022 2021 Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Outstanding at Beginning of Year 893,438 $ 6.80 952,025 $ 5.76 Granted 233,125 2.26 141,875 11.76 Exercised - 4.72 ( 62,500 ) 4.72 Forfeited or Cancelled ( 112,125 ) 7.44 ( 137,963 ) 7.44 Outstanding at End of Year 1,014,438 6.80 893,438 6.80 Options Exercisable at Year-End 959,750 6.80 891,563 6.80 Weighted-Average Fair Value of Options Granted During the Year $ 0.92 $ 0.71 Information with respect to stock options outstanding and exercisable at December 31, 2022 is as follows: SCHEDULE OF STOCK OPTION OUTSTANDING AND EXERCISABLE Options Outstanding Options Exercisable Range of Exercise Prices Number Outstanding at December 31, 2022 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Number Exercisable at December 31, 2022 Weighted- Average Exercise Price $ 0.32 - $ 17.76 1,014,038 6.4 $ 5.61 959,750 $ 5.61 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 2022 2021 Expected Life 5 yrs 5 yrs Dividend Yield 0 % 0 % Expected Volatility 90 % 90 % Risk-Free Interest Rate 1.00 % 1.00 % F- 17 Warrant transactions during 2022 and 2021 were as follows: SCHEDULE OF WARRANT TRANSACTIONS 2022 2021 Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Outstanding at Beginning of Year 872,259 $ 3.04 543,754 $ 3.04 Granted 5,616,224 2.96 509,732 2.96 Exercised ( 8,214 ) 2.80 ( 78,102 ) 2.80 Forfeited or Cancelled ( 246,609 ) 2.80 ( 103,125 ) 2.80 Outstanding at End of Year 6,233,660 2.66 872,259 3.04 Warrant Exercisable at Year-End 6,233,660 2,66 872,259 3.04 Weighted-Average Fair Value of Warrants Granted During the Year $ 0.72 - $ 2.53 $ 1.12 - $ 3.92 Information with respect to warrants outstanding and exercisable at December 31, 2022 is as follows: SUMMARY OF WARRANTS OUTSTANDING AND EXERCISABLE INFORMATION Warrants Outstanding Warrants Exercisable Range of Exercise Prices Number Outstanding at December 31, 2022 Weighted- Average Remaining Contractual Life Weighted- Average Exercise Price Number Exercisable at December 31, 2022 Weighted- Average Exercise Price $ 1.40 - $ 13.20 6,233,660 4.3 $ 2.59 6,233,660 $ 2.59 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 2022 2021 Expected Life 1.5 yrs 1.5 yrs Dividend Yield 0 % 0 % Expected Volatility 90 % 90 % Risk-Free Interest Rate 1.00 % 0.18 - 1.00 % F- 18 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 2022 2021 Tax Operating Loss Carryforward - USA $ 11,800,000 $ 10,800,000 Other - - Valuation Allowance - USA ( 11,800,000 ) ( 10,800,000 ) Deferred Tax Assets, Net $ - $ - The valuation allowance increased approximately $ 1.0 million, primarily as a result of the increased net operating losses of our U.S.- based segment. As of December 31, 2022, we had federal net operating loss carryforwards for income tax purposes of approximately $ 32 million which will begin to expire in 2025 . We also have Arizona net operating loss carryforwards for income tax purposes of approximately $ 2.0 million which expire after five years. These carryforwards have been utilized in the determination of the deferred income taxes for financial statement purposes. The following table accounts for federal net operating loss carryforwards only. SUMMARY OF OPERATING LOSS CARRYFORWARDS Year Ending Net Operating Year of December 31, Loss: Expiration 2022 $ 3,000,000 2042 2021 1,000,000 2041 2020 590,000 2040 2019 260,000 2039 2018 160,000 2038 2017 140,000 2037 2016 1,640,000 2036 2015 3,400,000 2035 2014 5,230,000 2034 2013 5,600,000 2033 2012 2,850,000 2032 2011 2,427,000 2031 2010 1,799,000 2030 2009 1,750,000 2029 2008 1,308,000 2028 2007 429,000 2027 2006 476,000 2026 2005 414,000 2025 Taiwan (Republic of China) Corporate Tax Sole-Vision Technologies, Inc. is a subsidiary of the Company which is operating in Taiwan as a profit-seeking enterprise. Its applicable corporate income tax rate is 17%. In addition, Taiwan’s corporate tax system allows the government to levy a 10% profit retention tax on undistributed earnings for the prior year. This tax will not be provided if the company distributed the earnings before the ended of the fiscal year . According to the Taiwan corporate income tax (“TCIT”) reporting system, the TCIT sales cut-off base is concurrent with the business tax classified as value-added type (“VAT”) which will be reported to the Ministry of Finance (“MOF”) on a bi-monthly basis. Since the VAT and TCIT are accounted for on a VAT tax basis that recorded all sales on business tax on a VAT tax reporting system, the Company is bound to report the TCIT according to the MOF prescribed tax reporting rules. Under the VAT tax reporting system, sales cut-off did not take the accrual base but rather on a VAT taxable reporting basis. Therefore, when the company adopted US GAAP on accrual basis, the sales cut-off TCIT timing difference which derived from the VAT reporting system will create a temporary sales cut-off timing difference and this difference is reflected in the deferred tax assets or liabilities calculations. F- 19 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, 2022 and 2021 and the effect of including dilutive securities in the earnings per common share would have been anti-dilutive for the purpose of calculating EPS. Accordingly, all options, warrants, and shares potentially convertible into common shares were excluded from the calculation of diluted earnings per share for the periods ended December 31, 2022 and 2021. If we did not have net losses in 2022 and 2021 we would have had an additional amount of dilutive securities convertible at less than the then fair market value of the common stock. These amounts would have been 90,000 and 1,367,862 , respectively. SCHEDULE OF EARNINGS PER SHARE BASIC AND DILUTED December 31, 2022 December 31, 2021 Basic EPS Net Loss $ ( 3,345,270 ) $ ( 2,998,644 ) Weighted Average Shares 12,840,598 8,940,368 Basic Loss Per Share $ ( 0.26 ) $ ( 0.34 ) NOTE 9 CONTINGENT LIABILITIES—TAIWAN Pursuant to certain contracts with Chicony Power Technology Co., Ltd., Siemens, and Chung-Hsin Electric and Machinery Manufacturing Corp, Iveda Taiwan is required to provide after-project services. If Iveda Taiwan fails to provide these after-project services in the future, other parties of the related contract would have recourse. The financial exposure to Iveda Taiwan in the event of failure to provide after- project services in the future as of December 31, 2022 is $ 296,536 . NOTE 10 SUBSEQUENT EVENTS During 2023 warrant holders have exercised 945,900 warrants at $ 1.40 per share for gross proceeds of $ 1,324,260 . F- 20