BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended |
Sep. 30, 2014 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] | ' |
| NOTE 1 | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | | | | | | | | | | | |
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These statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted. The operating results and cash flows for the nine-month period ended September 30, 2014, are not necessarily indicative of the results that will be achieved for the full fiscal year ending December 31, 2014 or for future periods. |
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The accompanying condensed consolidated financial statements have been prepared without audit and reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of financial position and the results of operations for the interim periods. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. Estimates are used for, but not limited to, the accounting for the allowance for doubtful accounts, impairment costs, depreciation and amortization, sales returns and discounts, warranty costs, uncertain tax positions and the recoverability of deferred tax assets, stock compensation, contingencies and the fair value of assets and liabilities disclosed. Actual results and outcomes may differ from management’s estimates and assumptions. The statements have been prepared in accordance with GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted pursuant to such SEC rules and regulations. |
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The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. |
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Consolidation |
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Effective April 30, 2011, Iveda Solutions, Inc. (the “Company”) completed its acquisition of Sole Vision Technologies (dba “MegaSys”), a company based in Taiwan. The consolidated financial statements include the accounts of the Company and MegaSys (from May 1, 2011 through September 30, 2012). All intercompany balances and transactions have been eliminated in consolidation. |
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Going Concern |
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The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. The Company’s Audit Report on the Financial Statements for the year ended December 31, 2013 contained a going concern qualification. Since inception, the Company has generated an accumulated deficit from operations of approximately $25.9 million at September 30, 2014 and has used approximately $4.2 million in cash to fund operations through the nine months ended September 30, 2014. As a result, a significant risk exists regarding our ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty. |
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A multi-step plan was adopted by management to enable the Company to continue to operate and begin to report operating profits. The highlights of that plan are: |
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| ⋅ | In September 2014, the Company engaged an investment banker to assist in evaluating potential equity financing opportunities in the near term. | | | | | | | | | | | |
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| ⋅ | As approved by the Board of Directors in December 2013 the Company raised approximately $3.6 million through the private placement of convertible debentures and warrants through June 27, 2014 and will continue efforts of this nature throughout the remainder of the fiscal year as deemed necessary. | | | | | | | | | | | |
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| ⋅ | The Board of Directors approved a plan for the Company to engage a financial advisor in connection with a potential capital raise of up to $30 million (“Long Term Financing”). | | | | | | | | | | | |
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| ⋅ | The Company is actively installing its cloud based software platform with certain telecommunications companies in other countries to create a reoccurring licensing revenue model as well as a distribution channel for proprietary video camera hardware in each respective country. | | | | | | | | | | | |
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| ⋅ | The Company intends to continue to participate in industry and vertical tradeshows to launch new products, generate leads, solicit resellers and other sales channels, and identify potential technology partners. | | | | | | | | | | | |
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| ⋅ | In December 2013, Iveda hired Bob Brilon as our Chief Financial Officer and Executive Vice President of Business Development. He has strong ties with the investment community and has extensive experience in mergers and acquisitions, strategic growth planning, and interacting with domestic and foreign institutional investors, which will be instrumental to our market expansion, global distribution of our cloud video hosting platform and services, and raising capital to fund our growth. In February 2014, the board of Directors appointed Mr. Brilon as the Company’s President. | | | | | | | | | | | |
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Concentrations |
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Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable. |
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Substantially all cash is deposited in two financial institutions, one in the United States and one in Taiwan. At times, amounts on deposit in the United States may be in excess of the FDIC insurance limit. Deposits in Taiwan financial institutions are insured by CDIC (Central Deposit Insurance Corporation) with maximum coverage of NTD 3 million. At times, amounts on deposit in Taiwan may be in excess of the CDIC insurance limit. |
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Accounts receivable are unsecured, and the Company is at risk to the extent such amount becomes uncollectible. The Company performs periodic credit evaluations of its customers’ financial condition and generally does not require collateral. US based segment revenue from two customers represented approximately 41% of total revenues for the nine months ended September 30, 2014, and two customers represented approximately 92% of total accounts receivable at September 30, 2014. Taiwan based segment revenue from three customers represented approximately 67% of total revenues for the nine months ended September 30, 2014, and three customers represented approximately 64% of total accounts receivable at September 30, 2014. |
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Intangible Assets |
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Intangible assets consist of trademarks and other intangible assets associated with the purchase price allocation of MegaSys. Such assets are being amortized over their estimated useful lives ranging from six months to ten years. Other Intangible Assets are fully amortized as of September 30, 2014. Future amortization of Intangible Assets is as follows: |
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Trademarks |
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2014 | | $ | 5,000 | | | | | | | | | | |
2015 | | | 20,000 | | | | | | | | | | |
2016 | | | 20,000 | | | | | | | | | | |
2017 | | | 20,000 | | | | | | | | | | |
Thereafter | | | 66,666 | | | | | | | | | | |
Total | | $ | 131,666 | | | | | | | | | | |
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Fair Value of Financial Instruments |
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2014. The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include cash, accounts receivable, accounts payable, accrued expenses, convertible notes 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 fair values or they are receivable or payable on demand. |
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Derivative Liabilities |
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The Convertible Debentures include both a conversion option and detachable warrants that are being accounted for as derivative liabilities because of anti-dilution provisions, which under US GAAP, prevents them from being indexed to the Company’s stock triggering derivative accounting. The fair value of the conversion option and detachable warrants is carried on the face of the accompanying balance sheet as a Derivative Liability, in current liabilities because the underlying instruments are convertible by the holder at any time until maturity. Any change in fair value of the derivative liability is reported as a gain or loss on derivative liability in the accompanying statement of operations. |
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Segment Information |
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The Company conducts operations in various geographic regions outside the United States. The operations and the customer base conducted in the foreign countries are similar to the United States operations. The net revenues and net assets (liabilities) for other significant geographic regions outside the United States are as follows: |
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| | Net Revenues | | Net Assets (Liabilities) | | | | | | | |
US Revenue | | $ | 470,792 | | $ | -3,349,278 | | | | | | | |
Asia (all of MegaSys) | | $ | 423,224 | | $ | -99,240 | | | | | | | |
Philippines | | $ | 163,059 | | | | | | | | | | |
Mexico | | $ | 158,061 | | | | | | | | | | |
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Furthermore, due to operations in various geographic locations, the Company is 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 the Company’s future operations and results. |
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The Company is required to collect certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies on a periodic basis. These taxes and fees are legal assessments to the customer, for which the Company has a legal obligation to act as a collection agent. Because the Company does not retain these taxes and fees, the Company does not include such amounts in revenue. The Company records a liability when the amounts are collected and relieves the liability when payments are made to the applicable governmental agencies. |
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The Company operates as two reportable business segments in defined in ASC 280, "Segment Reporting." Each business segment has a chief operating decision maker and management personnel which review their business segment’s performance as it relates to revenue, operating profit and operating expenses. |
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| | Three Months | | Three Months | | Condensed | | | | |
| | Ended Sept. 30, 2014 | | Ended Sept. 30, 2014 | | Consolidated | | | | |
| | Iveda Solutions, Inc. | | MegaSys | | Total | | | | |
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Revenue | | $ | 270,142 | | $ | 218,867 | | $ | 489,009 | | | | |
Cost of Revenue | | | 254,417 | | | 142,756 | | | 397,173 | | | | |
Gross Profit | | | 15,725 | | | 76,111 | | | 91,836 | | | | |
Depreciation and Amortization | | | 51,320 | | | 2,235 | | | 53,555 | | | | |
General and Administrative | | | 1,025,477 | | | 141,100 | | | 1,166,577 | | | | |
(Loss) from Operations | | | -1,061,072 | | | -67,224 | | | -1,128,296 | | | | |
Foreign Currency Gain (Loss) | | | 1,226 | | | - | | | 1,226 | | | | |
Gain on Derivatives | | | 59,443 | | | - | | | 59,443 | | | | |
Interest Income | | | 6,352 | | | 13 | | | 6,365 | | | | |
Interest Expense | | | -126,959 | | | -13,116 | | | -140,075 | | | | |
(Loss) Before Income Taxes | | | -1,121,010 | | | -80,327 | | | -1,201,337 | | | | |
(Provision) for Income Taxes | | | - | | | -38 | | | -38 | | | | |
Net Loss | | $ | -1,121,010 | | $ | -80,365 | | $ | -1,201,375 | | | | |
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| | Nine Months | | Nine Months | | Condensed | | | | |
| | Ended Sept. 30, 2014 | | Ended Sept. 30, 2014 | | Consolidated | | | | |
| | Iveda Solutions, Inc. | | MegaSys | | Total | | | | |
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Revenue | | $ | 791,911 | | $ | 423,224 | | $ | 1,215,135 | | | | |
Cost of Revenue | | | 728,605 | | | 192,969 | | | 921,574 | | | | |
Gross Profit | | | 63,306 | | | 230,255 | | | 293,561 | | | | |
Depreciation and Amortization | | | 154,267 | | | 10,981 | | | 165,248 | | | | |
General and Administrative | | | 3,765,486 | | | 348,210 | | | 4,113,696 | | | | |
(Loss) from Operations | | | -3,856,447 | | | -128,936 | | | -3,985,383 | | | | |
Foreign Currency Gain (Loss) | | | 11,935 | | | - | | | 11,935 | | | | |
Gain on Derivatives | | | 101,444 | | | - | | | 101,444 | | | | |
Interest Income | | | 7,127 | | | 1,115 | | | 8,242 | | | | |
Interest Expense | | | -295,166 | | | -20,862 | | | -316,028 | | | | |
(Loss) Before Income Taxes | | | -4,031,107 | | | -148,683 | | | -4,179,790 | | | | |
(Provision) for Income Taxes | | | - | | | -15,917 | | | -15,917 | | | | |
Net Loss | | $ | -4,031,107 | | $ | -164,600 | | $ | -4,195,707 | | | | |
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Revenues as shown below represent sales to external customers for each segment. Additions to long-lived assets as presented in the following table represent capital expenditures. Inventories, property and equipment for operating segments are regularly reviewed by management and are therefore provided below. |
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| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Revenues | | | | | | | | | | | | | |
United States | | $ | 270,142 | | $ | 203,943 | | $ | 791,911 | | $ | 574,179 | |
Republic of China (Taiwan) | | | 218,867 | | | 364,975 | | | 423,224 | | | 1,404,127 | |
| | $ | 489,009 | | $ | 568,918 | | $ | 1,215,135 | | $ | 1,978,306 | |
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| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2014 | | 2013 | | 2014 | | 2013 | |
Operating earnings (loss) | | | | | | | | | | | | | |
United States | | $ | -1,061,072 | | $ | -1,433,885 | | $ | -3,856,447 | | $ | -3,910,673 | |
Republic of China (Taiwan) | | | -67,224 | | | -114,752 | | | -128,936 | | | -310,404 | |
| | $ | -1,128,296 | | $ | -1,548,637 | | $ | -3,985,383 | | $ | -4,221,077 | |
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| | Nine Months Ended | | | | | | | |
| | September 30, | | | | | | | |
| | 2014 | | 2013 | | | | | | | |
Property and equipment, net | | | | | | | | | | | | | |
United States | | $ | 543,580 | | $ | 438,686 | | | | | | | |
Republic of China (Taiwan) | | | 20,966 | | | 12,525 | | | | | | | |
| | $ | 564,546 | | $ | 451,211 | | | | | | | |
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| | Nine Months Ended | | | | | | | |
| | September 30, | | | | | | | |
| | 2014 | | 2013 | | | | | | | |
Additions to (Disposals of) long-lived assets | | | | | | | | | | | | | |
United States | | $ | 245,437 | | $ | 86,868 | | | | | | | |
Republic of China (Taiwan) | | | - | | | -1,660 | | | | | | | |
| | $ | 245,437 | | $ | 85,208 | | | | | | | |
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| | Nine Months Ended | | | | | | | |
| | September 30, | | | | | | | |
| | 2014 | | 2013 | | | | | | | |
Inventory | | | | | | | | | | | | | |
United States | | $ | 318,560 | | $ | 51,955 | | | | | | | |
Republic of China (Taiwan) | | | 119,109 | | | 156,178 | | | | | | | |
| | $ | 437,669 | | $ | 208,133 | | | | | | | |
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| | Nine Months Ended | | | | | | | |
| | September 30, | | | | | | | |
| | 2014 | | 2013 | | | | | | | |
Total Assets | | | | | | | | | | | | | |
United States | | $ | 1,583,716 | | $ | 2,467,126 | | | | | | | |
Republic of China (Taiwan) | | | 2,236,931 | | | 2,154,036 | | | | | | | |
| | $ | 3,820,647 | | $ | 4,621,162 | | | | | | | |
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Reclassification |
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Certain amounts in 2013 may have been reclassified to conform to the 2014 presentation. |
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New Accounting Pronouncements |
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In March 2014 FASB issued Accounting Standards Update (ASU) No. 2014-07, Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements. The guidance addresses the consolidation of lessors in certain common control leasing arrangements and is based on a consensus reached by the Private Company Council (PCC). |
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Under current U.S. GAAP, a company is required to consolidate an entity in which it has a controlling financial interest. The assessment of controlling financial interest is performed under either: (a) a voting interest model; or (b) a variable interest entity model. In a variable interest entity model, the company has a controlling financial interest when it has: (a) the power to direct the activities that most significantly affect the economic performance of the entity; and (b) the obligation to absorb losses or the right to receive benefits of the entity that could be potentially significant to the entity. |
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To determine which model applies, a company preparing financial statements must first determine whether it has a variable interest in the entity being evaluated for consolidation and whether that entity is a variable interest entity. |
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The new guidance allows a private company to elect (when certain conditions exist) not to apply the variable interest entity guidance to a lessor under common control. Instead, the private company would make certain disclosures about the lessor and the leasing arrangement. |
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Under the amendments in this ASU, a private company lessee could elect an alternative not to apply variable interest entity guidance to a lessor when: |
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| ⋅ | The private company lessee and the lessor are under common control; | | | | | | | | | | | |
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| ⋅ | The private company lessee has a leasing arrangement with the lessor; | | | | | | | | | | | |
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| ⋅ | Substantially all of the activity between the private company lessee and the lessor is related to the leasing activities (including supporting leasing activities) between those two companies, and | | | | | | | | | | | |
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| ⋅ | If the private company lessee explicitly guarantees or provides collateral for any obligation of the lessor related to the asset leased by the private company, then the principal amount of the obligation at inception does not exceed the value of the asset leased by the private company from the lessor. | | | | | | | | | | | |
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| ⋅ | If elected, the accounting alternative should be applied to all leasing arrangements meeting the above conditions. The alternative should be applied retrospectively to all periods presented, and is effective for annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted for all financial statements that have not yet been made available for issuance. | | | | | | | | | | | |
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In April 2014 FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. |
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Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. |
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In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. |
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The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing trends in a reporting organization’s results from continuing operations. |
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The amendments in this ASU enhance convergence between U.S. GAAP and International Financial Reporting Standards (IFRS). Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. |
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The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. For most nonpublic organizations, it is effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted. |
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