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Item
2.01.
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Completion
of Acquisition or Disposition of
Assets
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On
October 15, 2009, the merger (the "Merger") contemplated by the Merger Agreement
dated as of January 8, 2009 by and among the Company, IntelaSight, Charmed Homes
Subsidiary, Inc., a Nevada corporation (the "Merger Sub"), and certain
shareholders (the "Merger Agreement"), was completed as of the filing of
Articles of Merger with the Secretaries of State of the States of Nevada and
Washington, merging the Merger Sub into IntelaSight.
As a
result of the Merger and pursuant to the Merger Agreement, IntelaSight has
become a wholly-owned subsidiary of the Company, and the Registrant is issuing
shares of its common stock to holders of common stock of IntelaSight at a rate
of one share of the Registrant's common stock for each share of IntelaSight
common stock. Options and warrants to purchase common stock of IntelaSight will
also be converted at the same rate into options and warrants to purchase common
stock of the Registrant. Immediately prior to the Merger and following its
recent 2:1 reverse stock split (which was completed effective October 12, 2009),
the Registrant had approximately 845,000 shares of common stock outstanding (not
including the 2.5 million shares of the Company's common stock held by
IntelaSight purchased from Mr. Quinn and Mr. Liggins pursuant to the Stock
Purchase Agreement described under Item 1.01 above, which shares will be
cancelled following their release from escrow).
Following
the Merger, the Registrant has 9,881,800 shares of common stock outstanding (not
including the 2.5 million shares sold pursuant to the Stock Purchase Agreement
described under Item 1.01 above which will be cancelled following their release
from escrow). The total number of shares outstanding, on a fully-diluted basis,
post merger will be 11,628,807, which includes not only shares of common stock,
but also warrants and options that could be exercised for shares of common
stock. Following the Merger, on a fully diluted basis (but excluding the
escrowed shares), the shareholders of IntelaSight own 92.7% of the Registrant's
outstanding securities, and the Registrant's shareholders own 7.3% of the
Registrant's outstanding securities.
The
foregoing description of the Merger Agreement and related transactions does not
purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K filed by the Company with the SEC on
January 14, 2009, as amended, and is incorporated into this Item 2.01 in its
entirety by reference.
The
Registrant was a shell company immediately prior to the closing of the Merger,
and thus is required to provide additional disclosures under this Item 2.01.
Most of the required additional disclosures were contained in (i) the Company's
Prospectus/Information Statement on Form S-4, originally filed with the SEC on
May 15, 2009, as subsequently amended and declared effective by the SEC on
August 12, 2009 (the "Information Statement"), (ii) the Information Statement on
Schedule 14F-1, originally filed by the Company with the SEC on September 15,
2009 (the "Schedule 14F"), and (iii) the Quarterly Report on Form 10-Q filed by
the Company on September 14, 2009 (the "Quarterly Report"), and such information
is incorporated in this Item 2.01 in its entirety by reference as set forth
below:
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Business
– see the sections of the Information Statement entitled "Information
About Charmed – Description of Business" on page 48 and "Information About
Iveda" beginning on page 54.
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o
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Risk
Factors – see the section of the Information Statement entitled "Risk
Factors" beginning on page 20.
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o
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Financial
Information – see the section of the Quarterly Report entitled
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" beginning on page 11; as a smaller reporting company, the
Company is not required to provide the additional financial information
required by Items 301 and 305 of Regulation
S-K.
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o
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Properties
– see the sections of the Information Statement entitled "Information
About Charmed – Description of Property" on page 48 and "Information About
Iveda - Property" on page 67.
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o
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Directors
and Executive Officers – see the section of the Information Statement
entitled "Information About Iveda – Management" beginning on page 76 and
the section of the Schedule 14F entitled "Information Concerning the
IntelaSight Designees to our Board of Directors" on page
3.
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o
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Executive
Compensation – see the sections of the Information Statement entitled
"Information About Charmed – Management Contracts" on page 53,
"Information About Charmed – Executive Compensation" on page 53,
"Information About Iveda – Executive Compensation" on page 79, and
"Information About Iveda – Director Compensation" on page 79, and the
section of the Schedule 14F entitled "Executive Compensation" on page
5.
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o
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Certain
Relationships and Related Transactions, and Director Independence – see
the sections of the Information Statement entitled "Information About
Charmed – Certain Relationships and Related Transactions of Charmed" on
page 53 and "Information About Iveda – Certain Relationships and Related
Transactions" on page 80, and the sections of the Schedule 14F entitled
"Board of Directors' Committees and Corporate Governance" on page 4 and
"Certain Relationships and Related Transactions" on page
5.
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Legal
Proceedings – see the sections of the Information Statement entitled
"Information About Charmed – Legal Proceedings" on page 48 and
"Information About Iveda – Legal Matters" on page 68, and the section of
the Schedule 14F entitled "Legal Proceedings" on page
3.
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Description
of Registrant's Securities – see the section of the Information Statement
entitled "Comparison of Shareholder Rights" beginning on page
81.
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Indemnification
of Directors and Officers – see the sections of the Information Statement
entitled "Information About Charmed – Disclosure of Commission Position on
Indemnification for Securities Act Liabilities" on page 52, "Information
About Iveda – Indemnification of Directors and Officers" on page 80,
"Comparison of Shareholder Rights – Limitation of Director's Liability" on
page 87 and "Comparison of Shareholder Rights – Indemnification of
Directors and Officers" on page 87.
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Financial
Statements and Supplementary Data – see the section of the Quarterly
Report entitled "Financial Statements" beginning on page
2.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure – see the section of the Information Statement entitled
"Information About Charmed – Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure" on page
52.
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o
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Exhibits
– see the Exhibit Index to the Information
Statement.
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Required
disclosures under this Item 2.01 that were not included in the Information
Statement, the Schedule 14F, and the Quarterly Report are set forth below under
appropriate section headings.
Cautionary
Statement Regarding Forward-Looking Information
All
statements contained in this Form 8-K, the Information Statement, the Schedule
14F, the Quarterly Report and the documents annexed to or incorporated by
reference into this Form 8-K, the Information Statement, the Schedule 14F and
the Quarterly Report, other than statements of historical facts, that address
future activities, events or developments are forward-looking statements,
including, but not limited to, statements containing the words "believe,"
"expect," "anticipate," "intends," "estimate," "forecast," "project," and
similar expressions. All statements other than statements of historical fact are
statements that could be deemed forward-looking statements, including any
statements of the plans, strategies and objectives of management for future
operations; any statements concerning proposed new products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing.
These
statements are based on certain assumptions and analyses made by Iveda and
IntelaSight in light of their experience and their assessment of historical
trends, current conditions and expected future developments as well as other
factors they believe are appropriate under the circumstances. However, whether
actual results will conform to the expectations and predictions of management is
subject to a number of risks and uncertainties described under "
Risk
Factors
" in the Information Statement and in the "
Risk
Factors
" sections of the Company's Form 10-K and Form 10-Q filings with
the SEC that may cause actual results to differ materially.
The
principal risks and uncertainties include the fact that Iveda has limited
operating history and that Iveda may need to raise capital to stay in business
or expand its scope of operations and other risks that are described in the
section entitled "
Risk
Factors
" in the Information Statement.
Consequently,
all of the forward-looking statements made in this Form 8-K, the Information
Statement, the Schedule 14F, the Quarterly Report and the documents annexed to
or incorporated by reference into this Form 8-K, the Information Statement, the
Schedule 14F and the Quarterly Report are qualified by these cautionary
statements and there can be no assurance that the actual results anticipated by
management will be realized or, even if substantially realized, that they will
have the expected consequences to or effects on our business operations. Readers
are cautioned not to place undue reliance on such forward-looking statements as
they speak only of Iveda or IntelaSight's views as of the date the statement was
made. Iveda and IntelaSight undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
Management's
Discussion and Analysis of Financial Condition and Results of Operations –
IntelaSight, Inc.
The
following discussion should be read in conjunction with IntelaSight's audited
and unaudited financial statements and associated notes appearing elsewhere in
this Form 8-K and in the Information Statement.
Overview
IntelaSight,
Inc. dba Iveda Solutions ("IntelaSight") began operations January 24, 2005.
IntelaSight installs video surveillance equipment, primarily for security
purposes, and provides video hosting, archiving and real-time remote
surveillance services to a variety of businesses and organizations.
The
accompanying financial statements have been prepared assuming that IntelaSight
will continue as a going concern. IntelaSight generated accumulated losses of
($2,968,820) through December 31, 2008.
A
multi-step plan was adopted by management to enable IntelaSight to continue to
operate and begin to report operating profits. The highlights of that plan
are:
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A
private placement memorandum was prepared to raise an additional
$2,500,000 of equity. As of June 30, 2009, $736,000 was still to be
raised.
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Establish
distributor networks with existing companies to create a reseller network
to increase the scope of IntelaSight's marketing activities with low cost
to IntelaSight.
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·
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IntelaSight
has entered into a merger agreement with a public shell
company.
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Application
of Critical Accounting Policies
We have
identified the policies below as critical to our business operations and the
understanding of our results of operations. The impact and any associated risks
related to these policies on our business operations are discussed throughout
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section when such policies affect our reported or expected financial
results.
In the
ordinary course of business, we have made a number of estimates and assumptions
relating to the reporting of results of operations and financial condition in
the preparation of our financial statements in conformity with accounting
principles generally accepted in the United States. We base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances. The results form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results could differ significantly
from those estimates under different assumptions and conditions. We believe that
the following discussion addresses our most critical accounting policies, which
are those that are most important to the portrayal of our financial condition
and results of operations and require our most difficult, subjective, and
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain.
The
material estimates for IntelaSight are that of the stock based compensation
recorded for options and warrants issued and the income tax valuation allowance
recorded for deferred tax assets.
The fair
values of options and warrants are determined using the Black-Scholes
option-pricing model. IntelaSight has no historical data on the accuracy of
these estimates. The estimated sensitivity to change is related to the various
variables of the Black-Scholes option-pricing model stated below. The specific
quantitative variables are included in the Notes to the Financial Statements.
The estimated fair value of options and warrants is recognized as expense on the
straight-line basis over the options' and warrants' vesting periods. The fair
value of each option and warrant granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the expected life, dividend yield,
expected volatility, and risk free interest rate weighted-average assumptions
used for options and warrants granted. Expected volatility was estimated by
using the average volatility of three public companies offering services similar
to IntelaSight. The risk-free rate for periods within the contractual life of
the option and warrant is based on the U.S. Treasury yield curve in effect at
the grant date. The expected life of options and warrants is based on the
average of three public companies offering services similar to
IntelaSight.
The
income tax valuation allowance was increased to 100% of the deferred tax asset
for the year ended December 31, 2008. Management evaluated the current financial
condition and recent inability to raise appropriate funds to assure IntelaSight
to continue as a going concern and concluded that the deferred tax asset was no
longer more likely than not recoverable.
Impairment
of Long-Lived Assets
We have a
significant amount of property and equipment primarily consisting of leased
equipment. In accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, 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 assess our assets on a quarterly basis to determine if they are
subject to impairment and consider various factors which have changed during a
given quarter.
Basis of
Accounting
IntelaSight's
financial statements have been prepared on the accrual basis of accounting in
conformity with accounting principles generally accepted in the United States of
America.
Revenue and Expense
Recognition
Revenues
from monitoring services are recognized when the services are provided. Expenses
are recognized as incurred.
Revenues
from fixed-price equipment installation contracts 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
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized.
Accounts
Receivable
IntelaSight
provides an allowance for doubtful collections which is based upon a review of
outstanding receivables, historical collection information and existing economic
conditions. Receivables past due more than 120 days are considered delinquent.
Delinquent receivables are written off based on individual credit valuation and
specific circumstances of the customer. As of December 31, 2008 and 2007, no
allowance for uncollectible accounts was deemed necessary. IntelaSight does not
generally charge interest on past due receivables.
Income
Taxes
Deferred
income taxes are recognized in the 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 depreciation, deferred rent expense,
and net operating losses. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that represents IntelaSight's 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 2008, IntelaSight
reevaluated the valuation allowance for deferred tax assets and determined that
no current benefits should be recognized for the year ended December 31, 2008,
and that benefits recorded in prior years would not be recognized.
In June
2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109
(FIN 48), which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position, if that
position is more likely than not to be sustained on examination, based on the
technical merits of the position. IntelaSight's 2005, 2006 and 2007 income tax
returns are open to audit by the Internal Revenue Service. There are no
uncertain tax positions that have been identified for those years, and
accordingly, no liability has been recorded.
Stock-Based
Compensation
On
January 1, 2006, IntelaSight adopted the fair value recognition provisions of
SFAS No. 123R,
Share-Based
Payment
, which requires the recognition of an expense related to the fair
value of stock-based compensation awards. IntelaSight elected the modified
prospective transition method as permitted by SFAS No. 123R. Under this
transition method, stock-based compensation expense for the years ended December
31, 2008 and 2007 includes compensation expense for stock-based compensation
granted on or after the date SFAS 123R was adopted based on the grant-date fair
value estimated in accordance with the provisions of SFAS No. 123R. IntelaSight
recognizes 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, 2008 and 2007, were
estimated using the "minimum value method" as prescribed by original provisions
of SFAS No. 123,
Accounting
for Stock-Based Compensation
, therefore, no compensation expense is
recognized for these awards in accordance with SFAS No. 123R.
New Accounting
Standards
In May
2009, the FASB issued SFAS No. 165 "Subsequent Events". SFAS No. 165 provides
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued or available to be issued. The statement sets forth the
period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential
recognition or disclosure in the financial statements. The statement also sets
forth the circumstances under which an entity should recognize events or
transactions occurring after the balance sheet date in its financial
statements. Furthermore, this statement identifies the disclosures
that an entity should make about events or transactions that occurred after the
balance sheet date. It is effective for interim or annual financial periods
ending after June 15, 2009. Management is currently evaluating the impact of
this statement.
In April
2009, the FASB issued three related FASB Staff Positions ("FSP"): (i) FSP FAS
No. 115-2 and FAS No. 124-2, "Recognition of Presentation of
Other-Than-Temporary Impairments" ("FSP FAS 115-2 and FAS 124-2"), (ii) FSP FAS
No. 107-1 and Accounting Principles Board Opinion ("APB") No. 28-1, "Interim
Disclosures about Fair Value of Financial Instruments" ("FSP FAS 107-1 and APB
28-1"), and (iii) FSP FAS No. 157-4, "Determining the Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly" ("FSP FAS 157-4), which are
effective for interim and annual reporting periods ending after June 15, 2009.
FSP FAS 115-2 and FAS 124-2 amend the other-than-temporary impairment guidance
in U.S. GAAP for debt securities to modify the requirement for recognizing
other-than-temporary impairments, change the existing impairment model, and
modify the presentation and frequency of related disclosures. FSP FAS 107-1 and
APB 28-1 require disclosures about fair value of financial instruments for
interim reporting periods as well as in annual financial statements. FSP FAS
157-4 provides additional guidance for estimating fair value in accordance with
SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). We are currently
evaluating the impact of adopting these Staff Positions, but we do not expect
the adoption to have a material impact on our consolidated financial position,
results of operations or cash flows.
In
December 2007, the FASB issued SFAS 141(revised 2007), "Business Combinations,"
to increase the relevance, representational faithfulness, and comparability of
the information a reporting entity provides in its financial reports about a
business combination and its effects. SFAS 141R replaces SFAS 141, "Business
Combinations" but, retains the fundamental requirements of SFAS 141 that the
acquisition method of accounting be used and an acquirer be identified for all
business combinations. SFAS 141R expands the definition of a business and of a
business combination and establishes how the acquirer is to: (1) recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase; and (3) determine what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R is applicable to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and is to
be applied prospectively. Early adoption is prohibited. The adoption of SFAS No.
141 did not have a material effect on IntelaSight's financial
statements.
In
December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51," to improve the
relevance, comparability, and transparency of the financial information a
reporting entity provides in its consolidated financial statements.
SFAS 160
amends ARB 51 to establish accounting and reporting standards for noncontrolling
interests in subsidiaries and to make certain consolidation procedures
consistent with the requirements of SFAS 141R. It defines a noncontrolling
interest in a subsidiary as an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. SFAS
160 changes the way the consolidated income statement is presented by requiring
consolidated net income to include amounts attributable to the parent and the
noncontrolling interest. SFAS 160 establishes a single method of accounting for
changes in a parent's ownership interest in a subsidiary which do not result in
deconsolidation. SFAS 160 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners of a subsidiary. SFAS 160 is effective for
financial statements issued for fiscal years beginning on or after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. SFAS 160 shall be applied prospectively, with the exception of the
presentation and disclosure requirements which shall be applied retrospectively
for all periods presented. The adoption of SFAS No. 160 did not have a material
effect on IntelaSight's financial statements.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles". SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, "The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles". The adoption of this statement did not have a material effect on
IntelaSight's financial statements.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133". SFAS No. 161
is intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The adoption of SFAS No. 161 did not have a material effect on
IntelaSight's financial statements.
Results
of Operations for the Three and Six Months Ended June 30, 2009 Compared to the
Three and
Six
Months Ended June 30, 2008
Net Revenue.
We recorded net revenue of $108,580 for the three months ended June 30,
2009, compared to $151,922 for the three months ended June 30, 2008, a decrease
of $43,342 or 29%. Revenues were primarily derived from our real-time
surveillance and equipment sales and installation. In Q2 2009, our recurring
service revenue was $89,161 or 82% of net revenue and our equipment sales and
installation revenue was $19,419 or 18% of net revenue, compared to $97,575 or
64% of recurring service revenue and our equipment sales and installation
revenue was $54,347 or 36% of net revenue in 2008.
We
recorded net revenue of $332,404 for the six months ended June 30, 2009,
compared to $328,979 for the six months ended June 30, 2008, an increase of
$3,425. Revenues were primarily derived from our real-time surveillance and
equipment sales and installation. In the six months ended June 30, 2009, our
recurring service revenue was $181,430 or 55% of net revenue and our equipment
sales and installation revenue was $150,974 or 45% of net revenue, compared to
$182,841 or 56% of recurring service revenue and our equipment sales and
installation revenue was $146,137 or 44% of net revenue in 2008.
Cost of
Revenue.
Total cost of revenue
was $97,758 for the three months ended June 30, 2009, compared to $117,573 for
the three months ended June 30, 2008, a decrease of $19,815 or 17%. The decrease
in cost of revenue was primarily due to the reduction in revenue.
Total
cost of revenue was $262,990 for the six months ended June 30, 2009, compared to
$177,247 for the six months ended June 30, 2008, an increase of $85,743 or 48%.
The increase in cost of revenue was primarily due to increased net revenues and
significant additional Internet protocol infrastructure including a tier 4,
state of the art, data center with redundant power and abundance of relative
bandwidth to support scalability of revenue and customer base
growth.
Operating
Expenses.
Operating expenses were
$345,950 for the three months ended June 30, 2009, compared to $492,216 for the
three months ended June 30, 2008, a decrease of $146,266 or 30%. The decrease in
operating expenses was primarily related to a cut in marketing, travel, and
personnel costs.
Operating
expenses were $924,916 for the six months ended June 30, 2009, compared to
$707,653 for the six months ended June 30, 2008, an increase of $217,263 or 31%.
The increase in operating expenses was primarily related to additional
personnel, vesting of stock options, increased occupancy costs related to new
office space and professional fees.
Loss from
Operations.
As a result of the
decreases in operating expenses, loss from operations decreased to $345,128 for
the three months ended June 30, 2009, compared to $457,867 for the three months
ended June 30, 2008, a decrease of $112,739 or 25%.
As a
result of the increases in operating expenses, loss from operations increased to
$855,502 for the six months ended June 30, 2009, compared to $555,921 for the
six months ended June 30, 2008, an increase of $299,581 or 54%.
Other
Expense-Net.
Other expense-net was
$7,010 for the three months ended June 30, 2009, compared to $9,091 for the
three months ended June 30, 2008, a decrease of $2,081 or 23%.
Other
expense-net was $13,757 for the six months ended June 30, 2009, compared to
$16,524 for the six months ended June 30, 2008, a decrease of $2,767 or
17%.
Net
Loss.
The
decrease of $9,820 or 3% in the net loss to $352,138 for the three months ended
June 30, 2009 from $361,958 for the three months ended June 30, 2008 was
primarily a $105,000 tax benefit recorded offsetting increased operating
expenses and decrease in gross profit.
The
increase of $441,814 or 103% in the net loss to $869,259 for the six months
ended June 30, 2009 from $427,445 for the six months ended June 30, 2008 was
primarily a result of increased operating expenses and cost of
revenues.
Liquidity
and Capital Resources
We had
cash and cash equivalents of $1,740 on June 30, 2009 and $335,189 on December
31, 2008. Since inception, we have experienced decreases in our cash and cash
equivalents primarily as a result of cash used in operations offset by the
proceeds from stock sales.
Net cash
used in operating activities during the six months ended June 30, 2009 was
$680,425 and the year ended December 31, 2008 was $1,252,038. Cash used in
operating activities for the year ended December 31, 2008 consisted primarily of
the net loss, an increase in inventory and deposits. Net cash used by operating
activities as compared to net loss were substantially reduced related to the
stock compensation of $222,892 and provision for income taxes of $558,370
related to a write-off of a deferred tax asset during 2008.
Net cash
used by investing activities for the six months ended June 30, 2009 was $9,558
and $40,000 provided from an escrow deposit reduction. Net cash used by
investing activities during the year ended December 31, 2008 was $115,579. Our
net cash used by investing activities consisted for the year ended December 31,
2008 primarily of purchase of equipment and funding of an escrow deposit related
to the pending merger with Charmed Homes.
Net cash
provided by financing activities for the six months ended June 30, 2009 was
$316,534 and during the year ended December 31, 2008 was $1,661,462 consisting
primarily of net proceeds from the sale of stock and proceeds from short-term
borrowings which was partially offset by principal payments on capital lease
obligations.
At
December 31, 2008, we had approximately $2.6 million in net operating loss
carryforwards available for federal and state income tax purposes. We have not
recognized any benefit from these operating loss carryforwards, which expire in
2010 through 2025.
We have
experienced significant operating losses since our inception. During 2008 we
increased our personnel to 26 employees from 19 at December 31, 2007. We entered
into a new lease agreement in 2008 and increased our occupancy costs as we
increased our lease commitment from 1,411 square feet to 3,667 square feet. Our
capital expenditures and working capital requirements could increase depending
on our operating results and other adjustments to our operating plan as may be
needed to respond to competition or unexpected events.
We
believe that our cash on hand is not sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least 12 months. We
continually evaluate our working capital needs and we are seeking to obtain
additional working capital through debt and equity offerings. There can be no
assurance that additional funds will be available on acceptable terms. In the
event that additional funds are not available on acceptable terms, we could be
required to reduce the scope of or cease operations.
The most
recent economic events resulting in a downturn of spending and credit shortage
has severely curtailed our ability to raise financing in 2009. Between June 2008
and October 2008, IntelaSight raised approximately $1.5 million through its
private offering. Since then IntelaSight has raised a small amount of financing
through short term loans. Investor interest in the company remains high in
management's opinion but two main factors have increased its difficulty in
raising funds. The economic slump has affected our potential investors'
businesses and personal financial situations, resulting in potential investors
having less cash to invest overall, and due to the stock market downturn,
reticence to liquidate old investments and make new investments. This economic
condition could also affect the sales of IntelaSight's service as companies are
cutting back on spending across the board. For instance, IntelaSight has
experienced much longer sales cycles, especially in the public sector, in late
2008 and into 2009. Issuance of purchase orders by customers is also taking
longer to occur following the closing of a sale by the sales team as many
customers are experiencing lower revenues due to the economic downturn, which is
reducing available funds for capital expenditures. However, IntelaSight's
management is cautiously optimistic because IntelaSight does not need to sell
camera equipment to provide our service. It can also target customers with
existing camera systems. IntelaSight realizes that in tough economic times,
companies avoid large capital expenditures. However, ultimately because
IntelaSight is a service provider in the security industry rather than a seller
of cameras and other products, management believes that companies still need to
secure their properties regardless of the economy. IntelaSight offers an
inexpensive, but effective alternative to security guards, with its real-time
video surveillance service using existing camera systems. And even if the
customer has to purchase cameras to enable IntelaSight's service, IntelaSight is
still able to provide up to 50% savings compared to traditional security guard
services. IntelaSight has fewer customers than was originally anticipated, and
as a result, IntelaSight must continue to raise capital to continue operations
and there is no assurance that it will be able to do so.
IntelaSight's
average monthly burn rate in the first quarter of 2009 was approximately
$175,000. IntelaSight implemented 10% to 41% salary cuts across the board in
April 2009. IntelaSight's average monthly burn rate in the second quarter of
2009 has been reduced to approximately $63,000. We expect this burn rate to be
reduced further as on June 1, 2009, further drastic cuts were made. Hours and
salaries of non-essential employees were cut up to 66% from salary levels before
April 2009. Sales employees who are essential in generating sales and IT
employees who are essential in maintaining our infrastructure retained full time
status, but salaries were cut by up to 8%. Executive salaries were reduced by
41%. Only the salaries of intervention specialists (the employees monitoring our
customers' properties) were not reduced. We have reduced our travel and
marketing expenses to almost zero. These cuts have not dramatically reduced our
ability to conduct sales activities because conference calls and emails have
reduced the necessity of most face-to-face meetings. Our infrastructure allows
us to do live demos of our hosting and real-time surveillance services over the
Internet during a conference call. Results of sales and marketing campaigns in
the last quarter and beginning of this year have resulted in a healthy sales
pipeline, which our sales team is currently pursuing but there is no assurance
we will close any of these opportunities. If we are unable to raise funds and
generate significant revenues, we will be forced to further cut costs, keeping
only a skeleton crew to maintain our infrastructure and service our existing
customers. A multi-step plan was adopted by management to enable IntelaSight to
continue to operate and begin to report operating profits. The highlights of
that plan include raising capital of approximately $750,000 and establishing
distributor networks with existing companies to create a reseller network to
increase the scope of IntelaSight's marketing activities at a relatively low
cost to IntelaSight. IntelaSight is also changing its messaging to align its
offerings to a more widely accepted industry protocols, which management
believes will provide a more mainstream understanding and acceptance of its
unique service offering.
Revenues
from Insurance Auto Auctions N. Hollywood represented approximately 13% of total
revenues for the year ended December 31, 2008. The accounts receivable from this
customer were $5,160 as of December 31, 2008. No other customers represented
greater than 10% of total revenues for 2008. Revenues from Leisure World
represented approximately 17% and Insurance Auto Auctions N. Hollywood
represented approximately 13% of total revenues for the year ended December 31,
2007. The accounts receivable from these customers were $-0- as of December 31,
2007. No other customers represented greater than 10% of total revenues in
2007.
Substantially
all cash is deposited in one financial institution. At times, amounts on deposit
may be in excess of the FDIC insurance limit.
IntelaSight
leased its office facilities under a non-cancelable operating lease expiring
August 2011 and requires minimum monthly payments ranging from $8,098 to $9,015.
Rent expense was $77,008 for the year ended December 31, 2008. IntelaSight also
has non-cancellable data center services agreement for $6,110 per month,
expiring September 2011. Data center services expense was $18,330 for the year
ended December 31, 2008.
Future
minimum lease payments under this lease are as follows:
|
Year
Ending December 31,
|
|
|
|
|
2009
|
|
$
|
173,862
|
|
|
2010
|
|
$
|
177,523
|
|
|
2011
|
|
$
|
121,838
|
|
|
Total
|
|
$
|
473,223
|
|
IntelaSight
also recorded deferred rent of $37,664 generated from its office lease agreement
executed in 2008. The lease included six months free rent and is coupled with a
rent escalation clause.
Securities
Ownership of Certain Beneficial Owners and Management
The
following table sets forth certain information regarding the beneficial
ownership of Iveda's common stock as of October 15, 2009 for (a) each person
known by Iveda to be a beneficial owner of five percent or more of the
outstanding common stock of the Company, (b) each executive officer, director
and nominee for director of the Company, and (c) all directors and executive
officers of Iveda as a group. Iveda, as of October 15, 2009, had 9,881,800
shares of common stock outstanding, options to purchase 1,187,729 shares of
common stock outstanding, and warrants to purchase 559,278 shares of common
stock outstanding.
|
Name
|
Position
|
|
Shares of
Common Stock
|
|
|
Options or
Warrants to
Purchase
Common
Stock
|
|
|
Percentage Prior to
the Merger
(1)
|
|
|
Percentage After the
Merger
(2)
|
|
|
David
Ly
(3)
|
CEO,
Director, President
|
|
|
3,836,181
|
|
|
|
0
|
|
|
|
35.57
|
%
|
|
|
32.99
|
%
|
|
Luz
Berg
(3)
|
COO,
Secretary
|
|
|
77,817
|
|
|
|
922,183
|
|
|
|
9.27
|
%
|
|
|
8.60
|
%
|
|
Bob
Brilon
(3)
|
Interim
CFO, Treasurer
|
|
|
0
|
|
|
|
200,000
|
|
|
|
1.85
|
%
|
|
|
1.72
|
%
|
|
Greg
Omi
(3)
|
Director
|
|
|
903,859
|
|
|
|
0
|
|
|
|
8.38
|
%
|
|
|
7.77
|
%
|
|
Jody
Bisson
(3)
|
Director
|
|
|
0
|
|
|
|
50,000
|
|
|
|
0.46
|
%
|
|
|
0.43
|
%
|
|
All
directors and officers as a group
|
|
|
4,817,857
|
|
|
|
1,172,183
|
|
|
|
55.55
|
%
|
|
|
51.51
|
%
|
|
(1)
|
Reflects
ownership of securities in IntelaSight by the listed individuals and group
immediately prior to the closing of the Merger and assumes all of the
outstanding IntelaSight options and warrants to purchase shares of common
stock are exercised.
|
|
(2)
|
Based
on ownership of Iveda following the Merger and assumes that all of the
outstanding options and warrants to purchase shares of Iveda common stock
are exercised, and the 2.5 million shares of post-reverse split Iveda
common stock sold to IntelaSight prior to the Merger and held in escrow
are cancelled.
|
|
(3)
|
The address for each of these
individuals is c/o Iveda Corporation, 1201 S. Alma School Road, Suite
4450, Mesa, AZ 85210.
|
Market Price of
and Dividends on the Registrant's Common Equity and Related Stockholder
Matters
Iveda
shares began trading on the OTC Bulletin Board operated by the Financial
Industry Regulatory Authority under the symbol "CHDH" on November 15, 2007.
Iveda's trading symbol changed to "IVDA" on October 12, 2009 as a result of the
reverse split and name change.
The
following table sets forth, for the calendar periods indicated, the range of the
high and low last reported bid prices of Iveda common stock, as reported by the
OTC Bulletin Board, since Iveda stock began trading on the OTC Bulletin
Board. The quotations represent inter-dealer prices without retail
mark-ups, mark-downs or commissions, and may not necessarily represent actual
transactions. The quotations may be rounded for presentation. There is an
absence of an established trading market for Iveda's common stock, as the market
is limited, sporadic and highly volatile, which may affect the prices listed
below.
|
2009
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
|
Third
Quarter 7-1-09 to 9-30-09
|
|
$
|
1.90
|
|
|
$
|
1.55
|
|
|
Second
Quarter 4-1-09 to 6-30-09
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
First
Quarter 1-1-09 to 3-31-09
|
|
$
|
2.00
|
|
|
$
|
2.00
|
|
|
2008
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 10-1-08 to 12-31-08
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
Third
Quarter 7-1-08 to 9-30-08
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
Second
Quarter 4-1-08 to 6-30-08
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
First
Quarter 1-1-08 to 3-31-08
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
2007
|
|
High Bid
|
|
|
Low Bid
|
|
|
|
|
|
|
|
|
|
|
Fourth
Quarter 10-1-07 to 12-31-07
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
* N/A
indicates no recorded trading activity during the period presented.
There is
limited trading activity in Iveda's securities, and there can be no assurance a
regular trading market for our common stock will be sustained. On October 13,
2009, the closing price per share of Iveda common stock on the OTC Bulletin
Board was $2.00, and there has been no trading activity since that
date.
The last
trading day before the Merger was announced was November 14, 2008. On that date
the closing price for Iveda shares on the OTC Bulletin Board was N/A as the
stock had not been traded. Iveda has never paid cash dividends on its capital
stock. Iveda currently intends to retain all earnings, if any, to finance the
growth and development of its business. Iveda does not anticipate paying any
cash dividends in the foreseeable future. As of October 15, 2009, Iveda had
approximately 107 shareholders of record, exclusive of shares held in street
name.
Equity
Compensation Plans
On October 15, 2009, the Company
adopted the 2009 Stock Option Plan (the "Option Plan"), pursuant to which it may
grant equity awards to eligible persons. The Option Plan allows the Board of
Directors to grant options to purchase up to 1,500,000 shares of common stock to
directors, officers, key employees and service providers of the Company. As of
October 15, 2009, options to purchase 1,187,729 shares had been granted under
the Option Plan as part of the Merger.
|
Plan Category
|
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights (#)
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights ($)
|
|
|
Number of securities
remaining available for
future issuance under equity
compensation plans
|
|
|
Equity
compensation plans approved by shareholders
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by shareholders
|
|
|
1,187,729
|
|
|
$
|
0.37
|
|
|
|
312,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,187,729
|
|
|
$
|
0.37
|
|
|
|
312,271
|
|
Recent
Sales of Unregistered Securities
In July
2006, we issued a total of 2,500,000 shares of restricted common stock to Ian
Quinn, one of our officers and directors, in consideration of $2,500.00 and
2,500,000 shares of restricted common stock to Kevin Liggins, one of our
officers and directors, in consideration of $2,500.00. The Company relied upon §
4(2) of the Securities Act of 1933, as amended, as the exemption from
registration for this transaction. No underwriters were used in connection with
this transaction.
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature of
Operations
IntelaSight,
Inc. dba Iveda Solutions (“Iveda” or “the Company”) began
operations
January
24, 2005. The Company installs video surveillance equipment, primarily for
security purposes, and provides video hosting, archiving and real-time remote
surveillance services to a variety of businesses and organizations throughout
the United States.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company generated accumulated losses of
($2,968,820) through December 31, 2008.
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:
|
|
·
|
A
private placement memorandum was prepared to raise an additional
$2,500,000 of equity. As of December 31, 2008, $1,271,000 was still to be
raised.
|
|
|
·
|
Establish
distributor networks with existing companies to create a reseller network
to increase the scope of the Company’s marketing activities with low cost
to the Company.
|
|
|
·
|
The
Company may evaluate and consider merger and/or acquisition
activities.
|
Basis of
Accounting
The
Company’s 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 management 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
Revenues
from monitoring services are recognized when the services are provided. Expenses
are recognized as incurred.
Revenues
from fixed-price equipment installation contracts 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.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Revenue and Expense
Recognition (Continued)
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
liability, "Billings in excess of costs and estimated earnings on uncompleted
contracts," represents billings in excess of revenues recognized.
Concentrations
Revenues
from one customer represented approximately 13% of total revenues for the year
ended December 31, 2008. The accounts receivable from the customer was $5,160 as
of December 31, 2008. No other customers represented greater than 10% of total
revenues for 2008.
Revenues
from two customers represented approximately 17% and 13% of total revenues for
the year ended December 31, 2007. The accounts receivable from these customers
were $-0- as of December 31, 2007. No other customers represented greater than
10% of total revenues in 2007.
Substantially
all cash is deposited in one financial institution. At times, amounts on deposit
may be in
excess of the FDIC insurance limit.
Cash and Cash
Equivalents
For
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of twelve months or less to
be cash equivalents.
Accounts
Receivable
The
Company provides an allowance for doubtful collections which is based upon a
review of outstanding receivables, historical collection information and
existing economic conditions. Receivables past due more than 120 days are
considered delinquent. Delinquent receivables are written off based on
individual credit valuation and specific circumstances of the customer. As of
December 31, 2008 and 2007, no allowance for uncollectible accounts was deemed
necessary. The Company does not generally charge interest on past due
receivables.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Inventory
Inventory
consists of equipment purchased for installation projects and is recorded at the
lower of cost or market.
Property and
Equipment
Property
and equipment are stated at cost. Depreciation is computed primarily using the
straight-line method over the 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, 2008 and 2007
was $49,063 and $24,735, respectively.
Deferred
Revenue
Deposits
received from customers on future installation projects are recorded as deferred
revenue.
Advertising
Costs
Advertising
costs are expensed as incurred. The Company does not incur any direct response
advertising costs. Advertising expenses were $113,363 and $16,511 for the years
ended December 31, 2008 and 2007, respectively.
Research and Development
Costs
Research
and development costs are expensed as incurred. Research and development
expenses were $17,871 and $- for the years ended December 31, 2008 and 2007,
respectively.
Income
Taxes
Deferred
income taxes are recognized in the 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 depreciation, deferred rent expense,
and net operating losses. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that represents the Company's 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 2008, the Company
reevaluated the valuation allowance for deferred tax assets and determined that
no current benefits should be recognized for the year ended December 31, 2008,
and that benefits recorded in prior years would not be recognized.
In June
2006, the FASB issued FIN 48,
Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109
(FIN 48), which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position, if that
position is more likely than not to be sustained on examination, based on the
technical merits of the position. The company’s 2005, 2006 and 2007 income tax
returns are open to audit by the Internal Revenue Service. There are no
uncertain tax positions that have been identified for those years, and
accordingly, no liability has been recorded.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Sales
Tax
The
Company is liable for sales taxes in Arizona and California. Sales tax invoiced
to customers is recorded as a liability on the Company’s financial
statements.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R,
Share-Based
Payment
, which requires the recognition of an expense related to the fair
value of stock-based compensation awards. The Company elected the modified
prospective transition method as permitted by SFAS No. 123R. Under this
transition method, stock-based compensation expense for the years ended December
31, 2008 and 2007 includes compensation expense for stock-based compensation
granted on or after the date SFAS 123R was adopted based on the grant-date fair
value estimated in accordance with the provisions of SFAS No. 123R. The Company
recognizes 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, 2008 and 2007, were
estimated using the “minimum value method” as prescribed by original provisions
of SFAS No. 123,
Accounting
for Stock-Based Compensation
, therefore, no compensation expense is
recognized for these awards in accordance with SFAS No. 123R. The Company
recognized $222,892 and $29,209 of stock-based compensation expense for the
years ended December 31, 2008 and 2007, respectively.
Fair Value of Financial
Instruments
On
January 1, 2008, the Company adopted Statement of Financial Accounting Standard
No. 157, Fair Value Measurements (SFAS 157). As permitted, adoption of SFAS 157
has been delayed for certain nonfinancial assets and nonfinancial liabilities to
January 1, 2009. SFAS 157 applies to reported balances that are required or
permitted to be measured at fair value under an existing accounting
pronouncement. SFAS 157 emphasizes that fair value is a market-based
measurement, not an entity-specific measurement. Therefore, a fair value
measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability and establishes a fair
value hierarchy. The fair value hierarchy consists of three levels of inputs
that may be used to measure fair value as follows:
Level 1 –
Inputs that utilize quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access.
Level 2 –
Inputs that include quoted prices for similar assets and liabilities in active
markets and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial
instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted
cash flows.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE 1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Fair Value of Financial
Instruments (Continued)
Level 3 –
Inputs that are unobservable inputs for the asset or liability, which are
typically based on an entity’s own assumptions, as there is little, if any,
related market activity.
In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety.
Securities
available for sale are recorded at fair value on a recurring basis. Fair value
measurement is based upon quoted prices, if available. If quoted prices are not
available, fair values are measured using independent pricing models or other
model-based valuation techniques such as the present value of future cash flows,
adjusted for the security’s credit rating, prepayment assumptions, and other
factors such as credit loss assumptions. Securities valued using Level 2 inputs
include mutual funds valued at a net asset valuation or “NAV”. The Company does
not have any securities that are valued using Level 1 or 3 inputs.
The
Company also adopted Statement of Financial Accounting Standard No. 159, The
Fair Value Option for Financial Assets and Liabilities (SFAS 159) on January 1,
2008. SFAS 159 allows entities the irrevocable option to elect fair value for
the initial and subsequent measurement for certain financial assets and
liabilities on an instrument-by-instrument basis. The Company has not elected to
measure any existing financial instruments at fair value at January 1, 2008, as
permitted under SFAS 159. However, the Company may elect to measure newly
acquired financial instruments at fair value in the future.
New Accounting
Standards
In
December 2007, the FASB issued SFAS 141(revised 2007), “Business Combinations,”
to increase the relevance, representational faithfulness, and comparability
of the information a reporting entity provides in its financial
reports about a business combination and its effects. SFAS 141R replaces
SFAS 141, “Business Combinations” but, retains the fundamental requirements
of SFAS 141 that the acquisition method of accounting be used and an acquirer be
identified for all business combinations. SFAS 141R expands the definition
of a business and of a business combination and establishes how the
acquirer is to: (1) recognize and measure in its financial statements the
identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree; (2) recognize and measure the goodwill
acquired in the business combination or a gain from a bargain purchase; and
(3) determine what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141R is applicable to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, and is to be applied
prospectively. Early adoption is prohibited. The Company has not yet determined
the full effect, that the adoption of SFAS 141R will have on the Company’s
financial statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
New Accounting Standards
(continued
)
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51,” to improve
the relevance, comparability, and transparency of the financial information
a reporting entity provides in its consolidated financial
statements.
SFAS 160
amends ARB 51 to establish accounting and reporting standards for
noncontrolling interests in subsidiaries and to make certain consolidation
procedures consistent with the requirements of SFAS 141R. It defines a
noncontrolling interest in a subsidiary as an ownership interest in
the consolidated entity that should be reported as equity in the
consolidated financial statements. SFAS 160 changes the way
the consolidated income statement is presented by requiring consolidated
net income to include amounts attributable to the parent and the
noncontrolling interest. SFAS 160 establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary which do not
result in deconsolidation. SFAS 160 also requires expanded disclosures that
clearly identify and distinguish between the interests of the parent and
the interests of the noncontrolling owners of a subsidiary. SFAS 160 is
effective for financial statements issued for fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years. Early
adoption is prohibited. SFAS 160 shall be applied prospectively, with the
exception of the presentation and disclosure requirements which shall be
applied retrospectively for all periods presented. The Company has not yet
determined the effect, if any, that the adoption of SFAS 160 will have on the
Company’s financial statements.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles”. SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. It is effective 60 days following the SEC’s approval of the
Public Company Accounting Oversight Board amendments to AU Section 411, “The
Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles”. The adoption of this statement does not have a material effect on
the Company’s financial statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment to FASB Statement No. 133”. SFAS No. 161
is intended to improve financial standards for derivative instruments and
hedging activities by requiring enhanced disclosures to enable investors to
better understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The adoption of this statement is not expected to have a material
effect on the Company’s financial statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE
1
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
Reclassification
Certain
amounts in 2007 have been reclassified to conform to the 2008
presentation.
The
Company made an escrow deposit of $50,000 for the purchase of the majority of
outstanding stock of Charmed Homes, Inc., pursuant to a reverse merger agreement
signed in January 2009.
Accrued
expenses of $70,285 as of December 31, 2008, consists of $40,567 of deferred
rent, $23,905 of accrued payroll and associated costs, and $5,813 of other
liabilities.
Accrued
expenses of $47,898 as of December 31, 2007 consists of $33,545 of accrued sales
tax, $6,068 of accrued payroll and associated costs, $5,804 of accrued interest
and $2,481 of other liabilities.
|
NOTE
4
|
COSTS,
ESTIMATED EARNINGS AND BILLINGS ON CONTRACTS IN
PROCESS
|
There
were no contracts in process as of December 31, 2008. Accordingly,
there are no amounts reported in the accompanying balance sheet as of December
31, 2008.
As of
December 31, 2007, contracts in process were as follows:
|
|
|
2007
|
|
|
Costs
Incurred on Uncompleted Projects
|
|
$
|
24,082
|
|
|
Estimated
Gross Profit
|
|
|
5,431
|
|
|
Contract
Revenues Earned
|
|
|
29,513
|
|
|
Less:
Billings to Date
|
|
|
42,318
|
|
|
Total
|
|
$
|
(12,805
|
)
|
Reported
in the accompanying balance sheets as follows:
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
|
|
2007
|
|
|
Costs
and Estimated Earnings in Excess of
|
|
|
|
|
Billings
on Uncompleted Contracts
|
|
$
|
-
|
|
|
Billings
in Excess of Costs and Estimated
|
|
|
|
|
|
Earnings
on Uncompleted Contracts
|
|
|
(12,805
|
)
|
|
Total
|
|
$
|
(12,805
|
)
|
In the
fourth quarter of 2007, the Company borrowed $100,000 for use in operations. The
principal and interest (charged at 10%) is payable in a single payment in
December 2008. During the first quarter 2008, the Company borrowed $150,000 for
use in operations. The principal and interest (charged at 10%) is payable in a
single payment in December 2008. The note holders of the $100,000 and
$150,000 exercised their right to convert unpaid principle and interest in
December 2008 at $0.50 per share
In June
2008, the Company borrowed $300,000 for use in operations at 12% interest
payable in December 2008. The note holders exercised their rights to
convert the unpaid principal and interest to common stock in 2008 at $1.00 per
share.
In 2008
all outstanding debt and accrued interest was converted to 848,214 shares of
common stock.
|
NOTE
6
|
OBLIGATIONS
UNDER CAPITAL LEASES
|
In 2008
and 2007, the Company became the lessee of certain computer equipment under
capital leases extending through 2011. The assets and liabilities under the
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair value of the assets. The assets are depreciated over
their estimated useful lives. The computer equipment has been recorded in the
accompanying financial statements in office equipment of $213,460 and
$3,813 and accumulated depreciation of $21,628 and $64 at December 31, 2008 and
2007, respectively. The leases have imputed interest rates between 8% and 25%
and monthly payments between $43 and $1,435.
Future
minimum lease payments under the capital leases as of December 31, 2008 for each
of the remaining years are as follows:
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
Year Ending December 31,
|
|
|
|
|
2009
|
|
$
|
88,888
|
|
|
2010
|
|
|
88,807
|
|
|
2011
|
|
|
43,028
|
|
|
Total
Minimum Lease Payments
|
|
|
220,723
|
|
|
Less:
Interest
|
|
|
37,645
|
|
|
Total
Principal
|
|
|
183,078
|
|
|
Less:
Current Portion
|
|
|
65,916
|
|
|
Long-Term
Capital Lease
|
|
$
|
117,162
|
|
The
Company leased its office facilities under a non-cancelable operating lease
expiring August 2011 and requires minimum monthly payments ranging from $8,098
to $9,015. Rent expense was $77,008 for the year ended December 31, 2008. The
Company also has non-cancellable data center services agreement for $6,110 per
month, expiring September 2011. Data center services expense was $18,330 for the
year ended December 31, 2008.
Future
minimum lease payments under this leases are as follows:
|
Year
Ending December 31,
|
|
|
|
|
2009
|
|
$
|
173,862
|
|
|
2010
|
|
$
|
177,523
|
|
|
2011
|
|
$
|
121,838
|
|
|
Total
|
|
$
|
473,223
|
|
|
NOTE
8
|
SERIES
A AND A-1, CONVERTIBLE PREFERRED
STOCK
|
In 2007,
the Company completed an offering of 853,275 shares of $.001 par value, Series A
and A-1 Preferred Stock at $0.94 and $4.028 per share, respectively. The
Company’s Series A Preferred stockholders, at any time, have the right to
convert their stock into common stock shares on a 1:1 basis, adjusted for
specific items defined in the Purchase Agreement. The Preferred Stock has
liquidation preferences over the other outstanding securities of the
Company.
All
outstanding Series A and A-1 Preferred Stock was converted to common stock
during 2008. The total common shares issued with respect to the conversion were
1,307,347.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
In 2008,
the Company established a stock option plan (the Plan) in which options to
purchase the common stock of the Company may be awarded to employees and
consultants. The Company has reserved 2,000,000 shares of common stock for
issuance under the plan. Under the plan, the Company memorialized options
granted during 2007 and 2006.
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 100 percent of the fair market value
of the common stock on the date of the grant as determined by the Company's
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 the Company under Section 162(m). Under the Plan,
stock options will terminate on the tenth anniversary date of the grant or
earlier if provided in the grant.
The
Company has also granted non-qualified stock options to employees and
contractors. All non-qualified options are generally issued with an exercise
price that may be less than 100 percent of the fair value of the common stock on
the date of the grant as determined by
the
Company's board of directors. Options may be exercised up to ten years following
the date of the grant, with vesting schedules determined by the Company upon
grant. Options fully vest immediately upon grant through a range of four to ten
years after the grant date. Vested options may be exercised up to three months
following date of termination of the relationship. 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. The Company has unrecognized stock-based compensation
with a weighted-average term of approximately ten years of $115,784 at December
31, 2008.
Stock
option transactions during 2008 and 2007 were as follows:
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
Exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding
at Beginning of Year
|
|
|
406,267
|
|
|
$
|
0.10
|
|
|
|
653,157
|
|
|
$
|
0.10
|
|
|
Granted
|
|
|
795,712
|
|
|
|
0.52
|
|
|
|
93,245
|
|
|
|
0.10
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(82,745
|
)
|
|
|
0.10
|
|
|
Forfeited
or Canceled
|
|
|
(1,250
|
)
|
|
|
0.10
|
|
|
|
(257,390
|
)
|
|
|
0.10
|
|
|
Outstanding
at End of Year
|
|
|
1,200,729
|
|
|
|
0.38
|
|
|
|
406,267
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Exercisable at Year-End
|
|
|
883,375
|
|
|
|
0.19
|
|
|
|
360,686
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Granted During the Year
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
0.09
|
|
|
|
|
|
Information
with respect to stock options outstanding and exercisable at December 31, 2008
is as follows:
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
Number
|
|
Weighted
-
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
Outstanding
|
|
Average
|
|
Weighted
-
|
|
|
Exercisable
|
|
|
Weighted
-
|
|
|
Range
of
|
|
at
|
|
Remaining
|
|
Average
|
|
|
at
|
|
|
Average
|
|
|
Exercise
|
|
December
31,
|
|
Contractual
|
|
Exercise
|
|
|
December
31,
|
|
|
Exercise
|
|
|
Prices
|
|
2008
|
|
Life
|
|
Price
|
|
|
2008
|
|
|
Price
|
|
|
$0.10
- $1.00
|
|
|
1,200,729
|
|
9
Years
|
|
$
|
0.38
|
|
|
|
883,375
|
|
|
$
|
0.19
|
|
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.
|
|
|
|
|
|
Employee
|
|
|
Non-Employee
|
|
|
|
|
|
|
|
Options
|
|
|
Options
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
Expected
Life
|
|
4.6
Years
|
|
|
10
Years
|
|
|
10
Years
|
|
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
Volatility
|
|
|
42
|
%
|
|
|
82
|
%
|
|
|
82
|
%
|
|
Risk-Free
Interest Rate
|
|
|
3.75
|
%
|
|
|
4.75
|
%
|
|
|
4.75
|
%
|
Expected
volatility was estimated by using the average volatility of three public
companies offering services similar to the Company. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the grant date. The expected life of options is based
on the average of three public companies offering services similar to the
Company.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
The
Company issued stock warrants to employees and a member of the board of
directors. Warrants may be exercised up to between five and ten years following
the date of the grant, with vesting schedules determined by the Company upon
issue. Warrants fully vest immediately upon issue through three years after the
issue date. The fair value of warrants are determined using the Black-Scholes
option-pricing model. The estimated fair value of warrants is recognized as
expense on the straight-line basis over the warrants’ vesting periods. The
Company has unrecognized stock-based compensation with a weighted-average term
of approximately eight years of $15,449 at December 31, 2008.
Stock
warrant transactions for 2008 and 2007 were as follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
Weighted
-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Redemption
|
|
|
|
|
|
Redemption
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Outstanding
at Beginning of Year
|
|
|
509,278
|
|
|
$
|
0.10
|
|
|
|
268,947
|
|
|
$
|
0.10
|
|
|
Issued
|
|
|
50,000
|
|
|
|
1.00
|
|
|
|
240,331
|
|
|
|
0.10
|
|
|
Outstanding
at End of Year
|
|
|
559,278
|
|
|
|
0.18
|
|
|
|
509,278
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Redeemable at End of Year
|
|
|
521,778
|
|
|
|
0.12
|
|
|
|
499,671
|
|
|
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
Issued During the Year
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
0.09
|
|
|
|
|
|
Information
with respect to stock options outstanding and exercisable at December 31, 2008
is as follows:
|
|
|
Warrants Outstanding
|
|
|
Warrants Redeemable
|
|
|
|
|
Number
|
|
Weighted
-
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
Outstanding
|
|
Average
|
|
Weighted
-
|
|
|
Redeemable
|
|
|
Weighted
-
|
|
|
Range
of
|
|
at
|
|
Remaining
|
|
Average
|
|
|
at
|
|
|
Average
|
|
|
Exercise
|
|
December
31,
|
|
Contractual
|
|
Redemption
|
|
|
December
31,
|
|
|
Redemption
|
|
|
Prices
|
|
2008
|
|
Life
|
|
Price
|
|
|
2008
|
|
|
Price
|
|
|
$0.10
- $1.00
|
|
|
559,278
|
|
8
Years
|
|
$
|
0.19
|
|
|
|
521,778
|
|
|
$
|
0.12
|
|
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
The fair
value of each warrant issued is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for warrants issued.
|
|
|
2008
|
|
|
2007
|
|
|
Expected
Life
|
|
4.6
Years
|
|
|
10
Years
|
|
|
Dividend
Yield
|
|
|
0
|
%
|
|
|
0
|
%
|
|
Expected
Volatility
|
|
|
42
|
%
|
|
|
82
|
%
|
|
Risk-Free
Interest Rate
|
|
|
3.00
|
%
|
|
|
4.75
|
%
|
Expected
volatility was estimated by using the average volatility of three public
companies offering services similar to the Company. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the grant date. The expected life of
warrants is based on the average of three public companies offering services
similar to the Company.
The
components of the (provision) benefit for income taxes for the years
ended
December
31 were as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Deferred
Income Tax (Provision) Benefit
|
|
$
|
(558,370
|
)
|
|
$
|
182,670
|
|
Temporary
differences between financial statement carrying amounts and the tax basis of
assets and liabilities and tax credit and operating loss carryforwards that
create deferred tax assets and liabilities are as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Tax
Operating Loss Carryforward
|
|
$
|
1,115,000
|
|
|
$
|
562,000
|
|
|
Accelerated
Depreciation
|
|
|
(13,330
|
)
|
|
|
(3,630
|
)
|
|
Valuation
Allowance
|
|
|
(1,101,670
|
)
|
|
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
558,370
|
|
The total
deferred tax assets in the accompanying balance sheets include the following
amounts of deferred tax assets and liabilities:
|
|
|
2008
|
|
|
2007
|
|
|
Total
Deferred Tax Assets
|
|
$
|
1,115,000
|
|
|
$
|
562,000
|
|
|
Total
Deferred Tax (Liability)
|
|
|
(13,330
|
)
|
|
|
(3,630
|
)
|
|
Valuation
Allowance
|
|
|
(1,101,670
|
)
|
|
|
-
|
|
|
Deferred
Tax Asset
|
|
$
|
-
|
|
|
$
|
558,370
|
|
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
These
amounts have been presented in the Company’s financial statements as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
Noncurrent
Deferred Income Tax Asset
|
|
$
|
1,101,670
|
|
|
$
|
558,370
|
|
|
Valuation
Allowance
|
|
|
(1,101,670
|
)
|
|
|
-
|
|
|
|
|
$
|
-
|
|
|
$
|
558,370
|
|
As of
December 31, 2008, the Company has federal net operating loss carryforwards for
income tax purposes of approximately $2,627,000 which will begin to expire in
2025. The Company also has Arizona and California net operating loss
carryforwards for income tax purposes of approximately $2,012,000 and $614,000
which will begin to expire in 2010. 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.
|
Year Ending
|
|
Net Operating
|
|
Year of
|
|
December
31,
|
|
Loss:
|
|
Expiration:
|
|
|
|
|
|
|
|
2008
|
|
$
|
1,308,000
|
|
2028
|
|
2007
|
|
|
429,000
|
|
2027
|
|
2006
|
|
|
476,000
|
|
2026
|
|
2005
|
|
|
414,000
|
|
2025
|
|
|
|
$
|
2,627,000
|
|
|
The tax
provision differs from the expense that would result from applying Federal
statutory rates to income before income taxes due to the effect of state income
taxes and because certain expenses are deducted for financial reporting that are
not deductible for tax purposes.
|
|
|
2008
|
|
|
2007
|
|
|
Tax
Benefit of 34%
|
|
$
|
(524,425
|
)
|
|
$
|
(158,096
|
)
|
|
Increase
(Decrease) in Income Taxes Resulting from:
|
|
|
|
|
|
|
|
|
|
State
Income Tax Benefit, Net of Federal Tax
|
|
|
(94,658
|
)
|
|
|
(37,404
|
)
|
|
Nondeductible
Expenses
|
|
|
75,783
|
|
|
|
12,830
|
|
|
Valuation
Allowance
|
|
|
1,101,670
|
|
|
|
-
|
|
|
Total
|
|
$
|
558,370
|
|
|
$
|
(182,670
|
)
|
|
NOTE
12
|
RELATED
PARTY TRANSACTIONS
|
During
2007, the Company’s majority shareholder relinquished 1,423,002 shares of common
stock to the Company. The shareholder received no consideration for the
shares.
The
Company has provided surveillance services since 2005 to entities owned by Ross
Farnsworth, either through a family partnership or through ahis majority owned
LLC, and subsequently Ross Farnsworth became a shareholder of The Company in
2006. Mr. Farnsworth’s holdings are less than 5% of the Company but the
revenue for years ending 2008 and 2007 was $40,466 and $ 35,672, respectively,
and there was a trade accounts receivable balance of $3,021 and $2,105 at
December 31, 2008 and 2007.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
|
NOTE
13
|
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 SFAS No. 128, “Earnings Per Share“(“EPS”).
Basic EPS
is computed by dividing reported earnings available to stockholders by the
weighted average shares outstanding. Diluted EPS also includes the effect of
dilutive potential common shares. The Company had net losses for the
years ended December 31, 2008 and 2007 and the effect of including dilutive
securities in the earnings per common share would have been
anti-dilutive. Accordingly, all options to purchase common shares
were excluded from the calculation of diluted earnings per share for the years
ended December 31, 2008 and 2007.
|
|
|
2008
|
|
|
2007
|
|
|
Basic
EPS
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,100,797
|
)
|
|
$
|
(282,319
|
)
|
|
Weighted
Average Shares
|
|
|
7,004,583
|
|
|
|
6,589,121
|
|
|
Basic
Loss Per Share
|
|
$
|
(0.30
|
)
|
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,100,797
|
)
|
|
$
|
(282,319
|
)
|
|
Basic
Weighted Average Shares
|
|
|
7,004,583
|
|
|
|
6,589,121
|
|
|
Dilutive
Effect of Stock Options
|
|
|
-
|
|
|
|
-
|
|
|
Diluted
Weighted Average Shares
|
|
|
7,004,583
|
|
|
|
6,589,121
|
|
|
Diluted
Loss Per Share
|
|
$
|
(0.30
|
)
|
|
$
|
(0.04
|
)
|
|
NOTE
14
|
SUBSEQUENT
EVENTS
|
The
Company issued 50,000 shares of common stock for $1 per share in February
2009.
On
January 8, 2009, Charmed Homes Inc. (“Charmed") entered into a merger agreement
(the "Merger Agreement") with IntelaSight, Inc., a Washington corporation dba
Iveda Solutions ("Iveda"), Charmed Homes Subsidiary, Inc., a Nevada corporation
and a wholly owned subsidiary of Charmed ("Merger Sub"), and certain Charmed
shareholders.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2008
AND
2007
Under the
Merger Agreement, Charmed and Iveda have agreed, subject to the satisfaction or
waiver of the closing conditions set forth in the Merger Agreement, to engage in
a merger whereby the Merger Sub will merge with and into Iveda, and as a result
Iveda will become a wholly-owned subsidiary of Charmed. As part of the merger,
Iveda's stock and derivative securities will be exchanged for stock and
derivative securities of Charmed at a ratio of one share of Charmed's common
stock for each one share held in Iveda immediately prior to the merger closing.
As part of the merger, Charmed will change its name to "Iveda
Corporation."
Under the
Merger Agreement, the Company has committed to pay an additional $150,000 to
certain shareholders of Charmed Homes in addition to the $50,000 in escrow
at December 31, 2008.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
FINANCIAL
STATEMENTS
(UNAUDITED)
FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
TABLE
OF CONTENTS
FINANCIAL
STATEMENTS
|
BALANCE
SHEETS
|
|
1
|
|
|
|
|
|
STATEMENTS
OF OPERATIONS
|
|
3
|
|
|
|
|
|
STATEMENTS
OF CASH FLOWS
|
|
4
|
|
|
|
|
|
NOTES
TO FINANCIAL STATEMENTS
|
|
5
|
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
BALANCE
SHEETS
|
|
|
(Unaudited)
June 30,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
1,740
|
|
|
$
|
335,189
|
|
|
Accounts
Receivable
|
|
|
44,870
|
|
|
|
26,971
|
|
|
Prepaid
Expenses
|
|
|
7,830
|
|
|
|
11,532
|
|
|
Inventory
|
|
|
9,164
|
|
|
|
13,530
|
|
|
Total
Current Assets
|
|
|
63,604
|
|
|
|
387,222
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
Office
Equipment
|
|
|
89,227
|
|
|
|
87,050
|
|
|
Furniture
and Fixtures
|
|
|
27,416
|
|
|
|
22,712
|
|
|
Software
|
|
|
36,800
|
|
|
|
36,634
|
|
|
Leased
Equipment
|
|
|
226,496
|
|
|
|
213,460
|
|
|
Leasehold
Improvements
|
|
|
37,007
|
|
|
|
34,495
|
|
|
Total
Property and Equipment
|
|
|
416,946
|
|
|
|
394,351
|
|
|
Less:
Accumulated Depreciation
|
|
|
138,386
|
|
|
|
99,099
|
|
|
Property
and Equipment, Net
|
|
|
278,560
|
|
|
|
295,252
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
Escrow
Deposits
|
|
|
10,000
|
|
|
|
50,000
|
|
|
Deposits
|
|
|
16,523
|
|
|
|
16,523
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
368,687
|
|
|
$
|
748,997
|
|
See
accompanying Notes to Financial Statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
BALANCE
SHEETS
|
|
|
(Unaudited)
June
30,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Current
Portion of Capital Lease Obligations
|
|
$
|
75,773
|
|
|
$
|
65,916
|
|
|
Notes
Payable
|
|
|
152,000
|
|
|
|
-
|
|
|
Accounts
Payable
|
|
|
155,564
|
|
|
|
48,465
|
|
|
Deferred
Revenue
|
|
|
-
|
|
|
|
21,964
|
|
|
Accrued
Expenses
|
|
|
124,529
|
|
|
|
70,285
|
|
|
Total
Current Liabilities
|
|
|
507,866
|
|
|
|
206,630
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations, Net of Current Portion
|
|
|
90,875
|
|
|
|
117,162
|
|
|
Total
Liabilities
|
|
|
598,741
|
|
|
|
323,792
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
Common
Stock, $0.001 par value; 40,000,000 shares authorized; 9,014,304 and
8,774,304 shares issued and outstanding, as of June 30, 2009 and December
31, 2008, respectively
|
|
|
9,014
|
|
|
|
8,774
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $0.001 par value; 10,000,000 shares authorized
|
|
|
-
|
|
|
|
-
|
|
|
Additional
Paid-In Capital
|
|
|
3,644,011
|
|
|
|
3,385,251
|
|
|
Subscription
Receivable
|
|
|
(45,000
|
)
|
|
|
|
|
|
Accumulated
Deficit
|
|
|
(3,838,079
|
)
|
|
|
(2,968,820
|
)
|
|
Total
Stockholders' Equity (Deficit)
|
|
|
(230,054
|
)
|
|
|
425,205
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
368,687
|
|
|
$
|
748,997
|
|
See
accompanying Notes to Financial Statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
STATEMENTS
OF OPERATIONS
(UNAUDITED)
|
|
|
3 Months
Ending
|
|
|
3 Months
Ending
|
|
|
6 Months
Ending
|
|
|
6 Months
Ending
|
|
|
|
|
June 30,
2009
|
|
|
June 30,
2008
|
|
|
June 30,
2009
|
|
|
June 30,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
108,580
|
|
|
$
|
151,922
|
|
|
$
|
332,404
|
|
|
$
|
328,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUE
|
|
|
97,758
|
|
|
|
117,573
|
|
|
|
262,990
|
|
|
|
177,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
10,822
|
|
|
|
34,349
|
|
|
|
69,414
|
|
|
|
151,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
345,950
|
|
|
|
492,216
|
|
|
|
924,916
|
|
|
|
707,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(345,128
|
)
|
|
|
(457,867
|
)
|
|
|
(855,502
|
)
|
|
|
(555,921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
-
|
|
|
|
-
|
|
|
|
1,184
|
|
|
|
-
|
|
|
Interest
Expense
|
|
|
(7,010
|
)
|
|
|
(9,091
|
)
|
|
|
(14,941
|
)
|
|
|
(16,524
|
)
|
|
Total
Other Income (Expense)
|
|
|
(7,010
|
)
|
|
|
(9,091
|
)
|
|
|
(13,757
|
)
|
|
|
(16,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(352,138
|
)
|
|
|
(466,958
|
)
|
|
|
(869,259
|
)
|
|
|
(572,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BENEFIT
(PROVISION) FOR INCOME TAXES
|
|
|
-
|
|
|
|
105,000
|
|
|
|
-
|
|
|
|
145,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(352,138
|
)
|
|
$
|
(361,958
|
)
|
|
$
|
(869,259
|
)
|
|
$
|
(427,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED LOSS PER SHARE
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
See
accompanying Notes to Financial Statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
STATEMENTS
OF CASH FLOWS
(UNAUDITED)
|
|
|
6
Months
Ending
|
|
|
6
Months
Ending
|
|
|
|
|
June 30, 2009
|
|
|
June 30, 2008
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(869,259
|
)
|
|
$
|
(427,445
|
)
|
|
Adjustments
to Reconcile Net Loss to Net Cash Used by Operating
Activities
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
39,286
|
|
|
|
16,786
|
|
|
Stock
Compensation
|
|
|
20,000
|
|
|
|
179,000
|
|
|
Deferred
Tax Benefit
|
|
|
|
|
|
|
(145,000
|
)
|
|
(Increase)
Decrease in Operating Assets:
|
|
|
|
|
|
|
|
|
|
Accounts
Receivable
|
|
|
(17,899
|
)
|
|
|
(34,985
|
)
|
|
Prepaid
Expense
|
|
|
3,702
|
|
|
|
-
|
|
|
Inventory
|
|
|
4,366
|
|
|
|
-
|
|
|
Deposits
|
|
|
-
|
|
|
|
(13,620
|
)
|
|
Increase
(Decrease) in Operating Liabilities:
|
|
|
|
|
|
|
-
|
|
|
Accounts
Payable
|
|
|
107,099
|
|
|
|
(16,814
|
)
|
|
Accrued
Expenses
|
|
|
54,244
|
|
|
|
72,320
|
|
|
Deferred
Revenue
|
|
|
(21,964
|
)
|
|
|
-
|
|
|
Billings
in Excess of Costs and Estimated Earnings on Uncompleted
Contracts
|
|
|
-
|
|
|
|
(12,805
|
)
|
|
Net
Cash Used by Operating Activities
|
|
|
(680,425
|
)
|
|
|
(382,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Escrow
Deposit reduction
|
|
|
40,000
|
|
|
|
-
|
|
|
Purchase
of Property and Equipment
|
|
|
(9,558
|
)
|
|
|
(11,105
|
)
|
|
Net
Cash Used by Investing Activities
|
|
|
30,442
|
|
|
|
(11,105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Proceeds
from Short-Term Borrowings
|
|
|
152,000
|
|
|
|
275,916
|
|
|
Payments
on Capital Lease Obligations
|
|
|
(29,466
|
)
|
|
|
(7,058
|
)
|
|
Common
Stock Issued, net of Costs of Capital
|
|
|
194,000
|
|
|
|
336,670
|
|
|
Net
Cash Provided by Financing Activities
|
|
|
316,534
|
|
|
|
605,528
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(333,449
|
)
|
|
|
222,965
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents - Beginning of Year
|
|
|
335,189
|
|
|
|
41,344
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - END OF PERIOD
|
|
$
|
1,740
|
|
|
$
|
264,309
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Common
Stock Subscription Receivable
|
|
$
|
45,000
|
|
|
$
|
-
|
|
|
Interest
Paid
|
|
$
|
14,941
|
|
|
$
|
4,024
|
|
|
Property
and Equipment Purchased via Capital Lease
|
|
$
|
13,036
|
|
|
$
|
79,815
|
|
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of
Operations
IntelaSight,
Inc. dba Iveda Solutions (“Iveda” or “the Company”) began operations
January
24, 2005. The Company installs video surveillance equipment, primarily for
security purposes, and provides video hosting, archiving and real-time remote
surveillance services to a variety of businesses and organizations throughout
the United States.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company generated accumulated losses of
($
(3,838,079)
) through
June 30, 2009. These conditions raise substantial doubt about the
company’s ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these
uncertainties.
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:
|
|
·
|
A
private placement memorandum was prepared to raise an additional
$2,500,000 of equity. As of June 30, 2009, $1,031,000 was still to be
raised.
|
|
|
·
|
Establish
distributor networks with existing companies to create a reseller network
to increase the scope of the Company’s marketing activities with low cost
to the Company.
|
On
January 8, 2009, Charmed Homes Inc. (“Charmed") entered into a merger agreement
(the "Merger Agreement") with the Company, Charmed Homes Subsidiary, Inc., a
Nevada corporation and a wholly owned subsidiary of Charmed ("Merger Sub"), and
certain Charmed shareholders.
Under the
Merger Agreement, Charmed and Iveda have agreed, subject to the satisfaction or
waiver of the closing conditions set forth in the Merger Agreement, to engage in
a merger whereby the Merger Sub will merge with and into Iveda, and as a result
Iveda will become a wholly-owned subsidiary of Charmed. As part of the merger,
Iveda's stock and derivative securities will be exchanged for stock and
derivative securities of Charmed at a ratio of one share of Charmed's common
stock for each one share held in Iveda immediately prior to the merger closing.
As part of the merger, Charmed will change its name to "Iveda
Corporation."
Under the
Merger Agreement, the Company has committed to pay an additional $190,000 to
certain shareholders of Charmed Homes in addition to the $10,000 in escrow
at June 30, 2009.
Basis of Presentation and
Accounting
The
unaudited interim financial statements of the Company included herein have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission (“SEC”) for interim reporting including the instructions to
Form 10-Q and Rule 10-01 of Regulation S-X. These statements do not
include all disclosures required by accounting principles generally accepted in
the United States of America (“U.S. GAAP”) for annual audited financial
statements and should be read in conjunction with the Company’s audited
financial statements and related notes for the year ended December 31,
2008,
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
In the opinion of management, the
accompanying unaudited interim financial statements reflect all adjustments,
including normal recurring accruals, necessary to present fairly the financial
position of the Company at June 30, 2009, the results of operations for the
three and six months ended June 30, 2009 and 2008, and the cash flows for the
six months ended June 30, 2009 and 2008. The results of operations for the three
and six months ended June 30, 2009, are not necessarily indicative of the
expected results of operations for the full year or any future period. The
balance sheet as of December 31, 2008, is derived from the Company’s audited
financial statement
s.
Cash and Cash
Equivalents
The
company classifies cash equivalents with an original maturity of three months or
less as cash.
Inventory
Inventory
consists of equipment purchased for installation projects and is recorded at the
lower of cost or market.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management 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
Revenues
from monitoring services are recognized when the services are provided. Expenses
are recognized as incurred.
Revenues
from fixed-price equipment installation contracts 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.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Income
Taxes
Deferred
income taxes are recognized in the 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 depreciation, deferred rent expense,
and net operating losses. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount that represents the Company's 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 2008, the Company
reevaluated the valuation allowance for deferred tax assets and determined that
no current benefits should be recognized for the year ended December 31, 2008,
and that benefits recorded in prior years would not be recognized. We
reported no income tax expense during the three and six month period ended June
30, 2009 due to our operating losses and valuation allowances to fully reserve
the deferred tax assets.
In June
2006, the Financial Accounting Standards Board (“FASB”)
issued FIN 48,
Accounting for Uncertainty in Income
Taxes – an Interpretation of FASB Statement No. 109
(FIN 48), which
clarifies the accounting for uncertainty in tax positions. FIN 48 requires
financial statement recognition of the impact of a tax position, if that
position is more likely than not to be sustained on examination, based on the
technical merits of the position. The company’s 2005, 2006 and 2007 income tax
returns are open to audit by the Internal Revenue Service. There are no
uncertain tax positions that have been identified for those years, and
accordingly, no liability has been recorded.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the fair value recognition provisions of
Statement of Financial Accounting Standards (“SFAS”) 123R,
Share-Based Payment
, which
requires the recognition of an expense related to the fair value of stock-based
compensation awards. The Company elected the modified prospective transition
method as permitted by SFAS 123R. Under this transition method, stock-based
compensation expense for the years ended December 31, 2008 and 2007 includes
compensation expense for stock-based compensation granted on or after the date
SFAS 123R was adopted based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123R. The Company recognizes 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, 2008 and 2007, were estimated using the “minimum value method”
as prescribed by original provisions of SFAS 123,
Accounting for Stock-Based
Compensation
, therefore, no compensation expense is recognized for these
awards in accordance with SFAS 123R. The Company has recognized $20,000
and $179,000 of stock compensation for the six months ended June 30, 2009 and
2008, respectively.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
Fair Value of Financial
Instruments
On
January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements. As
permitted, adoption of SFAS 157 has been delayed for certain nonfinancial assets
and nonfinancial liabilities to January 1, 2009. SFAS 157 applies to reported
balances that are required or permitted to be measured at fair value under an
existing accounting pronouncement. SFAS 157 emphasizes that fair value is a
market-based measurement, not an entity-specific measurement. Therefore, a fair
value measurement should be determined based on the assumptions that market
participants would use in pricing the asset or liability and establishes a fair
value hierarchy. The fair value hierarchy consists of three levels of inputs
that may be used to measure fair value as follows:
Level 1 –
Inputs that utilize quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access.
Level 2 –
Inputs that include quoted prices for similar assets and liabilities in active
markets and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial
instrument. Fair values for these instruments are estimated using pricing
models, quoted prices of securities with similar characteristics, or discounted
cash flows.
Level 3 –
Inputs that are unobservable inputs for the asset or liability, which are
typically based on an entity’s own assumptions, as there is little, if any,
related market activity.
In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety.
Securities
available for sale are recorded at fair value on a recurring basis. Fair value
measurement is based upon quoted prices, if available. If quoted prices are not
available, fair values are measured using independent pricing models or other
model-based valuation techniques such as the present value of future cash flows,
adjusted for the security’s credit rating, prepayment assumptions, and other
factors such as credit loss assumptions.. The Company does not have any
securities that are valued under SFAS 157.
The
Company also adopted SFAS 159, The Fair Value Option for Financial Assets and
Liabilities on January 1, 2008. SFAS 159 allows entities the irrevocable option
to elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities on an instrument-by-instrument basis. The
Company has not elected to measure any existing financial instruments at fair
value at January 1, 2008, as permitted under SFAS 159. However, the Company may
elect to measure newly acquired financial instruments at fair value in the
future.
Impairment of Long-Lived
Assets
We have a
significant amount of property and equipment primarily consisting of leased
equipment. The leased equipment is office computer equipment for surveillance
and monitoring as well as hosting servers located in the Company’s leased data
center. None of the leased equipment is located at client locations.
All leased equipment is used to generate surveillance and monitoring revenues
and not related to sales and installation revenue. In accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long Lived Assets, 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. For the year ended
December 31, 2008 and then again on June 30, 2009, Iveda determined that even
though it continued to have negative financial results this was not a change in
circumstances that would cause it to perform an impairment test on these long
lived assets. These assets were purchased at wholesale rates in 2008 and
maintain substantial value after purchase. We assess our assets on a
quarterly basis to determine if they are subject to impairment and consider
various factors which have changed during a given quarter.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
New
Accounting Standards
In May
2009, the FASB issued SFAS 165 “Subsequent Events”. SFAS 165 provides general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. The statement sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or
transactions that may occur for potential recognition or disclosure in the
financial statements. The statement also sets forth the circumstances under
which an entity should recognize events or transactions occurring after the
balance sheet date in its financial statements. Furthermore, this
statement identifies the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. It is effective for
interim or annual financial periods ending after June 15, 2009. We
adopted this statement as of the June 30, 2009 reporting period.
In April
2009, the FASB issued three related FASB Staff Positions (“FSP”): (i) FSP FAS
115-2 and FAS 124-2, “Recognition of Presentation of Other-Than-Temporary
Impairments” (“FSP FAS 115-2 and FAS 124-2”), (ii) FSP FAS 107-1 and Accounting
Principles Board Opinion (“APB”) 28-1, “Interim Disclosures about Fair Value of
Financial Instruments” (“FSP FAS 107-1 and APB 28-1”), and (iii) FSP FAS 157-4,
“Determining the Fair Value When the Volume and Level of Activity for the Asset
or Liability Have Significantly Decreased and Identifying Transactions That Are
Not Orderly” (“FSP FAS 157-4), which are effective for interim and annual
reporting periods ending after June 15, 2009. FSP FAS 115-2 and FAS 124-2 amend
the other-than-temporary impairment guidance in U.S. GAAP for debt securities to
modify the requirement for recognizing other-than-temporary impairments, change
the existing impairment model, and modify the presentation and frequency of
related disclosures. FSP FAS 107-1 and APB 28-1 require disclosures about fair
value of financial instruments for interim reporting periods as well as in
annual financial statements. FSP FAS 157-4 provides additional guidance for
estimating fair value in accordance with SFAS 157, “Fair Value Measurements”
(“SFAS 157”). We adopted these Staff Positions, but they did not have a material
impact on our consolidated financial position, results of operations or cash
flows.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
In
December 2007, the FASB issued SFAS 141(revised 2007), “Business Combinations,”
to increase the relevance, representational faithfulness, and comparability of
the information a reporting entity provides in its financial reports about a
business combination and its effects. SFAS 141R replaces SFAS 141, “Business
Combinations” but, retains the fundamental requirements of SFAS 141 that the
acquisition method of accounting be used and an acquirer be identified for all
business combinations. SFAS 141R expands the definition of a business and of a
business combination and establishes how the acquirer is to: (1) recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase; and (3) determine what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R is applicable to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and is to
be applied prospectively. Early adoption is prohibited. The adoption of SFAS
141R did not have a material effect on the Company’s financial statements
.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB 51,” to improve the
relevance, comparability, and transparency of the financial information a
reporting entity provides in its consolidated financial statements.
SFAS 160
amends ARB 51 to establish accounting and reporting standards for noncontrolling
interests in subsidiaries and to make certain consolidation procedures
consistent with the requirements of SFAS 141R. It defines a noncontrolling
interest in a subsidiary as an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial statements. SFAS
160 changes the way the consolidated income statement is presented by requiring
consolidated net income to include amounts attributable to the parent and the
noncontrolling interest. SFAS 160 establishes a single method of accounting for
changes in a parent’s ownership interest in a subsidiary which do not result in
deconsolidation. SFAS 160 also requires expanded disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners of a subsidiary. SFAS 160 is effective for
financial statements issued for fiscal years beginning on or after December 15,
2008, and interim periods within those fiscal years. Early adoption is
prohibited. SFAS 160 shall be applied prospectively, with the exception of the
presentation and disclosure requirements which shall be applied retrospectively
for all periods presented. The adoption of SFAS 160 did not have a material
effect on the Company’s financial statements.
In May
2008, the FASB issued SFAS 162, “The Hierarchy of Generally Accepted Accounting
Principles”. SFAS 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of
financial statements of non-governmental entities that are presented in
conformity with generally accepted accounting principles in the United States.
It is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles”. The
adoption of SFAS 162 did not have a material effect on the Company’s financial
statements.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
In March
2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and
Hedging Activities – an amendment to FASB Statement No. 133”. SFAS 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows. Entities are required to provide enhanced
disclosures about: (a) how and why an entity uses derivative instruments; (b)
how derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations; and (c) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. It is effective for financial statements
issued for fiscal years beginning after November 15, 2008, with early adoption
encouraged. The adoption of SFAS 161 did not have a material effect on the
Company’s financial statements.
NOTE
2: ESCROW DEPOSITS
The
Company made an escrow deposit of $50,000 for the purchase of the majority of
outstanding stock of Charmed Homes, Inc., pursuant to a reverse merger agreement
signed in January 2009. During June 2009 $40,000 of that escrow deposit
was returned so the Company could pay professional fees required related to the
merger.
NOTE
3: ACCRUED EXPENSES
Accrued
expenses of $124,529 as of June 30, 2009, consists of $34,454 of deferred rent,
$80,949 of accrued payroll and associated costs, and $9,126 of other
liabilities.
Accrued
expenses of $70,285 as of December 31, 2008, consists of $40,567 of deferred
rent, $23,905 of accrued payroll and associated costs, and $5,813 of other
liabilities.
NOTE
4: NOTES PAYABLE
In the
fourth quarter of 2007, the Company borrowed $100,000 for use in operations. The
principal and interest (charged at 10%) was payable in a single payment in
December 2008. During the first quarter 2008, the Company borrowed $150,000 for
use in operations. The principal and interest (charged at 10%) was payable in a
single payment in December 2008. The note holders of the $100,000 and
$150,000 exercised their right to convert unpaid principal and interest to
common stock in December 2008 at $0.50 per share
In June
2008, the Company borrowed $300,000 for use in operations at 12% interest
payable in December 2008. The note holders exercised their right to
convert the unpaid principal and interest to common stock in 2008 at $1.00 per
share.
In 2008
all outstanding debt and accrued interest was converted to 848,214 shares of
common stock.
In 2009,
the Company borrowed $152,000 for use in operations at no interest, payable at
December 31, 2009 and unsecured. These notes were with various
related party shareholders.
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
5: SERIES A AND A-1, CONVERTIBLE PREFERRED STOCK
In 2007,
the Company completed an offering of 853,275 shares of $.001 par value, Series A
and A-1 Preferred Stock at $0.94 and $4.028 per share, respectively. The
Company’s Series A Preferred stockholders, at any time, have the right to
convert their stock into common stock shares on a 1:1 basis, adjusted for
specific items defined in the Purchase Agreement. The Preferred Stock has
liquidation preferences over the other outstanding securities of the
Company.
All
outstanding Series A and A-1 Preferred Stock was converted to common stock
during 2008. The total common shares issued with respect to the conversion were
1,307,347.
NOTE
6: RELATED PARTY TRANSACTIONS
The
Company has provided surveillance services since 2005 to entities owned by Ross
Farnsworth, either through a family partnership or through his majority owned
LLC, and subsequently Ross Farnsworth became a shareholder of The Company in
2006. Mr. Farnsworth’s holdings are less than 5% of the Company but the
revenue for the six months ended June 30, 2009 and the year ending 2008 was
$22,072 and $40,466, respectively, and there was a trade accounts receivable
balance of $7,615 and $3,021 at June 30, 2009 and December 31, 2008,
respectively.
The
Company has borrowed $152,000 through June 30, 2009 from various shareholders at
no interest and a maturity date of December 31, 2009.
NOTE
7: 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 SFAS 128, “Earnings Per Share“(“EPS”).
Basic EPS
is computed by dividing reported earnings available to stockholders by the
weighted average shares outstanding. Diluted EPS also includes the effect of
dilutive potential common shares. The Company had net losses for the three
and six months ended June 30, 2009 and 2008 and the effect of including dilutive
securities in the earnings per common share would have been anti-dilutive.
Accordingly, all options to purchase common shares were excluded from the
calculation of diluted earnings per share for the three and six months ended
June 30, 2009 and 2008.
|
|
|
For the three
|
|
|
For the three
|
|
|
For the six
|
|
|
For the six
|
|
|
|
|
months
ended
|
|
|
months
ended
|
|
|
months
ended
|
|
|
months
ended
|
|
|
|
|
6/30/2009
|
|
|
6/30/2008
|
|
|
6/30/2009
|
|
|
6/30/2008
|
|
|
Basic
and Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(352,138
|
)
|
|
$
|
(361,958
|
)
|
|
$
|
(869,259
|
)
|
|
$
|
(427,445
|
)
|
|
Weighted
Average Shares
|
|
|
8,936,804
|
|
|
|
5,090,006
|
|
|
|
8,882,637
|
|
|
|
5,056,585
|
|
|
Basic
Loss Per Share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(0.08
|
)
|
INTELASIGHT,
INC. DBA
IVEDA
SOLUTIONS
(A
WASHINGTON CORPORATION)
NOTES
TO THE FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
8: COMMON STOCK
The
Company issued 85,000 shares of common stock for $1 per share in the quarter
ended March 31, 2009 and 155,000 for the quarter ended June 30, 2009 under a
private placement memorandum with $45,000 subscription receivable at June 30,
2009 and $1,000 cost of financing for the six month period ending June 30,
2009.
NOTE
9: SUBSEQUENT EVENTS
The
Company issued 12,500 shares of common stock for $1 per share in July 2009 under
a private placement memorandum. The Company has received proceeds
from additional related party loans of $4,000 subsequent to June 30, 2009 at
similar terms to those outstanding at June 30, 2009. The Company has
raised an additional $289,900 from the sales of short-term debentures with a
default conversion to common stock at $1 per share if not repaid by October 15,
2009. Also, $14,000 of the $152,000 Notes Payable as of June 30, 2009
was converted to short-term debentures. Subsequent events have been
evaluated through October 9, 2009.
|
Unaudited
Pro Forma Condensed Balance Sheets
|
|
IntelaSight,
Inc.
|
|
|
Iveda
Corporation
(fka
Charmed Homes Inc.)
|
|
|
|
|
|
|
|
|
|
|
|
June
30,
|
|
|
July
31,
|
|
|
Pro
Forma
|
|
|
|
Pro
Forma
|
|
|
|
|
2009
|
|
|
2009
|
|
|
Adjustments
|
|
Notes
|
|
Combined
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
$
|
1,740
|
|
|
$
|
64,233
|
|
|
|
|
(a)
|
|
$
|
65,973
|
|
|
Accounts
Receivable
|
|
$
|
44,870
|
|
|
|
|
|
|
|
|
|
|
|
44,870
|
|
|
Prepaid
Expenses
|
|
$
|
7,830
|
|
|
|
|
|
|
|
|
|
|
|
7,830
|
|
|
Inventory
|
|
$
|
9,164
|
|
|
|
|
|
|
|
|
|
|
|
9,164
|
|
|
Total
Current Assets
|
|
|
63,604
|
|
|
|
64,233
|
|
|
|
-
|
|
|
|
|
127,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Equipment
|
|
|
89,227
|
|
|
|
|
|
|
|
|
|
|
|
|
89,227
|
|
|
Furniture
and Fixtures
|
|
|
27,416
|
|
|
|
|
|
|
|
|
|
|
|
|
27,416
|
|
|
Software
|
|
|
36,800
|
|
|
|
|
|
|
|
|
|
|
|
|
36,800
|
|
|
Leased
Equipment
|
|
|
226,496
|
|
|
|
|
|
|
|
|
|
|
|
|
226,496
|
|
|
Leasehold
Improvements
|
|
|
37,007
|
|
|
|
|
|
|
|
|
|
|
|
|
37,007
|
|
|
Total
Property and Equipment
|
|
|
416,946
|
|
|
|
|
|
|
|
|
|
|
|
|
416,946
|
|
|
Less:
Accumulated Depreciation
|
|
|
138,386
|
|
|
|
|
|
|
|
|
|
|
|
|
138,386
|
|
|
Property
and Equipment, Net
|
|
|
278,560
|
|
|
|
|
|
|
|
|
|
|
|
|
278,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
Income Taxes
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrow
Deposits
|
|
|
10,000
|
|
|
|
|
|
|
|
(10,000
|
)
|
(b)
|
|
|
-
|
|
|
Deposits
|
|
|
16,523
|
|
|
|
|
|
|
|
|
|
|
|
|
16,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
368,687
|
|
|
$
|
64,233
|
|
|
$
|
(10,000
|
)
|
|
|
|
422,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Portion of Capital Lease Obligations
|
|
$
|
75,773
|
|
|
|
|
|
|
|
|
|
|
|
|
75,773
|
|
|
Notes
Payable
|
|
$
|
152,000
|
|
|
|
|
|
|
|
|
|
|
|
|
152,000
|
|
|
Accounts
Payable
|
|
$
|
155,564
|
|
|
|
2,171
|
|
|
|
|
|
(a)
|
|
|
157,735
|
|
|
Deferred
Revenue
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Billings
in Excess of Costs and Estimated Earnings on
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Uncompleted
Contracts
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Accrued
Expenses
|
|
|
124,529
|
|
|
|
|
|
|
|
190,000
|
|
(c)
|
|
|
314,529
|
|
|
Total
Current Liabilities
|
|
|
507,866
|
|
|
|
2,171
|
|
|
|
190,000
|
|
|
|
|
700,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Lease Obligations, Net of Current Portion
|
|
|
90,875
|
|
|
|
|
|
|
|
|
|
|
|
|
90,875
|
|
|
Total
Liabilities
|
|
|
598,741
|
|
|
|
2,171
|
|
|
|
190,000
|
|
|
|
|
790,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock, $0.001 par value; 40,000,000 shares
|
|
|
9,014
|
|
|
|
|
|
|
|
845
|
|
(f)
|
|
|
9,859
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
(67
|
)
|
(e)
|
|
|
-
|
|
|
issued
and outstanding, as of December 31, 2008 and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock, $0.001 par value; 10,000,000 shares
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid-In Capital
|
|
|
3,644,011
|
|
|
|
173,933
|
|
|
|
(173,933
|
)
|
(e)
|
|
|
3,644,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(845
|
)
|
(f)
|
|
|
|
|
|
Common
Stock Subscription Receivable
|
|
|
(45,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(45,000
|
)
|
|
Donated
Capital
|
|
|
|
|
|
|
18,500
|
|
|
|
(18,500
|
)
|
(e)
|
|
|
-
|
|
|
Accumulated
Deficit
|
|
|
(3,838,079
|
)
|
|
|
(130,438
|
)
|
|
|
(69,562
|
)
|
(d)
|
|
|
(4,038,079
|
)
|
|
Total
Stockholders' Equity
|
|
|
(230,054
|
)
|
|
|
62,062
|
|
|
|
(262,062
|
)
|
|
|
|
(430,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
368,687
|
|
|
$
|
64,233
|
|
|
$
|
(72,062
|
)
|
|
|
|
360,858
|
|
|
Unaudited
Pro Forma Condensed Statement of Operations
|
|
IntelaSight,
Inc.
|
|
|
Iveda
Corporation
(fka
Charmed Homes Inc.)
|
|
|
|
|
|
|
Pro
Forma
|
|
|
|
|
6
Months ended
|
|
|
6
Months ended
|
|
|
Pro
Forma
Adjustments
|
|
|
|
Combined
|
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
$
|
332,404
|
|
|
|
-
|
|
|
|
|
|
|
|
332,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST
OF REVENUE
|
|
|
262,990
|
|
|
|
-
|
|
|
|
|
|
|
|
262,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
69,414
|
|
|
|
-
|
|
|
|
|
|
|
|
69,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
924,916
|
|
|
|
24,482
|
|
|
|
200,000
|
|
(g)
|
|
|
1,149,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
FROM OPERATIONS
|
|
|
(855,502
|
)
|
|
|
(24,482
|
)
|
|
|
|
|
|
|
|
(879,984
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Income
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
1,184
|
|
|
Interest
Expense
|
|
|
(14,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(14,941
|
)
|
|
Total
Other Income (Expense)
|
|
|
(13,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(13,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(869,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(869,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BENEFIT
(PROVISION) FOR INCOME TAXES
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(869,259
|
)
|
|
|
(24,482
|
)
|
|
|
(200,000
|
)
|
|
|
$
|
(1,093,741
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
LOSS PER SHARE
|
|
$
|
(0.10
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED
LOSS PER SHARE
|
|
$
|
(0.10
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
8,882,637
|
|
|
|
6,690,000
|
|
|
|
|
|
|
|
|
8,882,637
|
|
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Notes
to the Unaudited Pro Forma Condensed Consolidated Financial Information
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Note 1—Pro
Forma Adjustments
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(a)
To eliminate all
assets and liabilities of Charmed per merger agreement - This Elimination
was WAIVED at closing hence $0
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(b) To
recognize the escrow deposit to certain Charmed shareholders as a
transaction cost
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(c)
To record the
$190,000 commitment at closing to certain Charmed
shareholders
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(d)
Eliminate $130,438
of Accumulated deficit and reflect $200,000 of transaction costs to
certain Charmed shareholders
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(e)
Adjustment to
eliminate Charmed Common Shares, Additional Paid-in Capital and Donated
Capital
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(f)
Adjust Common Stock
to reflect the par value of 845,000 shares that remain with Charmed
shareholders after merger
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