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Item 1. Financial Statements

2015-11-16 compared with 2015-08-14 · 809 added, 854 removed, 182 unchanged (90% of the section changed)

FINANCIAL STATEMENTS.

IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2015 AND DECEMBER 31, 2014

SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

30, 2015 AND DECEMBER 31, 2014

CURRENT ASSETS

Cash and Cash Equivalents

Cash Equivalents

Restricted Cash

Accounts Receivable, Net

Accounts Receivable,

Inventory, Net

Other Current Assets

Total Current Assets

Current Assets

PROPERTY AND EQUIPMENT, NET

Intangible Assets, Net

Total Other Assets

LIABILITIES AND STOCKHOLDERS' EQUITY

Intangible Assets,

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES

Accounts and Other Payables

Accounts and Other

Due to Related Parties

1 unchanged sentence

Derivative Liability

Current Portion of Long-Term Debt

Total Current Liabilities

Portion of Long-Term Debt

Current Liabilities

LONG-TERM DIVIDENDS PAYABLE

STOCKHOLDERS' EQUITY

STOCKHOLDERS’

Preferred Stock, $0.00001 par value;

100,000,000 shares authorized

Series A Preferred Stock, $0.00001 par value;

10,000,000 shares authorized, 4,003,592 shares issued and outstanding as of June 30, 2015 and December 31, 2014

Series B Preferred Stock, $0.00001 par value;

500 shares authorized, 302.5 and -0- shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively

100,000,000 shares authorized Series A Preferred Stock, $0.00001 par value;

10,000,000 shares authorized, 4,003,592 shares

issued and outstanding as of September 30, 2015 and December 31, 2014

Series B Preferred Stock, $0.00001 par

500 shares authorized, 302.5 and no shares issued and outstanding as of September 30, 2015 and December 31, 2014, respectively

Common Stock, $0.00001 par value;

shares authorized;

27,451,690 and 27,308,357 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively

Additional Paid-In Capital

Accumulated Comprehensive Loss

Less Notes Receivable from Stockholder

Accumulated Deficit

27,689,685 and 27,308,357 shares issued and outstanding as of September 30, 2015 and December 31, 2014,

Additional Paid-In

Accumulated Comprehensive

Less Notes Receivable

from Stockholder

(30,634,794 )

(27,490,658 )

Total Stockholders' Equity (Deficit)

Total Liabilities and Stockholders' Equity

See accompanying Notes to Condensed Consolidated

Financial Statements

IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30,

2015 AND 2014

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

Stockholders’

Equity (Deficit)

Liabilities and Stockholders’

accompanying Notes to Condensed Consolidated Financial Statements

SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Equipment Sales

8 unchanged sentences

Gain on Derivatives and Debt Conversion

Loss on Disposal of Assets

Gain (Loss) on Disposal of Assets

Interest Income

2 unchanged sentences

LOSS BEFORE INCOME TAXES

(PROVISION) FOR INCOME TAXES

BENEFIT (PROVISION)

FOR INCOME TAXES

$ (1,201,375 )

1 unchanged sentence

$ (4,195,707 )

BASIC AND DILUTED LOSS PER SHARE

BASIC AND DILUTED

LOSS PER SHARE

WEIGHTED AVERAGE SHARES

See accompanying Notes to Condensed Consolidated

Financial Statements

IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE

FOR THE THREE AND SIX MONTHS ENDED JUNE 30,

2015 AND 2014

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

accompanying Notes to Condensed Consolidated Financial Statements

SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

$ (1,201,375 )

2 unchanged sentences

Other Comprehensive Loss

Change in Equity Adjustment from Foreign Currency Translation, Net of Tax

Change in Equity Adjustment from Foreign Currency Translation, Net of

Comprehensive Loss

2 unchanged sentences

$ (4,201,164 )

See accompanying Notes to Condensed Consolidated

Financial Statements

IVEDA SOLUTIONS,

CONDENSED CONSOLIDATED STATEMENTS OF CASH

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND

Six Months Ended

June 30, 2015

June 30, 2014

accompanying Notes to Condensed Consolidated Financial Statements

IVEDA SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES

9 unchanged sentences

Loss on Disposal of Assets

Inventory Valuation Allowance

Common Stock Warrants Issued for Interest

(Increase) Decrease in Operating Assets and Liabilities

Prepayment Discount on Stockholder Note Receivable

(Increase) Decrease in Operating Assets

Accounts Receivable

Other Current Assets

Accounts and Other Payables

(Decrease in) Accounts and Other Payables

Net Cash Used in Operating Activities

6 unchanged sentences

Proceeds from (Payments on) Short-Term Notes Payable/Debt

Proceeds from Short-Term Debt, Related Party

Proceeds from Exercise of Stock Options

Proceeds from (Payments to) Due to Related Parties

Proceeds from Long-Term Debt, Net of Payments

Proceeds from Stockholder Note Receivable

Proceeds from (Payments on) Long-Term Debt, Net of Payments

Payments on Capital Lease Obligations

1 unchanged sentence

Deferred Finance Costs, Net

Common Stock Issued, Net of (Cost of Capital)

Series B Preferred Stock Issued, Net of Cost of Capital

Net Cash Provided by Financing Activities

EFFECT OF EXCHANGE RATE CHANGES ON CASH

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

EFFECT OF EXCHANGE RATE CHANGES ON

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

Cash and Cash Equivalents- Beginning of Period

CASH AND CASH EQUIVALENTS - END OF PERIOD

See accompanying Notes to Condensed Consolidated

Financial Statements

IVEDA SOLUTIONS,

CONDENSED CONSOLIDATED STATEMENTS OF CASH

FLOWS - CONTINUED

FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND

Six Months Ended

June 30, 2015

June 30, 2014

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

CASH AND CASH EQUIVALENTS - END OF

accompanying Notes to Condensed Consolidated Financial Statements

SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Nine Months Ended

September 30, 2015

September 30, 2014

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

Interest Paid

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Income Tax Paid

SUPPLEMENTAL DISCLOSURE OF NON-CASH

INVESTING AND FINANCING ACTIVITIES

Discount on Convertible Debt

3 unchanged sentences

Warrants Issued as Deferred Finance Costs

See accompanying Notes to Condensed Consolidated

Financial Statements

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 1 BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING

These statements should be read

in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the

year ended December 31, 2014.

The operating results and cash flows for the six-month period ended June 30, 2015 are not necessarily

indicative of the results that will be achieved for the full fiscal year ending December 31, 2015 or for future periods.

The accompanying condensed consolidated

financial statements have been prepared without audit and reflect all adjustments, consisting of normal recurring adjustments,

which are, in our opinion, necessary for a fair statement of the financial position and the results of operations for the interim

Preparing financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,

liabilities, revenue, and expenses.

Estimates are used for, but not limited to, accounting for the allowance for doubtful accounts,

impairment costs, depreciation and amortization, sales returns and discounts, warranty costs, uncertain tax positions and the recoverability

of deferred tax assets, stock compensation, contingencies, and the fair value of assets and liabilities disclosed.

Actual results

and outcomes may differ from our estimates and assumptions.

The statements have been prepared in accordance with GAAP and pursuant

Accrued Interest Rolled into Convertible Debentures

Exercise of Stock Options

Deferred Finance Costs Allocated to APIC

Conversion of Preferred Stock to Common Stock

Dividends Converted to Common Stock

accompanying Notes to Condensed Consolidated Financial Statements

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report

on Form 10-K for the year ended December 31, 2014.

The operating results and cash flows for the nine-month period ended September

30, 2015 are not necessarily indicative of the results that will be achieved for the full fiscal year ending December 31, 2015

or for future periods.

accompanying condensed consolidated financial statements have been prepared without audit and reflect all adjustments, consisting

of normal recurring adjustments, which are, in our opinion, necessary for a fair statement of the financial position and the results

of operations for the interim periods.

Preparing financial statements requires us to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenue, and expenses.

Estimates are used for, but not limited to, accounting for

the allowance for doubtful accounts, impairment costs, depreciation and amortization, sales returns and discounts, warranty costs,

uncertain tax positions and the recoverability of deferred tax assets, stock compensation, contingencies, and the fair value of

assets and liabilities disclosed.

Actual results and outcomes may differ from our estimates and assumptions.

The statements have

been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant

to the rules and regulations of the Securities and Exchange Commission (“SEC”).

2 unchanged sentences

rules and regulations.

The balance sheet at December 31,

2014 has been derived from the audited financial statements at that date but does not include all of the information and footnotes

required by GAAP for complete financial statements.

balance sheet at December 31, 2014 has been derived from the audited financial statements at that date but does not include all

of the information and footnotes required by GAAP for complete financial statements.

Consolidation

Effective April 30, 2011, we completed

our acquisition of Sole Vision Technologies (dba MEGAsys), a company based in Taiwan.

We consolidate our financial statements with

the financial statements of MEGAsys.

All intercompany balances and transactions have been eliminated in consolidation.

The accompanying condensed consolidated

financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of

assets and the liquidation of liabilities in the normal course of business.

Our Audit Report on the Consolidated Financial Statements

for the year ended December 31, 2014 contained a going concern qualification.

Since inception, we have generated an accumulated

deficit from operations of approximately $29.5 million at June 30, 2015 and have used approximately $2.4 million in cash to fund

operations through the six months ended June 30, 2015.

As a result, a significant risk exists regarding our ability to continue

as a going concern.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability

and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty.

We adopted a multi-step plan to

enable us to continue to operate and begin to report operating profits.

The highlights of that plan are as follows:

April 30, 2011, we completed our acquisition of Sole Vision Technologies (dba MEGAsys), a company based in Taiwan.

We consolidate

our financial statements with the financial statements of MEGAsys.

All intercompany balances and transactions have been eliminated

in consolidation.

accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern,

which contemplates the realization of assets and the liquidation of liabilities in the normal course of business.

Our Audit Report

on the Consolidated Financial Statements for the year ended December 31, 2014 contained a going concern qualification.

Since inception,

we have generated an accumulated deficit from operations of approximately $30.6 million at September 30, 2015 and have used approximately

$2.7 million in cash to fund operations through the nine months ended September 30, 2015.

As a result, a significant risk exists

regarding our ability to continue as a going concern.

The condensed consolidated financial statements do not include any adjustments

relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that

might result from this uncertainty.

adopted a multi-step plan to enable us to continue to operate and begin to report operating profits.

The highlights of that plan

are as follows:

developed Sentir ®

, our cloud-based video management platform, and began executing on our strategy to license its

use as a Video Surveillance as a Service (“VSaaS”) offering to partners such as telecommunications companies, Internet

Service Providers (“ISPs”), data centers, and cable companies in order to gain access to their existing subscriber

, our cloud-based video management platform, and began executing on our strategy to license

its use as a Video Surveillance as a Service (“VSaaS”) offering to partners such as telecommunications companies,

Internet Service Providers (“ISPs”), data centers, and cable companies in order to gain access to their existing

subscriber bases.

Sentir was officially launched in April 2014.

We introduced the ZEE ®

introduced the ZEE ®

line of cloud, plug-and-play cameras.

The camera line includes three wireless indoor cameras, one of which is a pan/tilt (“P/T”)

camera, and one outdoor camera.

We utilize contract manufacturers for our cloud cameras and other cloud-enabled devices.

The Sentir-enabled

cameras simplify service providers’

VSaaS offering to end users.

We developed IvedaMobile ®

a cloud-hosting service that turns any smartphone or tablet into a mobile, cloud video streaming device.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

We are actively collaborating with certain

foreign telecommunications and manufacturing companies to resell our products and services in their respective countries and are

actively engaged in such sales processes with other similar companies.

We are licensing Sentir and selling the ZEE line

In December 2014, we entered into an agreement

(the “Debenture and Warrant Amendment”) with the holders of certain debentures (the “2013 Debentures”)

and certain warrants (the “2013 Warrants”), pursuant to which the holders agreed to cancel the 2013 Debentures and

convert them into an aggregate of 3,600,000 shares of our newly issued Series A Preferred Stock.

As inducement to enter into the

Debenture and Warrant Amendment, we issued to the holders additional warrants to purchase shares of our common stock.

As of the final closing of a private placement on March 13, 2015,

we raised approximately $3.1 million through the sale of Series B Preferred Stock.

During July 2014 we launched a new website

highlighting our licensing business model, which focuses on telecommunications companies, data centers, ISPs, cable companies,

and other similar organizations.

We reduced our U.S.-based segment operating

costs by eliminating our direct project-based sales channel and all costs related to project-based sales and operations to focus

our activities and resources on licensing Sentir.

In November 2013, we hired Bob Brilon

as our Chief Financial Officer and Executive Vice President of Business Development.

Brilon has strong ties with the investment

community and has extensive experience with strategic growth planning and domestic and foreign institutional investors, which have

been and will continue to be instrumental to our market expansion, global distribution of our cloud video hosting platform and

services, and raising capital to fund our growth.

In February 2014, Mr.

The camera line includes three wireless indoor cameras,

one of which is a pan/tilt (“P/T”) camera, two outdoor cameras, and a dome camera.

We utilize contract manufacturers

for our cloud cameras and other cloud-enabled devices.

The Sentir-enabled cameras simplify service providers’

offering to end users.

developed IvedaMobile ®

, a cloud-hosting service that turns any smartphone or tablet into a mobile, cloud video

streaming device.

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

August 2015, we launched IvedaHome, a cloud-based home automation system, enabled for Sentir.

The system is wireless and simple

to install for the telco’s residential and small business customers.

are actively collaborating with certain foreign telecommunications and manufacturing companies to resell our products and

services in their respective countries and are actively engaged in such sales processes with other similar companies.

licensing Sentir and selling the ZEE line of cameras.

December 2014, we entered into an agreement (the “Debenture and Warrant Amendment”) with the holders of certain

debentures (the “2013 Debentures”) and certain warrants (the “2013 Warrants”), pursuant to which the

holders agreed to cancel the 2013 Debentures and convert them into an aggregate of 3,600,000 shares of our newly issued Series

A Preferred Stock.

As inducement to enter into the Debenture and Warrant Amendment, we issued to the holders additional warrants

to purchase shares of our common stock.

of the final closing of a private placement on March 13, 2015, we raised approximately $3.1 million through the sale of Series

B Preferred Stock.

July 2014 we launched a new website highlighting our licensing business model, which focuses on telecommunications companies,

data centers, ISPs, cable companies, and other similar organizations.

reduced our U.S.-based segment operating costs by eliminating our direct project-based sales channel and all costs related

to project-based sales and operations to focus our activities and resources on licensing Sentir.

November 2013, we hired Bob Brilon as our Chief Financial Officer and Executive Vice President of Business Development.

Brilon has strong ties with the investment community and has extensive experience with strategic growth planning and domestic

and foreign institutional investors, which have been and will continue to be instrumental to our market expansion, global

distribution of our cloud video surveillance and data management platform, and raising capital to fund our growth.

Brilon was appointed as our President.

Concentrations

Financial instruments, which potentially

subject us to concentrations of credit risk, consist principally of cash and cash equivalents and trade accounts receivable.

Substantially all cash is deposited

in two financial institutions, one in the United States and one in Taiwan.

At times, amounts on deposit in the United States may

be in excess of the FDIC insurance limit.

Deposits in Taiwan financial institutions are insured by CDIC (“Central Deposit

Insurance Corporation”) with maximum coverage of NTD 3 million.

At times, amounts on deposit in Taiwan may be in excess of

the CDIC insurance limit.

Accounts receivable are unsecured,

and we are at risk to the extent such amount becomes uncollectible.

We perform periodic credit evaluations of our customers’

instruments, which potentially subject us to concentrations of credit risk, consist principally of cash and cash equivalents and

trade accounts receivable.

Substantially

all cash is deposited in two financial institutions, one in the United States and one in Taiwan.

At times, amounts on deposit

in the United States may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.

in Taiwan financial institutions are insured by Central Deposit Insurance Corporation (“CDIC”) with maximum coverage

of NTD 3 million.

At times, amounts on deposit in Taiwan may be in excess of the CDIC insurance limit.

receivable are unsecured, and we are at risk to the extent such amount becomes uncollectible.

We perform periodic credit evaluations

of our customers’

financial condition and generally do not require collateral.

U.S.-based segment revenue from two customers represented approximately

31% of total revenue for the six months ended June 30, 2015, and two customers represented approximately 83% of the total U.S.-based

segment accounts receivable at June 30, 2015.

Taiwan-based segment revenue from two customers represented approximately 72% of

total revenue for the six months ended June 30, 2015, and two customers represented approximately 51% of total Taiwan-based segment

accounts receivable at June 30, 2015.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Intangible assets consist of trademarks

and other intangible assets associated with the purchase price allocation of MEGAsys.

Such assets are being amortized over their

estimated useful lives ranging from six months to ten years.

Other intangible assets are fully amortized at June 30, 2015.

amortization of trademarks is as follows:

Fair Value of Financial Instruments

Fair value estimates discussed herein

are based upon certain market assumptions and pertinent information available to us as of June 30, 2015 and December 31, 2014.

The respective carrying values of certain on-balance-sheet financial instruments approximate their fair values.

These financial

instruments include cash, accounts receivable, accounts payable, accrued expenses, and amounts due to related parties.

were assumed to approximate carrying values for these financial instruments because either they are short-term in nature and their

carrying amounts approximate their fair values or they are receivable or payable on demand.

Derivative Financial Instruments

We do not use derivative instruments

to hedge exposures to cash flow, market, or foreign currency risks.

We evaluate all of our financial instruments to determine if

such instruments are derivatives or contain features that qualify as embedded derivatives.

For derivative financial instruments

that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued

at the reporting date, with changes in the fair value reported in the consolidated statements of operations.

For stock-based derivative

financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments at inception and on subsequent

valuation dates.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities

or as equity, is evaluated at the end of each reporting period.

Derivative instrument liabilities are classified in the balance

sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within

12 months of the balance sheet date.

Our derivative liability relates to the 2013 Warrants issued in connection with the 2013 Debentures

(subsequently converted to Series A Preferred Stock on December 9, 2014).

These warrants contain a ratchet provision, which allows

the exercise price to adjust downward based on certain events.

Segment Information

We conduct operations in various

geographic regions.

The operations conducted and the customer bases located in the foreign countries are similar to the operations

conducted and the customer bases located in the United States.

The net revenue and net assets (liabilities) for other significant

geographic regions are as follows:

June 30, 2015

Net Assets (Liabilities)

U.S.-based segment revenue from two customers

represented approximately 28% of total revenue for the nine months ended September 30, 2015, and four customers represented approximately

91% of the total U.S.-based segment accounts receivable at September 30, 2015.

Taiwan-based segment revenue from three customers

represented approximately 79% of total revenue for the nine months ended September 30, 2015, and four customers represented approximately

96% of total Taiwan-based segment accounts receivable at September 30, 2015.

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

assets consist of trademarks and other intangible assets associated with the purchase price allocation of MEGAsys.

are being amortized over their estimated useful lives ranging from nine months to ten years.

Other intangible assets are fully

amortized at September 30, 2015.

Future amortization of trademarks is as follows:

Value of Financial Instruments

value estimates discussed herein are based upon certain market assumptions and pertinent information available to us as of September

30, 2015 and December 31, 2014.

The respective carrying values of certain on-balance-sheet financial instruments approximate their

These financial instruments include cash, accounts receivable, accounts payable, accrued expenses, and amounts due

to related parties.

Fair values were assumed to approximate carrying values for these financial instruments because either they

are short-term in nature and their carrying amounts approximate their fair values or they are receivable or payable on demand.

Financial Instruments

do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

We evaluate all of our financial

instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

For derivative

financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value

and is then re-valued at the reporting date, with changes in the fair value reported in the consolidated statements of operations.

For stock-based derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments

at inception and on subsequent valuation dates.

The classification of derivative instruments, including whether such instruments

should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

Derivative instrument liabilities

are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument

could be required within 12 months of the balance sheet date.

Our derivative liability relates to the 2013 Warrants issued in

connection with the 2013 Debentures (subsequently converted to Series A Preferred Stock on December 9, 2014).

These warrants contain

a ratchet provision, which allows the exercise price to adjust downward based on certain events.

conduct operations in various geographic regions.

The operations conducted and the customer bases located in the foreign countries

are similar to the operations conducted and the customer bases located in the United States.

The net revenue and net assets (liabilities)

for other significant geographic regions are as follows:

Assets (Liabilities)

United States

Republic of China (Taiwan)

Furthermore, due to operations in various geographic

locations, we are susceptible to changes in national, regional, and local economic conditions, demographic trends, consumer confidence

in the economy, and discretionary spending priorities that may have a material adverse effect on our future operations and results.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

We are required to collect certain taxes and fees from

customers on behalf of government agencies and remit them back to the applicable governmental agencies on a periodic basis.

taxes and fees are legal assessments to the customer, for which we have a legal obligation to act as a collection agent.

we do not retain the taxes and fees, we do not include such amounts in revenue.

We record a liability when the amounts are collected

and relieve the liability when payments are made to the applicable governmental agencies.

We operate two reportable business

segments as defined in ASC 280, “Segment Reporting.”

We have a U.S.-based segment, Iveda, and a Taiwan-based segment,

Each segment has a chief operating decision maker and management personnel who review their respective segment’s

performance as it relates to revenue, operating profit, and operating expenses.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Statements of operations for the

three and six months ended June 30, 2015 for each of our reporting segments are provided below.

Ended June 30, 2015

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

due to operations in various geographic locations, we are susceptible to changes in national, regional, and local economic conditions,

demographic trends, consumer confidence in the economy, and discretionary spending priorities that may have a material adverse

effect on our future operations and results.

are required to collect certain taxes and fees from customers on behalf of government agencies and remit them back to the applicable

governmental agencies on a periodic basis.

The taxes and fees are legal assessments to the customer, for which we have a legal

obligation to act as a collection agent.

Because we do not retain the taxes and fees, we do not include such amounts in revenue.

We record a liability when the amounts are collected and relieve the liability when payments are made to the applicable governmental

operate two reportable business segments as defined in ASC 280, “Segment Reporting.”

We have a U.S.-based segment,

Iveda, and a Taiwan-based segment, MEGAsys.

Each segment has a chief operating decision maker and management personnel who review

their respective segment’s performance as it relates to revenue, operating profit, and operating expenses.

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

of operations for the three and nine months ended September 30, 2015 for each of our reporting segments are provided below.

Cost of Revenue

4 unchanged sentences

Gain on Derivatives

Loss on Disposal of Assets, Net

Gain on Disposal of Assets, Net

Interest Income

1 unchanged sentence

Gain (Loss) Before Income Taxes

Provision for Income Taxes

Benefit (Provision) for Income Taxes

Net Income (Loss)

Ended June 30, 2015

Cost of Revenue

8 unchanged sentences

Gain (Loss) Before Income Taxes

Provision for Income Taxes

Benefit (Provision) for Income Taxes

Net Income (Loss)

1 unchanged sentence

$ (2,673,439 )

Revenue as shown below represents sales to external customers

for each segment.

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

as shown below represents sales to external customers for each segment.

Intercompany revenue is immaterial and has been eliminated.

Additions to long-lived assets as presented in the following

table represent capital expenditures.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Inventories and property and equipment for operating

segments are regularly reviewed by management and are therefore provided below.

to long-lived assets as presented in the following table represent capital expenditures.

and property and equipment for operating segments are regularly reviewed by management and are therefore provided below.

Three Months Ended

Six Months Ended

United States

Republic of China (Taiwan)

Nine Months Ended

of China (Taiwan)

Three Months Ended

Six Months Ended

Nine Months Ended

Operating Earnings (Loss)

United States

$ (1,061,072 )

1 unchanged sentence

$ (3,856,447 )

Republic of China (Taiwan)

of China (Taiwan)

$ (1,128,296 )

1 unchanged sentence

$ (3,985,383 )

Six Months Ended

Nine Months Ended

Property and Equipment, Net

United States

Republic of China (Taiwan)

Six Months Ended

Additions to (Deletions from) Long-Lived Assets

United States

Republic of China (Taiwan)

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Six Months Ended

United States

Republic of China (Taiwan)

Six Months Ended

United States

Republic of China (Taiwan)

of China (Taiwan)

Nine Months Ended

Additions to (Deletions from) Long-Lived

of China (Taiwan)

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended

of China (Taiwan)

Nine Months Ended

of China (Taiwan)

Reclassification

Certain amounts in 2014 may have

been reclassified to conform to the 2015 presentation.

New Accounting Standards

There were no new standards recently issued which would

have an impact on our operations or disclosures.

NOTE 2 SHORT-TERM DEBT

The short term debt balances were as follows:

June 30, 2015

December 31, 2014

Loan from Shanghai Bank at 3.24% interest rate per annum.

December 2015.

Loan from Hua Nan Bank at 3.26% interest rate per annum.

amounts in 2014 may have been reclassified to conform to the 2015 presentation.

Accounting Standards

were no new standards recently issued which would have an impact on our operations or disclosures.

short term debt balances were as follows:

Loan from Shanghai Bank

at 3.24% interest rate per annum.

Due July - March 2016.

Loan from Hua Nan Bank at 3.26% interest

rate per annum.

Due November - December 2015.

Loan from SinoPac Bank at 3.26% interest rate per annum.

Loan from SinoPac Bank at 3.26% interest

rate per annum.

Due July 2015.

Loans from unrelated individuals in MEGAsys management.

Due December 2015

KTV Holding, LLC at 9.5% interest rate per annum.

KTV Holding, LLC at 9.5% interest rate

Paid January 26, 2015.

A&A Property Investments, Inc.

Investments, Inc.

at 9.5% interest rate per annum.

1 unchanged sentence

Balance at end of period

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 3 EQUITY

Preferred Stock

We are currently authorized to issue

up to 100,000,000 shares of preferred stock, par value $0.00001 per share, 10,000,000 shares of which are designated as Series

A Preferred Stock and 500 shares of which are designated as Series B Preferred Stock.

Our Articles of Incorporation authorize the

issuance of shares of preferred stock with designations, rights, and preferences determined from time to time by our Board of Directors.

Accordingly, our Board of Directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation,

conversion, voting, or other rights which could adversely affect the voting power or other rights of the stockholders of our common

In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging,

delaying, or preventing a change in control of our company.

Series A Preferred Stock

We are authorized to issue up to

10,000,000 shares of Series A Preferred Stock.

Each share of Series A Preferred Stock accrues cumulative dividends at a rate of

9.5% per annum on the original issue price of $1.00 per share.

Accrued but unpaid dividends are payable by us, either in cash or

in shares of our common stock, upon the occurrence of a Liquidation Event (as defined in our Articles of Incorporation) or upon

conversion of the shares into shares of our common stock.

In addition, in the event of any liquidation, dissolution, or winding

up of our company, the holders of Series A Preferred Stock are entitled to receive distributions of any of the assets of our company

prior and in preference to the holders of our common stock, but after distribution of any assets of our company to the holders

of our Series B Preferred Stock in an amount equal to the Series B Preferred Stock’s original issue price plus any accrued

but unpaid dividends.

Each share of Series A Preferred

Stock is convertible at the option of the holder, at any time, into shares of our common stock equal to the original issue price

divided by an adjusted conversion price of $0.97 per share of Series A Preferred Stock, subject to certain adjustments.

30, 2017, all shares of Series A Preferred Stock not already converted will automatically convert into shares of our common stock

at the then-applicable conversion price.

The holders of Series A Preferred

Stock have the same voting rights as, and vote as a single class with, the holders of our common stock.

Each holder of our Series

A Preferred Stock is entitled to the number of votes equal to the number of shares of our common stock into which such shares of

Series A Preferred Stock may be converted.

In addition, in the event we sell, grant, or issue any Common Stock Equivalent (as defined

in our Articles of Incorporation) at a price per share that is lower than the then-applicable conversion price for the Series

A Preferred Stock, the conversion price for the Series A Preferred Stock will be adjusted to account for the dilutive issuance.

If we effectuate a stock split or subdivision of our common stock or our Board of Directors declares a dividend payable in our

common stock, the conversion price for the Series A Preferred Stock will be appropriately decreased to protect the Series A Preferred

SOLUTIONS, INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

are currently authorized to issue up to 100,000,000 shares of preferred stock, par value $0.00001 per share, 10,000,000 shares

of which are designated as Series A Preferred Stock and 500 shares of which are designated as Series B Preferred Stock.

of Incorporation authorize the issuance of shares of preferred stock with designations, rights, and preferences determined from

time to time by our Board of Directors.

Accordingly, our Board of Directors is empowered, without stockholder approval, to issue

preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power

or other rights of the stockholders of our common stock.

In the event of issuance, the preferred stock could be utilized, under

certain circumstances, as a method of discouraging, delaying, or preventing a change in control of our company.

A Preferred Stock

are authorized to issue up to 10,000,000 shares of Series A Preferred Stock.

Each share of Series A Preferred Stock accrues cumulative

dividends at a rate of 9.5% per annum on the original issue price of $1.00 per share.

Accrued but unpaid dividends are payable

by us, either in cash or in shares of our common stock, upon the occurrence of a Liquidation Event (as defined in our Articles

of Incorporation) or upon conversion of the shares into shares of our common stock.

In addition, in the event of any liquidation,

dissolution, or winding up of our company, the holders of Series A Preferred Stock are entitled to receive distributions of any

of the assets of our company prior and in preference to the holders of our common stock, but after distribution of any assets

of our company to the holders of our Series B Preferred Stock in an amount equal to the Series B Preferred Stock’s original

issue price plus any accrued but unpaid dividends.

share of Series A Preferred Stock is convertible at the option of the holder, at any time, into shares of our common stock equal

to the original issue price divided by an adjusted conversion price of $0.97 per share of Series A Preferred Stock, subject to

certain adjustments.

On June 30, 2017, all shares of Series A Preferred Stock not already converted will automatically convert

into shares of our common stock at the then-applicable conversion price.

holders of Series A Preferred Stock have the same voting rights as, and vote as a single class with, the holders of our common

Each holder of our Series A Preferred Stock is entitled to the number of votes equal to the number of shares of our common

stock into which such shares of Series A Preferred Stock may be converted.

In addition, in the event we sell, grant, or issue

any Common Stock Equivalent (as defined in our Articles of Incorporation) at a price per share that is lower than the then-applicable

conversion price for the Series A Preferred Stock, the conversion price for the Series A Preferred Stock will be adjusted to account

for the dilutive issuance.

If we effectuate a stock split or subdivision of our common stock or our Board of Directors declares

a dividend payable in our common stock, the conversion price for the Series A Preferred Stock will be appropriately decreased

to protect the Series A Preferred Stock holders from any dilutive effect of the stock split, subdivision, or stock dividend.

if the number of shares of our common stock outstanding decreases due to a reverse stock split or other combination of the outstanding

shares of our common stock, then the applicable conversion price of the Series A Preferred Stock will increase in order to proportionately

decrease the number of shares issuable upon conversion .

Holders of our Series A Preferred Stock have no sinking fund or

redemption rights.

B Preferred Stock

are authorized to issue up to 500 shares of Series B Preferred Stock.

Each share of Series B Preferred Stock accrues dividends

at a rate of 9.5% per annum on the original issue price of $10,000 per share.

Dividends on the Series B Preferred Stock accrue

daily and compound annually.

All accrued but unpaid dividends on the Series B Preferred Stock must be paid, declared, or set aside

prior to the declaration of any dividend on any class of stock that is junior in preference to the Series B Preferred Stock.

on the Series B Preferred Stock are paid quarterly, beginning on July 1, 2015 in either cash or shares of our common stock.

addition, all accrued but unpaid dividends are payable by us, either in cash or in shares of our common stock, upon the occurrence

of a Liquidation Event (as defined in our Articles of Incorporation) or upon the conversion of the shares into shares of our common

the event of any liquidation, dissolution, or winding up of our company, the holders of Series B Preferred Stock are entitled

to receive distributions of any of the assets of our company equal to 100% of the original issue price plus all accrued but unpaid

dividends prior and in preference to the holders of Series A Preferred Stock and holders of our common stock.

We also have the

option to redeem all, but not less than all, of the Series B Preferred Stock, provided that certain conditions have been met.

Should we choose to redeem the outstanding shares of our Series B Preferred Stock, we are required to pay the original purchase

price plus all accrued but unpaid dividends.

Each share of Series B Preferred Stock is convertible at the option of the holder,

at any time, into shares of our common stock equal to the original issue price divided by an initial conversion price of $0.75

per share of Series B Preferred Stock, subject to certain adjustments.

On December 31, 2017, all shares of our Series B Preferred

Stock not already converted will automatically convert into shares of our common stock at the then-applicable conversion price.

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

holders of Series B Preferred Stock have no voting rights, except as are expressly provided in our Articles of Incorporation or

required by law.

Without the approval of at least a majority of the outstanding Series B Preferred Stock, we may not authorize

or issue (i) any additional or other shares of capital stock that are of senior rank to the shares of Series B Preferred Stock

in respect of the preferences as to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of

our company, (ii) any additional or other shares of capital stock that are of equal rank to the shares of Series B Preferred Stock

in respect of the preferences as to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of

our company, or (iii) any capital stock junior in preference to the Series B Preferred Stock having a maturity date that is prior

to the maturity date of the Series B Preferred Stock.

Furthermore, if we consummate a Fundamental Transaction (as defined in our

Articles of Incorporation) while shares of our Series B Preferred Stock are outstanding, then the holders of those outstanding

shares have the right to receive, upon conversion of the Series B Preferred Stock, the same amount and kind of securities, cash,

or property as they would have received if they would have been holders of the number of shares of common stock issuable upon

conversion in full of all shares of our Series B Preferred Stock immediately prior to the Fundamental Transaction.

addition, in the event we sell, grant, or issue any Common Stock Equivalent (as defined in our Articles of Incorporation) at a

price per share that is lower than the then-applicable conversion price for the Series B Preferred Stock (the “Effective

Price”), the conversion price for the Series B Preferred Stock will be adjusted to the Effective Price.

we effectuate a stock split or subdivision of our common stock or our Board of Directors declares a dividend payable in our common

stock, the conversion price for the Series B Preferred Stock will be appropriately decreased to protect the Series B Preferred

Stock holders from any dilutive effect of the stock split, subdivision, or stock dividend.

Similarly, if the number of shares of

our common stock outstanding decreases due to a reverse stock split or other combination of the outstanding shares of our common

stock, then the applicable conversion price of the Series A Preferred Stock will increase in order to proportionately decrease

Similarly, if the number of shares

of our common stock outstanding decreases due to a reverse stock split or other combination of the outstanding shares of our common

stock, then the applicable conversion price of the Series B Preferred Stock will increase in order to proportionately decrease

the number of shares issuable upon conversion.

Holders of our Series A Preferred Stock have no sinking fund or redemption

Series B Preferred Stock

We are authorized to issue up to

500 shares of Series B Preferred Stock.

Each share of Series B Preferred Stock accrues dividends at a rate of 9.5% per annum on

the original issue price of $10,000 per share.

Dividends on the Series B Preferred Stock accrue daily and compound annually.

accrued but unpaid dividends on the Series B Preferred Stock must be paid, declared, or set aside prior to the declaration of any

dividend on any class of stock that is junior in preference to the Series B Preferred Stock.

Dividends on the Series B Preferred

Stock are paid quarterly, beginning on July 1, 2015 in either cash or shares of our common stock.

In addition, all accrued but

unpaid dividends are payable by us, either in cash or in shares of our common stock, upon the occurrence of a Liquidation Event

(as defined in our Articles of Incorporation) or upon the conversion of the shares into shares of our common stock.

In the event of any liquidation,

dissolution, or winding up of our company, the holders of Series B Preferred Stock are entitled to receive distributions of any

of the assets of our company equal to 100% of the original issue price plus all accrued but unpaid dividends prior and in preference

to the holders of Series A Preferred Stock and holders of our common stock.

We also have the option to redeem all, but not less

than all, of the Series B Preferred Stock, provided that certain conditions have been met.

Should we choose to redeem the outstanding

shares of our Series B Preferred Stock, we are required to pay the original purchase price plus all accrued but unpaid dividends.

Each share of Series B Preferred Stock is convertible at the option of the holder, at any time, into shares of our common stock

equal to the original issue price divided by an initial conversion price of $0.75 per share of Series B Preferred Stock, subject

to certain adjustments.

On December 31, 2017, all shares of our Series B Preferred Stock not already converted will automatically

convert into shares of our common stock at the then-applicable conversion price.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

The holders of Series B Preferred

Stock have no voting rights, except as are expressly provided in our Articles of Incorporation or required by law.

approval of at least a majority of the outstanding Series B Preferred Stock, we may not authorize or issue (i) any additional or

other shares of capital stock that are of senior rank to the shares of Series B Preferred Stock in respect of the preferences as

to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of our company, (ii) any additional

or other shares of capital stock that are of equal rank to the shares of Series B Preferred Stock in respect of the preferences

as to dividends, distributions, or payments upon the liquidation, dissolution, and winding up of our company, or (iii) any capital

stock junior in preference to the Series B Preferred Stock having a maturity date that is prior to the maturity date of the Series

B Preferred Stock.

Furthermore, if we consummate a Fundamental Transaction (as defined in our Articles of Incorporation) while

shares of our Series B Preferred Stock are outstanding, then the holders of those outstanding shares have the right to receive,

upon conversion of the Series B Preferred Stock, the same amount and kind of securities, cash, or property as they would have received

if they would have been holders of the number of shares of common stock issuable upon conversion in full of all shares of our Series

B Preferred Stock immediately prior to the Fundamental Transaction.

In addition, in the event we sell,

grant, or issue any Common Stock Equivalent (as defined in our Articles of Incorporation) at a price per share that is lower than

the then-applicable conversion price for the Series B Preferred Stock (the “Effective Price”), the conversion price

for the Series B Preferred Stock will be adjusted to the Effective Price.

If we effectuate a stock split or

subdivision of our common stock or our Board of Directors declares a dividend payable in our common stock, the conversion price

for the Series B Preferred Stock will be appropriately decreased to protect the Series B Preferred Stock holders from any dilutive

effect of the stock split, subdivision, or stock dividend.

Similarly, if the number of shares of our common stock outstanding decreases

due to a reverse stock split or other combination of the outstanding shares of our common stock, then the applicable conversion

price of the Series B Preferred Stock will increase in order to proportionately decrease the number of shares issuable upon conversion.

Holders of our Series B Preferred Stock have no sinking fund rights.

We are authorized to issue up to

100,000,000 shares of common stock, par value $0.00001 per share.

All outstanding shares of our common stock are of the same class

and have equal rights and attributes.

The holders of our common stock are entitled to one vote per share on all matters submitted

to a vote of the stockholders of our company.

Our common stock does not have cumulative voting rights.

Persons who hold a majority

of the outstanding shares of our common stock entitled to vote on the election of directors can elect all of the directors who

are eligible for election.

Holders of our common stock are entitled to share equally in dividends, if any, as may be declared from

time to time by our Board of Directors.

In the event of liquidation, dissolution, or winding up of our company, subject to the

preferential liquidation rights of any series of preferred stock that we may from time to time designate, the holders of our common

stock are entitled to share ratably in all of our assets remaining after payment of all liabilities and preferential liquidation

Holders of our common stock have no conversion, exchange, sinking fund, redemption, or appraisal rights (other than such

as may be determined by the Board of Directors in its sole discretion) and have no preemptive rights to subscribe for any of our

During the six months ended June

30, 2015 we issued 10,000 shares of common stock in partial payment for investor relations services.

Notes Receivable from Stockholder

In June 2014, an advisor/stockholder

of our company exercised warrants to purchase 200,000 and 300,000 shares of common stock, granted at an exercise price of $1.02

and $1.00 per share, respectively, in exchange for 5% promissory notes totaling $504,000 due at the extended maturity date

of June 30, 2017.

are authorized to issue up to 100,000,000 shares of common stock, par value $0.00001 per share.

All outstanding shares of our

common stock are of the same class and have equal rights and attributes.

The holders of our common stock are entitled to one vote

per share on all matters submitted to a vote of the stockholders of our company.

Our common stock does not have cumulative voting

Persons who hold a majority of the outstanding shares of our common stock entitled to vote on the election of directors

can elect all of the directors who are eligible for election.

Holders of our common stock are entitled to share equally in dividends,

if any, as may be declared from time to time by our Board of Directors.

In the event of liquidation, dissolution, or winding up

of our company, subject to the preferential liquidation rights of any series of preferred stock that we may from time to time

designate, the holders of our common stock are entitled to share ratably in all of our assets remaining after payment of all liabilities

and preferential liquidation rights.

Holders of our common stock have no conversion, exchange, sinking fund, redemption, or appraisal

rights (other than such as may be determined by the Board of Directors in its sole discretion) and have no preemptive rights to

subscribe for any of our securities.

the nine months ended September 30, 2015, we issued 10,000 shares of common stock in partial payment for investor relations services.

the nine months ended September 30, 2015, we issued 236,855 shares of common stock in payment of dividends to preferred stockholders.

the nine months ended September 30, 2015, 1,140 options for common stock were exercised.

Receivable from Stockholder

September 2014, an advisor/stockholder of our company exercised warrants to purchase 200,000 and 300,000 shares of common stock,

granted at an exercise price of $1.02 and $1.00 per share, respectively, in exchange for 5% promissory notes totaling $504,000

due at the extended maturity date of June 30, 2017.

Early payments have been received and $11,806 has been applied to the principal.

At September 30, 2015, a prepayment discount was negotiated amending the total outstanding to $230,000.

$100,000 was received

on September 30, 2015, and $130,000 was received on October 20, 2015.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

NOTE 4 STOCK OPTIONS AND WARRANTS

Stock Options

We have granted non-qualified stock

options to employees, contractors and directors as equity compensation and to debenture holders for the extension of debenture

maturity dates.

All non-qualified options are generally issued with an exercise price no less than the fair market value of the

common stock on the date of the grant as determined by our Board of Directors.

Options may be exercised up to ten years following

the date of the grant, with vesting schedules determined by us upon grant.

Vesting schedules vary by grant, with some fully vesting

immediately upon grant and others vesting ratably over a period of time up to four years.

Standard vested options may be exercised

up to three months following the date of termination of the relationship with the employee, contractor or director unless alternate

terms are specified at grant.

The fair values of options are determined using the Black-Scholes option-pricing model.

The estimated

fair value of options is recognized as expense on the straight-line basis over the options’

vesting periods.

Stock option transactions during

the six months ended June 30, 2015 were as follows:

Six months ended June 30, 2015

Average Exercise

Outstanding at Beginning of Year

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

OPTIONS AND WARRANTS

have granted non-qualified stock options to employees, contractors, and directors as equity compensation and to debenture holders

for the extension of debenture maturity dates.

All non-qualified options are generally issued with an exercise price no less than

the fair market value of the common stock on the date of the grant as determined by our Board of Directors.

Options may be exercised

up to ten years following the date of the grant, with vesting schedules determined by us upon grant.

Vesting schedules vary by

grant, with some fully vesting immediately upon grant and others vesting ratably over a period of time up to four years.

vested options may be exercised up to three months following the date of termination of the relationship with the employee, contractor,

or director unless alternate terms are specified at grant.

The fair values of options are determined using the Black-Scholes option-pricing

The estimated fair value of options is recognized as expense on the straight-line basis over the options’

option transactions during the nine months ended September 30, 2015 were as follows:

months ended September 30, 2015

Average Exercise Price

Outstanding at Beginning of

Forfeited or Canceled

Outstanding at End of Period

Options Exercisable at End of Period

Weighted-Average Fair Value of Options Granted During the Period

Information with respect to stock

options outstanding and exercisable as of June 30, 2015 is as follows:

Options Outstanding

Options Exercisable

$0.10 - $1.75

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

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:

at End of Period

Weighted-Average

Fair Value of Options Granted During the Period

with respect to stock options outstanding and exercisable as of September 30, 2015 is as follows:

at September 30, 2015

Contractual Life

Exercisable at

September 30, 2015

Average Exercise

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

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:

Expected Life

2 unchanged sentences

Risk-Free Interest Rate

Expected volatility for 2015 and

2014 was estimated by using the Dow Jones U.S.

Industry Indices sector classification methodology for industries similar to that

in which we operate.

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 the options is based on the actual expiration date of the grant.

We have periodically issued warrants

to purchase shares of common stock as equity compensation to officers, directors, employees, and consultants.

We have also issued

warrants as incentive in connection with the purchase of debt and equity securities.

As of June 30, 2015, warrants to

purchase 7,883,303 shares of common stock were outstanding, all of which were issued either as equity compensation or in connection

with financing transactions.

Vesting schedules vary by grant, with some fully vesting immediately upon grant and others vesting

ratably over a period of time up to four years.

The warrants expire during a range from two to ten years following the date of

The fair value of warrants is 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.

Warrant transactions during the

six months ended June 30, 2015 were as follows:

volatility for 2015 and 2014 was estimated by using the Dow Jones U.S.

Industry Indices sector classification methodology for

industries similar to that in which we operate.

The risk-free rate for periods within the contractual life of the option is based

Treasury yield curve in effect at the grant date.

The expected life of the options is based on the actual expiration

date of the grant.

have periodically issued warrants to purchase shares of common stock as equity compensation to officers, directors, employees,

and consultants.

We have also issued warrants as incentive in connection with the purchase of debt and equity securities.

of September 30, 2015, warrants to purchase 7,610,303 shares of common stock were outstanding, all of which were issued either

as equity compensation or in connection with financing transactions.

Vesting schedules vary by grant, with some fully vesting

immediately upon grant and others vesting ratably over a period of time up to four years.

The warrants expire during a range from

two to ten years following the date of the grant.

The fair value of warrants is determined using the Black-Scholes option-pricing

The estimated fair value of warrants is recognized as expense on the straight-line basis over the warrants’

transactions during the nine months ended September 30, 2015 were as follows:

Outstanding at December 31, 2014

Forfeited or Canceled

Warrants Redeemable at June 30, 2015

NOTE 5 RELATED PARTY TRANSACTIONS

On December 30, 2014, we entered

into a debenture agreement with Joe Farnsworth, a member of our Board of Directors, for $10,000, at 9.5% interest per annum.

paid the principal and accrued interest on the Farnsworth debenture in full on January 26, 2015.

On December 9, 2014, we entered

into a debenture agreement with Robert Gillen, a member of our Board of Directors, for $100,000, at 9.5% interest per annum and

a warrant to purchase 25,000 shares of our common stock at an exercise price of $1.00 per share, with interest and principal payable

on January 5, 2015.

Warrants Redeemable at September

PARTY TRANSACTIONS

June 2015 MEGAsys entered into an unsecured loan agreement with two of its directors, Mr.

Cheung and Mr.

Shiau for $18,120 and

$36,240, respectively.

During July 2015 MEGAsys entered into additional unsecured loans from Mr.

Cheung for $314,080.

loans are at maximum of 8.8% interest per annum and mature December 31, 2015.

December 30, 2014, we entered into a debenture agreement with Joe Farnsworth, a member of our Board of Directors, for $10,000,

at 9.5% interest per annum.

We paid the principal and accrued interest on the Farnsworth debenture in full on January 26, 2015.

December 9, 2014, we entered into a debenture agreement with Robert Gillen, a member of our Board of Directors, for $100,000,

at 9.5% interest per annum and a warrant was granted to purchase 25,000 shares of our common stock at an exercise price of $1.00

per share, with interest and principal payable on January 5, 2015.

On January 5, 2015, Mr.

Gillen received another warrant to purchase 25,000 shares of our common stock at an

exercise price of $1.00 per share.

We paid the principal and accrued interest on the Gillen debenture in full on February 4, 2015.

On October 14, 2014, we entered

into a debenture agreement with Mr.

Farnsworth, a member of our Board of Directors, for $35,000, at 9.5% interest per annum.

paid the principal and accrued interest on the Farnsworth debenture in full on February 4, 2015.

On September 10, 2014, we entered

into a debenture agreement with Alex Kuo, a member of the Board of Directors, for $30,000, through his wife, Li-Min Hsu, at 9.5%

interest per annum with interest and principal payable on the extended maturity date of December 31, 2015.

As consideration for

the extension of the debenture, we granted Mrs.

Hsu options to purchase 3,000 shares of our common stock with an exercise price

of $0.77 per share.

On September 8, 2014, we entered

into a debenture agreement with Mr.

Kuo’s wife, Li-Min Hsu, for $100,000, at 9.5% interest per annum with interest and principal

payable on the extended maturity date of December 31, 2015.

Gillen received another warrant to

purchase 25,000 shares of our common stock at an exercise price of $1.00 per share.

We paid the principal and accrued interest

on the Gillen debenture in full on February 4, 2015.

October 14, 2014, we entered into a debenture agreement with Mr.

Farnsworth, a member of our Board of Directors, for $35,000,

at 9.5% interest per annum.

We paid the principal and accrued interest on the Farnsworth debenture in full on February 4, 2015.

September 10, 2014, we entered into a debenture agreement with Alex Kuo, a member of the Board of Directors, for $30,000, through

his wife, Li-Min Hsu, at 9.5% interest per annum with interest and principal payable on the extended maturity date of December

As consideration for the extension of the debenture, we granted Mrs.

Hsu options to purchase 10,000 shares of our common stock with an exercise price of $0.77 per share.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

On August 28, 2014, we entered into

a debenture agreement with Gregory Omi, a member of the Board of Directors of the Company, for $200,000, at 9.5% interest per annum

with interest and principal payable on the extended maturity date of December 31, 2015.

As consideration for the extension of the

debenture, we granted Mr.

Omi options to purchase 20,000 shares of our common stock with an exercise price of $0.77 per share.

On November 19, 2012, we entered

into a convertible debenture agreement with Mr.

Gillen, a member of our Board of Directors, for $100,000, under his company Squirrel-Away,

Under the original terms of the agreement, interest is payable at 10% per annum and became due on December 19, 2014.

The debenture

was extended to January 5, 2015.

On June 20, 2013, interest of $5,000 was paid on the debenture.

As consideration for agreeing

to extend the maturity date of the debenture to December 31, 2015, we granted Mr.

Gillen options to purchase 10,000 shares of our

common stock at an exercise price of $0.77 per share.

NOTE 6 EARNINGS (LOSS) PER SHARE

The following table provides a reconciliation

of the numerators and denominators reflected in the basic and diluted earnings per share computations, as required by ASC No.

Hsu options to purchase 3,000 shares of our common

stock with an exercise price of $0.77 per share.

September 8, 2014, we entered into a debenture agreement with Mr.

Kuo’s wife, Li-Min Hsu, for $100,000, at 9.5% interest

per annum with interest and principal payable on the extended maturity date of December 31, 2015.

As consideration for the extension

of the debenture, we granted Mrs.

Hsu options to purchase 10,000 shares of our common stock with an exercise price of $0.77 per

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

August 28, 2014, we entered into a debenture agreement with Gregory Omi, a member of the Board of Directors of the Company, for

$200,000, at 9.5% interest per annum with interest and principal payable on the extended maturity date of December 31, 2015.

consideration for the extension of the debenture, we granted Mr.

Omi options to purchase 20,000 shares of our common stock with

an exercise price of $0.77 per share.

November 19, 2012, we entered into a convertible debenture agreement with Mr.

Gillen, a member of our Board of Directors, for

$100,000, under his company Squirrel-Away, LLC.

Under the original terms of the agreement, interest is payable at 10% per annum

and became due on December 19, 2014.

The debenture was extended to January 5, 2015.

On June 20, 2013, interest of $5,000 was paid

on the debenture.

As consideration for agreeing to extend the maturity date of the debenture to December 31, 2015, we granted

Gillen options to purchase 10,000 shares of our common stock at an exercise price of $0.77 per share.

(LOSS) PER SHARE

following table provides a reconciliation of the numerators and denominators reflected in the basic and diluted earnings per share

computations, as required by ASC No.

260, “Earnings per Share.”

Basic earnings per share (“EPS”)

is computed by dividing reported earnings available to stockholders by the weighted average shares outstanding.

We had net losses

for the years ended December 31, 2014 and 2013 and the effect of including dilutive securities in the earnings per common share

would have been anti-dilutive for the purpose of calculating EPS.

Accordingly, all options, warrants, and shares potentially convertible

into common shares were excluded from the calculation of diluted earnings per share for the quarters ended June 30, 2015 and 2014

and six months ended June 30, 2015 and 2014.

Total common stock equivalents that could be convertible into common stock were 22,127,032

and 11,807,271 for June 30, 2015 and 2014, respectively.

June 30, 2015

June 30, 2014

June 30, 2015

June 30, 2014

earnings per share (“EPS”) is computed by dividing reported earnings available to stockholders by the weighted average

shares outstanding.

We had net losses for the years ended December 31, 2014 and 2013 and the effect of including dilutive securities

in the earnings per common share would have been anti-dilutive for the purpose of calculating EPS.

Accordingly, all options, warrants,

and shares potentially convertible into common shares were excluded from the calculation of diluted earnings per share for the

quarters ended September 30, 2015 and 2014 and the nine months ended September 30, 2015 and 2014.

Total common stock equivalents

that could be convertible into common stock were 21,585,017 and 11,682,521 for September 30, 2015 and 2014, respectively.

$ (1,201,375 )

1 unchanged sentence

$ (4,195,707 )

Weighted Average Shares

Basic and Diluted Loss Per Share

NOTE 7 SUBSEQUENT EVENTS

We have evaluated subsequent events

from the balance sheet date through the date the condensed consolidated financial statements were issued and determined that there

are no additional items to disclose.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS.

The following discussion

should be read in conjunction with our unaudited condensed consolidated financial statements and associated notes appearing elsewhere

in this Quarterly Report Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form

10-K for the year ended December 31, 2014.

Note Regarding Forward-Looking Information

This Quarterly Report on

Form 10-Q contains forward looking statements that involve risks and uncertainties.

All statements other than statements of historical

fact contained in this Quarterly Report on Form 10-Q, including statements regarding future events, our future financial performance,

business strategy, and plans and objectives for future operations, are forward-looking statements.

In many cases, you can identify

forward-looking statements by terminology such as “anticipates,”

Weighted Average

and Diluted Loss Per Share

signed an agreement with Nguyen Business & Investment Co., Ltd.

as our exclusive reseller in Vietnam.

We have received a deposit

of $50,000 against a committed $1,000,000 prepaid Sentir license to be paid in full on or before December 15, 2015.

Business & Investment Co., Ltd.

has formed Iveda Vietnam CO., LTD (“Iveda Vietnam”) to be the operating entity

to license the Sentir platform and purchase hardware such as Iveda’s ZEE plug and play cameras and IvedaHome cloud automation

The IvedaMobile app, which leverages existing smartphones to stream live video, will also be licensed country-wide by

Iveda Vietnam to mobile phone providers.

Vietnam will resell the prepaid Sentir licenses to telecommunications, datacenter and manufacturing customers in Vietnam, with

some of which we have previously announced contracts.

Iveda Vietnam will facilitate finance and logistics aspects of our current

contracts with the largest telecommunications customers in Vietnam.

Vietnam will make working capital available for deposits or payments required by our hardware contract manufacturers to facilitate

purchasing by telecom customers on terms acceptable in Vietnam.

Upon receipt of the $1,000,000 prepaid license fee, we will grant

each of the three principals of Iveda Vietnam a five-year warrant to purchase 100,000 shares of our common stock at $1.00 per

MANAGEMENT’S

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and associated

notes appearing elsewhere in this Quarterly Report Form 10-Q and with our audited consolidated financial statements included in

our Annual Report on Form 10-K for the year ended December 31, 2014.

Regarding Forward-Looking Information

Quarterly Report on Form 10-Q contains forward looking statements that involve risks and uncertainties.

All statements other than

statements of historical fact contained in this Quarterly Report on Form 10-Q, including statements regarding future events, our

future financial performance, business strategy, and plans and objectives for future operations, are forward-looking statements.

In many cases, you can identify forward-looking statements by terminology such as “anticipates,”

“believes,”

11 unchanged sentences

or “will”

or the negative of these terms or

other comparable terminology.

Although we do not make forward looking statements unless we believe we have a reasonable basis for

doing so, we cannot guarantee their accuracy.

These statements are only predictions and involve known and unknown risks, uncertainties,

and other factors, including the risks outlined under “Risk Factors”

or elsewhere in this Quarterly Report on Form

10-Q or discussed in our Annual Report on Form 10-K for the year ended December 31, 2014, which may cause our or our industry’s

actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these

forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing environment.

New risks emerge from

time to time, and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business

or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained

in any forward-looking statements.

You should not place undue

reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly Report on Form 10-Q.

as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date

of this Quarterly Report on Form 10-Q to conform our statements to actual results or changed expectations.

Critical Accounting Policies and Estimates

Management’s Discussion

and Analysis of Financial Conditions and Results of Operations is based upon our financial statements, which have been prepared

in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect

the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

or the negative of these terms or other comparable terminology.

Although we do not make forward looking statements unless we believe

we have a reasonable basis for doing so, we cannot guarantee their accuracy.

These statements are only predictions and involve

known and unknown risks, uncertainties, and other factors, including the risks outlined under “Risk Factors”

in this Quarterly Report on Form 10-Q or discussed in our Annual Report on Form 10-K for the year ended December 31, 2014, which

may cause our or our industry’s actual results, levels of activity, performance, or achievements to differ materially from

those expressed or implied by these forward-looking statements.

Moreover, we operate in a very competitive and rapidly changing

New risks emerge from time to time, and it is not possible for us to predict all risk factors, nor can we address

the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results

to differ materially from those contained in any forward-looking statements.

should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this Quarterly

Report on Form 10-Q.

Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking

statements after the date of this Quarterly Report on Form 10-Q to conform our statements to actual results or changed expectations.

Accounting Policies and Estimates

Management’s

Discussion and Analysis of Financial Conditions and Results of Operations is based upon our financial statements, which have been

prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that

affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.

7 unchanged sentences

We developed Sentir, a

Software as a Service (“SaaS”) video surveillance management platform with big data storage technology for flexible

and scalable distribution of hosted video surveillance services to end users.

Sentir has an enterprise-class video hosting architecture,

utilizing robust data centers.

Sentir is ideal for service providers such as telecommunications companies, Internet service providers

(“ISPs”), data centers, and cable companies with an existing physical infrastructure that are looking to add video

surveillance services to their customer offerings.

Sentir allows scalability,

flexibility, and centralized video management, access, and storage.

The advantage this platform offers end users is that

there is no need to buy and maintain video surveillance so ftware and hardware.

This platform enables real-time viewing

and recorded playback of video on computers and mobile devices with push notifications and alerts.

Our expertise allows us to

enable large service providers to offer cloud-based plug-and-play video surveillance using our Sentir platform.

Historically, we sold and

installed video surveillance equipment, primarily for security purposes and secondarily for operational efficiencies and marketing.

We also provided video hosting, in-vehicle streaming video, archiving, and real-time remote surveillance services to a variety

of businesses and organizations.

Our principal sources of revenue were derived from monthly fees from video hosting and real-time

surveillance services and one-time fees for equipment sales and installation.

In 2014, we shifted our

revenue model from direct project-based sales to licensing Sentir and selling Sentir-enabled plug-and-play cloud cameras to service

providers such as telecommunications companies, ISPs, data centers, and cable companies already providing services to an existing

customer base.

Partnering with service providers that have an existing loyal subscriber base allows us to focus on our customers,

the service providers, and leverage their end-user infrastructure to sell, bill, and provide customer service for the Sentir cloud

video surveillance offering.

proprietary video surveillance and data management platform with big data storage technology for flexible and scalable distribution

of hosted video surveillance services to end users.

Sentir has an enterprise-class video hosting architecture, utilizing robust

data centers.

Sentir is ideal for service providers such as telecommunications companies, Internet service providers (“ISPs”),

data centers, and cable companies with an existing physical infrastructure that are looking to add video surveillance services

to their customer offerings.

Sentir allows scalability, flexibility, and centralized video management, access, and storage.

advantage this platform offers end users is that there is no need to buy and maintain video surveillance software and hardware.

This platform enables real-time viewing and recorded playback of video on computers and mobile devices with push notifications

Our expertise allows us to enable large service providers to offer cloud-based plug-and-play video surveillance using

our Sentir platform.

Historically,

we sold and installed video surveillance equipment, primarily for security purposes and secondarily for operational efficiencies

and marketing.

We also provided video hosting, in-vehicle streaming video, archiving, and real-time remote surveillance services

to a variety of businesses and organizations.

Our principal sources of revenue were derived from monthly fees from video hosting

and real-time surveillance services and one-time fees for equipment sales and installation.

2014, we shifted our revenue model from direct project-based sales to licensing Sentir and selling Sentir-enabled plug-and-play

cloud cameras to service providers such as telecommunications companies, ISPs, data centers, and cable companies already providing

services to an existing customer base.

Partnering with service providers that have an existing loyal subscriber base allows us

to focus on our customers, the service providers.

We leverage their end-user infrastructure to sell, bill, and provide customer

service for the Sentir cloud video surveillance offering.

This business model provides dual revenue streams –

one from camera sales to the service providers

and the other from monthly Sentir licensing fees on a per-camera activation basis.

In April, 2011, we completed

our acquisition of MEGAsys, a company founded in 1998 by a group of sales and research and development professionals from Taiwan

Panasonic Company.

MEGAsys, our subsidiary in Taiwan, specializes in deploying new, and integrating existing, video surveillance

systems for airports, commercial buildings, government customers, data centers, shopping centers, hotels, banks, and Safe City

initiatives in Taiwan and other neighboring countries.

MEGAsys combines security surveillance products, software, and services

to provide integrated security solutions to the end user.

Through MEGAsys, we have access not only to Asian markets but also to

Asian manufacturers and engineering expertise.

MEGAsys is our research and development arm, working with a team of developers and

managing our relationship with the Industrial Technology Research Institute (“ITRI”) in Taiwan.

MEGAsys also houses

the application engineering team that supports Sentir implementation for our service provider customers in Asia.

The acquisition

of MEGAsys provided the following benefits to our business:

An established presence and credibility

in Asia and access to the Asian market.

Relationships in Asia for cost-effective

research and development of new product offerings and securing the best pricing for end user devices.

Sourcing of products directly using MEGAsys’s

product sourcing expertise to enhance our custom integration capabilities.

Cost reductions for infrastructure equipment

through direct OEM relationships.

Enhancements to the global distribution

potential for our products and services.

In April 2009, the Department

of Homeland Security (“DHS”) approved us as a Qualified Anti-Terrorism Technology provider under a formal SAFETY Act

one from camera

sales to the service providers and the other from monthly Sentir licensing fees on a per-camera activation basis.

April 2011, we completed our acquisition of MEGAsys, a company founded in 1998 by a group of sales and research and development

professionals from Taiwan Panasonic Company.

MEGAsys, our subsidiary in Taiwan, specializes in deploying new, and integrating

existing, video surveillance systems for airports, commercial buildings, government customers, data centers, shopping centers,

hotels, banks, and Safe City initiatives in Taiwan and other neighboring countries.

MEGAsys combines security surveillance products,

software, and services to provide integrated security solutions to the end user.

Through MEGAsys, we have access not only to Asian

markets but also to Asian manufacturers and engineering expertise.

MEGAsys is our research and development arm, working with a

team of developers and managing our relationship with the Industrial Technology Research Institute (“ITRI”) in Taiwan.

MEGAsys also houses the application engineering team that supports Sentir implementation for our service provider customers in

The acquisition of MEGAsys provided the following benefits to our business:

established presence and credibility in Asia and access to the Asian market.

Relationships

in Asia for cost-effective research and development of new product offerings and securing the best pricing for end user devices.

of products directly using MEGAsys’s product sourcing expertise to enhance our custom integration capabilities.

reductions for infrastructure equipment through direct OEM relationships.

to the global distribution potential for our products and services.

April 2009, the Department of Homeland Security (“DHS”) approved us as a Qualified Anti-Terrorism Technology provider

under a formal SAFETY Act Designation.

The designation gives us, our partners, and our customers certain liability protection.

We became the first, and currently

remain the only, company to offer real-time Internet Protocol (“IP”) video hosting and remote surveillance services

with a SAFETY Act Designation.

We became the first, and currently remain the only, company to offer real-time Internet Protocol (“IP”) video hosting

and remote surveillance services with a SAFETY Act Designation.

Our SAFETY Act Designation was renewed in October 2014.

In November 2012, we signed

a cooperation agreement with ITRI, a research and development organization based in Taiwan.

Together with ITRI, we have developed

cloud-video services.

Pursuant to the cooperation agreement, we received the right to license some of ITRI’s patents that

were used in the development.

We also have exclusive rights to license the products and services we develop in cooperation with

In June and August 2014,

in collaboration with Filcomserve, our exclusive distributor in the Philippines, we shipped our ZEE cloud plug-and-play cameras

for delivery to the Philippine Long Distance Telephone Company (“PLDT”) for distribution to its customers with a cloud

video surveillance service offering, utilizing our Sentir platform.

In February 2015, we received from Filcomserve a follow-on

order to deliver 10,000 of our ZEE cloud plug-and-play cameras.

The cameras will be delivered to PLDT, Filcomserve’s largest

In addition to the $1.3 million of revenue to be generated by the February 2015 purchase order of our ZEE cameras, we

will receive a monthly licensing fee for each camera activated on the Sentir platform.

In December 2014, we entered

into a Framework Agreement with Vietnam Posts and Telecommunications Group (“VNPT”), the largest telecommunications

company in Vietnam, to install Sentir at its data centers and conduct technical testing for mass distribution of our ZEE cameras

to its existing customer base.

New Accounting Standards

There were no new standards recently issued

which would have an impact on our operations or disclosures.

Results of Operations

recorded net consolidated revenue of $775,561 for the three months ended June 30, 2015, compared to $351,262 for the three months

ended June 30, 2014, an increase of $424,299, or 121%.

In the three months ended June 30, 2015, our recurring service revenue was

$46,911, or 6% of net consolidated revenue, and our equipment sales and installation revenue was $726,695, or 94% of net consolidated

revenue, compared to recurring service revenue of $143,837, or 41% of net consolidated revenue, and equipment sales and installation

revenue of $191,705, or 55% of net consolidated revenue, for the same period in 2014.

Our U.S.-based segment saw a decrease of

$269,547 in net consolidated revenue during the three months ended June 30, 2015, while our Taiwan-based segment revenue increased

by $693,846 during the same period.

The decrease in U.S.-based segment revenue was due to the transition from direct project-based

sales to our new business model of licensing Sentir and selling Sentir-enabled plug-and-play cloud cameras to service providers

such as telecommunications companies, ISPs, data centers, and cable companies.

In addition, we entered into an assignment agreement

for the IvedaSentry monitoring portion of our business, which includes a 24-month revenue sharing arrangement.

The increase in Taiwan-based

segment revenue was primarily due to progress on long-term contracts.

We recorded net consolidated

revenue of $1.3 million for the six months ended June 30, 2015, compared to $726,126 for the six months ended June 30, 2014, an

increase of $575,258, or 79%.

In the six months ended June 30, 2015, our recurring service revenue was $145,251, or 11% of revenue,

and our equipment sales and installation revenue was $1.1 million, or 88% of revenue, compared to recurring service revenue of

$302,638, or 42% of revenue, and equipment sales and installation revenue of $402,016, or 55% of revenue, for the same period in

November 2012, we signed a cooperation agreement with ITRI, a research and development organization based in Taiwan.

with ITRI, we have developed cloud-video services.

Pursuant to the cooperation agreement, we received the right to license some

of ITRI’s patents that were used in the development.

We also have exclusive rights to license the products and services

we develop in cooperation with ITRI.

June and August 2014, in collaboration with Filcomserve, our exclusive distributor in the Philippines, we shipped our ZEE cloud

plug-and-play cameras for delivery to the Philippine Long Distance Telephone Company (“PLDT”) for distribution to

its customers with a cloud video surveillance service offering, utilizing our Sentir platform.

In February 2015, we received from

Filcomserve a follow-on order to deliver 10,000 of our ZEE cloud plug-and-play cameras.

The cameras will be delivered to PLDT,

Filcomserve’s largest customer upon payment in full.

In addition to the $1.3 million of revenue to be generated by the February

2015 purchase order of our ZEE cameras, we will receive a monthly licensing fee for each camera activated on the Sentir platform.

December 2014, we entered into a Framework Agreement with Vietnam Posts and Telecommunications Group (“VNPT”), the

largest telecommunications company in Vietnam, to install Sentir at its data centers and conduct technical testing for mass distribution

of our ZEE cameras to its existing customer base.

Accounting Standards

were no new standards recently issued which would have an impact on our operations or disclosures.

of Operations

We recorded net consolidated revenue of $823,374 for the three months ended September 30, 2015, compared to $489,009

for the three months ended September 30, 2014, an increase of $334,365, or 68%.

In the three months ended September 30, 2015,

our recurring service revenue was $41,978, or 5% of net consolidated revenue, and our equipment sales and installation revenue

was $780,886, or 95% of net consolidated revenue, compared to recurring service revenue of $162,966, or 33% of net consolidated

revenue, and equipment sales and installation revenue of $305,489, or 62% of net consolidated revenue, for the same period in

Our U.S.-based segment saw a decrease of $217,345 in net consolidated revenue during the three months ended September 30,

2015, while our Taiwan-based segment revenue increased by $551,711 during the same period.

The decrease in U.S.-based segment

revenue was due to the transition from direct project-based sales to our new business model of licensing Sentir and selling Sentir-enabled

plug-and-play cloud cameras to service providers such as telecommunications companies, ISPs, data centers, and cable companies.

In addition, we entered into an assignment agreement for the IvedaSentry monitoring portion of our business, which includes a

24-month revenue sharing arrangement.

The increase in Taiwan-based segment revenue was primarily due to progress on long-term

contracts awarded during 2014 and 2015.

recorded net consolidated revenue of $2.1 million for the nine months ended September 30, 2015, compared to $1.2 million for the

nine months ended September 30, 2014, an increase of $909,623, or 75%.

In the nine months ended September 30, 2015, our recurring

service revenue was $187,229, or 9% of revenue, and our equipment sales and installation revenue was $1.9 million, or 90% of revenue,

compared to recurring service revenue of $465,604, or 38% of revenue, and equipment sales and installation revenue of $707,505,

or 58% of revenue, for the same period in 2014.

Our U.S.-based segment saw a decrease of $590,878 in net consolidated revenue

during the nine months ended September 30, 2015, while our Taiwan-based segment revenue increased by $1.5 million during the same

The decrease in U.S.-based segment revenue was due to transition from direct project-based sales to our new business model

4 unchanged sentences

The increase in Taiwan-based segment revenue was due to

continued progress on long-term contracts during the six months ended June 30, 2015.

Cost of Revenue.

Total cost of revenue was $634,857 (82% of revenue, representing a gross margin of 18%) for the three months ended June 30, 2015,

compared to $313,867 (89% of revenue, representing a gross margin of 11%) for same period in 2014, an increase of $320,990, or

The U.S.-based segment decrease in cost of revenue and increase in gross margin corresponds with the profit-sharing arrangement

pursuant to the IvedaSentry monitoring assignment.

The Taiwan-based segment increased cost of revenue and gross margin were primarily

due to progress on long-term contracts.

Total cost of revenue was

$993,552 (76% of revenue, representing gross margin of 24%) for the six months ended June 30, 2015, compared to $524,401 (72% of

revenue, representing a gross margin of 28%) for the six months ended June 30, 2014, an increase of $469,151, or 89%.

The U.S.-based

segment decrease in cost of revenue corresponds with the profit-sharing arrangement pursuant to the IvedaSentry monitoring assignment.

The Taiwan-based segment increased cost of revenue and gross margin were primarily due to progress on long-term contracts during

the six months ended June 30, 2015.

Operating Expenses.

Operating expenses were $967,788 for the three months ended June 30, 2015, compared to $1.5 million for the same period in 2014,

a decrease of $563,296, or 37%.

The decrease in operating expenses was primarily related to a continued decrease in personnel,

direct project-based marketing and sales expenses, consulting, and research and development expenses.

Operating expenses were

$2.0 million for the six months ended June 30, 2015, compared to $3.1 million for the six months ended June 30, 2014, a decrease

of $1.0 million, or 35%.

The decrease in operating expenses in 2015 over 2014 was primarily related to a continued decrease in

personnel, direct project-based marketing and sales expenses, consulting, and research and development expenses.

Loss from Operations.

As a result of the increase in revenue and the decrease in operating expenses, loss from operations decreased to $827,084 for the

three months ended June 30, 2015, compared to $1.5 million for the same period in 2014, a decrease in loss of $666,605, or 45%.

As a result of the overall

increase in revenue and the decrease in operating expenses, loss from operations decreased to $1.7 million for the six months ended

June 30, 2015, compared to $2.9 million for the six months ended June 30, 2014, a decrease in loss of $1.2 million, or 41%.

Other Expense-Net.

Other expense-net was $40,412 for the three months ended June 30, 2015, compared to $79,199 for the same period in 2014, a decrease

continued progress on long-term contracts during the nine months ended September 30, 2015 awarded during 2014 and 2015.

Total cost of revenue was $633,926 (77% of revenue, representing a gross margin of 23%) for the three months

ended September 30, 2015, compared to $397,173 (81% of revenue, representing a gross margin of 19%) for the same period in 2014,

an increase of $236,753, or 60%.

The U.S.-based segment decrease in cost of revenue and increase in gross margin corresponds with

the revenue-sharing arrangement pursuant to the IvedaSentry monitoring assignment.

The Taiwan-based segment increased cost of

revenue and gross margin were primarily due to progress on long-term contracts.

cost of revenue was $1,627,478 (77% of revenue, representing gross margin of 23%) for the nine months ended September 30, 2015,

compared to $921,574 (76% of revenue, representing a gross margin of 24%) for the nine months ended September 30, 2014, an increase

of $705,904, or 77%.

The change is primarily due to the decrease of gain recorded on derivative liability, interest expense on the

converted debentures and loss on disposed assets.

Other expense-net was $30,985

for the six months ended June 30, 2015, compared to $121,366 for the six months ended June 30, 2014, a decrease of $90,381, or

The reduction is primarily related to interest expense on the converted debentures and loss on disposed assets.

Net loss was $880,349 for the three months ended June 30, 2015, compared to $1.6 million for the same period in 2014.

of $708,418, or 45%, was primarily due to a decrease in U.S.-based segment operating expenses, including personnel, direct project-based

marketing and sales expenses, consulting, and research and development expenses in 2015 and an increase in Taiwan-based segment

The decrease of $1.3 million,

or 43%, in the net loss to $1.7 million for the six months ended June 30, 2015, from $3.0 million for the six months ended June

30, 2014, was primarily the effect of an increase in gross profit and a decrease in operating expenses.

Liquidity and Capital Resources

As of June 30, 2015, we

had cash and cash equivalents of $609,919 in our U.S.-based segment and $74,635 in our Taiwan-based segment, compared to $26,661

in our U.S.-based segment and $61,239 in our Taiwan-based segment as of December 31, 2014.

This increase in our cash and cash equivalents

is primarily a result of the Series B Preferred Stock financing.

There are no legal or economic factors that materially impact

our ability to transfer funds between our U.S.-based and Taiwan-based segments.

Net cash used in operating

activities during the six months ended June 30, 2015 was $2.4 million compared to $3.2 million during the six months ended June

Net cash used in operating activities for the six months ended June 30, 2015 consisted primarily of the net loss offset

by approximately $84,000 in non-cash stock option compensation.

Cash used in operating activities for the six months ended June

30, 2014 consisted primarily of the net loss offset by approximately $195,000 in non-cash stock option compensation.

Net cash provided by investing

activities for the six months ended June 30, 2015 was $298.

Net cash used in investing activities during the six months ended June

30, 2014 was $214,378.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Net cash provided by financing

activities for the six months ended June 30, 2015 was $3.0 million compared with $3.6 million during the six months ended June

Net cash provided by financing activities in 2015 consisted primarily of proceeds from the sale of Series B Preferred

Stock, short-term debt proceeds, and related party short-term debt proceeds.

Net cash provided by financing activities in 2014

consisted primarily of long-term debt proceeds, short-term debt proceeds, and related party short-term debt proceeds.

We have experienced significant

operating losses since our inception.

At June 30, 2015, we had approximately $22.0 million in net operating loss carryforwards

available for federal income tax purposes, which will begin to expire in 2025.

We did not recognize any benefit from the federal

net operating loss carryforwards in 2014.

We also had approximately $18.0 million in state net operating loss carryforwards, which

began to expire in 2014.

We have limited liquidity

and have not yet established a stabilized source of revenue sufficient to cover operating costs, based on our current estimated

Accordingly, our continuation as a going concern is dependent upon our ability to generate greater revenue through increased

sales and/or our ability to raise additional funds through the capital markets.

During the year ended December 31, 2014, we engaged

an investment bank to assist in evaluating potential equity financing opportunities.

The investment bank became the exclusive placement

agent for the private placement of Series B Preferred Stock.

As of June 30, 2015, we raised an aggregate of $3.1 million through

the sale of Series B Preferred Stock .

No assurance can be given that we will be successful in future financing and revenue-generating

Even if funding is available, we cannot assure investors that it will be available on terms that are favorable to our

existing stockholders.

Additional funding may be achieved through the issuance of equity or debt securities that could be significantly

dilutive to the percentage ownership of our existing stockholders.

In addition, these newly issued securities may have rights,

preferences, or privileges senior to those of our existing stockholders.

Accordingly, such a financing transaction could materially

and adversely impact the price of our common stock.

Substantially all of our

cash is deposited in two financial institutions, one in the United States and one in Taiwan.

At times, amounts on deposit in the

United States may be in excess of the FDIC insurance limit.

Deposits in Taiwan financial institutions are insured by CDIC (“Central

Deposit Insurance Corporation”) with maximum coverage of NTD 3 million.

At times, amounts on deposit in Taiwan may be in

excess of the CDIC insurance limit.

Our accounts receivable

are unsecured, and we are at risk to the extent such amounts become uncollectible.

Although we perform periodic evaluations of

our customers’

credit and financial condition, we generally do not require collateral in exchange for our products and services

provided on credit.

U.S.-based segment revenue from three customers represented approximately 63% of total revenue for the quarter

ended June 30, 2015, and U.S.-based segment accounts receivable from two customers represented approximately 83% of total U.S.-based

segment accounts receivable at June 30, 2015.

Taiwan-based segment revenue from three customers represented approximately 83% of

total revenue for the quarter ended June 30, 2015, and Taiwan-based segment accounts receivable from two customers represented

approximately 51% of total Taiwan-based segment accounts receivable at June 30, 2015.

No other customers represented greater than

10% of total revenue in the quarter ended June 30, 2015.

We provide an allowance

for doubtful collections, which is based upon a review of outstanding receivables, historical collection information, and existing

economic conditions.

Payment terms for our U.S.-based segment require prepayment for our ZEE cameras before they are shipped and

monthly Sentir licensing fees, which are due in advance on the first day of each month.

For our U.S.-based segment, accounts receivable

that are more than 120 days past due are considered delinquent.

Payment terms for our Taiwan-based segment vary based on our agreements

with our customers.

Generally, we receive payment for our products and services within one year of commencing the project, except

that we retain 5% of the total payment amount and release such amount one year after the completion of the project.

Taiwan-based segment had 34% of gross accounts receivables aged over 180 days at June 30, 2015, we provide an allowance for doubtful

accounts for any receivables that will not be paid within one year, which excludes such retained amounts.

For our U.S.-based segment,

we set up doubtful accounts receivable allowances of $0 and $2,736 for the quarters ended June 30, 2015 and 2014, respectively.

For our Taiwan-based segment, we set up doubtful accounts receivable allowances of $351,192 and $468,030 for the quarters ended

June 30, 2015 and 2014, respectively.

We deem the rest of our accounts receivable to be collectible based on certain factors, including

the nature of the customer contracts and past experience with similar customers.

Delinquent receivables are written off based on

individual credit valuation and specific circumstances of the customer, and we generally do not charge interest on past due receivables.

Effects of Inflation

For the periods for which

financial information is presented, we do not believe that the current levels of inflation in the United States have had a significant

impact on our operations.

Likewise, we do not believe that the current levels of inflation in Taiwan have had a significant impact

on the operations of MEGAsys.

Off Balance Sheet Arrangements

We do not have any relationships

with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose

entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually

narrow or limited purposes.

In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any synthetic

We are, therefore, not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had

engaged in such relationships.

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET

Not applicable.

The U.S.-based segment decrease in cost of revenue corresponds with the revenue-sharing arrangement pursuant

to the IvedaSentry monitoring assignment.

The Taiwan-based segment increased cost of revenue and gross margin were primarily due

to progress on long-term contracts during the nine months ended September 30, 2015.

Operating expenses were $854,600 for the three months ended September 30, 2015, compared to $1.2 million for

the same period in 2014, a decrease of $365,532, or 30%.

The decrease in operating expenses was primarily related to a continued

decrease in personnel, direct project-based marketing and sales expenses, consulting, and research and development expenses.

expenses were $2.8 million for the nine months ended September 30, 2015, compared to $4.3 million for the nine months ended September

30, 2014, a decrease of $1.5 million, or 35%.

The decrease in operating expenses in 2015 over 2014 was primarily related to a

continued decrease in personnel, direct project-based marketing and sales expenses, consulting, and research and development expenses.

from Operations.

As a result of the increase in revenue and the decrease in operating expenses, loss from operations decreased

to $665,152 for the three months ended September 30, 2015, compared to $1.1 million for the same period in 2014, a decrease in

loss of $463,144, or 41%.

a result of the overall increase in revenue and the decrease in operating expenses, loss from operations decreased to $2.3 million

for the nine months ended September 30, 2015, compared to $4.0 million for the nine months ended September 30, 2014, a decrease

in loss of $1.7 million, or 41%.

Other expense-net was $288,674 for the three months ended September 30, 2015, compared to $73,041 for the

same period in 2014, an increase of $215,633, or 295%.

The change is primarily due to the decrease of gain recorded on derivative

liability, interest expense on the converted debentures, increase in prepayment discount on stockholder note receivable, and loss

on disposed assets.

expense-net was $319,660 for the nine months ended September 30, 2015, compared to $194,407 for the nine months ended September

30, 2014, an increase of $125,253, or 64%.

The increase is primarily related to prepayment discount on stockholder note receivable,

interest expense on the converted debentures, with reductions from loss on disposed assets.

Net loss was $953,706 for the three months ended September 30, 2015, compared to $1.2 million for the same period

The decrease of $247,669, or 21%, was primarily due to a decrease in U.S.-based segment operating expenses, including

personnel, direct project-based marketing and sales expenses, consulting, and research and development expenses in 2015 and an

increase in Taiwan-based segment revenue.

decrease of $1.5 million, or 36%, in the net loss to $2.7 million for the nine months ended September 30, 2015, from $4.2 million

for the nine months ended September 30, 2014, was primarily the effect of an increase in gross profit and a decrease in operating

and Capital Resources

of September 30, 2015, we had cash and cash equivalents of $136,320 in our U.S.-based segment and $106,476 in our Taiwan-based

segment, compared to $26,661 in our U.S.-based segment and $61,239 in our Taiwan-based segment as of December 31, 2014.

This increase

in our cash and cash equivalents is primarily a result of the early collection of a note receivable and operating profit from

Taiwan operations.

There are no legal or economic factors that materially impact our ability to transfer funds between our U.S.-based

and Taiwan-based segments.

cash used in operating activities during the nine months ended September 30, 2015 was $2.7 million compared to $4.2 million during

the nine months ended September 30, 2014.

Net cash used in operating activities for the nine months ended September 30, 2015 consisted

primarily of the net loss offset by approximately $148,630 of depreciation and amortization, $100,500 in non-cash stock option

compensation, and $262,194 of prepayment discount on stockholder note receivable.

Cash used in operating activities for the nine

months ended September 30, 2014 consisted primarily of the net loss offset by $165,248 of depreciation and amortization and $242,000

in non-cash stock option compensation.

cash provided by investing activities for the nine months ended September 30, 2015 was $3,868.

Net cash used in investing activities

during the nine months ended September 30, 2014 was $244,145 primarily from the purchase of property and equipment consisting

of externally developed software.

cash provided by financing activities for the nine months ended September 30, 2015 was $2.8 million compared with $4.2 million

during the nine months ended September 30, 2014.

Net cash provided by financing activities in 2015 consisted primarily of proceeds

from the sale of Series B Preferred Stock, stockholders note receivable proceeds, short-term debt proceeds, and related party

short-term debt proceeds.

Net cash provided by financing activities in 2014 consisted primarily of the Series A convertible debt

converted to Series A Preferred Stock in December 2014, long-term debt proceeds, short-term debt proceeds, and related party short-term

debt proceeds.

have experienced significant operating losses since our inception.

At September 30, 2015, we had approximately $22.0 million in

net operating loss carryforwards available for federal income tax purposes, which will begin to expire in 2025 and could have

significant restrictions for use resulting from equity issuances and change of ownership.

We did not recognize any benefit from

the federal net operating loss carryforwards in 2014.

We also had approximately $18.0 million in state net operating loss carryforwards,

which began to expire in 2014.

have limited liquidity and have not yet established a stabilized source of revenue sufficient to cover operating costs, based

on our current estimated burn rate.

Accordingly, our continuation as a going concern is dependent upon our ability to generate

greater revenue through increased sales and/or our ability to raise additional funds through the capital markets.

During the year

ended December 31, 2014, we engaged an investment bank to assist in evaluating potential equity financing opportunities.

The investment

bank became the exclusive placement agent for the private placement of Series B Preferred Stock.

We raised an aggregate of $3.1

million through the sale of Series B Preferred Stock .

No assurance can be given that we will be successful in future financing

and revenue-generating efforts.

Even if funding is available, we cannot assure investors that it will be available on terms that

are favorable to our existing stockholders.

Additional funding may be achieved through the issuance of equity or debt securities

that could be significantly dilutive to the percentage ownership of our existing stockholders.

In addition, these newly issued

securities may have rights, preferences, or privileges senior to those of our existing stockholders.

Accordingly, such a financing

transaction could materially and adversely impact the price of our common stock.

Substantially

all of our cash is deposited in two financial institutions, one in the United States and one in Taiwan.

At times, amounts on deposit

in the United States may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.

in Taiwan financial institutions are insured by CDIC Central Deposit Insurance Corporation (“CDIC”) with maximum coverage

of NTD 3 million.

At times, amounts on deposit in Taiwan may be in excess of the CDIC insurance limit.

accounts receivable are unsecured, and we are at risk to the extent such amounts become uncollectible.

Although we perform periodic

evaluations of our customers’

credit and financial condition, we generally do not require collateral in exchange for our

products and services provided on credit.

U.S.-based segment revenue from two customers represented approximately 43% of total

revenue for the quarter ended September 30, 2015, and U.S.-based segment accounts receivable from four customers represented approximately

91% of total U.S.-based segment accounts receivable at September 30, 2015.

Taiwan-based segment revenue from three customers represented

approximately 85% of total revenue for the quarter ended September 30, 2015, and Taiwan-based segment accounts receivable from

four customers represented approximately 96% of total Taiwan-based segment accounts receivable at September 30, 2015.

customers represented greater than 10% of total revenue in the quarter ended September 30, 2015.

provide an allowance for doubtful collections, which is based upon a review of outstanding receivables, historical collection

information, and existing economic conditions.

Payment terms for our U.S.-based segment require prepayment for our ZEE cameras

before they are shipped and monthly Sentir licensing fees, which are due in advance on the first day of each month.

For our U.S.-based

segment, accounts receivable that are more than 120 days past due are considered delinquent.

Payment terms for our Taiwan-based

segment vary based on our agreements with our customers.

Generally, we receive payment for our products and services within one

year of commencing the project, except that we retain 5% of the total payment amount and release such amount one year after the

completion of the project.

Although our Taiwan-based segment had 61% of gross accounts receivables aged over 180 days at September

30, 2015, we provide an allowance for doubtful accounts for any receivables that will not be paid within one year, which excludes

such retained amounts.

For our U.S.-based segment, we set up doubtful accounts receivable allowances of $0 and $763 for the quarters

ended September 30, 2015 and 2014, respectively.

For our Taiwan-based segment, we set up doubtful accounts receivable allowances

of $328,359 and $357,064 for the quarters ended September 30, 2015 and 2014, respectively.

We deem the rest of our accounts receivable

to be collectible based on certain factors, including the nature of the customer contracts and past experience with similar customers.

Delinquent receivables are written off based on individual credit valuation and specific circumstances of the customer, and we

generally do not charge interest on past due receivables.

the periods for which financial information is presented, we do not believe that the current levels of inflation in the United

States have had a significant impact on our operations.

Likewise, we do not believe that the current levels of inflation in Taiwan

have had a significant impact on the operations of MEGAsys.

Balance Sheet Arrangements

do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured

finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements

or other contractually narrow or limited purposes.

In addition, we do not have any undisclosed borrowings or debt, and we have

not entered into any synthetic leases.

We are, therefore, not materially exposed to any financing, liquidity, market, or credit

risk that could arise if we had engaged in such relationships.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements