What changed in this filing

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Item 1. Financial Statements

2016-06-20 compared with 2015-11-16 · 382 added, 442 removed, 549 unchanged (60% of the section changed)

FINANCIAL STATEMENTS.

SOLUTIONS, INC.

1 unchanged sentence

31, 2016 AND DECEMBER 31, 2015

March 31, 2016

December 31, 2015

CURRENT ASSETS

Cash Equivalents

Cash and Cash Equivalents

Restricted Cash

Accounts Receivable,

Accounts Receivable, Net (including $1,770 and $27,512 from Related Party,

respectively)

Inventory, Net

Current Assets

Other Current Assets

Total Current Assets

PROPERTY AND EQUIPMENT, NET

Intangible Assets,

Intangible Assets, Net

Total Other Assets

LIABILITIES AND STOCKHOLDERS’

CURRENT LIABILITIES

Accounts and Other

Accounts and Other Payables

Due to Related Parties

1 unchanged sentence

Derivative Liability

Portion of Long-Term Debt

Current Liabilities

Current Portion of Long-Term Debt

Total Current Liabilities

LONG-TERM DEBT

LONG-TERM DIVIDENDS PAYABLE

1 unchanged sentence

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 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

100,000,000 shares authorized

Series A Preferred Stock, $0.00001 par value;

10,000,000 shares authorized, 3,963,077 and 4,003,592

shares issued and outstanding as of March 31, 2016 and December 31, 2015 respectively

Series B Preferred Stock, $0.00001 par value;

500 shares authorized, 302.5 outstanding as of

March 31, 2016 and December 31, 2015

Common Stock, $0.00001 par value;

100,000,000 shares authorized;

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

28,161,500 and 27,906,739

shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively

Additional Paid-In Capital

Accumulated Comprehensive Loss

Accumulated Deficit

(32,663,071 )

(31,913,298 )

Stockholders’

Total Stockholders’

Equity (Deficit)

Liabilities and Stockholders’

Total Liabilities and Stockholders’

accompanying Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF OPERATIONS

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

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

March 31, 2016

March 31, 2015

Equipment Sales

6 unchanged sentences

OTHER INCOME (EXPENSE)

Foreign Currency Gain

Gain on Derivatives and Debt Conversion

Foreign Currency Transaction Gains

Gain on Derivatives

Gain (Loss) on Disposal of Assets

3 unchanged sentences

LOSS BEFORE INCOME TAXES

BENEFIT (PROVISION)

FOR INCOME TAXES

$ (1,201,375 )

$ (2,673,439 )

$ (4,195,707 )

BASIC AND DILUTED

LOSS PER SHARE

BENEFIT (PROVISION) FOR INCOME TAXES

BASIC AND DILUTED LOSS PER SHARE

WEIGHTED AVERAGE SHARES

2 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

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

$ (1,201,375 )

$ (2,673,439 )

$ (4,195,707 )

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

March 31, 2016

March 31, 2015

Other Comprehensive Loss

Change in Equity Adjustment from Foreign Currency Translation, Net of

Change in Equity Adjustment from Foreign Currency

Translation, Net of Tax

Comprehensive Loss

$ (1,206,865 )

$ (2,679,824 )

$ (4,201,164 )

accompanying Notes to Condensed Consolidated Financial Statements

IVEDA SOLUTIONS, INC.

SOLUTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

Nine Months Ended

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

Three Months Ended

March 31, 2016

March 31, 2015

CASH FLOWS FROM OPERATING ACTIVITIES

$ (2,673,439 )

$ (4,195,707 )

Adjustments to Reconcile Net Loss to Net Cash Used by Operating Activities

Depreciation and Amortization

Amortization of Debt Discount

Amortization of Deferred Financing Costs

Gain on Derivatives and Debt Conversion

(Gain) on Derivatives

Stock Option Compensation

Bad Debt Expense

Loss on Disposal of Assets

Common Stock Warrants Issued for Interest

Prepayment Discount on Stockholder Note Receivable

(Increase) Decrease in Operating Assets

Inventory Valuation Allowance

Common Stock Issued for Interest

(Increase) Decrease in Operating Assets and Liabilities

Accounts Receivable

Other Current Assets

(Decrease in) Accounts and Other Payables

Increase (Decrease) in Accounts and Other Payables

Net Cash Used in Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Property and Equipment

Proceeds from Sale of Equipment

Sale (Purchase) of Property and Equipment

Net Cash Provided by (Used in) Investing Activities

2 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 Stockholder Note Receivable

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

Payments on Capital Lease Obligations

Payments on Dividends

Deferred Finance Costs, Net

Common Stock Issued, Net of (Cost of Capital)

Proceeds from Long-Term Debt, Net of Payments

Series B Preferred Stock Issued, Net of Cost of Capital

Net Cash Provided by Financing Activities

EFFECT OF EXCHANGE RATE CHANGES ON

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS

EFFECT OF EXCHANGE RATE CHANGES ON CASH

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash and Cash Equivalents- Beginning of Period

CASH AND CASH EQUIVALENTS - END OF

CASH AND CASH EQUIVALENTS - END OF PERIOD

accompanying Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

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

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

Three Months Ended

March 31, 2016

March 31, 2015

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest Paid

Income Tax Paid

SUPPLEMENTAL DISCLOSURE OF NON-CASH

INVESTING AND FINANCING ACTIVITIES

Discount on Convertible Debt

Establishment of Derivative Liability

Common Stock Issued for Investor Relations

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Warrants Issued for Interest Expense

Warrants Issued as Deferred Finance Costs

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

2 unchanged sentences

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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, 2015.

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

The operating results and cash flows for the three-month period ended March

31, 2016 are not necessarily indicative of the results that will be achieved for the full fiscal year ending December 31, 2016

29 unchanged sentences

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.

we have generated an accumulated deficit from operations of approximately $32.6 million at March 31, 2016 and have used approximately

$335,000 in cash to fund operations through the three months ended March 31, 2016.

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.

1 unchanged sentence

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 bases.

Sentir was officially launched in April 2014.

developed Sentir, our cloud-based video management platform, and began executing on our strategy to license its use as a VSaaS

offering to partners, as of March 2014, such as telecommunications companies, ISPs, data centers, and cable companies in order

to gain access to their existing subscriber bases.

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, two outdoor cameras, and a dome camera.

We utilize contract manufacturers

for our cloud cameras and other cloud-enabled devices.

line of cloud, plug-and-play cameras in September 2013.

The camera line includes two indoor cameras,

one outdoor camera, and one pan/tilt P/T camera.

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

The Sentir-enabled cameras simplify service providers’

offering to end users.

VSaaS offering to end users.

developed IvedaMobile®

1 unchanged sentence

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.

introduced IvedaHome for shipments beginning 2016, cloud-based home security and automation systems.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

signed an exclusive reseller agreement in 4 th quarter 2015 with a local group in Vietnam that will sell to the

Vietnam Telecom and Integrator market under the name Iveda Vietnam

are actively collaborating with certain telecommunications companies in other countries to resell our products and services

in their respective countries.

Our initial shipments of ZEE cameras were sent in June and August 2014 for delivery to Filcomserve

as reseller to the Philippine Long Distance Company (“PLDT”) for distribution to its customers.

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 its direct project-based sales channel and all costs related

to project-based sales as well as our real time monitoring services 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.

February 2014, Mr.

Brilon was appointed as our President.

Brilon has strong ties with the investment community and has

extensive experience with domestic and foreign institutional investors, which may be instrumental in raising capital to fund

Brilon has also been instrumental in restructuring the business model reducing the workforce and implementing

relevant cost reductions in 2014 and 2015.

Concentrations

12 unchanged sentences

financial condition and generally do not require collateral.

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

U.S.-based segment revenue from one customer

represented approximately 80% of total revenue for the three months ended March 31, 2016, and two customers represented approximately

74% of the total U.S.-based segment accounts receivable at March 31, 2016.

Taiwan-based segment revenue from one customer represented

approximately 83% of total revenue for the three months ended March 31, 2016, and four customers represented approximately 78%

of total Taiwan-based segment accounts receivable at March 31, 2016.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1 unchanged sentence

Other intangible assets are fully

amortized at September 30, 2015.

amortized at March 31, 2016.

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

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

31, 2016 and December 31, 2015.

27 unchanged sentences

for other significant geographic regions are as follows:

Assets (Liabilities)

March 31, 2016

Net Assets (Liabilities)

United States

Republic of China (Taiwan)

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

Republic of China (Taiwan) MEGAsys

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

12 unchanged sentences

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

Depreciation and Amortization

General and Administrative

Gain (Loss) from Operations

Foreign Currency Gain

Gain on Derivatives

Gain on Disposal of Assets, Net

Interest Income

Interest Expense

Gain (Loss) Before Income Taxes

Benefit (Provision) for Income Taxes

Net Income (Loss)

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

of operations for the three months ended March 31, 2016 for each of our reporting segments are provided below.

Three Months Ended

March 31, 2016

Iveda Solutions, Inc.

Cost of Revenue

4 unchanged sentences

Gain on Derivatives

Loss on Disposal of Assets, Net

Gain on Disposal of Asses, Net

Interest Income

3 unchanged sentences

Net Income (Loss)

$ (2,739,834 )

$ (2,673,439 )

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

Three Months Ended

Nine Months Ended

of China (Taiwan)

United States

Republic of China (Taiwan)

Three Months Ended

Nine Months Ended

Operating Earnings (Loss)

$ (1,061,072 )

$ (2,444,738 )

$ (3,856,447 )

of China (Taiwan)

$ (1,128,296 )

$ (2,341,046 )

$ (3,985,383 )

Nine Months Ended

United States

Republic of China (Taiwan)

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

Property and Equipment, Net

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)

United States

Republic of China (Taiwan)

Three Months Ended

Additions (Disposals) to Long-Lived Assets

United States

Republic of China (Taiwan)

Three Months Ended

Inventory, Net

United States

Republic of China (Taiwan)

Three Months Ended

United States

Republic of China (Taiwan)

Reclassification

2 unchanged sentences

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

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AND LONG-TERM DEBT

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.

Due July 2015.

KTV Holding, LLC at 9.5% interest rate

Paid January 26, 2015.

Investments, Inc.

at 9.5% interest rate per annum.

Paid January 26, 2015

March 31, 2016

December 31, 2015

Loan from Hua Nan Bank at 2.88% interest rate per annum.

Due at February 2016 - August

Loan from shareholder at 9.5% interest rate per annum.

Originated February 2016 with initial

term to March 31, 2016.

Currently due upon demand.

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

2015 - March 2016.

Balance at end of period

SOLUTIONS, INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

long term debt is a loan from Fubon Bank originated February 2016 with maturity January 31, 2018.

The loan has an annual interest

rate of 4.5% and an outstanding balance of $85,670 with $45,846 as current portion of long term debt.

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

39 unchanged sentences

redemption rights.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

B Preferred Stock

21 unchanged sentences

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

40 unchanged sentences

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.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the three months ended March 31, 2016, we issued 138,305 shares of common stock in payment of dividends to Series B preferred

stockholders.

the three months ended March 31, 2016, we issued 69,690 shares of common stock for exercised options to purchase common stock.

the three months ended March 31, 2016, we issued 41,766 shares of common stock for conversion of Series A preferred shares.

the three months ended March 31, 2016, we issued 5,000 shares common stock for interest payment to a short-term loan.

Receivable from Stockholder

6 unchanged sentences

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

IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

OPTIONS AND WARRANTS

11 unchanged sentences

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

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

option transactions during the three months ended March 31, 2016 were as follows:

Three months ended March 31, 2016

Average Exercise

Outstanding at Beginning of Year

Forfeited or Canceled

Outstanding at End of Period

Options Exercisable at End of Period

Weighted-Average Fair Value of Options Granted During the Period

with respect to stock options outstanding and exercisable as of March 31, 2016 is as follows:

Options Outstanding

Options Exercisable

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

Outstanding at

March 31, 2016

Exercisable at

September 30, 2015

Average Exercise

IVEDA SOLUTIONS,

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following

14 unchanged sentences

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

of March 31, 2016, warrants to purchase 7,352,302 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 model.

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:

vesting periods.

transactions during the three months ended March 31, 2016 were as follows:

Outstanding at December 31, 2015

Warrants Redeemable at September

Forfeited or Canceled

Warrants Redeemable at March 31, 2016

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PARTY TRANSACTIONS

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

March 31, 2016

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

Cheung and Mr.

Shiau for $18,120 and

$36,240, respectively.

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

Shiau for $18,180 and $36,360, respectively.

During July 2015 MEGAsys entered into additional unsecured

loans from Mr.

Cheung for $315,120.

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.

All of the loans are at maximum of 8.8% interest per annum and matured December 30, 2015.

We paid the $284,820 principal balance and accrued interest on January 31, 2016.

On December 30, 2014, we entered into a debenture agreement with Mr.

Farnsworth, a member

of our Board of Directors, for $10,000, at 9.5% interest per annum with interest and principal payable on January 31, 2015.

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.

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.

On December 9, 2014, we entered into a debenture agreement with Mr.

Gillen, a member of our

Board of Directors, for $100,000, at 9.5% interest per annum with interest and principal payable on January 5, 2015.

also received a warrant to purchase 25,000 shares of our common stock at an exercise price of $1.00 per share.

As consideration

for agreeing to extend the maturity date of the debenture, we granted Mr.

Gillen options to purchase 10,000 shares of our

common stock at an exercise price of $0.77 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.

Joe Farnsworth, a member

of our Board of Directors, for $35,000, at 9.5% interest per annum with interest and principal payable on February 5, 2015.

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

On September 10, 2014, we entered into a debenture agreement with Mr.

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

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.

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.

Hsu options to pruchase 10,000 shares of our

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

On August 28, 2014, we entered into a debenture agreement with Mr.

Gregory Omi, a member of

our Board of Directors of the company for $200,000, at 9.5% interest per annum with interest and principal payable on the

extended maturity date of Decemer 31, 2016.

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

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

This debenture was extended to December

31, 2016 and as consideration for agreeing to exend the maturity date of the debenture, we granted Mr.

Omi options to purchase

20,000 shares of common stock at an exercised price of $0.65 per share.

On November 19, 2012, we entered into a convertible debenture agreement

Robert Gillen, a member of our Board of Directors, for $100,000 (the “Gillen I Debenture”), under his

company Squirrel-Away, LLC.

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

on December 19, 2014.

Gillen I Debenture was extended to January 5, 2015.

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

the debenture.

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

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

Gillen options to purchase 10,000 shares of common stock at an exercised price of $0.77 per share This debenture was extended

to December 31, 2016 and as consideration for agreeing to exend the maturity date of the debenture, we granted Mr.

options to purchase 10,000 shares of common stock at an exercised price of $0.65 per share.

Total Due to Related Parties

Less Current Portion

Debt Discount

Total Long-Term

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Party Transaction –

During 2016 MEGAsys conducted business with a Taiwan based system integrator, Iwei Da System Ltd.

has one of MEGAsys directors as a common director also less than 2% shareholder of Iveda.

The sales to the system integrator for

the three-month period ended March 31, 2016 was $17,644, at March 31, 2016 there was accounts receivable balance of $1,770.

(LOSS) PER SHARE

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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 )

$ (2,673,439 )

$ (4,195,707 )

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

quarters ended March 31, 2016 and 2015.

Total common stock equivalents that could be convertible into common stock were 21,455,311

and 13,706,369 for March 31, 2016 and 2015, respectively.

March 31, 2016

March 31, 2015

Weighted Average Shares

Basic Loss Per Share

April 21, 2016, certain Series B Preferred Shareholders exercised and exchanged $380,000 of shares of our Common Stock at a price

of $0.35 per share of their Tranche A Warrants.

The initial exercise price of the Tranche A Warrants was $1.00 and per the Exchange

Agreement the Company offered to reduce the initial exercise price to $0.35 for the immediate exercise of the Tranche A Warrant

and will replace those exercised with a replacement Tranche A Warrant with the same terms and conditions as the original warrant

including the exercise price of $1.00 but with a new 18 month term from the date of the exchange.

initial exercise price of the Tranche B Warrants was $1.10 and the Warrant Exchange Agreement adjusts these Tranche B Warrants

to $0.35 exercise price.

The exercise price of the Tranche B Warrants is subject to customary adjustments for issuances of shares

of common stock as a dividend or distribution on shares of the common stock, or mergers or reorganizations, as well as “full-ratchet”

anti- dilution adjustments for future issuances of other Company securities (subject to certain standard carve-outs).

a result of this event, the exercise price of warrants issued to Series A Preferred Shareholders will adjust from $.75 to $.35

and conversion price of Series A Preferred shares to shares of common stock will adjust from $.97 to $.86 per anti-dilution rights

of the agreement.

have evaluated subsequent events from the balance sheet date through the date the financial statements were issued and determined

that there are no additional items to disclose.

MANAGEMENT’S

52 unchanged sentences

Such policies are unchanged.

We developed Sentir, a

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

developed Sentir®, a video surveillance management platform with big data storage technology for flexible and scalable distribution

of hosted video surveillance services to end users.

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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

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.

2 unchanged sentences

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

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.

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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.

2 unchanged sentences

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 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 January 2016, after thoroughly reviewing

the analysis of the DHS Office of SAFETY Act, the Deputy Under Secretary of Science and Technology has determined that our technology

satisfies the criteria set forth in Section 442(d)(s) of the SAFETY Act and in Section 25.8(a) of the Regulations and officially

issued a Certification.

A Certificate of Conformance of Technology was issued and our video surveillance products and services

were placed on “Approved Products List for Homeland Security.”

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

4 unchanged sentences

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.

June and August 2014, in collaboration with our local partner 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.

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.

In June 2015, Sentir was installed at four of VNPT’s data centers.

After technical testing,

in July 2015, VNPT issued a thorough report validating Sentir.

November 2015, we signed an agreement with Nguyen Business & Investment Co., Ltd.

as our exclusive reseller in Vietnam.

then, they formed Iveda Vietnam Co., Ltd.

to be the operating entity to license the Sentir platform and resell Sentir-enabled

devices (e.g., ZEE, IvedaHome).

We have received a total payment of $370,000 as of March 31, 2016 against a committed $1 Million

prepaid Sentir license.

Accounting Standards

1 unchanged sentence

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

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 due to

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

We recorded net consolidated revenue of $412,517 for the three months ended March 31, 2016, compared to $525,821

for the three months ended March 31, 2015, a decrease of ($113,304), or (22%).

In the three months ended March 31, 2016, our recurring

service revenue was $24,483, or 6% of net consolidated revenue, and our equipment sales and installation revenue was $385,199,

or 93% of net consolidated revenue, compared to recurring service revenue of $98,339, or 19% of net consolidated revenue, and

equipment sales and installation revenue of $414,523, or 79% of net consolidated revenue, for the same period in 2015.

Our U.S.-based

segment saw an increase of $28,247 in net consolidated revenue during the three months ended March 31, 2016, while our Taiwan-based

segment revenue decreased by $141,551 during the same period.

The increase in U.S.-based segment revenue was due to initial equipment

sales to our Vietnam Reseller.

of Sentir-enabled plug-and-play cloud cameras.

The decrease in Taiwan-based segment revenue was

primarily due to delays on long-term contracts awarded during 2015.

Total cost of revenue was $330,410 (80% of revenue, representing a gross margin of 20%) 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 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%.

ended March 31, 2016, compared to $358,695 (68% of revenue, representing a gross margin of 32%) for the same period in 2015, a

decrease of ($28,285), or (8%).

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

initial sales through a reseller.

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

due to the delay on long-term contracts.

Operating expenses were $648,947 for the three months ended March 31, 2016, compared to $1.0 million for the

same period in 2015, a decrease of ($366,993), or (36%).

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.

decrease in sales and technical support personnel, project-based marketing and sales expenses that has been shifted to our resellers,

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%.

Although there was a decrease in revenue, the decrease in operating expenses resulted in the loss from

operations decreased to ($566,840) for the three months ended March 31, 2016, compared to ($848,814) for the same period in 2015,

a decrease in loss of ($281,974), or (33%).

Other expense-net was ($16,004) for the three months ended March 31, 2016, compared to $9,427 for the same

period in 2015, a decrease of ($25,431), or (270%).

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

liability that offset interest expense debentures.

Net loss was $582,844 for the three months ended March 31, 2016, compared to $839,387 for the same period in 2015.

The decrease of ($256,543), or (31%), was primarily due to a decrease in operating expenses which was primarily related to a continued

decrease in sales and technical support personnel, project-based marketing and sales expenses that has been shifted to our resellers,

consulting, and research and development expenses.

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

of March 31, 2016, we had cash and cash equivalents of $18,000 in our U.S.-based segment and $167,000 in our Taiwan-based segment,

compared to $115,000 in our U.S.-based segment and $91,000 in our Taiwan-based segment as of December 31, 2015.

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 three months ended March 31, 2016 was $50,274 compared to $1,287,567 during the three

months ended March 31, 2015.

Net cash used in operating activities for the three months ended March 31, 2016 consisted primarily

of the net loss of ($582,844) offset by approximately $378,429 decrease in accounts receivable and $247,057 increase in accounts

and other payables.

Cash used in operating activities for the three months ended March 31, 2015 consisted primarily of the net

loss of ($839,387) offset by $57,125 of depreciation and amortization and $62,000 in non-cash stock option compensation but added

to with $210,479 increase in accounts receivable and $231,689 decrease in accounts and other payables.

cash provided by investing activities for the three months ended March 31, 2016 was $20,442.

Primarily from the sale of property

and equipment.

Net cash used in investing activities during the three months ended March 31, 2015 was $2,872.

Primarily from the

purchase of property and equipment.

cash provided by financing activities for the three months ended March 31, 2016 was $3,621 compared with $2.8 million during the

three months ended March 31, 2015.

Net cash provided by financing activities in 2016 consisted primarily of proceeds from short-term

debt proceeds.

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

short-term debt proceeds, and offset by payments to related party short-term debt.

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.

At March 31, 2016, we had approximately $26.0 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

31 unchanged sentences

U.S.-based segment revenue from two customers represented approximately 80% 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.

revenue for the quarter ended March 31, 2016, and U.S.-based segment accounts receivable from two customers represented approximately

74% of total U.S.-based segment accounts receivable at March 31, 2016.

Taiwan-based segment revenue from one customers represented

approximately 83% of total revenue for the quarter ended March 31, 2016, and Taiwan-based segment accounts receivable from four

customers represented approximately 78% of total Taiwan-based segment accounts receivable at March 31, 2016.

No other customers

represented greater than 10% of total revenue in the quarter ended March 31, 2016.

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

9 unchanged sentences

completion of the project.

Although our Taiwan-based segment had 61% of gross accounts receivables aged over 180 days at September

Although our Taiwan-based segment had 53% of gross accounts receivables aged over 180 days at March

31, 2016, 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 U.S.-based segment, we set up doubtful accounts receivable allowances of $0 and $3,085 for the

quarters ended March 31, 2016 and 2015, 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.

of $419,344 and $347,931 for the quarters ended March 31, 2016 and 2015, respectively.

We deem the rest of our accounts receivable

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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