What changed in this filing

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Item 1. Financial Statements

2016-08-16 compared with 2016-06-20 · 307 added, 229 removed, 702 unchanged (43% of the section changed)

2 unchanged sentences

30, 2016 AND DECEMBER 31, 2015

March 31, 2016

June 30, 2016

December 31, 2015

25 unchanged sentences

10,000,000 shares authorized, 3,938,077 and 4,003,592

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

shares ‘issued and outstanding as of June 30, 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

June 30, 2016 and December 31, 2015, respectively

Common Stock, $0.00001 par value;

1 unchanged sentence

30,219,247 and 27,906,739

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

shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively

Additional Paid-In Capital

9 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

March 31, 2016

March 31, 2015

THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

June 30, 2016

June 30, 2015

June 30, 2016

June 30, 2015

Equipment Sales

6 unchanged sentences

OTHER INCOME (EXPENSE)

Foreign Currency Transaction Gains

Gain on Derivatives

Foreign Currency Gain

Gain (Loss ) on Derivatives and Debt Conversion

Gain (Loss) on Disposal of Assets

3 unchanged sentences

LOSS BEFORE INCOME TAXES

BENEFIT (PROVISION) FOR INCOME TAXES

(PROVISION) FOR INCOME TAXES

$ (1,059,553 )

$ (1,719,733 )

BASIC AND DILUTED LOSS PER SHARE

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

March 31, 2016

March 31, 2015

THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

June 30, 2016

June 30, 2015

June 30, 2016

June 30, 2015

$ (1,059,553 )

$ (1,719,733 )

Other Comprehensive Loss

2 unchanged sentences

Comprehensive Loss

$ (1,057,226 )

$ (1,717,637 )

accompanying Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

Three Months Ended

March 31, 2016

March 31, 2015

THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

June 30, 2016

June 30, 2015

CASH FLOWS FROM OPERATING ACTIVITIES

$ (1,059,553 )

$ (1,719,733 )

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

Depreciation and Amortization

(Gain) on Derivatives

(Gain) Loss on Derivatives

Stock Option Compensation

1 unchanged sentence

Inventory Valuation Allowance

Common Stock Issued for Interest

Common Stock Warrants Issued for Interest

Gain on Derivatives and Debt Conversion

Loss on Disposal of Assets

(Increase) Decrease in Operating Assets and Liabilities

1 unchanged sentence

Other Current Assets

Increase (Decrease) in Accounts and Other Payables

Accounts and Other Payables

Net Cash Used in Operating Activities

1 unchanged sentence

Sale (Purchase) of Property and Equipment

Proceeds from Sale of Equipment

Net Cash Provided by (Used in) Investing Activities

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Proceeds from Long-Term Debt, Net of Payments

Payments on Dividends

Sale of Common Stock, Net of Cost of Capital

Series B Preferred Stock Issued, Net of Cost of Capital

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CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

Three Months Ended

March 31, 2016

March 31, 2015

THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

June 30, 2016

June 30, 2015

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Common Stock Issued for Investor Relations

Warrants Issued for Interest Expense

Dividends Converted to Common Stock

Common Stock Issued for Finance Costs

accompanying Notes to Condensed Consolidated Financial Statements

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on Form 10-K for the year ended December 31, 2015.

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

or for future periods.

The operating results and cash flows for the six-month period ended June 30,

2016 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

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Since inception,

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.

we have generated an accumulated deficit from operations of approximately $33 million at June 30, 2016 and have used approximately

$0.3 million in cash to fund operations through the six months ended June 30, 2016.

As a result, a significant risk exists regarding

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

signed an exclusive reseller agreement in November 2015 with a local group in Vietnam that will sell to the Vietnam Telecom

and Integrator market under the name Iveda Vietnam.

Our initial shipment of ZEE cameras was sent in February 2016 for delivery

to Vietnam Posts and Telecommunications (VNPT) for distribution to its customers.

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

closed $500,000 strategic investment transaction with the new majority owner of Iveda Vietnam.

The new majority owner is expected

to fund the working capital requirements for deposits and final payment before we ship cameras and other Sentir-enabled devices,

through our contract manufacturing relationships in Asia.

This role is key in facilitating business with large telecom customers

on terms acceptable in Vietnam.

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

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financial condition and generally do not require collateral.

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.

U.S.-based segment revenue from one customers

represented approximately 78% of total revenue for the six months ended June 30, 2016, and three customers represented approximately

52% of the total U.S.-based segment accounts receivable at June 30, 2016.

Taiwan-based segment revenue from two customers represented

approximately 81% of total revenue for the six months ended June 30, 2016, and four customers represented approximately 84% of

total Taiwan-based segment accounts receivable at June 30, 2016.

SOLUTIONS, INC.

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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.

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

Other intangible assets are fully

amortized at March 31, 2016.

amortized at June 30, 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 March

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

30, 2016 and December 31, 2015.

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for other significant geographic regions are as follows

March 31, 2016

June 30, 2016

Net Assets (Liabilities)

United States

$ (1,900,840 )

Republic of China (Taiwan) MEGAsys

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effect on our future operations and results.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

of operations for the three and six months ended June 30, 2016 for each of our reporting segments are provided below.

June 30, 2016

Iveda Solutions, Inc.

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Net Income (Loss)

June 30, 2016

Cost of Revenue

Depreciation and Amortization

General and Administrative

Gain (Loss) from Operations

Foreign Currency Gain

Gain on Derivatives

Loss on Disposal of Assets, Net

Interest Income

Interest Expense

Gain (Loss) Before Income Taxes

Provision for Income Taxes

Net Income (Loss)

$ (1,059,553 )

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

3 unchanged sentences

Three Months Ended

Six Months Ended

United States

1 unchanged sentence

Three Months Ended

Six Months Ended

Operating Earnings (Loss)

United States

$ (1,740,396 )

Republic of China (Taiwan)

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended

$ (1,008,915 )

$ (1,675,895 )

Six Months Ended

Property and Equipment, Net

1 unchanged sentence

Republic of China (Taiwan)

Three Months Ended

Six Months Ended

Additions (Disposals) to Long-Lived Assets

1 unchanged sentence

Republic of China (Taiwan)

Three Months Ended

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended

Inventory, Net

1 unchanged sentence

Republic of China (Taiwan)

Three Months Ended

Six Months Ended

United States

4 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:

March 31, 2016

June 30, 2016

December 31, 2015

Loan from Bank SinoPac at 2.95% interest rate per annum.

Due at June 2016 - December

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

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Originated February 2016 with initial

term to March 31, 2016.

Currently due upon demand.

term to March 31, 2016, then due upon demand, repaid in July 2016.

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

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Balance at end of period

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.

SOLUTIONS, INC.

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

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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.

On April 22, 2016, conversion price was adjusted to $0.86 as a result of Series B Tranche A warrants exercised

by certain shareholders, at an adjusted exercise price of $0.35 per share.

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

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redemption rights.

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the six months ended June 30, 2016, we issued 72,204 shares of common stock for conversion of Series A preferred shares.

B Preferred Stock

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

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

8 unchanged sentences

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.

On April 22, 2016, conversion price was adjusted to $0.35

as a result of Series B Tranche A warrants exercised by certain shareholders, at an adjusted exercise price of $0.35 per share.

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.

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

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

the six months ended June 30, 2016, we issued 362,473 shares of common stock in payment of dividends to Series B preferred stockholders.

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

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subscribe for any of our securities.

the six months ended June 30, 2016, we issued 362,473 shares of common stock in payment of dividends to Series B preferred stockholders.

the six months ended June 30, 2016, we issued 89,690 shares of common stock for exercised options to purchase common stock.

the six months ended June 30, 2016, we issued 1,088,570 shares of common stock for exercised warrants to purchase common stock.

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.

the six months ended June 30, 2016, we issued 72,204 shares of common stock for conversion of Series A preferred shares.

the six months ended June 30, 2016, we issued 11,000 shares of common stock for origination fees for a $100,000 short term loan.

the six months ended June 30, 2016, we issued 628,571 shares of common stock (with 800,000 warrants at $0.35 exercise price) for

$500,000 strategic investment.

the six months ended June 30, 2016, we issued 60,000 shares of common stock for the referral of the $500,000 strategic investment.

Receivable from Stockholder

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

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

option transactions during the six months ended June 30, 2016 were as follows:

Six months ended June 30, 2016

Weighted-Average

Exercise Price

Outstanding at Beginning of Year

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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:

SOLUTIONS, INC.

TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

with respect to stock options outstanding and exercisable as of June 30, 2016 is as follows:

Options Outstanding

1 unchanged sentence

Outstanding at

March 31, 2016

June 30, 2016

Exercisable at

March 31, 2016

June 30, 2016

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

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

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.

of June 30, 2016, warrants to purchase 7,453,016 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

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vesting periods.

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

transactions during the six months ended June 30, 2016 were as follows:

Outstanding at December 31, 2015

Forfeited or Canceled

Warrants Redeemable at March 31, 2016

Warrants Redeemable at June 30, 2016

SOLUTIONS, INC.

1 unchanged sentence

PARTY TRANSACTIONS

March 31, 2016

June 30, 2016

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

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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.

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

Robert Gillen,

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

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 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.

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 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.

Gillen options to purchase 10,000

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

On April 1, 2016, 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 July 1, 2016.

Total Due to Related Parties

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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.

Party Transactions –

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

and has one of MEGAsys directors as

a common director also less than 2% shareholder of Iveda.

The sales to the system integrator for the six-month period ended June

30, 2016 was $168,654, at June 30, 2016 there was accounts receivable balance of $166.

May 2016 we abandoned our prior lease at 1201 S Alma School Road, Suite 8500, Mesa, Arizona and subleased on a month to month

basis approximately 2,500 square feet of office space at 460 S.

Greenfield, Suite 5, Mesa, Arizona from Farnsworth Realty &

Management Company for $3,000 per month.

One of our directors, Joe Farnworth, is 70% stakeholder in Farnsworth Realty & Management

(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 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

quarters ended June 30, 2016 and 2015 and six months ended June 30, 2016 and 2015.

Total common stock equivalents that could be

convertible into common stock were 26,499,901 and 22,127,032 for June 30, 2016 and 2015, respectively.

June 30, 2016

June 30, 2015

June 30, 2016

June 30, 2015

$ (1,059,553 )

$ (1,719,733 )

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.

Basic and Diluted Loss Per Share

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

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These statements are only predictions and involve

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

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

and Capital Resources”

with respect to our ability to continue to generate cash from operations or new investments, 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, 2015, which

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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.

The 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

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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.

as our exclusive reseller in Vietnam with

a committed $1 Million prepaid Sentir licenses.

Since 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).

On June 30, 2016, we completed a strategic

investment transaction with the new majority owner of Iveda Vietnam and for cash consideration of $500,000, we sold 628,571 shares

of our unregistered common stock and a warrant exercisable at $0.35 per share to purchase 800,000 shares of our unregistered common

stock with a 5-year term.

Prior to the closing of the strategic investment, Iveda Vietnam had paid $435,000 to the Company, of

which $50,000 was allocated to Sentir server hardware shipped in December 2015 and $385,000 to prepaid license fees.

In conjunction

with the $500,000 strategic investment into the Company from the new majority owner, we agreed to amend the exclusive reseller

agreement to accept the $435,000 payment as full execution of the terms of the agreement.

Accounting Standards

1 unchanged sentence

of Operations

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

We recorded net consolidated revenue of $338,624 for the three months ended June 30, 2016, compared to $775,561

for the three months ended June 30, 2015, a decrease of ($436,937), or (56%).

In the three months ended June 30, 2016, our recurring

service revenue was $25,907, or 8% of net consolidated revenue, and our equipment sales and installation revenue was $307,109,

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.

or 91% of net consolidated revenue, compared to recurring service revenue of $46,911, or 6% of net consolidated revenue, and equipment

sales and installation revenue of $726,695, or 94% of net consolidated revenue, for the same period in 2015.

Our U.S.-based segment

saw an increase of $71,141 in net consolidated revenue during the three months ended June 30, 2016, while our Taiwan-based segment

revenue decreased by ($508,078) during the same period.

The increase in U.S.-based segment revenue was due to 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 and started during 2015.

recorded net consolidated revenue of $751,141 for the six months ended June 30, 2016, compared to $1,301,384 for the six months

ended June 30, 2015, a decrease of ($550,243) or (42%).

In the six months ended June 30, 2016, our recurring service revenue was

$50,390 or 7% of revenue, and our equipment sales and installation revenue was $692,308 or 92% of revenue, compared to recurring

service revenue of $145,251 or 11% of revenue, and equipment sales and installation revenue of $1,141,218 or 88% of revenue for

the same period in 2015.

The decrease in revenue was due to delays in significant long-term contracts that were awarded and began

in 2015 in Taiwan..

The increase in U.S.-based segment revenue was due to equipment sales to our Resellers of Sentir-enabled plug-and-play

cloud cameras.

Total cost of revenue was $256,252 (76% of revenue, representing a gross margin of 24%) for the three months

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

consulting, and research and development expenses.

ended June 30, 2016, compared to $634,857 (82% of revenue;

representing a gross margin of 18%) for same period in 2015, a decrease

of ($378,605), or (60%).

The U.S.-based segment increase in cost of revenue corresponds with increased sales through our Vietnam

The Taiwan-based segment decreased cost of revenue and were primarily due to reduced revenues caused by the delay

on significant long-term contracts awarded and began in 2015.

cost of revenue was $586,662 (78% of revenues;

gross margin of 22%) for the six months ended June 30, 2016, compared to $993,552

(76% of revenues;

representing a gross margin of 24%) for the six months ended June 30, 2015, a decrease of ($406,809) or (41%).

The decrease of cost of revenue and decrease of gross margin was primarily due to delays in large project revenues in Taiwan during

the six months ended June 30, 2016.

Operating expenses were $524,447 for the three months ended June 30, 2016, compared to $967,788 for the same

period in 2015, a decrease of ($443,341), or (46%).

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

in US based administrative, sales and technical support personnel, project-based marketing and sales expenses that has been shifted

to our resellers, consulting, and research and development expenses.

expenses were $1.2 million for the six months ended June 30, 2016, compared to $2.0 million for the six months ended June 30,

2015, a decrease of ($810,333) or (41%).

The decrease in operating expenses in 2016 over 2015 was primarily related to a continued

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

from Operations.

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

As a result of the decrease in operating expenses, loss from operations decreased to ($442,075) for the

three months ended June 30, 2016, compared to ($827,084) for the same period in 2015, a decrease in loss of ($385,009), or (47%).

as a result of the decrease in operating expenses the loss from operations decreased to $1.0 million, for the six months ended

June 30, 2016, compared to $1.7 million for the six months ended June 30, 2015, a decrease in loss of ($666,980) or (40%).

Other expense-net was $17,923 for the three months ended June 30, 2016, compared to $40,412 for the same

period in 2015, a decrease of ($22,489), or (56%).

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

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.

The change is primarily due to the decrease in interest expense.

expense-net was $33,927 for the six months ended June 30, 2016, compared to $30,985 for the six months ended June 30, 2015, an

increase of $2,942 or 9% primarily related to the decrease in gain on derivatives and the decreased loss on disposal of assets..

Net loss was ($476,709) for the three months ended June 30, 2016, compared to ($880,349) for the same period in

The decrease of ($403,640), or (46%), 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 development expenses.

decrease of ($660,179) or (38%) in the net loss to $1.0 million for the six months ended June 30, 2016, from $1.7 million for

the six months ended June 30, 2015, was primarily the effect of a decrease in operating expenses.

and Capital Resources

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,

of June 30, 2016, we had cash and cash equivalents of $463,917 in our U.S.-based segment and $495,616 in our Taiwan-based segment,

compared to $115,568 in our U.S.-based segment and $91,357 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.

This increase

in our cash and cash equivalents is primarily a result of the $380.000 Warrant Exercise to Common Stock and the sale of $500,000

of Common Stock during the quarter ended June 30, 2016.

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 six months ended June 30, 2016 was $0.3 million compared to $2.4 million during the

six months ended June 30, 2015.

Net cash used in operating activities for the six months ended June 30, 2016 consisted primarily

of the net loss offset by approximately $624,000 in collection of accounts receivable.

Cash used in operating activities for the

six months ended June 30, 2015 consisted primarily of the net loss and approximately $925,000 increase in accounts receivable

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

cash used in investing activities for the six months ended June 30, 2016 was $793.

Net cash provided by investing activities during

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

cash provided by financing activities for the six months ended June 30, 2016 was $1.1 million compared with $3.0 million during

the six months ended June 30, 2015.

Net cash provided by financing activities in 2016 is primarily a result of the $380.000 Warrant

Exercise to Common Stock and the sale of $500,000 of Common Stock during the quarter ended June 30, 2016.

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.

have experienced significant operating losses since our inception.

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.

At June 30, 2016, we had approximately $26 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 2015.

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

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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.

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

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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.

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 amounts become uncollectible.

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products and services provided on credit.

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

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.

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

revenue for the quarter ended June 30, 2016, and U.S.-based segment accounts receivable from two customers represented approximately

83% of total U.S.-based segment accounts receivable at June 30, 2016.

Taiwan-based segment revenue from three customers represented

approximately 83% of total revenue for the quarter ended June 30, 2016, and Taiwan-based segment accounts receivable from two

customers represented approximately 51% of total Taiwan-based segment accounts receivable at June 30, 2016.

No other customers

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

represented greater than 10% of total revenue in the quarter ended June 30, 2016.

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

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completion of the project.

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

Although our Taiwan-based segment had 34% of gross accounts receivables aged over 180 days at June

30, 2016, we provide an allowance for doubtful accounts for any receivables that will not be paid within one year, which excludes

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For our U.S.-based segment, we set up doubtful accounts receivable allowances of $0 and $2,736 for the

quarters ended March 31, 2016 and 2015, respectively.

quarters ended June 30, 2016 and 2015, respectively.

For our Taiwan-based segment, we set up doubtful accounts receivable allowances

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

of $351,192 and $468,030 for the quarters ended June 30, 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