UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





þ
            QUARTERLY REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934




For the
quarterly period ended June 30, 2010





or





 ̈
            TRANSITION REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934




For the
transition period from __________ to ____________





Commission
File No. 000-53285





IVEDA
CORPORATION


(Exact
name of registrant as specified in its charter)




Nevada
              (State
      or other jurisdiction of incorporation or
              organization)
            
            98-0611159
              (I.R.S.
      Employer
              Identification
      No.)1201 South Alma School
      Road, Suite 4450, Mesa, Arizona
              (Address
      of principal executive offices)
            
            85210
              (Zip
      Code)




Registrant's
telephone number, including area code: (480)
307-8700


Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes xNo o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such files).
 Yes  ̈No  ̈
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
  Large
accelerated filer o       Accelerated
filer o       Non-accelerated
filer o
 Smaller
reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act):
 Yes oNo x




Number of
shares outstanding of each of the issuer's classes of common equity as of the
latest practicable date:




Class
            Outstanding as of
      August 10, 2010Common
      stock, $0.00001 par value
            12,878,507












PART
I – FINANCIAL INFORMATION





ITEM
      1.
            FINANCIAL
      STATEMENTS.




IVEDA
CORPORATION
 
 CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
 
 FOR
THE THREE AND SIX MONTHS ENDED
 JUNE
30, 2010 AND 2009
  FINANCIAL
      STATEMENTSCONDENSED
      CONSOLIDATED BALANCE SHEETS
                
                
                3CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
                
                
                5CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS
                
                
                6CONDENSED
      CONSOLIDATED NOTES TO FINANCIAL STATEMENTS
                
                
                7
 
 2
  IVEDA
CORPORATION
 (A
NEVADA CORPORATION)
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND
 DECEMBER
31, 2009
  June
      30, 2010
                  (Unaudited)
                
                
                December
      31,
                  2009ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
                
                $
                181,709
                
                
                $
                17,672Accounts
      Receivable
                
                
                82,177
                
                
                
                36,739Prepaid
      Expenses
                
                
                4,731
                
                
                
                4,062Total
      Current Assets
                
                
                268,617
                
                
                
                58,473PROPERTY
      AND EQUIPMENTOffice
      Equipment
                
                
                90,100
                
                
                
                88,299Furniture
      and Fixtures
                
                
                27,805
                
                
                
                27,805Software
                
                
                41,508
                
                
                
                36,634Leased
      Equipment
                
                
                231,796
                
                
                
                226,496Leasehold
      Improvements
                
                
                36,964
                
                
                
                36,964Total
      Property and Equipment
                
                
                428,173
                
                
                
                416,198Less:
      Accumulated Depreciation
                
                
                220,009
                
                
                
                179,648Property
      and Equipment, Net
                
                
                208,164
                
                
                
                236,550OTHER
      ASSETSDeposits
                
                
                14,230
                
                
                
                14,230Total
      Assets
                
                $
                491,011
                
                
                $
                309,253
  3
  June
      30, 2010
                (Unaudited)
              
              
              December
      31,
                2009LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCURRENT
      LIABILITIESAccounts
      Payable
              
              $
              57,187
              
              
              $
              197,535Accrued
      Expenses
              
              
              129,104
              
              
              
              315,864Current
      Portion of Capital Lease Obligations
              
              
              76,210
              
              
              
              80,505Due
      to Related Parties
              
              
              -
              
              
              
              134,000Convertible
      Debt
              
              
              -
              
              
              
              50,000Deferred
      Revenue
              
              
              11,120
              
              
              
              14,659Total
      Current Liabilities
              
              
              273,621
              
              
              
              792,563LONG-TERM
      LIABILITIESCapital
      Lease Obligations, Net of Current Portion
              
              
              21,426
              
              
              
              50,037Total
      Liabilities
              
              
              295,047
              
              
              
              842,600STOCKHOLDERS'
      (DEFICIT) EQUITYPreferred
      Stock, $0.00001 par value; 100,000,000 shares authorized;
      no shares outstanding as of June 30, 2010  and December 31,
      2009Common
      Stock, $0.00001 par value; 100,000,000 shares authorized;
      14,678,508 and 12,865,353 sharesissued
      and outstanding, as of June 30, 2010 and December 31, 2009,
      respectively
              
              
              147
              
              
              
              129Additional
      Paid-In Capital
              
              
              5,894,116
              
              
              
              4,213,359Accumulated
      Deficit
              
              
              (5,698,299
              )
              
              
              (4,746,835
              )Total
      Stockholders' (Deficit) Equity
              
              
              195,964
              
              
              
              (533,347
              )Total
      Liabilities and Stockholders' (Deficit) Equity
              
              $
              491,011
              
              
              $
              309,253




See
accompanying Notes to Condensed Consolidated Financial Statements.
  4


IVEDA
CORPORATION
 (A
NEVADA CORPORATION)
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009





3
      MonthsEndingJune 30, 2010(unaudited)
            
            
            3
      MonthsEndingJune 30, 2009(unaudited)
            
            
            6
      MonthsEndingJune 30, 2010(unaudited)
            
            
            6
      MonthsEndingJune 30, 2009(unaudited)REVENUE
            
            $
            193,501
            
            
            $
            108,424
            
            
            $
            306,183
            
            
            $
            332,249COST
      OF REVENUE
            
            
            122,583
            
            
            
            97,757
            
            
            
            221,608
            
            
            
            262,990GROSS
      PROFIT
            
            
            70,918
            
            
            
            10,667
            
            
            
            84,575
            
            
            
            69,259OPERATING
      EXPENSES
            
            
            480,090
            
            
            
            355,795
            
            
            
            1,025,427
            
            
            
            924,761LOSS
      FROM OPERATIONS
            
            
            (409,172
            )
            
            
            (345,128
            )
            
            
            (940,852
            )
            
            
            (855,502
            )OTHER
      INCOME (EXPENSE)Interest
      Income
            
            
            277
            
            
            
            -
            
            
            
            631
            
            
            
            1,184Interest
      Expense
            
            
            (4,654
            )
            
            
            (7,010
            )
            
            
            (11,243
            )
            
            
            (14,941
            )Total
      Other Income (Expense)
            
            
            (4,377
            )
            
            
            (7,010
            )
            
            
            (10,612
            )
            
            
            (13,757
            )LOSS
      BEFORE INCOME TAXES
            
            
            (413,549
            )
            
            
            (352,138
            )
            
            
            (951,464
            )
            
            
            (869,259
            )BENEFIT
      FOR INCOME TAXES
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -NET
      LOSS
            
            $
            (413,549
            )
            
            $
            (352,138
            )
            
            $
            (951,464
            )
            
            $
            (869,259
            )BASIC
      AND DILUTED LOSS PER SHARE
            
            $
            (0.03
            )
            
            $
            (0.03
            )
            
            $
            (0.07
            )
            
            $
            (0.07
            )




See
accompanying Notes to Condensed Consolidated Financial Statements.
 5
  IVEDA
CORPORATION
 (A
NEVADA CORPORATION)
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009





6
      months ending
              June
      30, 2010
              (Unaudited)
            
            
            6
      months ending
              June
      30, 2009
              (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Loss
            
            $
            (951,464
            )
            
            $
            (869,259
            )Adjustments
      to Reconcile Net Loss to Net CashUsed
      by Operating ActivitiesDepreciation
            
            
            40,361
            
            
            
            39,286Stock
      Compensation
            
            
            94,700
            
            
            
            20,000(Increase)
      Decrease in Operating Assets:Accounts
      Receivable
            
            
            (45,438
            )
            
            
            (17,899
            )Prepaid
      Expense
            
            
            (669
            )
            
            
            3,702Inventory
            
            
            -
            
            
            
            4,366Accounts
      Payable
            
            
            (140,348
            )
            
            
            107,099Accrued
      Expenses
            
            
            (186,760
            )
            
            
            54,244Deferred
      Revenue
            
            
            (3,539
            )
            
            
            (21,964
            )Net
      cash used in operating activities
            
            
            (1,193,157
            )
            
            
            (680,425
            )CASH
      FLOWS FROM INVESTING ACTIVITIESEscrow
      Deposit Reduction
            
            
            -
            
            
            
            40,000Purchase
      of Property and Equipment
            
            
            (6,675
            )
            
            
            (9,558
            )Net
      cash provided by (used in) investing activities
            
            
            (6,675
            )
            
            
            30,442CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from (Payments to) Related Parties
            
            
            (134,000
            )
            
            
            152,000Payments
      on Capital Lease Obligations
            
            
            (38,206
            )
            
            
            (29,466
            )Common
      Stock Issued, net of Cost of Capital
            
            
            1,536,075
            
            
            
            194,000Net
      cash provided by financing activities
            
            
            1,363,869
            
            
            
            316,534NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            164,037
            
            
            
            (333,449
            )Cash
      and Cash Equivalents - Beginning of Period
            
            
            17,672
            
            
            
            335,189CASH
      AND CASH EQUIVALENTS - END OF PERIOD
            
            $
            181,709
            
            
            $
            1,740SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONTaxes
      Paid
            
            $
            -
            
            
            $
            -Debt
      Converted to Stock
            
            $
            50,000
            
            
            $
            -Common
      Stock Subscription Receivable
            
            $
            -
            
            
            $
            45,000Interest
      Paid
            
            $
            11,243
            
            
            $
            14,941Property
      and Equipment Purchased via Capital Lease
            
            $
            5,300
            
            
            $
            13,036




See
accompanying Notes to Condensed Consolidated Financial Statements.
  6
 IVEDA
CORPORATION
 (A
NEVADA CORPORATION)
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
  NOTE
1SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 BASIS
OF PRESENTATION
 
 These statements should be read in conjunction with
our consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended December 31, 2009. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) have been condensed or omitted.  The operating
results and cash flows for the six-month period ended June 30, 2010, are not
necessarily indicative of the results that will be achieved for the full fiscal
year ending December 31, 2010 or for future periods.
 
 The accompanying condensed consolidated financial
statements have been prepared without audit and reflect all adjustments,
consisting of normal recurring adjustments, which are, in the opinion of
management, necessary for a fair statement of financial position and the results
of operations for the interim periods. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue, and expenses. Estimates are used for, but not
limited to, the accounting for the allowance for doubtful accounts, impairment
costs, depreciation and amortization, sales returns and discounts, warranty
costs, uncertain tax positions and the recoverability of deferred tax assets,
stock compensation, contingencies and the fair value of assets and liabilities
disclosed. Actual results and outcomes may differ from management's estimates
and assumptions. The statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("GAAP") and
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or omitted
pursuant to such SEC rules and regulations.
  The
balance sheet at December 31, 2009 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
  Going
Concern
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of assets
and the liquidation of liabilities in the normal course of business. The Company
generated accumulated losses of $4,746,835 through December 31, 2009 and has a
working capital deficit of approximately $734,000. As a result, a risk exists
about our ability to continue as a going concern.  The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classification of
liabilities that might result from this uncertainty.
  7
  A
multi-step plan was adopted by management to enable the company to continue to
operate and begin to report operating profits. The highlights of that plan
are:
 
 ·
                      The
      Company closed a private placement of its stock in July 2010 and raised a
      total of $700,000.
 ·
                      Establish
      distributor networks with existing companies to create a reseller network
      to increase the scope of the Company’s marketing activities with low cost
      to the Company.
 ·
                      Launch
      public relations and marketing
campaigns.
 ·
                      The
      Company may evaluate and consider merger and/or acquisition
      activities.
 ·
                      The
      Company employed a full-time CFO in July
2010.
 
 Principles of
Consolidation
  The
consolidated financial statements include the financial statements of the
Company and its wholly-owned subsidiary.  All significant
inter-company balances and transactions have been eliminated in
consolidation.
 
 Concentrations
  Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist principally of cash and cash equivalents and trade accounts
receivable.
 
 Substantially
all cash is deposited in one financial institution. At times, amounts on deposit may
be in excess of the FDIC insurance limit.
 
 Accounts
receivable are unsecured and the Company is at risk to the extent such amount
becomes uncollectible. The Company performs periodic credit evaluations of its
customers’ financial condition and generally does not require collateral.
Revenue from three  customers represented approximately 64% (41%, 12%,
and 11%) of total revenues for the period ended June 30, 2010 and approximately
66% of total accounts receivable at June 30, 2010. No other customers
represented greater than 10% of total revenues in the six months ended June 30,
2010.
 
 Fair Value of Financial
Instruments
  Fair value estimates discussed herein are based upon
certain market assumptions and pertinent information available to management as
of December 31, 2009.  The respective carrying value of certain
on-balance-sheet financial instruments, approximate their fair values. These
financial instruments include cash, accounts receivable, accounts payable,
accrued expenses, convertible notes and amounts due to related parties. Fair
values were assumed to approximate carrying values for these financial
instruments because they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on
demand.
 
 Reclassification
  Certain
amounts in 2009 have been reclassified to conform to the 2010
presentation.
  NOTE
2CONVERTIBLE
DEBT
  The
Company issued $50,000 of unsecured convertible debt in December 2009 that
matured February 28, 2010 bearing an annual interest rate of 8%. The note and
accrued interest were converted into 67,155 shares of Company common stock
(“Common Stock”)in January 2010.
  8
  NOTE
3        EQUITY
 
 Preferred
Stock
  The
Company has 100,000,000 shares of $0.00001 par value preferred stock authorized
to issue. No shares have been issued and the rights and privileges of this class
of stock have not been defined.
 
 Common
Stock
 
 During
the six month period ended June 30, 2010 the Company issued 1,813,155 shares of
Common Stock. 1,695,000 shares were related to the private placement memorandum,
67,155 shares were from convertible debentures, 50,000 shares were from the
exercise of warrants issued during the period and 1,000 shares were from the
exercise of employee stock options.
  During
the six month period ended June 30, 2010 the Company issued and had outstanding
additional warrants to purchase 250,000 shares of Common Stock at $1.00 and
172,500 shares of Common Stock at $1.10.  These warrants were issued
as a cost of capital.
  NOTE
4STOCK OPTION
PLAN
  The
Company has also granted non-qualified stock options to employees and
contractors. All non-qualified options are generally issued with an exercise
price that may be less than 100 percent of the fair value of the Common Stock on
the date of the grant as determined by the Company's Board of Directors. Options
may be exercised up to ten years following the date of the grant, with vesting
schedules determined by the Company upon grant. Vesting periods range from 100%
fully vested upon grant to a range of four to five years.  Vested
options may be exercised up to three months following date of termination of the
relationship. The fair values of options are determined using the Black-Scholes
option-pricing model. The estimated fair value of options is recognized as
expense on the straight-line basis over the options’ vesting
periods.
  Stock
option transactions during six months ended June 30, 2010 were as
follows:
  Six
      months ended
                        June
      30, 2010Shares
                      
                      
                      Weighted
      -AverageExercisePriceOutstanding
      at Beginning of Year
                      
                      
                      1,182,729
                      
                      
                      $
                      0.37Granted
                      
                      
                      256,500
                      
                      
                      
                      1.30Exercised
                      
                      
                      (1,000
                      )
                      
                      
                      -Forfeited
      or Canceled
                      
                      
                      (3,000
                      )
                      
                      
                      0.85Outstanding
      at End of Period
                      
                      
                      1,435,229
                      
                      
                      
                      0.53Options
      Exercisable at Period-End
                      
                      
                      1,308,874
                      
                      
                      
                      0.46Weighted-Average
      Fair Value ofOptions Granted During
      the Period
                      
                      $
                      1.30
  9
  Information
with respect to stock options outstanding and exercisable at June 30,
2010 is as follows:
 
 Options
      Outstanding
                        
                        
                        Options
      ExercisableRange
      of
                          Exercise
      Prices
                        
                        
                        Number
      Outstanding at June 30, 2010
                        
                        Weighted
      - Average
                          Remaining
                          Contractual
      Life
                        
                        Weighted
      - Average Exercise Price
                        
                        
                        Number
      Exercisable At June 30, 2010
                        
                        
                        Weighted
      - Average Exercise Price$
                        0.10
      - $1.30
                        
                        
                        
                        1,435,229
                        
                        8
      Years
                        
                        $
                        0.53
                        
                        
                        
                        1,308,874
                        
                        
                        $
                        0.46
  The
fair value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for options granted.
  2010Expected
      Life
                      
                      5
      yrDividend
      Yield
                      
                      
                      0
                      %Expected
      Volatility
                      
                      
                      47.3
                      %Risk-Free
      Interest Rate
                      
                      
                      2.67
                      %
 
 Expected
volatility was estimated by using the average volatility of three public
companies offering services similar to the Company. The risk-free rate for
periods within the contractual life of the option is based on the U.S. Treasury
yield curve in effect at the grant date. The expected life of options is based
on the average of three public companies offering services similar to the
Company.
  NOTE
5RELATED PARTY
TRANSACTIONS
  In
2009, the Company borrowed $134,000 from certain shareholders for use in
operations.  The balance at December 31, 2009 was
$134,000.  The advances bore no interest and were repaid in January
2010.
  The
Company has provided surveillance services since 2005 to entities owned by Ross
Farnsworth, either through a family partnership or through his majority-owned
LLC, and subsequently Ross Farnsworth became a shareholder of the Company in
2006.  Mr. Farnsworth’s holdings are less than 5% of the Company, but the
revenue for the period ending June 30, 2010 was $33,621 and no trade
accounts receivable balance at June 30, 2010.
 
 NOTE
6EARNINGS (LOSS)
PER SHARE
  The
following table provides a reconciliation of the numerators and denominators
reflected in the basic and diluted earnings per share computations, as required
by SFAS No. 128, “Earnings Per Share“(“EPS”).
  Basic
EPS is computed by dividing reported earnings available to stockholders by the
weighted average shares outstanding.  The Company had net losses for
the three months and six months ended June 30, 2010 and 2009 and the effect of
including dilutive securities in the earnings per common share would have been
anti-dilutive.  Accordingly, all options to purchase common shares
were excluded from the calculation of diluted earnings per share for the three
months and six months ended June 30, 2010 and 2009.
 
 Basic
      EPS
                      
                      3
      MonthsEndingJune 30, 2010
                      
                      
                      3
      MonthsEndingJune 30, 2009
                      
                      
                      6
      MonthsEndingJune 30, 2010
                      
                      
                      6
      MonthsEndingJune 30, 2009Net
      Loss
                      
                      $
                      (413,549
                      )
                      
                      $
                      (352,138
                      )
                      
                      $
                      (951,464
                      )
                      
                      $
                      (869,259
                      )Weighted
      Average Shares
                      
                      
                      14,678,508
                      
                      
                      
                      12,254,908
                      
                      
                      
                      14,079,921
                      
                      
                      
                      12,186,416Basic
      and Diluted Loss Per Share
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.03
                      )
                      
                      $
                      (0.07
                      )
                      
                      $
                      (0.07
                      )
  NOTE
7SUBSEQUENT
EVENTS
   In
July 2010, the Company issued 700,000 shares of Common Stock under a private
placement memorandum at $1.00 per share to an existing shareholder.
  In
July 2010, the Company paid the last installment payment of $50,000 to Mr. Quinn
and Mr Liggins, the majority shareholders of Charmed Homes, for the purchase of
2.5 million shares of Common Stock as part of the reverse merger consummated on
October 15, 2009. The payment marked the cancellation of 2.5 million shares from
the Company’s total shares outstanding.
  10




ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.




The
following discussion should be read in conjunction with Iveda Corporation's
unaudited financial statements and associated notes appearing elsewhere in this
Form 10-Q.




Caution
Regarding Forward-Looking Information




This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). Forward-looking statements include all statements other than
those that expressly connote an assertion of historical fact. Among others, this
report includes forward-looking statements that describe our plans and
intentions regarding future courses of action and the possible outcomes of those
intentions, and that set forth our expectations regarding our prospective
financial condition, results of operations, and cash flows. Forward-looking
statements can sometimes be identified by the use of forward-looking
terminology, such as “may,” “will,” “should,” “expect,” “anticipate,”
“estimate,” “continue,” “plans” and “intends.”




Although
we believe that the expectations reflected in such forward-looking statements
are reasonable, such forward-looking statements are subject to risks and
uncertainties that could cause us to deviate from our current plans, and could
cause our actual results to differ materially from those indicated by the
forward-looking statements. Some of the known factors that could cause us to
deviate from current plans or could cause our results to fall short of
expectations include: our ability to maintain positive relationships with key
customers; the concentration of our sales revenues among a limited number of
large customers; our limited available capital; and the status of our
relationships with our employees. These risks and uncertainties are beyond our
control and, in many cases, we cannot predict the risks and uncertainties that
could cause our actual results to differ materially from those indicated by the
forward-looking statements. Some of the factors that may cause our actual
results in future periods to differ materially from those currently expected or
desired because of a number of risks and uncertainties include, but are not
limited to, those risks discussed in the section entitled “Risk Factors” in our
annual report on Form 10-K for the fiscal year ended December 31,
2009.




The
forward-looking statements are made as of the date hereof, and, except as
otherwise required by law, we cannot undertake to update or revise these
statements.




Critical
Accounting Policies and Estimates




Management’s
Discussion and Analysis of Financial Conditions and Results of Operations is
based upon our financial statements, which have been prepared in accordance with
GAAP. The preparation of these financial statements requires the Company’s
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. A description of our critical accounting policies and
related judgments and estimates that affect the preparation of our financial
statements is set forth in Item 7, “Management’s Discussion and Analysis of
Financial Conditions and Results of Operations,” of our Annual Report on Form
10-K for the year ended December 31, 2009. Such policies are
unchanged.




11




Overview




IntelaSight,
Inc. dba Iveda Solutions (“Iveda Solutions”) began operations January 24,
2005, and became the wholly-owned operating subsidiary of Iveda Corporation, a
Nevada corporation, on October 15, 2009, through a merger. All operations
are conducted through Iveda Solutions.




The
Company installs video surveillance equipment, primarily for security purposes,
and provides video hosting, archiving and real-time remote surveillance services
with a proprietary reporting system DSRTM (Daily Surveillance Report) to a
variety of businesses and organizations. By consolidating computer power into a
single location at the server level, Iveda Solutions creates efficiencies due to
economies of scale leveraging cloud computing, which offers more features and
flexibilitycompared totraditional box
systems.The
Company has a SAFETY Act Designation by the Department of Homeland Security as
an anti-terrorism technology provider. The Company’s principal sources of
revenue are derived from our real-time surveillance and equipment sales and
installation.




The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. Since our inception, we have accumulated net
losses in the amount of approximately $5.7 million. As of June 30, 2010, we had
shareholder equity of approximately $196,000, which significantly limits our
ability to absorb continuing operating losses in the future. As a result, a risk
exists about our ability to continue as a going concern.




Results
of Operations




Revenue.We recorded revenue of $193,501 for the three months ended June 30, 2010,
compared to $108,424 for the three months ended June 30, 2009, an increase of
$85,077 or 78%. In the second fiscal quarter of 2010, our recurring service
revenue was $110,147 or 57% of revenue and our equipment sales and installation
revenue was $83,353 or 43% of revenue, compared to recurring service revenue of
$89,161 or 82% of revenue, and equipment sales and installation revenue of
$19,418 or 18% of revenue for the same period in 2009. The increase in revenue
was due to an increase in equipment sales in the second fiscal quarter of 2010
compared to the second fiscal quarter of 2009.




We
recorded revenue of $306,183 for the six months ended June 30, 2010, compared to
$332,249 for the six months ended June 30, 2009, a decrease of $26,066 or 8%. In
the first six months of 2010, our recurring service revenue was $210,592 or 69%
of revenue and our equipment sales and installation revenue was $95,592 or 31%
of revenue, compared to recurring service revenue of $181,430 or 55% of revenue,
and equipment sales and installation revenue of $151,558 or 46% of revenue for
the same fiscal period in 2009. The decrease in revenue was due to fewer
equipment sales in the first six months of 2010 compared to the first six months
of 2009. Revenue for the six months ended June 30, 2009, was higher than that
for the six months ended June 30, 2010, because of a significant installation
project that was started in 2008 and was completed in the first quarter of 2009,
in addition to a large equipment sale to a single customer.




Cost of
Revenue.Total cost of revenue
was $122,583 (63% of revenues; gross margin of 37%) for the three months ended
June 30, 2010, compared to $97,757 (90% of revenues; gross margin of 10%) for
the three months ended June 30, 2009, an increase of $24,826 or 25%. The
increase in gross margin for the second fiscal quarter of 2010 to 37% from 10%
in the second fiscal quarter of 2009 was primarily due to the increase in sales
of equipment with higher gross margin. In addition, the increase of service
revenue resulted in better utilization of our infrastructure fixed
costs.




12




Total
cost of revenue was $221,608 (73% of revenues; gross margin of 27%) for the six
months ended June 30, 2010, compared to $262,990 (79% of revenues; gross margin
of 21%) for the six months ended June 30, 2009, a decrease of $41,382 or 16%.
The increase in gross margin to for the six months ended June 30, 2010, to 27%
from 21% for the six months ended June 30, 2009, was primarily due to the
increase in sales of equipment with higher gross margin in the second fiscal
quarter of 2010. In addition, the increase of service revenue resulted in better
utilization of our infrastructure fixed costs.




Operating
Expenses.Operating expenses were
$480,090 for the three months ended June 30, 2010, compared to $355,795 for the
three months ended June 30, 2009, an increase of $124,295 or 35%. The increase
in operating expenses was primarily related to increased marketing, travel, and
personnel costs.




Operating
expenses were $1,025,427 for the six months ended June 30, 2010, compared to
$924,761 for the six months ended June 30, 2009, an increase of $100,666 or 11%.
The increase in operating expenses was primarily related to increased marketing,
travel, and personnel costs.




Loss from
Operations.As a result of the
increases in revenues and related gross profit, but a greater increase in
operating expenses, the loss from operations increased to $409,172 for the three
months ended June 30, 2010, compared to $345,128 for the three months ended June
30, 2009, an increase in loss of $64,044 or 19%.




As a
result of the overall decreases in revenues and increased operating expenses,
loss from operations increased to $940,852 for the six months ended June 30,
2010, compared to $855,502 for the six months ended June 30, 2009, an increase
in loss of $85,350 or 10%.




Other
Expense-Net.Other expense-net was
$4,377 for the three months ended June 30, 2010, compared to $7,010 for the
three months ended June 30, 2009, a decrease of $2,633 or 38%.




Other
expense-net was $10,612 for the six months ended June 30, 2010, compared to
$13,757 for the six months ended June 30, 2009, an increase of $3,145 or
23%.




Net
Loss.The
increase of $61,411 or 17% in the net loss to $413,549 for the three months
ended June 30, 2010, from $352,138 for the three months ended June 30, 2009, was
primarily a net effect of a $60,000 gross profit increase related to equipment
sales and an increase in operating expenses of $124,000.




The
increase of $82,205 or 9% in the net loss to $951,464 for the six months ended
June 30, 2010, from $869,259 for the six months ended June 30, 2009, was
primarily a net effect of a $15,000 gross profit increase and an increase in
operating expenses of $101,000.




Liquidity
and Capital Resources




We had
cash and cash equivalents of $181,709 on June 30, 2010. The improvement in cash
on hand from $17,672 as of December 31, 2009, resulted from cash raised through
stock sales made during January 2010.




Net cash
used in operating activities during the six months ended June 30, 2010, and for
the six months ended June 30, 2009, was $1,193,157 and $680,425, respectively.
Cash used in operating activities for those periods consisted primarily of the
net loss from operations.




13




Net cash
used by investing activities for the six months ended June 30, 2010, and the six
months ended June 30, 2009, was $6,675 and $9,558, respectively, for the
purchase of property and equipment. There was $40,000 of net cash provided by
investing activities for the six months ended June 30, 2009, related to an
escrow deposit reduction.




Net cash
provided by financing activities for the three months ended June 30, 2010, was
$1,363,869, primarily from the sale of common stock. Net cash provided by
financing activities for the six months ended June 30, 2009, was $316,534,
primarily from sale of Common Stock and proceeds from the issuance of
convertible notes.




At
December 31, 2009, we had approximately $4.4 million in net operating loss
carryforwards available for federal and state income tax purposes. We did not
recognize any benefit from these operating loss carryforwards for the year ended
2009 or through the second fiscal quarter of 2010. Our operating loss
carryforwards expire starting in 2010 and continuing through 2026.




We have
experienced significant operating losses since our inception. We entered into a
new lease agreement in 2008 and increased our occupancy costs as we increased
our lease commitment from 1,411 square feet to 3,667 square feet. Our capital
expenditures and working capital requirements could increase depending on our
operating results and other adjustments to our operating plan as may be needed
to respond to competition or unexpected events.




We
believe that our cash on hand at June 30, 2010 and an additional $700,000 of
funding by the way of Common Stock sales in July 2010 are sufficient to meet our
anticipated cash needs for working capital and capital expenditures for the
short term. We
continually evaluate our working capital needs and we are seeking to obtain
additional working capital through debt and equity offerings. There can be no
assurance that additional funds will be available on acceptable terms. In the
event that additional funds are not available on acceptable terms, we could be
required to reduce the scope of or cease operations.




The
economic events in 2009 resulting in a downturn of spending and the credit
shortage severely curtailed our ability to obtain debt financing in 2009 and we
focused almost exclusively on raising additional capital. Therefore, we were
unable to fund our sales and marketing plans, which did not allow us to focus on
sales during the latter half of 2009 and this lack of focus impacted our sales
pipeline in the first quarter of 2010. Not only was our management focused on
raising capital but we also focused on consummating our merger in October 2009,
and reducing costs to sustain our operations. It was not until toward the end of
January 2010 that we raised $1.5 million in equity. In early February we hired
new sales and marketing staff and started planning for launching a marketing
campaign to increase our sales. These activities did not increase our revenues
for the first quarter and the full launch of our sales and marketing campaign
was not completed until April 2010. Since then, our sales team has received
positive feedback and leads for potential new customers and resellers. By end of
June 2010, our recurring service revenue increased by approximately 31%, which
we expect to carry over in succeeding months. Our year-to-date revenue is
starting to make up for the big revenue shortfall in the first quarter of this
year.




Our
management is cautiously optimistic regarding future financial performance
because we began experiencing a shorter sales cycle in April of 2010. We believe
that our marketing that focuses on the Company as a service company versus an
equipment company has started to resonate among our potential customers.
Management believes that this is an attractive value proposition that provides
companies with the ability to secure their properties without large capital
expenditures. The Company offers an inexpensive, but effective, alternative to
security guards, with our real-time video surveillance service using existing
camera systems. Even if the customer has to purchase cameras to enable the
Company’s service, we are still able to provide up to an estimated 50% savings
compared to traditional security guard services.




14




We also
continue to establish distributor networks with existing companies to create a
reseller network to increase the scope of the Company’s marketing activities at
a relatively low cost to the Company, by utilizing resellers’ sales and
marketing resources and leveraging their customer bases. If we are not able to
quickly increase our sales then we will need to raise additional capital during
the year and may be required to reduce labor expenses to maintain our existing
operations.




Three
customers each represented greater than 10% of total revenue for the three
months ended June 30, 2010. These customers were: Insurance Auto Auctions (41%
of total revenue), Glendale California Police Department (12% of total revenue),
and Farnsworth (11% of total revenue).  Insurance Auto Auctions and
Farnsworth have been customers since 2005 and are no longer under long-term
service contracts. As a result, Insurance Auto Auctions and Farnsworth could
terminate their service with the Company without penalty.  No other
customers represented greater than 10% of total revenues in the six months ended
June 30, 2010.




Substantially
all cash is deposited in one financial institution. At times, amounts on deposit
may be in excess of the FDIC insurance limit.




ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.




As a
smaller reporting company, the Company is not required to provide Part I, Item 3
disclosure in this Quarterly Report.




ITEM
      4.
            CONTROLS
      AND PROCEDURES.




Evaluation
of Disclosure Controls and Procedures




Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the design and operation of our disclosure controls and
procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Exchange Act as of June 30, 2010. Based on that
evaluation, our principal executive officer and our principal financial officer
concluded that the design and operation of our disclosure controls and
procedures were effective in ensuring that information required to be disclosed
in our Exchange Act reports is (1) recorded, processed, summarized and reported
in a timely manner, and (2) accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required
disclosure.




Changes
in Internal Control over Financial Reporting




There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.




The
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. However, management believes that our
system of disclosure controls and procedures is designed to provide a reasonable
level of assurance that the objectives of the system will be met.




15




PART
II. OTHER INFORMATION




ITEM
      1.
            LEGAL
      PROCEEDINGS.




None.




ITEM
      1A.
            RISK
      FACTORS.




Risk
Factors Involving Our Business




Our financial statements contain a
going concern notation.




Our
financial statements included with this report were prepared on a “going concern
basis” and the footnotes contain a “going concern qualification” (see note 1 to
the financial statements included with this report). Our financial statements
assume we will continue as a going concern, but to be able to do so we will need
to raise additional capital to fund our operations until positive operating cash
flow is achieved.




A significant portion of our
revenues are derived from a limited number of customers, and results of
operations could be adversely affected and shareholder value harmed if we lose
any of these customers.




A
significant portion of our revenues historically have been derived from a
limited number of customers. Further, some of these customers have been subject
to significant financial stress and uncertainty due to the current and recent
state of the global and applicable local economies. Were any of these customers
to place their business with one or more of our competitors, we may face a
material adverse impact upon our revenues, net income, cash flows and financial
condition.




We
have a history of losses, which are likely to continue.




We
incurred net losses of $413,549for the three months
ended June 30, 2010,and$1,778,015for the year ended
December 31, 2009. We will continue to incur substantial losses and do not
expect to obtain profitability in the near future.




We are an emerging growth
company.




Iveda
Solutions began operations in 2005. While we have monthly revenues, there is
limited historical, operating or financial information about us to evaluate our
performance. As of July 31, 2010, we had approximately $641,000 cash on hand. At
our current estimated net cash outflow of $116,000 per month, we have sufficient
capital to continue our operations for approximately six months assuming costs
do not significantly increase and we do not expand our operations. However, we
intend to continue to seek to raise capital predominantly to expand our sales
and marketing capabilities and hire additional employees to meet the demand for
our services. If we do not raise sufficient capital, of which there can be no
assurance, it will have a significant impact on our ability to expand
operations. There can be no assurance that we can be operated profitably or, if
profitability is achieved, that it can be sustained.




Our ability to grow is dependent
upon the success of our current and future operations and our ability to obtain
additional financing.




We need
additional funding to implement our growth plan. We currently have and will
continue to have significant capital requirements to fund our growth. We
anticipate, based on our currently proposed intentions and assumptions relating
to our operations, that substantial additional capital will be needed to satisfy
our cash requirements to implement our growth plan. We have no committed sources
of additional financing and our officers, directors and shareholders are not
required to provide any portion of our future financing requirements. We cannot
assure investors that additional financing will be available on commercially
reasonable terms, or at all. Any inability to obtain additional financing when
needed could require us to significantly curtail our growth plans and
operations.




16




If
additional funds are raised through the issuance of equity or convertible debt
securities, the percentage ownership of our existing shareholders will be
reduced, and these newly issued securities may have rights, preferences or
privileges senior to those of existing shareholders. We cannot assure investors
that additional financing will be available on terms favorable to us, or at
all.




Rapid growth may strain our
resources.




As we
continue the commercialization of our security and surveillance products and
services, we expect to experience significant and rapid growth in the scope and
complexity of our business, which may place a significant strain on our senior
management team and our financial and other resources. The proposed acceleration
will expose us to greater overhead, marketing and support costs and other risks
associated with growth and expansion. We will need to add staff to monitor
additional cameras, market our products and services, manage operations, handle
sales and marketing efforts and perform finance and accounting functions. We
will be required to hire a broad range of additional personnel in order to
successfully advance our operations. Our ability to manage our rapid growth
effectively will require us to continue to improve our operations, to improve
our financial and management information systems and to train, motivate and
manage our employees.




This
growth may place a strain on our management and operational resources. The
failure to develop and implement effective systems, or to hire and retain
sufficient personnel for the performance of all of the functions necessary to
effectively service and manage our business, or the failure to manage growth
effectively, could have a materially adverse effect on our business and
financial condition. In addition, difficulties in effectively managing the
budgeting, forecasting and other process control issues presented by such a
rapid expansion could harm our business, prospects, results of operations and
financial condition.




We depend on certain key
personnel.




Our
future success will be dependent on the efforts of key management personnel,
particularly David Ly, our President and CEO, Luz Berg, our COO and CMO, Steven
Wollach, our CFO, and Ray Palomaa, Iveda Solutions’ Director of Sales. The loss
of one or more of our key employees would have a material adverse effect on our
business, results of operations and financial condition. We also believe that
our future success will be largely dependent on our ability to attract and
retain highly qualified management, sales and marketing personnel. We cannot
assure investors that we will be able to attract and retain such personnel. Our
inability to retain such personnel or to train them rapidly enough to meet our
expanding needs could cause a decrease in the overall quality and efficiency of
our staff, which could have a material adverse effect on our business, results
of operations and financial condition.




Demand for our security and
surveillance products and services may be lower than we
anticipate.




We have
limited resources to undertake extensive marketing activities. We cannot predict
with certainty the potential consumer demand for our security and surveillance
products or services or the degree to which we will meet that demand. If demand
for our security and surveillance products and services does not develop to the
extent or as quickly as expected, we might not be able to generate revenue to
become profitable. Even if markets for our products and services develop, we
could achieve a smaller share of these markets than we currently anticipate.
Achieving market share will require substantial marketing efforts and
expenditure of significant funds to inform customers of the distinctive
characteristics and benefits of using our products and services. We cannot
assure investors that our marketing efforts will result in the attainment of
sufficient market share to become profitable.




17




Our focus on open source systems may
not result in increased revenue.




The
security and surveillance industry is characterized by rapid changes in
technology and customer demands. Management believes that there is a market
preference for open source systems (systems capable of integrating a wide range
of products and services through community and private based cooperation, such
as the Internet, Linux, and certain cameras used in our business). However, if
management is incorrect or should the market shift toward closed source,
proprietary systems (private, closed systems built to only support a specific
manufacturer or developer’s product or service, such as CCTV cameras), demand
for our services will likely decline.




Future loan agreements with lenders
may hinder our ability to operate the business by imposing restrictive loan
covenants.




We will
likely need to incur debt to implement our business plan, and have and plan to
continue to obtain lease financing for certain equipment acquisitions. Any debt
load necessary to implement our business plan could result in substantial debt
service requirements. These future debt load and service requirements could have
important consequences which could hinder our ability to operate, including our
ability to:




·
            Incur
      additional indebtedness;




·
            Make
      capital expenditures or enter into lease arrangements in excess of
      prescribed thresholds;




·
            Make
      distributions to shareholders, or redeem or repurchase our
      shares;




·
            Make
      certain types of investments;




·
            Create
      liens on our assets;




·
            Utilize
      the proceeds of asset sales; and




·
            Merge
      or consolidate or dispose of all, or substantially all, of our
      assets.




In the
event that we are unable to pay our debt service obligations, our creditors
could force us to (1) reduce or eliminate distributions to shareholders; or
(2) reduce or eliminate needed capital expenditures. It is possible that we
could be forced to sell assets, seek to obtain additional equity capital or
refinance or restructure all or a portion of our debt. In the event that we
would be unable to refinance our indebtedness or raise funds through asset
sales, sales of equity or otherwise, our ability to operate would be greatly
affected.




Risks Associated with the
Surveillance and Remote Security Industry




We depend on third-party
manufacturers and suppliers for the products we sell.




We have
relationships with a number of third-party manufacturers and suppliers. Risks
associated with our dependence upon third-party manufacturing and supply
relationships include: (i) reduced control over delivery schedules;
(ii) lack of control over quality assurance; (iii) poor manufacturing
yields and high costs; (iv) potential lack of adequate capacity during
periods of excess demand; and (v) potential misappropriation of our
intellectual property.




We do not
know if we will be able to maintain third-party manufacturing and supply
contracts on favorable terms, if at all, or that our current or future
third-party manufacturers and suppliers will meet our requirements for quality,
quantity or timeliness. Our success depends in part on whether our manufacturers
and suppliers are able to fill the orders we place with them in a timely manner.
If our manufacturers or suppliers fail to satisfactorily perform their
contractual obligations or fill purchase orders we place with them, or if such
manufacturers or suppliers were to increase their prices, we may be required to
pursue replacement manufacturer or supplier relationships. If we are unable to
find replacements on a timely basis, or at all, we may be forced to either
temporarily or permanently discontinue the sale of certain products and
associated services, which could expose us to legal liability, loss of
reputation and risk of loss or reduced profit. Our business, results of
operation and reputation would be adversely impacted if we are unable to provide
quality products to our customers in a timely manner.




18




We operate in a highly-competitive
industry and our failure to compete effectively may adversely affect our ability
to generate revenue.




Management
believes that there is, at this time, no direct competitor that offers a package
of services substantially similar to the package offered by us. Management is,
however, aware of similar products and services which compete indirectly with
our products and services. Some companies may also be developing similar
products and services, including companies that may have significantly greater
financial, technical and marketing resources, larger distribution networks, and
generate greater revenue and have greater name recognition than us. These
companies may develop security products and services that are superior to those
offered by us. Such competition may potentially affect our chances of achieving
profitability.




Some of
our current and future competitors may conduct more extensive promotional
activities and may offer lower prices to customers than we do, which could allow
them to gain greater market share or prevent us from increasing our market
share. In the future, we may need to decrease our prices if our competitors
lower their prices. Our competitors may be able to respond more quickly to new
or changing opportunities, technologies and customer requirements. Such
competition will potentially affect our chances of achieving
profitability.




Future legislation or governmental
regulations or policies could have a significant impact on our
operations.




While we
are presently subject only to licensing requirements related to our contracting
activities, for which we hold low voltage contractors’ licenses in California
and Arizona, the security and surveillance industry as a whole is subject to
regulation. As we continue operations, we may be subject to additional
regulation in the future. Future changes in laws or regulations could require us
to change the way we operate, which could increase costs or otherwise disrupt
operations. In addition, failure to comply with any applicable laws or
regulations could result in substantial fines or revocation of any required
operating permits and licenses. If laws and regulations change or we fail to
comply in the future, our financial condition, results of operations and cash
flows could be materially and adversely affected.




We
rely on technology that may become obsolete, which could require significant
capital expenditures.




Our
monitoring services depend upon the technology (hardware and software) of video
surveillance systems. In order to maintain our customer base that currently uses
video surveillance components that are or could become obsolete, we may be
required to upgrade or implement new technologies that could require significant
capital expenditures. While we utilize open source architecture, which we
believe allows our service to be flexible in adapting to emerging technologies,
in the future we may not be able to successfully implement new technologies or
adapt existing technologies to changing market demands. If we are unable to
adapt in response to changing technologies, market conditions or customer
requirements in a timely manner, such inability could adversely affect our
business.




19




Regulation of the telecommunications
industry and the Internet  may impact our
operations.




Aspects
of our operations may be, or become, subject to regulations governing the
Internet. There can be no assurance that government agencies will not
increasingly regulate Internet-related services. Increased regulation may slow
our growth, and legislation could be enacted that would prohibit certain forms
of telecommunication critical to our operations. Such regulation may also
negatively impact the cost of doing business and materially adversely affect our
business, financial condition and results of operations.




The failure of our systems could
result in a material adverse effect.




We
utilize a third-party, fourth-tier data center in Scottsdale, Arizona to
transmit data to our monitoring system. The occurrence of a natural disaster,
intentional or unintentional human error or actions, or other unanticipated
problem could cause interruptions in the services provided by us, and resulting
losses by our customers. We have experienced individual camera failures or
outages in the past, and will likely experience future individual camera
failures or outages that disrupt the monitoring of those cameras. Our revenue
depends in large part on maintaining the operability of our monitoring systems.
Accordingly, the performance, reliability and availability of our network,
servers for our corporate operations and infrastructure are critical to our
reputation and our ability to attract and retain customers. Any damage or
failure that causes interruptions in the service provided by us could have a
material adverse effect on our business, operating results and financial
condition.




We are
continually expanding and enhancing our technology and network infrastructure
and other technologies to accommodate substantial increases in the volume of
traffic on our network and the overall size of our customer base. We may be
unsuccessful in these efforts or we may be unable to project accurately the rate
or timing of these increases. Our failure, or our suppliers’ failure, to achieve
or maintain high data transmission capacity could significantly reduce consumer
demand for our services.




Our
computer hardware operations, data processing, storage and backup systems are
located in a single, third-party, fourth-tier data center in Scottsdale,
Arizona. If this location experienced a significant system failure or
interruption, our business would be harmed. Our systems can be vulnerable to
damage from fire, power loss, telecommunications failures, computer viruses,
physical and electronic break-ins and similar events. The property and business
interruption insurance we carry may not have coverage adequate to compensate us
fully for losses that may occur.




If our security measures are
breached and unauthorized access is obtained, existing and potential customers
might not perceive our services as being secure and might terminate or fail to
purchase our services.




Our
business involves the monitoring of cameras that may be recording sensitive
areas of our customers’ facilities, and as a result, we utilize various security
measures. No security measures are completely secure, however, and individuals
could, if successful, cause interruptions in our services. If we experience any
breaches of our network security or sabotage, we might be required to expend
significant capital and resources to protect against or alleviate these
problems. We may not be able to remedy any problems in a timely manner, or at
all. Because techniques used to obtain unauthorized access or to sabotage
systems change frequently and generally are not recognized until launched
against a target, we may be unable to anticipate these techniques or to
implement adequate preventative measures. If an actual or perceived breach of
our security occurs, the perception of the effectiveness of our security
measures and our reputation could be harmed and we could lose current and
potential customers.




20




We
could face liability for our failure to adequately monitor customer
locations.




The
nature of the services we provide potentially exposes us to greater risks of
liability for employee acts or omissions or system failures than may be inherent
in other businesses. In addition, judgments against us and the costs of such
litigation could have an adverse effect on us. The SAFETY Act designation
affords certain limitations on liability from third-party lawsuits as a result
of the failure of our technology and services. However, this designation does
not guarantee protection against all liabilities to which our products and
services may be subject, and this statute remains subject to the interpretation
of the courts. Accordingly we can offer no assurances that the protections
afforded by the SAFETY Act will eliminate or reduce our liability for employee
acts or omissions or system failures.




In
the event that adequate insurance is not available or our insurance is not
deemed to cover a claim, we could face liability.




We carry
insurance of various types, including general liability and professional
liability insurance, in amounts management considers adequate and customary for
the industry. Some of our insurance policies, and the laws of some states, may
limit or prohibit insurance coverage for punitive or certain other types of
damages, or liability arising from gross negligence. If we incur increased
losses related to employee acts or omissions, or system failure, or if we are
unable to obtain adequate insurance coverage at reasonable rates, or if we are
unable to receive reimbursements from insurance carriers, our financial
condition and results of operations could be materially and adversely
affected.




The timing of our revenues can vary
depending on how long customers take to evaluate our
services.




It is
difficult to forecast the timing of revenues in the security industry because
the development period for a customized system or solution may be lengthy,
larger customers may need a significant amount of time to evaluate products
before purchasing them and sales are dependent on budgetary and other
bureaucratic processes. The period between initial customer contact and a
purchase by a customer varies greatly depending on the customer, and
historically has ranged from days to weeks. During the evaluation period,
customers may defer or scale down proposed orders of products or systems for
various reasons, including: (i) changes in budgets and purchasing
priorities; (ii) a reduced need to upgrade existing systems;
(iii) deferrals in anticipation of enhancements or new products;
(iv) introduction of products by competitors; and (v) lower prices
offered by competitors.




We will rely on both our internal
sales force and resellers to distribute our security products and services to
customers.




We rely
on both our internal sales force and resellers to distribute our security
products and services to our customers. As of the date of this report, we have
four active resellers and three active independent agents, and anticipate adding
more as we implement our business plan. However, we plan to continue our
internal sales activity for the foreseeable future to market our products and
services until our resellers are completely trained and mobilized. We could be
adversely affected by any significant decline in the service provided by our
resellers as any customers dissatisfied with our resellers may cause damage to
our reputation.




Government contracts generally
contain rights and remedies which could reduce the value of such contracts, or
result in losses.




We
presently provide our products and services for certain state and local
government customers. Government contracts often contain provisions that give
the governmental entities that are party to those contracts certain rights and
remedies not typically found in private commercial contracts, including
provisions enabling the governmental entities to: (i) terminate or cancel
existing contracts for convenience; (ii) in the case of the U.S.
government, suspend the contracting company from doing business with a foreign
government or prevent the company from selling its products in certain
countries; (iii) audit and object to the company’s contract-related costs
and expenses, including allocated indirect costs; and (iv) change specific
terms and conditions in the company’s contracts, including changes that would
reduce the value of its contracts. In addition, many jurisdictions have laws and
regulations that deem government contracts in those jurisdictions to include
these types of provisions, even if the contract itself does not contain them. If
a governmental entity terminates a contract with us for convenience, we may not
be able to recover our incurred or committed costs, any settlement expenses or
profit on work completed prior to the termination. If a governmental entity
terminates a contract for default, we may not recover those amounts and, in
addition, we may be liable for any costs incurred by a government in procuring
undelivered items and services from another source. Further, an agency within a
government may share information regarding our termination with other government
agencies. As a result, our on-going or prospective relationships with such other
government agencies could be impaired.




21




There is a shortage of qualified
electricians, which may negatively impact our business, including our ability to
grow.




We
believe there is a shortage of qualified electricians in the United States. In
order to conduct our business, it is necessary for us or our resellers to employ
electricians and have those electricians qualified in the states where they do
business. Our ability to increase productivity and profitability may be limited
by our and our resellers’ ability to employ, train and retain skilled
electricians required to meet our customers’ needs. Accordingly there can be no
assurance, among other things, that:




·
            We
      or our resellers will be able to maintain the skilled labor force
      necessary to operate efficiently;




·
            We
      or our resellers’ labor expenses will not increase as a result of a
      shortage in the skilled labor supply;
and




·
            We
      or our resellers will be able to maintain the skilled labor force
      necessary to implement our planned
growth.




The estimates we use in placing bids
could be materially incorrect, resulting in possible losses.




We
currently generate, and expect to continue to generate, a significant portion of
our revenues for product sales and installation under fixed price contracts. Our
operating expenses, however, may vary significantly from the costs we originally
estimate. Variations from estimated contract costs along with other risks
inherent in performing fixed price contracts may result in actual revenue and
gross profits for a project differing from those we originally estimated and
could result in losses on projects. Depending upon the size of a particular
project, variations from estimated contract costs can have a significant impact
on our operating results.




Risks Related to Our Intellectual
Property




We depend on our intellectual
property.




Our
success and ability to compete depends in part on our proprietary database,
Cerebro, the security information and reporting web service developed and used
by us internally, and on the process by which we integrate existing third-party
products into a monitoring solution. The measures we take to protect our
technologies and other intellectual property rights, which presently are based
upon trade secrets, may not be adequate to prevent their unauthorized use. We
seek to protect our proprietary intellectual property in part by confidentiality
agreements with our employees, consultants and business partners. These
agreements afford only limited protection and may not provide us with adequate
remedies for any breach or prevent other persons or institutions from asserting
rights to intellectual property arising out of these relationships.




22




If we are
unable to protect our intellectual property, our competitors could use our
intellectual property to market products, services and technologies similar to
ours, which could reduce demand for our products, services and technologies. We
may be unable to prevent unauthorized parties from attempting to copy or
otherwise obtain and use our products or technology. Policing unauthorized use
of our technology is difficult, and we may not be able to prevent
misappropriation of our technology, particularly in foreign countries where the
laws may not protect our intellectual property as fully as those in the United
States. Others may circumvent the trade secrets, trademarks and copyrights that
we currently or in the future own. We do not have patent protection with respect
to our software or systems, although management is considering seeking such
protection. If any of our competitors copy or otherwise gain access to our
proprietary technology or develop similar technologies independently, we may not
be able to compete as effectively.




We could incur substantial costs
defending our intellectual property from infringement by
others.




Unauthorized
parties may attempt to copy aspects of our proprietary software product or to
obtain and use our other proprietary information. Litigation may be necessary to
enforce our intellectual property rights, to protect our trade secrets and to
determine the validity and scope of the proprietary rights of others. We may not
have the financial resources to prosecute any infringement claims that we may
have. Any litigation could result in substantial costs and diversion of
resources with no assurance of success.




We could incur substantial costs
defending against claims that our products infringe on the proprietary rights of
others.




The scope
of any intellectual property rights that we have is uncertain and may not be
sufficient to prevent infringement claims against us or claims that we have
violated the intellectual property rights of third parties. While we know of no
basis for any claims of this type, the existence of and ownership of
intellectual property can be difficult to verify and we have not made an
exhaustive search of all patent filings. Competitors may have filed applications
for or may have been issued patents and may obtain additional patents and
proprietary rights relating to products or processes that compete with or are
related to our products and services. The scope and viability of these patents,
the extent to which we may be required to obtain licenses under these patents or
under other proprietary rights and the cost and availability of licenses are
unknown, but these factors may limit our ability to market our products and
services. Third parties could claim infringement by us with respect to any
patents or other proprietary rights that they hold, and we cannot assure
investors that we would prevail in any such proceeding as the intellectual
property status of our current and future competitors’ products and services is
uncertain. Any infringement claim against us, whether meritorious or not, could
be time-consuming, result in costly litigation or arbitration and diversion of
technical and management personnel, or require us to develop non-infringing
technology or to enter into royalty or licensing agreements.




We might
not be successful in developing or otherwise acquiring rights to non-infringing
technologies. Royalty or licensing agreements, if required, may not be available
on terms acceptable to us, or at all, and could significantly harm our business
and operating results. A successful claim of infringement against us or our
failure or inability to license the infringed or similar technology could
require us to pay substantial damages and could harm our business because we
would not be able to continue operating our surveillance products without
incurring significant additional expense. In addition, to the extent we agree to
indemnify customers or other third parties against infringement of the
intellectual property rights of others, a claim of infringement could require us
to incur substantial time, effort and expense to indemnify these customers and
third parties and could disrupt or terminate their ability to use, market or
sell our products. Furthermore, our suppliers may not provide us with
indemnification in the event that their products are found to infringe upon the
intellectual property rights of any third parties, and if they do not, we would
be forced to bear any resulting expense.




23




Risk Factors Involved In Being a
Public Company




Our
shares are “penny stock.”




In
general, “penny stock” includes securities of companies which are not listed on
the principal stock exchanges and have a bid price in the market of less than
$5.00; and companies with net tangible assets of less than $2 million
($5 million if the issuer has been in continuous operation for less than
three years), or which has recorded revenues of less than $6 million in the
last three years. As “penny stock,” our stock therefore is subject to
Rule 15g-9, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with net worth in
excess of $1 million or annual incomes exceeding $200,000, or $300,000
together with their spouses, or individuals who are the officers or directors of
the issuer of the securities). For transactions covered by Rule 15g-9, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser’s written consent to the transaction prior to
sale. Consequently, this rule may adversely affect the ability of broker-dealers
to sell our stock, and therefore may adversely affect our stockholders’ ability
to sell the stock in the public market.




There is a limited market for our
common stock.




Only a
very limited trading market currently exists for our common stock. Volatility of
thinly traded stocks is typically higher than the volatility of more liquid
stocks with higher trading volumes. The market price of our common stock could
be subject to significant fluctuations as a result of the foregoing, as well as
variations in our operating results and the results and operations of our
competitors. Also as a result of there being a very limited trading market for
our common stock, any broker-dealer that makes a market in our stock or other
person that buys or sells our stock could have a significant influence over its
price at any given time. We cannot assure our shareholders that a market for our
stock will be sustained. There is no assurance that our shares will have any
greater liquidity than shares which do not trade on a public
market.




Our reporting obligations as a
public company are and will be costly.




Operating
a public company involves substantial costs to comply with reporting obligations
under federal securities laws. These reporting obligations will increase our
operating costs significantly from historical norms prior to becoming a public
company. We may not reach sufficient size to justify our public reporting
status. If we were forced to become a private company, then our shareholders may
lose their ability to sell their shares and there would be substantial costs
associated with becoming a private company.




ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.




None.




ITEM
      3.
            DEFAULT
      ON SENIOR SECURITIES.




None.




ITEM
      5.
            OTHER
      INFORMATION.




None.




24




ITEM
      6.
            EXHIBITS.




Exhibit
              Number
            
            Description31.1
            
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive
      Officer*31.2
            
            Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial
      Officer*32.1
            
            Certification
      of Chief Executive Officer Required by Rule 13a-14(b) or Rule 15d-14(b)
      and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
      1350*32.2
            
            Certification
      of Chief Financial Officer Required by Rule 13a-14(b) or Rule 15d-14(b)
      and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
      1350*





*
            Filed
      herewith.




25




SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




IVEDA
      CORPORATION(Registrant)Date:
      August 13, 2010
              BY:
              /s/
      David LyDavid
      LyPresident, Chief Executive
      Officer, and Chairman






Date:
      August 13, 2010
                
                /s/
      Steven G. WollachSteven
      G. WollachPrincipal
      Accounting Officer,
                  Chief
      Financial Officer, Treasurer


26