UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



AMENDMENT NO. 1 TO FORM 10-Q



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

For the quarterly period ended September
30, 2011



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 SOLUTIONS, INC.

(Exact name of registrant as specified in its
charter)



|Nevada                                           |  | 20-2222203         
|------------------------------------------------ |  | -------------------
|(State or other jurisdiction of incorporation or |  | (I.R.S. Employer   
|organization)                                    |  | Identification No.)
|                                                 |  |                    
|1201 South Alma School Road, Suite 4450, Mesa,   |  |                    
|Arizona                                          |  | 85210              
|(Address of principal executive offices)         |  | (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 x No  ̈



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 x    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  ̈Accelerated
filer  ̈Non-accelerated filer  ̈

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  ̈
No x



|Class                            |  | Outstanding as of September 30, 2011
|-------------------------------- |  | ------------------------------------
|Common stock, $0.00001 par value |  | 17,009,229                          











Explanatory Note



This Amendment No. 1 to
Form 10-Q for the quarter ended September 30, 2011 includes revised disclosure in Note 1 of Condensed Consolidated Financial Statements
and in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.











TABLE OF CONTENTS



|                               |                                                                                       | Page
|------------------------------ | ------------------------------------------------------------------------------------- | ----
|PART I - FINANCIAL INFORMATION
|ITEM 1.                        | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                           | 3   
|ITEM 2.                        | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 14  
|ITEM 3.                        | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            | 20  
|ITEM 4.                        | CONTROLS AND PROCEDURES                                                               | 21  
|PART II - OTHER INFORMATION   
|ITEM 1.                        | LEGAL PROCEEDINGS                                                                     | 21  
|ITEM 1A.                       | RISK FACTORS                                                                          | 22  
|ITEM 2.                        | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                           | 22  
|ITEM 3.                        | DEFAULTS UPON SENIOR SECURITIES                                                       | 22  
|ITEM 4.                        | [REMOVED AND RESERVED.]                                                               |     
|ITEM 5.                        | OTHER INFORMATION                                                                     | 22  
|ITEM 6.                        | EXHIBITS                                                                              | 23  
|SIGNATURES                     | 25                                                                                   











PART I – FINANCIAL INFORMATION



ITEM 1.       FINANCIAL STATEMENTS



IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2011 AND DECEMBER 31, 2010



|                                          |  | September 30,2011 (Unaudited) |           |   | December 31, 2010 |  
|----------------------------------------- |  | ----------------------------- | --------- | - | ----------------- | -
|ASSETS                                    |  |                               |           |   |                   |  
|                                          |  |                               |           |   |                   |  
|CURRENT ASSETS                            |  |                               |           |   |                   |  
|Cash and Cash Equivalents                 |  | $                             | 466,966   |   |                   | $
|Accounts Receivable, net                  |  |                               | 959,457   |   |                   |  
|Note Receivable                           |  |                               | 17,693    |   |                   |  
|Advances to Suppliers                     |  |                               | 16,420    |   |                   |  
|Deposits                                  |  |                               | 220,512   |   |                   |  
|Inventory                                 |  |                               | 143,037   |   |                   |  
|Prepaid Expenses and Other Current Assets |  |                               | 85,506    |   |                   |  
|Total Current Assets                      |  |                               | 1,909,591 |   |                   |  
|                                          |  |                               |           |   |                   |  
|PROPERTY AND EQUIPMENT                    |  |                               |           |   |                   |  
|Office Equipment                          |  |                               | 228,450   |   |                   |  
|Furniture and Fixtures                    |  |                               | 56,291    |   |                   |  
|Software                                  |  |                               | 42,544    |   |                   |  
|Leased Equipment                          |  |                               | 252,145   |   |                   |  
|Leasehold Improvements                    |  |                               | 36,964    |   |                   |  
|Total Property and Equipment              |  |                               | 616,394   |   |                   |  
|Less: Accumulated Depreciation            |  |                               | 308,140   |   |                   |  
|Property and Equipment, Net               |  |                               | 308,254   |   |                   |  
|                                          |  |                               |           |   |                   |  
|OTHER ASSETS                              |  |                               |           |   |                   |  
|Deposits                                  |  |                               | 9,015     |   |                   |  
|Restricted Cash                           |  |                               | 62,848    |   |                   |  
|Trademarks                                |  |                               | 200,000   |   |                   |  
|Other Intangible assets                   |  |                               | 130,000   |   |                   |  
|Less: Accumulated Amortization            |  |                               | (19,167   | ) |                   |  
|Goodwill                                  |  |                               | 1,796,710 |   |                   |  
|                                          |  |                               |           |   |                   |  
|Total Assets                              |  | $                             | 4,397,251 |   |                   | $



3







|                                                                                                                                                                                                                                          |  | September 30, 2011(Unaudited) |            |   | December 31, 2010 |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | - | ----------------- | -
|LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                      |  |                               |            |   |                   |  
|                                                                                                                                                                                                                                          |  |                               |            |   |                   |  
|CURRENT LIABILITIES                                                                                                                                                                                                                       |  |                               |            |   |                   |  
|Accounts Payable                                                                                                                                                                                                                          |  | $                             | 212,148    |   |                   | $
|Accrued Expenses                                                                                                                                                                                                                          |  |                               | 109,389    |   |                   |  
|Current Portion of Capital Lease Obligations                                                                                                                                                                                              |  |                               | 11,411     |   |                   |  
|Due to Related Parties, net of debt discount                                                                                                                                                                                              |  |                               | 28,091     |   |                   |  
|Bank Loans –Short Term                                                                                                                                                                                                                    |  |                               | 334,597    |   |                   |  
|Income Tax Payable                                                                                                                                                                                                                        |  |                               | 9,433      |   |                   |  
|Notes Payable,  net of debt discount                                                                                                                                                                                                      |  |                               | 91,107     |   |                   |  
|Deferred Tax Liability                                                                                                                                                                                                                    |  |                               | 47,475     |   |                   |  
|Deferred Revenue                                                                                                                                                                                                                          |  |                               | 87,128     |   |                   |  
|Total Current Liabilities                                                                                                                                                                                                                 |  |                               | 930,779    |   |                   |  
|                                                                                                                                                                                                                                          |  |                               |            |   |                   |  
|LONG-TERM LIABILITIES                                                                                                                                                                                                                     |  |                               |            |   |                   |  
|Capital Lease Obligations, Net of Current Portion                                                                                                                                                                                         |  |                               | 9,946      |   |                   |  
|Total Liabilities                                                                                                                                                                                                                         |  |                               | 940,725    |   |                   |  
|                                                                                                                                                                                                                                          |  |                               |            |   |                   |  
|STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                      |  |                               |            |   |                   |  
|Preferred Stock, $0.00001 par value; 100,000,000 shares authorized; no shares outstanding as of September  30, 2011 and December 31, 2010                                                                                                 |  |                               |            |   |                   |  
|Common Stock, $0.00001 par value; 100,000,000 shares authorized; 19,009,229 (includes 2,000,000 shares reserved for issuance) and 13,664,257 shares issued and outstanding, as of September  30, 2011 and December 31, 2010, respectively |  |                               | 190        |   |                   |  
|Additional Paid-In Capital                                                                                                                                                                                                                |  |                               | 12,492,433 |   |                   |  
|Accumulated Comprehensive Income (Loss)                                                                                                                                                                                                   |  |                               | (50,837    | ) |                   |  
|Accumulated Deficit                                                                                                                                                                                                                       |  |                               | (8,985,260 | ) |                   |  
|Total Stockholders’ Equity                                                                                                                                                                                                                |  |                               | 3,456,526  |   |                   |  
|                                                                                                                                                                                                                                          |  |                               |            |   |                   |  
|Total Liabilities and Stockholders’ Equity                                                                                                                                                                                                |  | $                             | 4,397,251  |   |                   | $





See accompanying Notes to Condensed Consolidated
Financial Statements



4







IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2011 AND 2010



|                                 |  | Three Months             |          |   | Three Months            |   |          | Nine Months             |  |   | Nine Months             |  
|-------------------------------- |  | ------------------------ | -------- | - | ----------------------- | - | -------- | ----------------------- |  | - | ----------------------- | -
|                                 |  | Ended  September 30,2011 |          |   | Ended September 30,2010 |   |          | Ended September 30,2011 |  |   | Ended September 30,2010 |  
|                                 |  | (unaudited)              |          |   | (unaudited)             |   |          | (unaudited)             |  |   | (unaudited)             |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|REVENUE                          |  | $                        | 588,339  |   |                         | $ | 182,416  |                         |  | $ | 1,447,410               |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|COST OF REVENUE                  |  |                          | 472,211  |   |                         |   | 115,817  |                         |  |   | 1,110,875               |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|GROSS PROFIT                     |  |                          | 116,128  |   |                         |   | 66,599   |                         |  |   | 336,535                 |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|OPERATING EXPENSES               |  |                          | 778,287  |   |                         |   | 604,597  |                         |  |   | 2,611,916               |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|LOSS FROM OPERATIONS             |  |                          | (662,159 | ) |                         |   | (537,998 | )                       |  |   | (2,275,381              | )
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|OTHER INCOME (EXPENSE)           |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|Miscellaneous Income (Expense)   |  |                          | 968      |   |                         |   | -        |                         |  |   | 1,615                   |  
|Interest Income                  |  |                          | 40       |   |                         |   | 302      |                         |  |   | 525                     |  
|Interest Expense                 |  |                          | (1,503   | ) |                         |   | (1,760   | )                       |  |   | (21,808                 | )
|Total Other Income (Expense)     |  |                          | (495     | ) |                         |   | (1,458   | )                       |  |   | (19,668                 | )
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|LOSS BEFORE INCOME TAXES         |  |                          | (662,654 | ) |                         |   | (539,456 | )                       |  |   | (2,295,049              | )
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|BENEFIT FOR INCOME TAXES         |  |                          | -        |   |                         |   | -        |                         |  |   | 4,887                   |  
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|NET LOSS                         |  | $                        | (662,654 | ) |                         | $ | (539,456 | )                       |  | $ | (2,290,162              | )
|                                 |  |                          |          |   |                         |   |          |                         |  |   |                         |  
|BASIC AND DILUTED LOSS PER SHARE |  | $                        | (0.04    | ) |                         | $ | (0.04    | )                       |  | $ | (0.15                   | )



See accompanying Notes to Condensed Consolidated
Financial Statements



5







IVEDA SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
AND 2010



|                                                    |  | Nine Months Ended  |            |   | Nine Months Ended  |  
|--------------------------------------------------- |  | ------------------ | ---------- | - | ------------------ | -
|                                                    |  | September 30, 2011 |            |   | September 30, 2010 |  
|                                                    |  | (Unaudited)        |            |   | (Unaudited)        |  
|                                                    |  |                    |            |   |                    |  
|CASH FLOWS FROM OPERATING ACTIVITIES                |  |                    |            |   |                    |  
|Net Loss                                            |  | $                  | (2,290,162 | ) |                    | $
|Adjustments to Reconcile Net Loss to Net Cash       |  |                    |            |   |                    |  
|Used by Operating Activities                        |  |                    |            |   |                    |  
|Depreciation and Amortization                       |  |                    | 96,631     |   |                    |  
|Stock Compensation                                  |  |                    | 704,005    |   |                    |  
|(Increase) Decrease in Operating Assets:            |  |                    |            |   |                    |  
|Accounts Receivable                                 |  |                    | (55,858    | ) |                    |  
|Notes Receivable                                    |  |                    | (5,342     | ) |                    |  
|Prepaid Expense                                     |  |                    | (924       | ) |                    |  
|Inventory                                           |  |                    | (24,496    | ) |                    |  
|Deposit                                             |  |                    | 6,131      |   |                    |  
|Other Current Assets                                |  |                    | (22,561    | ) |                    |  
|Accounts Payable                                    |  |                    | (145,945   | ) |                    |  
|Notes Payable                                       |  |                    | 21,672     |   |                    |  
|Tax Payable                                         |  |                    | (219,627   | ) |                    |  
|Other Payable                                       |  |                    | 9,486      |   |                    |  
|Deferred Revenue                                    |  |                    | 48,459     |   |                    |  
|Net cash used in operating activities               |  |                    | (1,878,531 | ) |                    |  
|                                                    |  |                    |            |   |                    |  
|CASH FLOWS FROM INVESTING ACTIVITIES                |  |                    |            |   |                    |  
|Cash Acquired in Acquisition                        |  |                    | 740,561    |   |                    |  
|Purchase of Property and Equipment                  |  |                    | (51,869    | ) |                    |  
|Net cash provided by (used) in investing activities |  |                    | 688,692    |   |                    |  
|                                                    |  |                    |            |   |                    |  
|CASH FLOWS FROM FINANCING ACTIVITIES                |  |                    |            |   |                    |  
|Proceeds from (Payments to) Related Parties         |  |                    | 176,406    |   |                    |  
|Payments on Capital Lease Obligations               |  |                    | (45,000    | ) |                    |  
|Common Stock Issued, net of Cost of Capital         |  |                    | 1,239,750  |   |                    |  
|Net cash provided by financing activities           |  |                    | 1,371,156  |   |                    |  
|                                                    |  |                    |            |   |                    |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH             |  |                    | (69,694    | ) |                    |  
|                                                    |  |                    |            |   |                    |  
|NET INCREASE IN CASH AND CASH EQUIVALENTS           |  |                    | 111,623    |   |                    |  
|                                                    |  |                    |            |   |                    |  
|Cash and Cash Equivalents - Beginning of Period     |  |                    | 355,343    |   |                    |  
|                                                    |  |                    |            |   |                    |  
|CASH AND CASH EQUIVALENTS - END OF PERIOD           |  | $                  | 466,966    |   |                    | $
|                                                    |  |                    |            |   |                    |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    |  |                    |            |   |                    |  
|Taxes Paid                                          |  | $                  | 224,702    |   |                    | $
|Debt Converted to Stock                             |  | $                  | -          |   |                    | $
|Interest Paid                                       |  | $                  | 21,808     |   |                    | $
|Property and Equipment Purchased via Capital Lease  |  | $                  | 4,353      |   |                    | $
|Issuance of Common Stock for Acquisition            |  | $                  | 3,302,000  |   |                    |  



See accompanying Notes to Condensed Consolidated
Financial Statements



6







IVEDA SOLUTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011
AND 2010



|NOTE 1 | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------ | --------------------------------------------------------------------



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, 2010. 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 nine-month period ended September 30, 2011, are not necessarily indicative of the
results that will be achieved for the full fiscal year ending December 31, 2011 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 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 GAAP, have been condensed or omitted pursuant to such SEC rules and regulations.



The balance sheet at
December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information
and footnotes required by GAAP for complete financial statements.



Consolidation



Effective April 30, 2011, Iveda
Solutions, Inc. (the “Company”) completed its acquisition of Sole Vision Technologies (dba “MegaSys”),
a company based in Taiwan. The consolidated financial statements include the accounts of the Company and MegaSys (from May 1, 2011
through September 30, 2011). All intercompany balances and transactions have been eliminated in consolidation. See Note 8.



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 has generated an accumulated deficit from operations
of approximately $9 million at September 30, 2011 and has used approximately $1.9 million in cash from operations through the current
nine months ended September 30, 2011. As a result, a risk exists regarding 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 plans to seek additional equity and/or debt financing.
| | - | ------------------------------------------------------------------

| | · | The Company plans to establish distributor networks with existing companies to create a reseller
network to increase the scope of the Company’s marketing activities with low cost to the Company.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The Company may evaluate and consider merger and/or acquisition activities.
| | - | ---------------------------------------------------------------------------



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 two financial institutions, one in the United States and one in Taiwan. At times, amounts on deposit in the United States may
be in excess of the FDIC insurance limit.



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 two customers represented approximately
42% (25% and 17%) of total revenues for the nine months ended September 30, 2011, and approximately 77% of total accounts receivable
at September 30, 2011.



Intangible Assets and Goodwill



Intangible assets consist of trademarks
and other intangible assets associated with the purchase price allocation of MegaSys. Such assets are being amortized over their
estimated useful lives ranging from five to ten years. Future amortization of Intangible Assets is as follows:



|Trademarks        |  |   |        
|----------------- |  | - | -------
|2011              |  | $ | 5,000  
|2012              |  |   | 20,000 
|2013              |  |   | 20,000 
|2014              |  |   | 20,000 
|2015              |  |   | 20,000 
|Thereafter        |  |   | 106,667
|                  |  |   |        
|Other Intangibles |  |   |        
|2011              |  | $ | 6,500  
|2012              |  |   | 26,000 
|2013              |  |   | 26,000 
|2014              |  |   | 26,000 
|2015              |  |   | 26,000 
|Thereafter        |  |   | 8,667  



Goodwill represents the excess of
the purchase price of MegaSys over the net assets acquired. Goodwill is tested annually for impairment or more frequently if indicators
of impairment exist.



8







Fair Value of Financial Instruments



Fair value estimates discussed herein
are based upon certain market assumptions and pertinent information available to management as of September 30, 2011. The respective
carrying values of certain on-balance-sheet financial instruments approximate their fair values. These financial instruments include
cash, accounts receivable, accounts payable, accrued expenses, 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.



Segment Information



The Company conducts operations
in various geographic regions outside the United States. The operations and the customer base conducted in the foreign countries
are similar to the United States operations. The net revenues and net assets (liabilities) for other significant geographic regions
outside the United States are as follows:



|              |  | Net Revenues |         |  | Net Assets |  
|------------- |  | ------------ | ------- |  | ---------- | -
|              |  |              |         |  |            |  
|United States |  | $            | 475,850 |  |            | $
|Asia          |  | $            | 682,106 |  |            | $
|Mexico        |  | $            | 289,454 |  |            |  



Furthermore, due to operations in
various geographic locations, the Company is susceptible to changes in national, regional and local economic conditions, demographic
trends, consumer confidence in the economy and discretionary spending priorities that may have a material adverse effect on the
Company’s future operations and results.



The Company is required to collect
certain taxes and fees from customers on behalf of government agencies and remit these back to the applicable governmental agencies
on a periodic basis. These taxes and fees are legal assessments to the customer, for which the Company has a legal obligation to
act as a collection agent. Because the Company does not retain these taxes and fees, the Company does not include such amounts
in revenue. The Company records a liability when the amounts are collected and relieves the liability when payments are made to
the applicable governmental agencies.



The Company operates as two reportable
business segments in defined in ASC 280, "Segment Reporting." Each company has a chief operating decision maker and management
personnel who review their company’s performance as it relates to revenue, operating profit and operating expenses.



|                    |  | Three Months   |                 |   | Three Months   |  
|------------------- |  | -------------- | --------------- | - | -------------- | -
|                    |  | Ending         |                 |   | Ending         |  
|Segment Reporting   |  | Sept. 30, 2011 |                 |   | Sept. 30, 2011 |  
|                    |  |                | Iveda Solutions |   |                |  
|Revenue             |  | $              | 287,296         |   |                | $
|Cost of Revenue     |  |                | 166,767         |   |                |  
|Gross Profit (Loss) |  |                | 120,529         |   |                |  
|Operating Expenses  |  |                | 644,360         |   |                |  
|                    |  |                |                 |   |                |  
|Net Loss            |  | $              | (523,831        | ) |                | $



9







Reclassification



Certain amounts in 2010 may have
been reclassified to conform to the 2011 presentation.



NOTE 2       BANK LOANS—SHORT TERM



The Company has short term loans
with two banks in Asia. The loans bear interest at 3.2% and 3.6% and are due in October and December 2011. The company has chosen
not to use its excess cash to pay off these loans early since the interest rate is relatively low and they are due in the near
future.



NOTE 3       NOTES PAYABLE



|Promissory note payable, due in September 2012,                                     |  | $ | 45,000  |  
|----------------------------------------------------------------------------------- |  | - | ------- | -
|Interest payable in 45,000 warrants                                                 |  |   |         |  
|Non-Interest-Bearing notes, maturity dates ranging from October 2011 to August 2012 |  | $ | 63,016  |  
|Unamortized debt discount                                                           |  | $ | (16,909 | )
|Notes payable, net of debt discount                                                 |  | $ | 91,107  |  



On September 26, 2011, the Company
entered into a $45,000 promissory note agreement. Interest on the note will be payable in 45,000 warrants at a $1.10 exercise price,
exercisable within three years of issuance. On October 24, 2011, the Board of Directors approved the issuance of warrants. Accordingly,
the Company recognized a discount of $16,909 on the principal value of the $45,000 note payable and is amortizing the discount
over the twelve month life of the note.



NOTE 4       EQUITY



Preferred Stock



The Company is authorized to issue
100,000,000 shares of $0.00001 par value preferred stock. No shares have been issued, and the rights and privileges of this class
of stock have not been defined.



Common Stock



During the nine months ended September
30, 2011, the Company issued a total of 3,344,972 shares of Common Stock, 1,394,972 in private placement transactions and 1,950,000
related to the acquisition of MegaSys (including 250,000 issued to a consultant in connection with the transaction).



During the nine-month period ended
September 30, 2011, the Company issued and had outstanding additional warrants to purchase 45,000 shares of Common Stock at $1.10.
These warrants were issued as a cost of capital for shares sold during this period.



10







NOTE 5       STOCK 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 an expense on the straight-line basis over the options’
vesting periods.



Stock option transactions during
the nine months ended September 30, 2011 were as follows:



11







|                                                                 |  | Nine months ended Sept. 30, 2011 |          
|---------------------------------------------------------------- |  | -------------------------------- | ---------
|                                                                 |  |                                  |          
|                                                                 |  |                                  |          
|                                                                 |  |                                  |          
|                                                                 |  | Shares                           |          
|Outstanding at Beginning of Year                                 |  |                                  | 1,959,979
|Granted                                                          |  |                                  | 1,733,200
|Exercised                                                        |  |                                  | -        
|Forfeited or Canceled                                            |  |                                  | (156,667 
|Outstanding at End of Period                                     |  |                                  | 3,536,512
|                                                                 |  |                                  |          
|Options Exercisable at Period-End                                |  |                                  | 2,914,862
|                                                                 |  |                                  |          
|Weighted-Average Fair Value of Options Granted During the Period |  | $                                | 0.49     





Information with respect to stock
options outstanding and exercisable as of September 30, 2011, 2011 is as follows:



|              |  | Options Outstanding |           |  | Options Exercisable | 
|------------- |  | ------------------- | --------- |  | ------------------- | 
|              |  | Number              |           |  | Weighted -          | 
|              |  | Outstanding         |           |  | Average             | 
|Range of      |  | at                  |           |  | Remaining           | 
|Exercise      |  | Sept. 30,           |           |  | Contractual         | 
|Prices        |  | 2011                |           |  | Life                | 
|$0.10 - $1.30 |  |                     | 3,536,512 |  |                     | 



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.



|                        |  | 2011 |       
|----------------------- |  | ---- | ------
|Expected Life           |  |      | 4.8 yr
|Dividend Yield          |  |      | 0     
|Expected Volatility     |  |      | 40.00 
|Risk-Free Interest Rate |  |      | 2.06  



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 6       RELATED PARTY TRANSACTIONS



The Company has provided surveillance
services since 2005 at a pre-established rate 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 September 30, 2011 was $50,704, and there was a trade accounts
receivable balance of $5,670 at September 30, 2011.



12







On September 15, 2010, the Company
entered into a Line of Credit Promissory Note with one of its Board of Directors that provides for borrowings of up to $350,000
to be used for the sole purpose of purchasing equipment, software and other infrastructure-related items for one of its contracts.
The advances bear interest at a rate of 18% annually and are secured by receivables from the contract. The note balance of $197,000
plus accrued interest was repaid in full in April 2011. As of September 30, 2011, there was zero balance under the line of credit.



On September 26, 2011, the Company
entered into a $45,000 promissory note agreement with one of its shareholders. Interest on the note will be payable in 45,000 warrants
at a $1.10 exercise price, exercisable within three years of issuance. On October 24, 2011, the Board of Directors approved the
issuance of the warrants. Accordingly, the Company recognized a discount of $16,909 on the principal value of the $45,000 note
payable and is amortizing the discount over the 12 month life of the note.



NOTE 7       EARNINGS (LOSS) PER SHARE



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



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 nine months ended September 30, 2011 and 2010, and the effect of including dilutive securities in the earnings per common
share would have been anti-dilutive. Accordingly, all options and warrants to purchase common shares (totaling 4,631,291 potential
shares at September 30, 2011) were excluded from the calculation of diluted earnings per share for the three months and nine months
ended September 30, 2011 and 2010.



|                                 |  | Three Months   |            |   | Three Months   |   |            | Nine Months    |  |   | Nine Months    |  
|-------------------------------- |  | -------------- | ---------- | - | -------------- | - | ---------- | -------------- |  | - | -------------- | -
|                                 |  | Ending         |            |   | Ending         |   |            | Ending         |  |   | Ending         |  
|Basic EPS                        |  | Sept. 30, 2011 |            |   | Sept. 30, 2010 |   |            | Sept. 30, 2011 |  |   | Sept. 30, 2010 |  
|                                 |  |                |            |   |                |   |            |                |  |   |                |  
|Net Loss                         |  | $              | (662,654   | ) |                | $ | (539,456   | )              |  | $ | (2,290,162     | )
|Weighted Average Shares          |  |                | 16,804,610 |   |                |   | 14,071,937 |                |  |   | 15,383,548     |  
|                                 |  |                |            |   |                |   |            |                |  |   |                |  
|Basic and Diluted Loss Per Share |  | $              | (0.04      | ) |                | $ | (0.04      | )              |  | $ | (0.15          | )



NOTE 8       BUSINESS COMBINATION



On April 30, 2011, the Company completed
its acquisition of MegaSys. The Company issued 1,700,000 shares of its common stock, which was valued at $0.98 per share (market
value on the date of acquisition). In addition, the Company is committed to the issuance of an additional 2,000,000 shares of its
common stock (valued at $1,636,000) if certain financial goals are obtained by MegaSys. MegaSys must achieve at least $300,000
post tax income for the year ended December 31, 2011. For 2012, MegaSys must achieve $300,000 post tax income and increase net
revenues by $1,300,000 related to the SafeCiti project from July 1, 2010 to December 31, 2012. If these milestones are not achieved,
the additional 2,000,000 shares will not be issued.



13







The preliminary purchase price allocation
based on qualified independent valuation is as follows:



|Cash                   |  | $ | 740,561   |  
|---------------------- |  | - | --------- | -
|Accounts Receivable    |  |   | 588,726   |  
|Property and Equipment |  |   | 20,678    |  
|Other Assets           |  |   | 458,523   |  
|Intangible Assets      |  |   | 330,000   |  
|Goodwill               |  |   | 1,796,710 |  
|Liabilities Assumed    |  |   | (633,198  | )
|Total Purchase Price   |  | $ | 3,302,000 |  



In connection with the acquisition,
the Company also issued 250,000 shares to a consultant who advised the Company on its acquisition. The value of the shares issued
($245,000) is reflected in the Statement of Operations for the periods ended September 30, 2011.



The following is the unaudited pro
forma condensed consolidated financial statement of the combined entity as though the business combination had been as of the beginning
of the comparable annual reporting period for the nine-month period ended September 30, 2010 and the nine-month period ended September
30, 2011 for comparability purposes.



|                                                |  | Nine Months Ended
September 30, |           
|----------------------------------------------- |  | ------------------------------- | ----------
|                                                |  | 2011                            |           
|Total revenues                                  |  | $                               | 1,976,888 
|Total net expenses                              |  |                                 | 4,233,502 
|                                                |  |                                 |           
|Income (loss) before income taxes               |  |                                 | (2,256,615
|Income tax provision                            |  |                                 | -         
|                                                |  |                                 |           
|Net income (loss)                               |  | $                               | (2,256,615
|                                                |  |                                 |           
|Net income (loss) per share — basic and diluted |  | $                               | (0.12     



NOTE 9       SUBSEQUENT EVENTS



In October 2011, the Company issued
847,500 shares of Common Stock under a private placement memorandum at $1.00 per share in thirteen private placement transactions
with a mix of investors including eight individuals, three trusts and two corporations.



As of November, we have completed
our private placement of $2.5 million.



On October 24, 2011, the Company
authorized the issuance of warrants to purchase 47,500 of Common Stock at an exercise price of $1.10 per share, exercisable within
three years of grant date, to one of its Board Members for his help in raising funds without compensation.



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



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





14











Note Regarding Forward-Looking Information



This Quarterly Report on
Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
contains forward-looking statements, which involve risks and uncertainties, including statements regarding our capital needs, business
strategy, and expectations. For a discussion of certain risks related to the statements, please see Part I, “Item IA, Risk
Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (filed on March 30, 2011).
Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as “may,” “should,” “will,”
“expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,”
“predict,” “potential,” “forecast,” “project” or “continue,” the negative
of such terms or other comparable terminology.



You should not rely on
forward-looking statements as predictions of future events or results. Any or all of our forward-looking statements may turn out
to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties, and other factors, which could cause actual
events or results to be materially different from those expressed or implied in the forward-looking statements. These factors may
cause our actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to
time and it is not possible for us to predict all factors that may cause actual results to differ materially from those contained
in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statements to reflect events
or circumstances after the date of this report, except as required by applicable law.



Except as otherwise indicated
by the context, references in this Quarterly Report on Form 10-Q to “we,” “our,” “us,” “Iveda,”
and “the Company” refer to the business of Iveda Solutions, Inc.



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, 2010. Such policies are unchanged.



Overview



Iveda Solutions, Inc. began
operations on January 24, 2005, under the name IntelaSight, Inc., a Washington corporation doing business as Iveda Solutions (“IntelaSight”).
On October 15, 2009, IntelaSight became a wholly-owned operating subsidiary of Iveda Corporation (formerly known as Charmed Homes,
Inc.), a Nevada corporation, through a merger. All Company operations were conducted through IntelaSight until December 31, 2010,
at which time IntelaSight merged with and into Iveda Corporation, which changed its name to Iveda Solutions, Inc. On April 30,
2011, the Company completed its acquisition of Sole-Vision Technologies, Inc. (doing business as MegaSys), a corporation organized
under the laws of the Republic of China (“MegaSys”). As of April 30, 2011, MegaSys is a wholly owned subsidiary of
the Company.



15







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, the Company creates efficiencies due to economies of
scale leveraging cloud computing, which offers more features and flexibility compared to traditional 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 video hosting 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 approximate amount of $9 million. For the nine months ended September 30, 2011, we used approximately $1.9 million
in cash from operations, which significantly limits our ability to absorb continuing operating losses in the future. As a result,
our ability to continue as a going concern is uncertain.



Acquisition of MegaSys



On April 30, 2011, the
Company acquired Sole-Vision Technologies, Inc. (doing business as MegaSys), a corporation organized under the laws of the
Republic of China (“MegaSys”), pursuant to the share exchange agreement (the “Agreement”)
dated March 21, 2011 and a related side agreement of even date (the “Side Agreement”), by and among the Company,
MegaSys, and the shareholders of MegaSys (the “MegaSys Shareholders”). Pursuant to the Agreement (i) the Company
acquired 100% of the issued and outstanding shares of MegaSys Common Stock in exchange for the issuance to the MegaSys Shareholders
of 1,700,000 shares of Common Stock of the Company (the “Exchange”), and (ii) MegaSys became a wholly owned
subsidiary of Iveda.  The Side Agreement provides that the MegaSys Shareholders are entitled to receive up to an additional
2,000,000 shares of Common Stock of the Company upon achievement by MegaSys of certain financial milestones set forth therein.
The Agreement and Side Agreement replaced and superseded the share exchange agreement among the parties entered into on January
31, 2011. The Exchange was approved by Taiwan’s Foreign Investment Commission Agency.



MegaSys is a Taiwanese
company specializing in deploying video surveillance systems for airports, commercial buildings, government customers, data centers,
shopping centers, hotels, banks, and Safe City initiatives in Taiwan and other neighboring countries. MegaSys integrates security
surveillance products, software and services to provide integrated security solutions to the end user. Most of MegaSys’s
revenues are derived from one-time sales, which differs from Iveda’s business model of on-going monitoring revenues. MegaSys
does not own any proprietary technology or intellectual property other than certain trademarks in China and Taiwan used in its
business.



Management believes that
the acquisition of MegaSys provides the following potential benefits to the Company’s business:



•         MegaSys has an
established presence and credibility in, and provides the Company with access to, the Asian market.



•         Management believes
that the Company will be able to leverage MegaSys’s relationships in Asia for cost-effective research and development of
new product offerings and cost reduction of current product offerings.



•         Management
expects to be able to source products directly using MegaSys’s product sourcing expertise to enhance the
Company’s custom integration capabilities.



•         Management expects
the Company will benefit from cost reductions for infrastructure equipment (servers, storage devices, network switches, and Super
Wifi technologies) through a direct OEM relationship.



16







•         Management believes
that MegaSys enhances the global distribution potential for Iveda’s products and services.



•         MegaSys is expected
to benefit from the Company’s expertise in cloud-based video surveillance and access to the U.S. markets for its products.



At the time of the closing
of the Exchange, MegaSys had customers in Taiwan and neighboring countries, including the Taiwan Stock Exchange,
Taiwan’s International Airport, Shanghai Commercial and Savings Bank, Taipei County Police Bureau and Traffic Control, Beijing
Capital Airport, Hong Kong HSBC ATM System, China HSBC Bank (Guangzhou), Malaysia – Prime Minister’s Residence, Hong
Kong IBM Asia Headquarters, Regal Hong Kong Hotel, Shanghai China Bank, and Egypt – Pyramids of Giza. does not expect to
derive significant revenues from prior MegaSys customer installations. However, the prior MegaSys customer base helps to establish
credibility for the Company to market its products and services in the Taiwanese and other Asian marketplaces. There can be no
assurance that the Company will generate material future revenue from MegaSys’s customers at the time of the Exchange.



Results of Operations



Revenue.
We recorded revenue of $588,339 for the three months ended September 30, 2011, compared to $182,416 for the three months
ended September 30, 2010, an increase of $405,923 or 222%. In the third fiscal quarter of 2011, our recurring service revenue
was $219,333 or 37% of revenue, and our equipment sales and installation revenue was $369,006 or 63% of revenue, compared to
recurring service revenue of $138,061 or 76% of revenue, and equipment sales and installation revenue of $44,355 or 24% of
revenue for the same period in 2010. The increase in revenue was due to a $104,880 or 57% increase of U.S. revenue and the
inclusion of revenue from MegaSys for a full quarter. MegaSys reported revenue of $301,043 for the three months ended
September 30, 2011, compared to $1,147,525 for the three months ended September 30, 2010, a decrease of $846,482 or 74%.
Management believes that the decrease in revenue is attributable primarily to the fact that 2011 was a presidential election
year in Taiwan and the general business climate, particularly for Taiwanese governmental agencies, was to hold off on large
purchases until the political landscape had been settled. In addition, management believes that the decrease in revenue is
attributable to significant fluctuations caused by the fact that its sales are normally one-time sales and may involve a
substantial amount of time to finalize installation and recognize revenue. Historical operating
results of Megasys for the nine months ended September 30, 2010 were more favorable compared to the 2011 period due to
revenue realized from a large, non-recurring contract realized by Megasys in 2010.
The decrease in revenue is consistent with the assumptions made by management during the valuation of the purchase price allocation.





We recorded revenue of
$1,447,410 for the nine months ended September 30, 2011, compared to $488,600 for the nine months ended September 30, 2010, an
increase of $958,810 or 196%. In the first nine months of 2011, our recurring service revenue was $454,863 or 31% of revenue,
and our equipment sales and installation revenue was $992,547 or 69% of revenue, compared to recurring service revenue of $348,652
or 71% of revenue, and equipment sales and installation revenue of $139,948 or 29% of revenue for the same fiscal period in 2010.
The increase in revenue was due to a $276,704 or 57% increase of U.S. revenue and the inclusion of revenue from MegaSys for five
months. MegaSys reported revenue of $1,211,584 for the nine months ended September 30, 2011, compared to $3,535,725 for the nine
months ended September 30, 2010, a decrease of $2,324,141 or 66%. Management believes that the decrease in revenue is attributable
primarily to the fact that 2011 was a presidential election year in Taiwan and the general business climate, particularly for
Taiwanese governmental agencies, was to hold off on large purchases until the political landscape had been settled. In addition,
Management believes that the decrease in revenue is attributable primarily to significant fluctuations caused by the fact that
its sales are normally one-time sales and may involve a substantial amount of time to finalize installation and recognize revenue.
Historical operating results of Megasys for the nine months ended September 30, 2010 were more favorable
compared to the 2011 period due to revenue realized from a large, non-recurring contract realized by Megasys in 2010.





Cost of Revenue.
Total cost of revenue was $472,211 (80% of revenues; gross margin of 20%) for the three months ended September 30, 2011, compared
to $115,817 (63% of revenue; gross margin of 37%) for the three months ended September 30, 2010, an increase of $356,394 or 308%.
The increase of cost of revenue and decrease of gross margin was primarily due to the increase of equipment sales and installation,
which normally garner lower gross margin. Approximately $285,000 of MegaSys’ revenue with lower gross margin was derived
from equipment sales and installation.



17







Total cost of revenue was
$1,110,875 (77% of revenues; gross margin of 23%) for the nine months ended September 30, 2011, compared to $337,425 (69% of revenues;
gross margin of 31%) for the nine months ended September 30, 2010, an increase of $773,449 or 229%. There was only a slight decrease
in gross margin for the nine months ended September 30, 2011, because only five months of MegaSys’ equipment sales and installation
revenue, with normally lower gross margin, were included in the consolidated revenue. Thus, it has very low impact on the gross
margin for the nine-month period ended September 30, 2011.



Operating Expenses.
Operating expenses were $778,287 for the three months ended September 30, 2011, compared to $604,597 for the three months ended
September 30, 2010, an increase of $173,690 or 29%. The increase in operating expenses was primarily related to professional expenses
incurred in the acquisition of MegaSys and the recording of non-cash stock compensation expense for options issued to employees.



Operating expenses were
$2,611,916 for the nine months ended September 30, 2011, compared to $1,630,024 for the nine months ended September 30, 2010, an
increase of $981,892 or 60%. The increase in operating expenses was primarily related to expenses incurred in the acquisition of
MegaSys and the recording of non-cash stock compensation expense issued to employees.



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 $662,159 for the three months ended September 30, 2011, compared to
$537,998 for the three months ended September 30, 2010, an increase in loss of $124,161 or 23%. The majority of the current
period loss, $524,013, was from our U.S. operations and the remaining $138,146 from our operations in Taiwan.
MegaSys’ operating loss was partially attributed to a post-acquisition increase in fixed costs such as audit fees,
salaries and travel expense now that they are a wholly-owned subsidiary of a U.S. public company.



As a result of the overall
increase in operating expenses, loss from operations increased to $2,275,381 for the nine months ended September 30, 2011, compared
to $1,478,849 for the nine months ended September 30, 2010, an increase in loss of $796,532 or 54%.



Other Expense-Net.
Other expense-net was $495 for the three months ended September 30, 2011, compared to $1,458 for the three months ended September
30, 2010, a decrease of $963 or 66%.



Other expense-net was $19,668
for the nine months ended September 30, 2011, compared to $12,070 for the nine months ended September 30, 2011, an increase of
$7,598 or 63%.



Net Loss.
The increase of $123,198 or 23% in the net loss to $662,654 for the three months ended September 30, 2011, from $539,456 for the
three months ended September 30, 2010, was primarily the effect of reduced gross profit and increase in operating expenses.



The increase of $799,243
or 54% in the net loss to $2,290,162 for the nine months ended September 30, 2011, from $1,490,919 for the nine months ended September
30, 2010, was primarily the effect of reduced gross profit and increase in operating expenses.



Liquidity and Capital Resources



We had cash and cash equivalents
of $207,170 on September 30, 2011 in our domestic business and $259,796 in our foreign business. The increase in cash from $355,343
as of December 31, 2010 was due to capital raised in the U.S. during the period and the inclusion of MegaSys. There are no legal
or economic factors that materially impact our ability to transfer funds between our domestic and foreign businesses, although
we do not anticipate transferring funds between our domestic and foreign operations in the next 12 months.



18







Net cash used in operating
activities during the nine months ended September 30, 2011, and for the nine months ended September 30, 2010, was $1,878,531 and
$1,566,932, respectively. Cash used in operating activities for those periods consisted primarily of the net loss from operations.



Net cash used (received)
by investing activities for the nine months ended September 30, 2011, and the nine months ended September 30, 2010, was $(688,692)
and $91,583, respectively. The large source of cash in investing activities in 2011 was due to cash acquired in the MegaSys acquisition.



We have experienced significant
operating losses since our inception. At December 31, 2010, we had approximately $4.4 million in net operating loss carry forwards
available for federal and state income tax purposes. We did not recognize any benefit from these operating loss carry forwards
for the year ended 2010 or through the first quarter of 2011. Our operating loss carry forwards expire starting in 2010 and continuing
through 2028.



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 as of September 30, 2011 is insufficient
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 may be required to reduce the scope of, or cease, operations.



If we are unable to quickly
increase our sales, we will need to raise additional capital during the year and may be required to reduce labor expenses to maintain
our existing operations.



On September 15, 2010,
the Company, as borrower, issued a Line of Credit Promissory Note (the “Note”) to Gregory Omi, a director of the Company,
as lender, in the principal sum of up to Three Hundred Fifty Thousand Dollars ($350,000). The line of credit was used for the purpose
of purchasing equipment, software, and other infrastructure-related items to fulfill commitments to a government agency in Mexico.
The note balance of $197,000 plus accrued interest was repaid in full in April 2011. The Note is accessible to Iveda for future
draws for large projects that require infrastructure funding up front. The unpaid principal of the line of credit bears simple
interest at the rate of 1.5% per month or 18% per annum. Any principal balance of the line of credit is due and payable no later
than six months after each disbursement. As of September 30, 2011, there was zero balance under the line of credit.



Two customers represented
greater than 10% (25% and 17%) of total revenue for the nine months ended September 30, 2011. No other customers represented greater
than 10% of total revenues in the nine months ended September 30, 2011.



Our U.S. operation
does not have any receivables aged over 120 days at the quarter ended September 30, 2011. The terms for payment for our U.S.
operations are “due upon receipt”. Therefore, we have not established an allowance for doubtful accounts to be
recorded with respect to our U.S. operations.



Our Taiwan operations
through MegaSys have 16% of gross accounts receivables aged over 180 days at September 30, 2011. The payment terms vary based on
the timing of the completion of the project. In general, payment takes place within one year of commencing the project,
except that 5% of the total payment is retained and released one year after the completion of the project. Excluding such retained
amounts, MegaSys provides an allowance for doubtful accounts for any receivables that will not be paid within one year. Management
has set up a 15%, or $135,839, allowance for doubtful accounts as of the quarter ended September 30, 2011. Management deems the
rest to be collectible based on the nature of the customer contracts and past experience with similar customers.



19







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



Recent Developments



Completion of $2.5
Million Private Placement. After the reporting period, in October 2011, the Company completed its private placement of
$2.5 million pursuant to its private placement memorandum by issuing 847,500 shares of Common Stock at $1.00 per share in thirteen
private placement transactions with a mix of investors including eight individuals, three trusts and two corporations.



These issuances were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended, Regulation D, and Rule 506 promulgated thereunder. The facts
relied upon by the Company to use this exemption were the following: (a) the Company did not use general solicitation or advertising
to market the securities; (b) the issuances were only made to accredited investors; and (c) the Company informed the investors
that they would receive only “restricted” securities.



Agreement with Telmex,
U.S.A., LLC. On October 28, 2011, the Company entered into a Non-Exclusive Strategic Collaboration Agreement (the “Agreement”)
with Telmex, U.S.A. LLC (“Telmex”). Telmex will resell products and services by and on behalf of the Company, subject
to the terms and conditions of the Agreement. The term of the Agreement is one year and will automatically renew for additional
one-year increments. The Agreement will always be interpreted as a fixed-term agreement. Either party may terminate the Agreement
at any time for any or no reason in such party’s sole discretion upon thirty days’ written notice to the other party.
The Company will continue to provide services to end users, per the terms of the End-User Service Agreement, provided that the
end users have the means to continuously pay Company for services rendered. The Agreement is attached hereto as Exhibit 10.12.



Promissory Note.
On September 26, 2011, the Company entered into a $45,000 promissory note agreement with one of its shareholders. Interest on the
note will be payable in 45,000 warrants at a $1.10 exercise price, exercisable within three years of issuance. On October 24, 2011,
the Board of Directors approved the issuance of the warrants.



Warrants.
On October 24, 2011 the Company authorized the issuance of warrants to purchase 47,500 shares of Common Stock at an exercise price
of $1.10 per share, exercisable within three years of grant date, to one of its Board Members for his help in raising funds without
compensation.



Off Balance Sheet
Arrangements. During the reporting period, the Company had no off-balance sheet arrangements, as such term is defined in
Item 303(a)(4) of Regulation S-K.



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 disclosures in this Quarterly Report.



20







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-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of September 30, 2011. Based
on our evaluation, our principal executive officer and our principal financial officer concluded that the design and operation
of our disclosure controls and procedures were not effective as of September 30, 2011.



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(f) and 15d-15(f) of 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 for our U.S. operations. We are in the process of evaluating our internal controls over financial
reporting for MegaSys.



Limitations on the Effectiveness of Controls



Our management, including
our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls
will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Iveda have been detected. These inherent limitations include the realities that judgments
in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or Board override
of the control.



The design of any system
of controls also 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; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



Identified Material Weakness



As of September 30, 2011,
the Company had only one employee knowledgeable in SEC accounting and reporting. As a result, there is a lack of proper segregation
of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.



Management’s Remediation Initiatives



As our resources allow,
we plan to add financial personnel to our management team in order to properly segregate the duties necessary for accurate and
timely financial reporting.



PART II. OTHER
INFORMATION



ITEM 1.	         LEGAL
PROCEEDINGS.



See Part II, Item 1 of
the Company’s Quarterly Report on Form 10-Q filed on August 15, 2011, which is incorporated herein by reference.



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ITEM 1A.	         RISK
FACTORS.



As a smaller reporting
company, the Company is not required to provide Part II, Item 1A disclosures in this Quarterly Report.



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



In addition to issuances
of equity securities previously reported on Form 8-K, during the reporting period, pursuant to a $2.5 million private placement
memorandum, the Company received a total of $390,000 and issued 390,000 shares of Common Stock in thirteen private placement transactions
with a mix of investors including six individuals, five trusts and two corporations. All issuances were at $1 per share.



These issuances were made
pursuant to Section 4(2) of the Securities Act of 1933, as amended, Regulation D, and Rule 506 promulgated thereunder. The facts
relied upon by the Company to use this exemption were the following: (a) the Company did not use general solicitation or advertising
to market the securities; (b) the issuances were only made to accredited investors; and (c) the Company informed the investors
that they would receive only “restricted” securities.



ITEM 3.	         DEFAULT
ON SENIOR SECURITIES.



None.



ITEM 5.	         OTHER
INFORMATION.



None.



22







ITEM 6.	         EXHIBITS.



|Exhibit |  |                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |  | Description                                                                                                                                                                                                                                                                                                                         
|2.1     |  | Share Exchange Agreement, dated March 21, 2011, by and among Iveda Solutions, Inc., a Nevada corporation, Sole-Vision Technologies, Inc. (doing business as MegaSys), a corporation organized under the laws of the Republic of China, and the shareholders of MegaSys (Incorporated by reference to Form 10-K/A filed on 2/9/2012).
|3.1     |  | Articles of Incorporation of Charmed Homes Inc. (Incorporated by reference to Exhibit 3.1 to Form SB-2 filed on 4/20/2007).                                                                                                                                                                                                         
|3.2     |  | Bylaws of Charmed Homes Inc. (Incorporated by reference to Exhibit 3.2 to Form SB-2 filed on 4/20/2007).                                                                                                                                                                                                                            
|3.3     |  | Amendment to Bylaws of Charmed Homes Inc. (Incorporated by reference Exhibit 3.1 to Form 8-K/A filed on 12/15/2008).                                                                                                                                                                                                                
|3.4     |  | Amendment to Articles of Incorporation, filed with the Nevada Secretary of State on September 9, 2009 (Incorporated by reference to Exhibit 3.4 to Form 8-K filed on 10/21/2009).                                                                                                                                                   
|4.1     |  | Specimen Stock Certificate (Incorporated by reference to Exhibit 4.1 to Form SB-2 filed on 4/20/2007).                                                                                                                                                                                                                              
|4.2     |  | Form of Stock Option Agreement under the IntelaSight, Inc. 2008 Stock Option Plan (Incorporated by reference to Exhibit 4.2 to Form S-4/A1 filed on 7/10/2009).                                                                                                                                                                     
|4.3     |  | Form of Common Stock Purchase Warrant issued by IntelaSight, Inc. (Incorporated by reference to Exhibit 4.3 to Form S-4/A1 filed on 7/10/2009).                                                                                                                                                                                     
|4.4     |  | 2009 Stock Option Plan, dated October 15, 2009 (Incorporated by reference to Exhibit 4.4 to Form 8-K filed on 10/21/2009).                                                                                                                                                                                                          
|4.5     |  | Form of Common Stock Purchase Warrant issued by Iveda Corporation in conjunction with the Merger (Incorporated by reference to  Exhibit 4.5 to Form 8-K filed on 10/21/2009).                                                                                                                                                       
|4.6     |  | Iveda Solutions, Inc. 2010 Stock Option Plan, as amended  (Incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on 5/2/2011).                                                                                                                                                            
|4.7     |  | Form of Notice of Grant of Stock Option under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Exhibit 4.2 to Form S-8 filed on 6/24/2011).                                                                                                                                               
|4.8     |  | Form of Stock Option Agreement under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Exhibit 4.3 to Form S-8 filed on 6/24/2011).                                                                                                                                                        
|4.9     |  | Form of Stock Option Exercise Notice under the Iveda Solutions, Inc. 2010 Stock Option Plan, as amended (Incorporated by reference to Exhibit 4.4 to Form S-8 filed on 6/24/2011).                                                                                                                                                  
|10.1    |  | Application Development Service Agreement dated July 14, 2006 by and between Axis Communications AB and IntelaSight, Inc. (Incorporated by reference to Exhibit 10.4 to Form S-4/A2 filed on 8/5/2009).                                                                                                                             
|10.2    |  | Partner Agreement dated January 30, 2007 by and between Milestone Systems, Inc. and IntelaSight, Inc. (Incorporated by reference to Exhibit 10.5 to Form S-4/A1 filed on 7/10/2009).                                                                                                                                                
|10.3    |  | Solution Partner Agreement dated March 13, 2008 by and between Milestone Systems A/S and IntelaSight, Inc. (Incorporated by reference to Exhibit 10.6 to Form S-4/A1 filed on 7/10/2009).                                                                                                                                           
|10.4    |  | Channel Partner Program Membership Agreement — Gold Solution Partner Level — dated June 23, 2009 by and between Axis Communications Inc. and IntelaSight, Inc. (Incorporated by reference to Exhibit 10.9 to Form S-4/A1 filed on 7/10/2009).                                                                                       
|10.5    |  | Stock Purchase Agreement, dated October 15, 2009, by and among Iveda Corporation, IntelaSight, Inc., Ian Quinn and Kevin Liggins (Incorporated by reference to Exhibit 10.10 to Form 8-K filed on 10/21/2009).                                                                                                                      
|10.6    |  | Subscription Agreement, dated July 26, 2010 (Incorporated by reference to Exhibit 10.10 to Form 10-Q filed on 11/12/2010).                                                                                                                                                                                                          
|10.7    |  | Line of Credit Promissory Note, dated September 15, 2010 (Incorporated by reference to Exhibit 10.11 to Form 10-Q filed on 11/12/2010).                                                                                                                                                                                             



23







|10.8  |  | Agreement for Services, dated October 20, 2010 (Incorporated by reference to Exhibit 10.12 to Form 10-Q filed on 11/12/2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.9  |  | Consulting Agreement, dated October 25, 2010 (Incorporated by reference to Exhibit 10.13 to Form 10-Q filed on 11/12/2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.10 |  | Operating Level Agreement, dated October 25, 2010 (Incorporated by reference to Exhibit 10.14 to Form 10-Q filed on 11/12/2010).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.11 |  | Side Letter, dated March 21, 2011, by and among Iveda Solutions, Inc., Sole-Vision Technologies, Inc. (doing business as MegaSys), and the shareholders of MegaSys (Incorporated by reference to Exhibit 10.15 to Form 10-K filed on 3/30/2011).                                                                                                                                                                                                                                                                                                                                                                                                   
|10.12 |  | Non-Exclusive Strategic Collaboration Agreement between Iveda Solutions, Inc. and Telmex, U.S.A., LLC, dated October 28, 2011.*.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|31.2  |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|32.1  |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2  |  | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|101.1 |  | The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2011 and December 31, 2010, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the three months and nine months ended September 30, 2011 and 2010, (iii) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2011 and 2010, and (iv) the Notes to Condensed Consolidated Financial Statements (Unaudited).**

* Filed herewith

** Furnished
herewith



24







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 SOLUTIONS, INC.
|------------------- | ---------------------
|                    | (Registrant)         
|                    |                      
|Date: March 6, 2012 | BY:                  
|                    |                      
|                    |                      
|                    |                      
|                    | BY:                  
|                    |                      
|                    |                      



25