SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 20222023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-55247001-40770
FOCUS UNIVERSAL INCINC..
(Exact Name of Small Business Issuer as specified in its charter)
| Nevada | 46-3355876 |
| (State or other jurisdiction | (IRS Employer File Number) |
| of incorporation) |
| 2311 E. Locust Court, Ontario, CA | 91761 |
| (Address of principal executive offices) | (Zip Code) |
(626) 272-3883
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, $0.001 par value | FCUV | The Nasdaq Stock Market LLC (Nasdaq Global Market) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 12, 2022,10, 2023, registrant had shares outstanding of the registrant's common stock at a par value of $0.001 per share.
FORM 10-Q
FOCUS UNIVERSAL INC.
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
References in this document to "us," "we," or "Company" refer to Focus Universal Inc.
ITEM 1. FINANCIAL STATEMENTS
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Index to the Financial Statements
| 3 |
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 6,660,408 | $ | 8,678,665 | ||||
| Accounts receivable, net | 167,622 | 177,315 | ||||||
| Accounts receivable – related party | 88,270 | 15,176 | ||||||
| Inventory | 56,258 | 22,889 | ||||||
| Other receivables | 0 | 13,057 | ||||||
| Prepaid expenses | 197,719 | 301,270 | ||||||
| Marketable equity securities | 163,490 | 0 | ||||||
| Deposit - current portion | 5,968 | 5,968 | ||||||
| Total Current Assets | 7,339,735 | 9,214,340 | ||||||
| Property and equipment, net | 4,310,125 | 4,353,340 | ||||||
| Operating lease right-of-use asset | 215,750 | 420,137 | ||||||
| Deposits | 36,235 | 33,933 | ||||||
| Total Assets | $ | 11,901,845 | $ | 14,021,750 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 187,266 | $ | 293,354 | ||||
| Other current liabilities | 12,898 | 23,902 | ||||||
| Loan, current portion | 0 | 132,618 | ||||||
| Lease liability, current portion | 114,119 | 121,568 | ||||||
| Total Current Liabilities | 314,283 | 571,442 | ||||||
| Non-Current Liabilities: | ||||||||
| Lease liability, less current portion | 231,271 | 302,387 | ||||||
| Loan, less current portion | 0 | 25,929 | ||||||
| Other liability | 14,735 | 0 | ||||||
| Total Non-Current Liabilities | 246,006 | 328,316 | ||||||
| Total Liabilities | 560,289 | 899,758 | ||||||
| Contingencies (Note 13) | ||||||||
| Stockholders' Equity: | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of June 30, 2022 and shares issued and outstanding as of December 31, 2021 | 43,413 | 43,259 | ||||||
| Additional paid-in capital | 26,480,424 | 24,093,075 | ||||||
| Shares to be issued, common shares | 684,920 | 1,922,753 | ||||||
| Accumulated deficit | (15,867,318 | ) | (12,937,091 | ) | ||||
| Accumulated other comprehensive income (loss) | 117 | (4 | ) | |||||
| Total Stockholders' Equity | 11,341,556 | 13,121,992 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 11,901,845 | $ | 14,021,750 | ||||
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | 1,358,683 | $ | 4,343,426 | ||||
| Accounts receivable, net | 101,379 | 78,313 | ||||||
| Accounts receivable – related party | – | 34,507 | ||||||
| Inventory | 88,246 | 103,772 | ||||||
| Prepaid expenses | 187,224 | 142,342 | ||||||
| Marketable equity securities | 60,694 | 105,470 | ||||||
| Total Current Assets | 1,796,226 | 4,807,830 | ||||||
| Property and equipment, net | 4,159,503 | 4,228,630 | ||||||
| Operating lease right-of-use assets | 236,116 | 253,336 | ||||||
| Deposits | 23,545 | 33,264 | ||||||
| Total Assets | $ | 6,215,390 | $ | 9,323,060 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 305,345 | $ | 267,685 | ||||
| Treasury stock payable | – | 1,000,000 | ||||||
| Other current liabilities | 45,596 | 6,496 | ||||||
| Lease liabilities, current portion | 81,203 | 113,058 | ||||||
| Total Current Liabilities | 432,144 | 1,387,239 | ||||||
| Non-Current Liabilities: | ||||||||
| Lease liabilities, less current portion | 131,570 | 165,952 | ||||||
| Other liability | 12,335 | 12,335 | ||||||
| Total Non-Current Liabilities | 143,905 | 178,287 | ||||||
| Total Liabilities | 576,049 | 1,565,526 | ||||||
| Contingencies (Note 12) | – | – | ||||||
| Stockholders' Equity: | ||||||||
| Common stock, par value $ per share, shares authorized; shares issued and outstanding as of June 30, 2023 and shares issued and outstanding as of December 31, 2022 | 64,771 | 65,297 | ||||||
| Treasury stock at cost ( shares and shares held at June 30, 2023 and December 31, 2022, respectively) | (420,686 | ) | (2,000,000 | ) | ||||
| Additional paid-in capital | 25,967,044 | 27,514,733 | ||||||
| Shares to be issued, common shares | 31,400 | 48,075 | ||||||
| Accumulated deficit | (19,996,437 | ) | (17,864,028 | ) | ||||
| Accumulated other comprehensive loss | (6,751 | ) | (6,543 | ) | ||||
| Total Stockholders' Equity | 5,639,341 | 7,757,534 | ||||||
| Total Liabilities and Stockholders' Equity | $ | 6,215,390 | $ | 9,323,060 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 4 |
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | $ | 215,391 | $ | 62,364 | $ | 451,486 | $ | 187,989 | ||||||||
| Revenue - related party | – | 2,278 | – | 33,820 | ||||||||||||
| Total Revenue | 215,391 | 64,642 | 451,486 | 221,809 | ||||||||||||
| Cost of Revenue | 149,259 | 57,776 | 330,003 | 201,171 | ||||||||||||
| Gross Profit | 66,132 | 6,866 | 121,483 | 20,638 | ||||||||||||
| Operating Expenses: | ||||||||||||||||
| Selling expense | 63,075 | 17,548 | 74,934 | 55,887 | ||||||||||||
| Compensation - officers and directors | 253,403 | 283,625 | 560,937 | 604,290 | ||||||||||||
| Research and development | 342,992 | 167,361 | 619,473 | 729,105 | ||||||||||||
| Professional fees | 116,565 | 153,091 | 373,964 | 535,207 | ||||||||||||
| General and administrative | 361,583 | 590,589 | 804,635 | 1,225,358 | ||||||||||||
| Total Operating Expenses | 1,137,618 | 1,212,214 | 2,433,943 | 3,149,847 | ||||||||||||
| Loss from Operations | (1,071,486 | ) | (1,205,348 | ) | (2,312,460 | ) | (3,129,209 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest income (expense), net | 16,118 | 256 | 30,554 | 250 | ||||||||||||
| Gain on bargain purchase | – | – | 61,747 | – | ||||||||||||
| Unrealized gain (loss) on marketable equity securities | (5,005 | ) | (74,626 | ) | 27,565 | (74,626 | ) | |||||||||
| Realized gain (loss) on marketable equity securities | 652 | – | (14,249 | ) | 10,281 | |||||||||||
| Rental income | 40,341 | 39,172 | 80,293 | 78,342 | ||||||||||||
| Other income (expense), net | 1,214 | 179,249 | (5,859 | ) | 184,735 | |||||||||||
| Total other income, net | 53,320 | 144,051 | 180,051 | 198,982 | ||||||||||||
| Loss before income taxes | (1,018,166 | ) | (1,061,297 | ) | (2,132,409 | ) | (2,930,227 | ) | ||||||||
| Income tax expense | – | – | – | – | ||||||||||||
| Net Loss | $ | (1,018,166 | ) | $ | (1,061,297 | ) | $ | (2,132,409 | ) | $ | (2,930,227 | ) | ||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain (loss) | (3,883 | ) | (431 | ) | (208 | ) | 121 | |||||||||
| Total comprehensive loss | $ | (1,022,049 | ) | $ | (1,061,728 | ) | $ | (2,132,617 | ) | $ | (2,930,106 | ) | ||||
| Weight Average Number of Common Shares Outstanding: Basic and Diluted | ||||||||||||||||
| Net Loss per common share: Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022
(Unaudited)
| Common stock | Treasury Stock | Additional Paid-In | Shares to be issued Common | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||
| Description | Shares | Amount | at Cost | Capital | Shares | Deficit | Loss | Equity | ||||||||||||||||||||||||
| Balance – March 31, 2023 | 64,769,490 | $ | 64,769 | $ | – | $ | 25,833,643 | $ | 12,500 | $ | (18,978,271 | ) | $ | (2,868 | ) | $ | 6,929,773 | |||||||||||||||
| Stock based compensation - options | – | – | – | 133,403 | – | – | – | 133,403 | ||||||||||||||||||||||||
| Stock based compensation - shares | – | – | – | – | 18,900 | – | – | 18,900 | ||||||||||||||||||||||||
| Purchase of treasury stock | – | – | (420,686 | ) | – | – | – | – | (420,686 | ) | ||||||||||||||||||||||
| Issued stock dividend | 2,327 | 2 | – | (2 | ) | – | – | – | – | |||||||||||||||||||||||
| Other comprehensive income | – | – | – | – | – | – | (3,883 | ) | (3,883 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | (1,018,166 | ) | – | (1,018,166 | ) | ||||||||||||||||||||||
| Balance – June 30, 2023 | 64,771,817 | $ | 64,771 | $ | (420,686 | ) | $ | 25,967,044 | $ | 31,400 | $ | (19,996,437 | ) | $ | (6,751 | ) | $ | 5,639,341 | ||||||||||||||
| Balance – March 31, 2022* | 64,889,612 | $ | 64,889 | $ | – | $ | 24,229,820 | $ | 2,587,123 | $ | (14,806,021 | ) | $ | 548 | $ | 12,146,359 | ||||||||||||||||
| Stock based compensation - options | – | – | – | 228,375 | – | – | – | 228,375 | ||||||||||||||||||||||||
| Stock based compensation - shares | – | – | – | – | 28,550 | – | – | 28,550 | ||||||||||||||||||||||||
| Common stock to be issued for service | 230,664 | 231 | – | 1,930,522 | (1,930,753 | ) | – | – | – | |||||||||||||||||||||||
| Other comprehensive income | – | – | – | – | – | – | (431 | ) | (431 | ) | ||||||||||||||||||||||
| Net loss | – | – | – | – | – | (1,061,297 | ) | – | (1,061,297 | ) | ||||||||||||||||||||||
| Balance – June 30, 2022 | 65,120,276 | $ | 65,120 | $ | – | $ | 26,458,717 | $ | 684,920 | $ | (15,867,318 | ) | $ | 117 | $ | 11,341,556 | ||||||||||||||||
(continued)
| 6 |
| Common stock | Treasury Stock | Additional Paid-In | Shares to be issued Common | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||||||
| Description | Shares | Amount | at Cost | Capital | Shares | Deficit | Loss | Equity | ||||||||||||||||||||||||
| Balance – December 31, 2022 | 65,296,383 | $ | 65,297 | $ | (2,000,000 | ) | $ | 27,514,733 | $ | 48,075 | $ | (17,864,028 | ) | $ | (6,543 | ) | $ | 7,757,534 | ||||||||||||||
| Stock based compensation - options | – | – | – | 266,806 | – | – | – | 266,806 | ||||||||||||||||||||||||
| Stock based compensation – cashless exercise options | 10,857 | 10 | – | (12 | ) | – | – | – | – | |||||||||||||||||||||||
| Stock based compensation - shares | 62,250 | 62 | – | 184,917 | (16,675 | ) | – | – | 168,304 | |||||||||||||||||||||||
| Purchase of treasury stock | – | (420,686 | ) | – | – | – | – | (420,686 | ) | |||||||||||||||||||||||
| Retirement of treasury stock | (600,000 | ) | (600 | ) | 2,000,000 | (1,999,400 | ) | – | – | – | – | |||||||||||||||||||||
| Other comprehensive income | – | – | – | – | – | – | (208 | ) | (208 | ) | ||||||||||||||||||||||
| Issued stock dividend | 2,327 | 2 | – | (2 | ) | – | – | – | – | |||||||||||||||||||||||
| Net loss | – | – | – | – | – | (2,132,409 | ) | – | (2,132,409 | ) | ||||||||||||||||||||||
| Balance – June 30, 2023 | 64,771,817 | $ | 64,771 | $ | (420,686 | ) | $ | 25,967,044 | $ | 31,400 | $ | (19,996,437 | ) | $ | (6,751 | ) | $ | 5,639,341 | ||||||||||||||
| Balance – December 31, 2022* | 64,889,612 | $ | 64,889 | $ | – | $ | 24,071,445 | $ | 1,922,753 | $ | (12,937,091 | ) | $ | (4 | ) | $ | 13,121,992 | |||||||||||||||
| Stock based compensation - options | – | – | – | 456,750 | – | – | – | 456,750 | ||||||||||||||||||||||||
| Stock based compensation - shares | – | – | – | – | 692,920 | – | – | 692,920 | ||||||||||||||||||||||||
| Common stock to be issued for service | 230,664 | 231 | – | 1,930,522 | (1,930,753 | ) | – | – | – | |||||||||||||||||||||||
| Other comprehensive income | – | – | – | – | – | – | 121 | 121 | ||||||||||||||||||||||||
| Net loss | – | – | – | – | – | (2,930,227 | ) | – | (2,930,227 | ) | ||||||||||||||||||||||
| Balance – June 30, 2022* | 65,120,276 | $ | 65,120 | $ | – | $ | 26,458,717 | $ | 684,920 | $ | (15,867,318 | ) | $ | 117 | $ | 11,341,556 | ||||||||||||||||
*Retroactively applied to the stock split
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 7 |
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (2,132,409 | ) | $ | (2,930,227 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Bad debt expense | 4,675 | 57,147 | ||||||
| Inventory fair value net realizable | – | (25,617 | ) | |||||
| Depreciation expense | 84,616 | 82,063 | ||||||
| Amortization of intangible assets | 28,741 | – | ||||||
| Unrealized (gain) loss on marketable equity securities | (27,565 | ) | 74,626 | |||||
| Realized (gain) loss on marketable equity securities | 14,249 | (10,281 | ) | |||||
| SBA loan forgiveness | – | (158,547 | ) | |||||
| Gain on bargain purchase | (61,747 | ) | – | |||||
| Stock-based compensation – shares | 168,304 | 692,920 | ||||||
| Stock option compensation – options | 266,806 | 456,750 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (27,741 | ) | (47,454 | ) | ||||
| Accounts receivable - related party | 34,507 | (73,094 | ) | |||||
| Inventory | 15,526 | (7,752 | ) | |||||
| Other receivable | – | 13,057 | ||||||
| Prepaid expenses | (46,109 | ) | 103,083 | |||||
| Deposit | 8,514 | (4,008 | ) | |||||
| Operating lease right-of-use assets | 4,983 | 190,790 | ||||||
| Accounts payable and accrued liabilities | 73,823 | (106,104 | ) | |||||
| Other current liabilities | 39,100 | (11,004 | ) | |||||
| Lease liabilities | (55,012 | ) | (60,576 | ) | ||||
| Other liabilities | – | 14,736 | ||||||
| Net cash flows used in operating activities | (1,606,739 | ) | (1,749,492 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (17,203 | ) | (39,702 | ) | ||||
| Purchase of marketable securities | (43,644 | ) | (708,359 | ) | ||||
| Proceeds from sale of marketable securities | 101,736 | 480,524 | ||||||
| Net cash flows provided by (used in) investing activities | 40,889 | (267,537 | ) | |||||
| Cash flows from financing activities: | ||||||||
| Purchase of treasury stock | (1,420,686 | ) | – | |||||
| Net cash flows used in financing activities | (1,420,686 | ) | – | |||||
| Effect of exchange rate | 1,793 | (1,228 | ) | |||||
| Net change in cash | (2,984,743 | ) | (2,018,257 | ) | ||||
| Cash beginning of period | 4,343,426 | 8,678,665 | ||||||
| Cash end of period | $ | 1,358,683 | $ | 6,660,408 | ||||
| Supplemental cash flow disclosure: | ||||||||
| Cash paid for income taxes | $ | – | $ | – | ||||
| Cash paid for interest | $ | 8,407 | $ | 6,153 | ||||
| Supplemental disclosure for noncash financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | 266,101 | $ | – | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | 62,364 | $ | 256,730 | $ | 187,989 | $ | 610,002 | ||||||||
| Revenue - related party | 2,278 | 4,950 | 33,820 | 15,141 | ||||||||||||
| Total Revenue | 64,642 | 261,680 | 221,809 | 625,143 | ||||||||||||
| Cost and Operating Expenses: | ||||||||||||||||
| Cost of revenue, excluding depreciation & amortization | 57,472 | 208,583 | 200,563 | 500,846 | ||||||||||||
| Selling expense | 17,548 | 446 | 55,887 | 958 | ||||||||||||
| Compensation - officers | 34,000 | 34,000 | 110,040 | 73,100 | ||||||||||||
| Research and development | 167,361 | 47,222 | 729,105 | 110,372 | ||||||||||||
| Professional fees | 174,341 | 186,765 | 535,207 | 457,475 | ||||||||||||
| General and administrative | 819,268 | 448,199 | 1,720,216 | 865,120 | ||||||||||||
| Total Operating Expenses | 1,269,990 | 925,215 | 3,351,018 | 2,007,871 | ||||||||||||
| Loss from Operations | (1,205,348 | ) | (663,535 | ) | (3,129,209 | ) | (1,382,728 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest income (expense), net | 256 | (15,223 | ) | 250 | (22,756 | ) | ||||||||||
| Unrealized loss on marketable equity securities | (74,626 | ) | 0 | (74,626 | ) | 0 | ||||||||||
| Realized gain on marketable equity securities | 0 | 0 | 10,281 | 0 | ||||||||||||
| Other income (expense), net | 218,421 | 198,613 | 263,077 | 242,823 | ||||||||||||
| Total other income (expense) | 144,051 | 183,390 | 198,982 | 220,067 | ||||||||||||
| Loss before income taxes | (1,061,297 | ) | (480,145 | ) | (2,930,227 | ) | (1,162,661 | ) | ||||||||
| Income tax expense | 0 | 0 | 0 | 0 | ||||||||||||
| Net Loss | $ | (1,061,297 | ) | $ | (480,145 | ) | $ | (2,930,227 | ) | $ | (1,162,661 | ) | ||||
| Other comprehensive items | ||||||||||||||||
| Foreign currency translation gain and (loss) | (431 | ) | 0 | 121 | 0 | |||||||||||
| Total comprehensive loss | $ | (1,061,728 | ) | $ | (480,145 | ) | $ | (2,930,106 | ) | $ | (1,162,661 | ) | ||||
| Weight Average Number of Common Shares Outstanding: Basic and Diluted | ||||||||||||||||
| Net Loss per common share: Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022 AND 2021
(Unaudited)
| Common stock | Additional | Shares to be Issued | Accumulated Other | Total | ||||||||||||||||||||||||
| Description | Shares | Amount | Paid-In Capital | Common Shares | Accumulated Deficit | Comprehensive Income (Loss) | Stockholders’ Equity | |||||||||||||||||||||
| Balance - March 31, 2022 | 43,259,741 | $ | 43,259 | $ | 24,321,450 | $ | 2,587,123 | $ | (14,806,021 | ) | $ | 548 | $ | 12,146,359 | ||||||||||||||
| Stock based compensation -options | – | – | 228,375 | – | – | – | 228,375 | |||||||||||||||||||||
| Stock based compensation - shares | – | – | – | 28,550 | – | – | 28,550 | |||||||||||||||||||||
| Common stock to be issued for services | 153,776 | 154 | 1,930,599 | (1,930,753 | ) | – | – | – | ||||||||||||||||||||
| Other comprehensive loss | – | – | – | – | – | (431 | ) | (431 | ) | |||||||||||||||||||
| Net loss | – | – | – | – | (1,061,297 | ) | – | (1,061,297 | ) | |||||||||||||||||||
| Balance – June 30, 2022 | 43,413,517 | $ | 43,413 | $ | 26,480,424 | $ | 684,920 | $ | (15,867,318 | ) | $ | 117 | $ | 11,341,556 | ||||||||||||||
| Balance - March 31, 2021 | 40,959,741 | $ | 40,959 | $ | 14,487,896 | $ | 110,709 | $ | (10,398,630 | ) | $ | – | $ | 4,240,934 | ||||||||||||||
| Stock based compensation -options | – | – | 106,837 | – | – | – | 106,837 | |||||||||||||||||||||
| Common stock to be issued for services | – | – | – | 12,000 | – | – | 12,000 | |||||||||||||||||||||
| Net loss | – | – | – | – | (480,145 | ) | – | (480,145 | ) | |||||||||||||||||||
| Balance – June 30, 2021 | 40,959,741 | $ | 40,959 | $ | 14,594,733 | $ | 122,709 | $ | (10,878,775 | ) | $ | – | $ | 3,879,626 | ||||||||||||||
| Common stock | Additional | Shares to be Issued | Accumulated Other | Total | ||||||||||||||||||||||||
| Description | Shares | Amount | Paid-In Capital | Common Shares | Accumulated Deficit | Comprehensive Income (Loss) | Stockholders’ Equity | |||||||||||||||||||||
| Balance - December 31, 2021 | 43,259,741 | $ | 43,259 | $ | 24,093,075 | $ | 1,922,753 | $ | (12,937,091 | ) | $ | (4 | ) | $ | 13,121,992 | |||||||||||||
| Stock based compensation -options | – | – | 456,750 | – | – | – | 456,750 | |||||||||||||||||||||
| Stock based compensation - shares | – | – | – | 692,920 | – | – | 692,920 | |||||||||||||||||||||
| Common stock to be issued for services | 153,776 | 154 | 1,930,599 | (1,930,753 | ) | – | – | – | ||||||||||||||||||||
| Other comprehensive loss | – | – | – | – | – | 121 | 121 | |||||||||||||||||||||
| Net loss | – | – | – | – | (2,930,227 | ) | – | (2,930,227 | ) | |||||||||||||||||||
| Balance – June 30, 2022 | 43,413,517 | $ | 43,413 | $ | 26,480,424 | $ | 684,920 | $ | (15,867,318 | ) | $ | 117 | $ | 11,341,556 | ||||||||||||||
| Balance - December 31, 2020 | 40,959,741 | $ | 40,959 | $ | 14,381,058 | $ | 98,709 | $ | (9,716,114 | ) | $ | – | $ | 4,804,612 | ||||||||||||||
| Stock based compensation - options | – | – | 213,675 | – | – | – | 213,675 | |||||||||||||||||||||
| Common stock to be issued for services | – | – | – | 24,000 | – | – | 24,000 | |||||||||||||||||||||
| Net loss | – | – | – | – | (1,162,661 | ) | – | (1,162,661 | ) | |||||||||||||||||||
| Balance – June 30, 2021 | 40,959,741 | $ | 40,959 | $ | 14,594,733 | $ | 122,709 | $ | (10,878,775 | ) | $ | – | $ | 3,879,626 | ||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
FOCUS UNIVERSAL INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net Loss | $ | (2,930,227 | ) | $ | (1,162,661 | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Bad debt expense | 57,147 | 5,749 | ||||||
| Inventory fair value adjustments | (25,617 | ) | (1,329 | ) | ||||
| Depreciation expense | 82,063 | 80,872 | ||||||
| Unrealized loss on marketable equity securities | 74,626 | 0 | ||||||
| Realized gain on marketable equity securities | (10,281 | ) | 0 | |||||
| Gain on forgiveness of debt | (158,547 | ) | (151,500 | ) | ||||
| Stock-based compensation – shares | 692,920 | 0 | ||||||
| Stock-based compensation – services | 0 | 24,000 | ||||||
| Stock option compensation – options | 456,750 | 213,675 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (47,454 | ) | 40,219 | |||||
| Accounts receivable - related party | (73,094 | ) | (5,016 | ) | ||||
| Inventories | (7,752 | ) | 32,248 | |||||
| Other receivable | 13,057 | (2,400 | ) | |||||
| Prepaid expenses | 103,083 | (98,821 | ) | |||||
| Deposit | (4,008 | ) | 100,000 | |||||
| Operating lease right-of-use asset | 190,790 | 23,553 | ||||||
| Accounts payable and accrued liabilities | (106,104 | ) | 32,400 | |||||
| Accounts payable - related party | 0 | (17,471 | ) | |||||
| Other current liabilities | (17,135 | ) | 164 | |||||
| Customer deposit | 6,131 | (52,751 | ) | |||||
| Lease liabilities | (60,576 | ) | (25,228 | ) | ||||
| Other liabilities | 14,736 | 0 | ||||||
| Net cash flows used in operating activities | (1,749,492 | ) | (964,297 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | (39,702 | ) | 0 | |||||
| Purchase of marketable securities | (708,359 | ) | 0 | |||||
| Proceeds from sale of marketable securities | 480,524 | 0 | ||||||
| Net cash flows used in investing activities | (267,537 | ) | 0 | |||||
| Cash flows from financing activities: | ||||||||
| Proceeds from SBA loan | 0 | 267,297 | ||||||
| Repayment on SBA loan | 0 | (227 | ) | |||||
| Proceeds from bank loan | 0 | 1,500,000 | ||||||
| Prepayment on bank loan | 0 | (4,663 | ) | |||||
| Net cash flows provided by financing activities | 0 | 1,762,407 | ||||||
| Effect of exchange rate | (1,228 | ) | 0 | |||||
| Net change in cash | (2,018,257 | ) | 798,110 | |||||
| Cash beginning of period | 8,678,665 | 583,325 | ||||||
| Cash end of period | $ | 6,660,408 | $ | 1,381,435 | ||||
| Supplemental cash flow disclosure: | ||||||||
| Cash paid for income taxes | $ | 0 | $ | 0 | ||||
| Cash paid for interest | $ | 6,153 | $ | 19,267 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
FOCUS UNIVERSAL INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 20222023 AND 20212022
(UNAUDITED)
Note 1 – Organization and Operations
Focus Universal Inc. (“Focus”(the “Company”) was incorporated under the laws of the State of Nevada on December 4, 2012 (“Inception”). Focus Universal Inc.2012. It is a universal smart instrument developer and manufacturer, focused on the internet of things (“IoT”) industry, headquartered in Ontario, California, specializing in the development and commercialization of novel and proprietary universal smart technologies and instruments thatinstruments. Focus Universal Inc. is also a provider of patented hardware and software design technologies for Internet of Things (IoT) and 5G. The Company has developed what it believes are five disruptive patented technology platforms with 26 patents and patents pending in various phases and 8 trademarks pending in various phases to solve what it believes are the major problems plaguingfacing hardware and software design and production within the internet of things (“IoT”) industry by: (1)today. These technologies combined have the potential to reduce costs, product development timelines and energy usage while increasing overall chip integration by shifting it to the device level; (2) creating a faster 5G cellular technology by using Ultra-narrowband technology; (3) leveraging ultra-narrowband power line communication (“PLC”) technology;range, speed, efficiency, and (4) User Interface Machine auto generation technology. Universal smart technology is an off-the-shelf technology utilizing an innovative hardware integrated platform. The Focus platform provides a unique and universal combined wired and wireless solution for embedded design, industrial control, functionality test, and parameter measurement instruments and functions. The Company’s smart technology software utilizes a smartphone, computer, or a mobile device as an interface platform and display that communicates and works in tandem with a group of external sensors or probes, or both. The external sensors and probes may be manufactured by different vendors, but the universal smart technology functions in a manner that does not require the user to have extensive knowledgesecurity of the unique characteristics of the function of each of the sensorsIoT and probes. The universal smart instrument Focus developed (the “Ubiquitor”) consists of a reusable foundation component which includes a wireless gateway (which allows the instrument to connect to the smartphone via Bluetooth and WiFi technology), universal smart application software (“Application”) which is installed on the user’s smartphone or other mobile device and allows monitoring of the sensor readouts on the smartphone screen. The Ubiquitor also connects to a variety of individual scientific sensors that collect data, from moisture, light, airflow, voltage, and a wide variety of applications. The data is then sent through a wired or wireless connection, or a combination thereof to the smartphone or other mobile device and the data is organized and displayed on the smartphone screen. The smartphone or other mobile device, foundation, and sensor readouts together perform the functions of many traditional scientific and engineering instruments and are intended to replace the traditional, wired stand-alone instruments at a fraction of their cost. Focus Universal is also developing ultra-narrow band technology that is hopefully capable of overcoming the noise problems communicating through power lines that have hindered the industry for over a century. Focus Universal’s wireless communication technology may allow for longer-range coverage, might be more energy effective and management believes has much faster data sending speeds than the current 5G technology speeds being used.networks.
The Company has multiple subsidiaries, including Perfecular Inc. (“Perfecular”), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), AVX Design & Integration, Inc. (“AVX,” also doing business as Smart AVX (“Smart AVX”)), Lusher Bioscientific, Inc. (“Lusher”), and AT Tech Systems LLC (“AT Tech Systems”). Perfecular, a wholly-ownedwholly owned subsidiary of Focus that was founded in September 2009 and is headquartered in Ontario, California, and is engaged in designing certain digital sensor products and sellsselling a broad selection of horticultural sensors and filters in North America and Europe.
AVX, Design & Integration, Inc. (“AVX”) was incorporated on June 16, 2000 in the state of California. AVXCalifornia, is an IoT installation and management company specializing in high performance and easy to use Audio/Video, Home Theater, Lighting Control, Automationaudio/video systems, home theaters, lighting control, automation and Integration.integration. Services provided by AVX include full integration of houses, apartment,apartments, commercial complex,complexes, office spaces with audio, visual and control systems to fully integrate devices in the low voltage field.field, specializing in high end residential smart IoT install projects in areas throughout the Southern California area. AVX’s services also include partial equipment upgrade and installation.
On December 23, 2021, AVX also markets and sells our IoT Products, such as high end LED, live wall panel products and cameras, under the Smart AVX name. Focus set up a branch in Shenzhen China, Focus Universal (Shenzhen) Technology Company LTD. The subsidiary was registeredShenzhen, to be engaged in IoT research and development, equipment sales, and application services, and software development and sales, software outsourcing, intelligent agricultural management, intelligent instrumentation sales, and information consulting services. This excludes any projects subject to approval or that require a separate business license in accordance with the local laws. China allows foreign entities to setup wholly owned limited liability companies in China, also known as Wholly Foreign Owned Enterprises (WFOEs), in non “restricted” or “prohibited” industries and businessamongst other activities. The subsidiary’s business operation has been approved by the local government in Shenzhen to be qualified as a WFOE entity in China. The entity is 100% owned by Focus Universal, Inc.
On January 5, 2022, the Company founded a wholly owned subsidiary named Lusher Bioscientific, Inc. (“Lusher”) Lusher Bioscientific was founded to market to the hydroponic and controlled agriculture market and to assist in the product development of IoT technology products within this sector. As of January 6, 2023, AT Tech Systems is a subsidiary of Focus specializing in commercial and industrial smart IoT install projects in areas throughout the date of this filing, the CompanySouthern California area. AT Tech Systems has only founded the subsidiaryseveral clients from medical/dental facilities and activities are in the introductory phase.commercial and industrial projects, including several with notable manufacturers and wholesalers, and provides clients with integrated network, security, and multimedia design solutions and technology systems.
The Company has completed integration throughout its existing businesses, including key employees serving dual roles with its subsidiaries. For example, Mr. Anthony Tejeda serves as the Company’s director of installation services, as the vice president of operations of AVX, and as chief operating officer of AT Tech Systems.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of Focus and its wholly-owned subsidiaries, Perfecular, Inc., AVX, Design & Integration, Inc., Focus Universal (Shenzhen) Technology Co., LTDShenzhen, Lusher and Lusher BioscientificAT Tech Systems (collectively, the “Company”, “we”, “our”,“Company,” “we,” “our,” or “us”). All intercompany balances and transactions have been eliminated upon consolidation. The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Going Concern
In the long term, the continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. For the six months ended June 30, 2022, the Company had a net loss of $2,930,227 and negative cash flow from operating activities of $1,749,492. With the January 1, 2022 beginning cash amount of $8,678,665, the Company will have enough cash to cover its projected annual cash burn rate of $3,152,618 which is an increase from the previous year. This is a result of coming off of a year where the company completed an uplisting transaction causing a greater than normal amount of expenditure, especially in professional fees. Overall, the Company has adequate cash for the Company to continue operation as a going concern throughout 2022 without any additional capital raise. As a result, the previous factors raising substantial doubt to continue as a going concern have been alleviated for the following year.
| 9 |
Segment Reporting
The Company currently has twothree operating segments. In accordance with ASC 280, Segment Reporting (“ASC 280”),First, Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves the Company considers operatingnon-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of technology products. Second, Perfecular, AVX (doing business as Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instruments and devices in the hydroponic and controlled agriculture segments to be componentsand of our smart products into the commercial and home automation sectors. And third, AVX (exclusive of the Company’ssmart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management business for which separate financial information is availablespecializing in high performance and evaluated regularly by Management in deciding howeasy to allocate resourcesuse audio/video systems, home theaters, lighting control, automation, and to assess performance. Management reviews financial information presented on an unaudited condensed consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has two operating and reportable segments.integration.
Asset information by operating segment is not presented as the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include the lease term impacting right-of useright-of-use asset with the estimate discount rate and lease liability, useful lives of property and equipment, useful lives of intangible assets, allowance for doubtful accounts, inventory reserves, debt discounts, valuation of derivatives, and the valuation allowance on deferred tax assets. The Company regularly evaluates its estimates and assumptions.
Cash
The Company considers all highly liquid investments with a maturity of three months or less to be cash. At times, such investments may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limit.limits. As of June 30, 20222023 and December 31, 2021,2022, respectively, approximately $5,719,087781,867 and $7,464,8463,120,763 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company as of either June 30, 2022 and2023 or December 31, 2021.2022.
Accounts Receivable
The Company grants credit to clients that sell the Company’s products or engage in construction service under credit terms that it believes are customary in the industry and do not require collateral to support customer receivables. The accounts receivable balances are generally collected within 30 to 90180 days of the product sale.
Allowance for doubtful accounts
The Company estimates an allowance for doubtful accounts based on historical collection trends and review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of June 30, 20222023 and December 31, 2021,2022, allowance for doubtful accounts amounted to $143,782227,647 and $86,635222,972, respectively.
| 10 |
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit loss by investing its cash with high credit quality financial institutions.
Inventory
Inventory consists primarily of parts and finished goods and is valued at the lower of the inventory’s cost or net realizable value under the first-in-first-out method.first in, first out method (“FIFO Method”). Management compares the cost of inventory with its market value and a fair value adjustment is made to write down inventory to market value, if lower. Inventory allowancesfair value adjustments are recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as discontinued products. These estimates could vary significantly from actual requirements, for example, if future economic conditions, customer inventory levels or competitive conditions differ from expectations. The Company regularly reviews the value of inventory based on historical usage and estimated future usage. If estimatednet realized value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated marketnet realizable value. As of June 30, 2022 and December 31, 2021, inventory fair value adjustments amounted to $
43,323 and $68,940, respectively.
Marketable Equity Securities
The Company invests part of its excess treasury cash in equity securities and money market funds according to company treasury and investment policies. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized gains and losses are recognized the fair value differences when the trading securities been sold based on the FIFO Method. Unrealized gains and losses are recognized the fair value differences of unsold trading securities for the period end based on the FIFO Method. Both realized and unrealized gains and losses are recorded in other income (expense), net..
Property and Equipment
Property and equipment are stated at cost. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is included in earnings. Maintenance and repairs are expensed currently. Major renewals and betterments are capitalized. Depreciation is computed using the straight-line method. Estimated useful lives are as follows:
| Schedule of estimated useful lives of property, plant and equipment | |
| Fixed assets | Useful life |
| Furniture | 5 years |
| Equipment | 5 years |
| Warehouse | 39 years |
| Improvement | 5 years |
| Land | N/A |
Long-Lived Assets
The Company applies the provisions of FASB ASCFinancial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that those fair values are reduced for the cost of disposal. Long-term assets of the Company are reviewed when circumstances warrant as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. Based on its review at June 30, 20222023 and December 31, 2021,2022, the Company believes there was 0no impairment of its long-lived assets.
| 11 |
Intangible Assets
The Company’s intangible assets were acquired from AT Tech Systems due to customer relationships using the multi-period excess earnings method. These intangible assets were valued based on the AT Tech Systems business acquisition. The value is based on the assessed income expected to be generated from the existing customer list, namely the carry-over of the existing contracts after a careful evaluation of the customer list. Amortization on the intangible assets was computed by the percentage completed for these existing assets and fully amortized as of June 30, 2023.
Treasury stock
Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. The Company does not recognize a gain or loss to income from the purchase and sale of treasury stock.
The Company accounts for stock-based compensation to employees in conformity with the provisions of FASB ASC Topic 718, Stock-Based Compensation. Stock-based compensation to employees consist of stock options, grants, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant.
The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period during which services are received.
The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model (see Note 11) and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.
The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award.
Warrants
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic 480, Distinguishing Liabilities from Equity (“and FASB ASC 480”) and ASCTopic 815, Derivatives and Hedging (“ASC 815”).Hedging. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company calculates the fair value of the warrants was estimated using autilizing the Black-Scholes pricing model (see Note 11).model. The Company does notnot have any outstanding warrants as of June 30, 20222023 and December 31, 2021,2022, respectively.
Stock Dividends
The Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held. The Company follows paragraph ASC 505-20-25 in treating its stock dividend as a stock split due to the stock dividend being greater than 25% of the shares then outstanding. On March 23, 2023 and April 3, 2023, the Company issued 21,592,164 stock dividends to its shareholders for a stock dividend of one share of common stock for every two shares of common stock issued and outstanding. The Company also adheres to paragraph ASC 260-10-55-12, wherein it retroactively adjusted its statement of stockholders’ equity for all presented periods to incorporate the alteration in capital structure. The retroactive treatment is based on a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders on March 23, 2023. The Company does not capitalize its retained earnings, and there is no impact to the Company’s overall equity or its total assets.
Fair Value of Financial Instruments
The Company follows paragraph ASC 825-10-50-10 for disclosures about fair value of its financial instruments and paragraph ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP),conformity with U.S. GAAP, and expands disclosures about fair value measurements.
To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy whichthat prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data. |
The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:
| Schedule of Fair Value Assets And Liabilities Measured On Recurring Basis | ||||||||||||||||||||||||||||||||
| June 30, 2022 (unaudited) | June 30, 2023 (unaudited) | |||||||||||||||||||||||||||||||
| Fair Value | Carrying | Fair Value | Carrying | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | Level 1 | Level 2 | Level 3 | Value | |||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Marketable securities: | ||||||||||||||||||||||||||||||||
| Stock | $ | 163,490 | $ | 0 | $ | 0 | $ | 163,490 | $ | 60,694 | $ | – | $ | – | $ | 60,694 | ||||||||||||||||
| Total assets measured at fair value | $ | 163,490 | $ | 0 | $ | 0 | $ | 163,490 | $ | 60,694 | $ | – | $ | – | $ | 60,694 | ||||||||||||||||
| December 31, 2022 | ||||||||||||||||
| Fair Value | Carrying | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Value | |||||||||||||
| Assets | ||||||||||||||||
| Marketable securities: | ||||||||||||||||
| Stock | $ | 105,470 | $ | – | $ | – | $ | 105,470 | ||||||||
| Total assets measured at fair value | $ | 105,470 | $ | – | $ | – | $ | 105,470 | ||||||||
The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventories,inventory, other receivable,receivables, prepaid expenses, deposit, accounts payable, treasury stock payable and accrued expenses, other current liabilities, customer deposit, approximate their fair value because of the short maturity of those instruments.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
However, it is not practical to determine the fair value of advances from stockholders, if any, due to their related party nature.
Comprehensive Income (Loss)
Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s other comprehensive loss for the six months ended June 30, 20222023 and for the yearsyear ended December 31, 20212022 was comprised of foreign currency translation adjustments.
Revenue Recognition
On September 1, 2018, the Company adopted FASB ASC Topic 606, – Revenue from Contracts with Customers using the modified retrospective transition approach. The core principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. The Company’s updated accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue. The impact of adopting ASC 606 was not material to the Consolidated Financial Statements.unaudited condensed consolidated financial statements.
Revenue from the Company is recognized under TopicASC 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:
| · | executed contracts with the Company’s customers that it believes are legally enforceable; |
| · | identification of performance obligations in the respective contract; |
| · | determination of the transaction price for each performance obligation in the respective contract; |
| · |
| · | recognition of revenue only when the Company satisfies each performance obligation. |
These five elements, as applied to each of the Company’s revenue category,categories, is summarized below:
| · | Product sales – revenue is recognized at the time of sale upon the delivery of equipment to the customer. |
| · | Service sales – revenue is recognized based on the service having been provided and the agreed upon performance obligation has been completed to the customer. |
Revenue from our project construction is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by estimating stage of work completed. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Our construction contracts are unit priced, and an accountaccounts receivable is recorded for amounts invoiced based on actual units produced.
Cost of Revenue, excluding depreciation & amortization
Cost of revenue includes the cost of services, labor and product incurred to provide product sales, service sales and project sales.
Research and development
Research and development costs are expensed as incurred. Research and development costs primarily consist of efforts to refine existing product models and develop new product models.
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Related Parties
The Company follows Section 10 of FASB ASC 850-10Topic 850, Related Party Disclosures for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20 the related parties include: a)(a) affiliates of the Company; b)(b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of ASC 825–10–15, to be accounted for by the equity method by the investing entity; c)(c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d)(d) principal owners of the Company; e)(e) management of the Company; f)(f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g)(g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The unaudited condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of unaudited condensed consolidated financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the unaudited condensed consolidated financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Commitments and Contingencies
The Company follows Section 20 of FASB ASC 450-20Topic 450, Contingencies to report accounting for loss contingencies. Certain conditions may exist as of the date the unaudited condensed consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s unaudited condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Gain on Bargain Purchase
A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid.
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Income Tax Provision
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.
Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. There waswere no material deferred tax assetassets or liabilities as of June 30, 20222023 and December 31, 2021.2022.
As of June 30, 20222023 and December 31, 2021,2022, the Company did 0not identify any material uncertain tax positions.
Net income (loss) per share is computed pursuant to Section 10-45 of FASB ASC 260-10-45.Topic 260, Earnings Per Share. Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period.
Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of stock and potentially outstanding shares of stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement,arrangements, stock options or warrants.
Due to the net loss incurred by the Company, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive.
| Schedule of anti dilutive shares | ||||||||||||||||
| Six Months Ended June 30, | 2022 | 2021 | 2023 | 2022 | ||||||||||||
| Stock options | 367,787 | 262,500 | 457,934 | 367,787 | ||||||||||||
| Total | 367,787 | 262,500 | 457,934 | 367,787 | ||||||||||||
While the EPS treatment was applied in Q2 ended June 30, 2032, the adjustment is also retroactive accordingly.
Reclassification
Certain reclassifications have been made to the unaudited condensed consolidated financial statements for the prior yearsperiod to the current year’s presentation. Such reclassifications have no effect on net income as previously reported.
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Foreign Currency Translation and Transactions
The reporting and functional currency of Focus is the USD.U.S. dollar (USD). The functional currency of Focus Universal (Shenzhen) Technology Co. LTD, a wholly owned subsidiary of Focus located in China,Shenzhen is the Renminbi (“RMB”)renminbi (RMB).
For financial reporting purposes, the financial statements of the Company’s Chinese subsidiary,Focus Shenzhen, which are prepared using the RMB, are translated into the Company’s reporting currency, USD. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue and expenses are translated using average exchange rates prevailing during each reporting period. Stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange difference, presented as foreign currency transaction loss, is included in the accompanying unaudited condensed consolidated statements of operations. The exchange rates used for unaudited condensed consolidated financial statements are as follows:
| Schedule Of Intercompany Foreign Currency Balances | ||||||||
Average Rate for the Six Months Ended June 30, | ||||||||
2023 (Unaudited) | 2022 (Unaudited) | |||||||
| China Yuan (RMB) | RMB | 6.9243 | RMB | 6.4749 | ||||
| United States Dollar ($) | $ | 1.0000 | $ | 1.0000 | ||||
| Schedule Of Intercompany Foreign Currency Balances | ||||||||
Average Rate for the Six Months Ended June 30, | ||||||||
2022 (Unaudited) | 2021 (Unaudited) | |||||||
| China Yuan (RMB) | RMB | 6.4749 | RMB | 6.4721 | ||||
| United States Dollar ($) | $ | 1.0000 | $ | 1.0000 | ||||
| Exchange Rate at | ||||||||||||||||
| Exchange Rate at | June 30, 2023 | December 31, 2022 | ||||||||||||||
June 30, 2022 (Unaudited) | December 31, 2021 | (Unaudited) | ||||||||||||||
| China Yuan (RMB) | RMB | 6.6964 | RMB | 6.3641 | RMB | 7.2542 | RMB | 6.8973 | ||||||||
| United States Dollar ($) | $ | 1.0000 | $ | 1.0000 | $ | 1.0000 | $ | 1.0000 | ||||||||
Going Concern
In August 2014, the FASB issued ASC 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these unconsolidated financial statements. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company has a net loss of $2,132,409 and $2,930,227 for the six months ended June 30, 2023 and 2022, respectively. In addition, the Company had an accumulated deficit of $19,996,437 and $17,864,028 as of June 30, 2023 and December 31, 2022, respectively, and negative cash flow from operating activities of $1,606,739 and $1,749,492 for the six months ended June 30, 2023 and 2022, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is operating on a going concern basis as of June 30, 2023.
Note 3 – Recent Accounting Pronouncement
In June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SECSecurities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
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Note 4 – Inventory
At June 30, 20222023 and December 31, 2021,2022, inventory consisted of the following:
| Schedule of Inventory | ||||||||||||||||
| Schedule of inventory | ||||||||||||||||
| June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Parts | $ | 21,480 | $ | 12,470 | $ | 1,051 | $ | 3,767 | ||||||||
| Finished goods | 34,778 | 10,419 | 87,195 | 100,005 | ||||||||||||
| Inventory | $ | 56,258 | $ | 22,889 | $ | 88,246 | $ | 103,772 | ||||||||
Note 5 – Deposits
Deposit The depositsbalance as of June 30, 20222023 amounted to $42,20323,545 for lease agreement and utility depositdeposits and third-party payroll service deposit. Depositdeposits. The deposits balance as of December 31, 20212022 amounted to $39,90133,264 for lease agreement and utility deposit.deposits.
Note 6 – Property and Equipment
AtAs of June 30, 20222023 and December 31, 2021,2022, property and equipment consisted of the following:
| Schedule of property and equipment | ||||||||||||||||
| June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Warehouse | $ | 3,789,773 | $ | 3,789,773 | $ | 3,789,773 | $ | 3,789,773 | ||||||||
| Land | 731,515 | 731,515 | 731,515 | 731,515 | ||||||||||||
| Building improvement | 240,256 | 238,666 | 240,256 | 240,256 | ||||||||||||
| Furniture and fixture | 38,103 | 27,631 | 38,917 | 37,785 | ||||||||||||
| Equipment | 98,109 | 71,368 | 115,061 | 101,076 | ||||||||||||
| Software | 1,995 | 1,995 | 1,995 | 1,995 | ||||||||||||
| Total cost | 4,899,751 | 4,860,948 | 4,917,517 | 4,902,400 | ||||||||||||
| Less accumulated depreciation | (589,626 | ) | (507,608 | ) | (758,014 | ) | (673,770 | ) | ||||||||
| Property and equipment, net | $ | 4,310,125 | $ | 4,353,340 | $ | 4,159,503 | $ | 4,228,630 | ||||||||
Depreciation expense for the three months ended June 30, 2023 and 2022 amounted to $42,209 and $41,898, respectively. Depreciation expense for the six months ended June 30, 20222023 and 20212022 amounted to $82,06384,616 and $80,87282,063, respectively.
Note 7 – Intangible Assets, net
The Company purchased a warehouse in Ontario, California in September 2018 and leased an unused portion to a third party. The tenant paid $12,335 as security deposit, shown as non-current liabilitiesfollowing table presents the intangible assets balances as of June 30, 20222023 and other liability in other current liability as of December 31, 2021.2022:
| Schedule of intangible assets | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Customer Relationship | $ | 28,741 | $ | – | ||||
| Less accumulated amortization | (28,741 | ) | – | |||||
| Intangible assets, net | $ | – | $ | – | ||||
Note 78 – Related Party Transactions
Revenue generated from Vitashower Corp., a company owned by the Chief Executive Officer’s wife, amounted to $31,5420 and $15,14133,820 for the six months ended June 30, 2023 and 2022, and 2021, respectively. AccountThe accounts receivable balance due from Vitashower Corp. amounted to $85,9920 and $15,17634,507 as of June 30, 20222023 and December 31, 2021,2022, respectively. Purchases generated from Vitashower Corp. amounted to $0 and $0 for the six months ended June 30, 2022 and 2021, respectively. There were accounts payable balances of $0 and $0 due to Vitashower Corp. as of June 30, 2022 and December 31, 2021, respectively.
Service revenue generated from one of the Company’s directors, amounted to $2,278 and $0 for the six months ended June 30, 2022 and 2021, respectively. Account receivable balance due from this director amounted to $2,278 and $0 as of June 30, 2022 and December 31, 2021, respectively.
Compensation for services provided by the President and Chief Executive Officer for the six months ended June 30, 2022 and 2021 amounted to $60,000 and $60,000, respectively. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer Desheng Wang, as fully disclosed in the annual report in 2017. Since then, during 2018, the entity was transferred to another individual and was not considered a related party transaction per guidelines, and further subsequent changes to the vendor are noted in Note 8 found below.
Note 89 – Business Concentration and Risks
Major customers
ThreeTwo customers accounted for 3432% of the total accounts receivable as of June 30, 20222023 and one customerfour customers accounted for 4811% of the total accounts receivable as of December 31, 2021, respectively. These three2022. Two customers accounted for 5437% of the total revenue for the six months ended June 30, 20222023 and one customerthree customers accounted for 7854% of total revenue for the six months ended June 30, 2021, respectively.2022.
Major vendors
No major vendor accounted more than 10% of total purchases during the six months ended June 30, 2023. One vendor, Tianjin Guanglee, accounted for0% and 0% of total accounts payable at June 30, 20222022; and December 31, 2021, respectively. This samethis vendor Tianjin Guanglee, accounted for 24% and 77% of the total purchases forduring the six months ended June 30, 2022 and 2021, respectively.2022. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer, Desheng Wang, as fully disclosed in theour annual report in 2017. In 2018, Dr. Wangthe Chief Executive Officer transferred the ownership of the entity to an unrelated third party in a transaction not considered a related party transaction per the relevant guidelines.
Note 910 – Lease
The Company recorded its operating lease expense of $237,04581,069 and $32,590237,045 for the six months ended June 30, 2023 and 2022, respectively. This is included in general and 2021, respectively.
On April 8, 2015, AVX Design & Integration Inc. entered an eighty-six month commercial lease with a third party for an approximately 2,592 square foot office space. The lease commenced on July 1, 2015, and will end on August 31, 2022. The monthly rent is $4,536 with approximately a 3% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 15%. Lease expense for the lease is recognized on a straight-line basis over the lease term. As of August, the company has not entered into any new commercial lease for AVX Design & Integration Inc.administrative expenses.
On December 7, 2021, Focus Universal (Shenzhen) Technology Co. LTDShenzhen entered into a thirty-eight month commercial lease with a third party for an approximately 5,895 square foot office space. The lease commenced on December 25, 2021 and willwas scheduled to end on February 28, 2025. The monthly rent iswas RMB70,097 (approximately $11,053)$9,663) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term,terms, which is 10%. Lease expense for thethis lease is recognized on a straight-line basis over the lease term. This lease was terminated on February 22, 2023.
On January 16, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 2,017 square foot office space. The lease commenced on February 1, 2023 and will end on January 31, 2026. The monthly rent is RMB29,974 (approximately $4,132) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term.
On February 22, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 3,449 square foot office space. The lease commenced on March 31, 2023 and will end on February 28, 2026. The monthly rent is RMB35,246 (approximately $4,859) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term.
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Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of June 30, 20222023 and December 31, 2021,2022, operating lease right-of useright-of-use assets and lease liabilities were as follows:
| Schedule of operating Right-of-use asset and liability | ||||||||||||||||
| Schedule of operating right-of-use asset and liability | ||||||||||||||||
| June 30, 2022 | December 31, 2021 | June 30, 2023 | December 31, 2022 | |||||||||||||
| Operating lease right-of-use assets | $ | 215,750 | $ | 420,137 | $ | 266,098 | $ | 353,074 | ||||||||
| Amortization | (29,982 | ) | (99,738 | ) | ||||||||||||
| Operating lease right-of-use assets, net | $ | 236,116 | $ | 253,336 | ||||||||||||
| Lease liabilities, current portion | $ | 114,119 | $ | 121,568 | $ | 81,203 | $ | 113,058 | ||||||||
| Lease liabilities, less current portion | $ | 231,271 | $ | 302,387 | $ | 131,570 | $ | 165,952 | ||||||||
Lease term and discount rate:
| Schedule of lease term and discount rate | ||||||||
| June 30, 2023 | December 31, 2022 | |||||||
| Weighted average remaining lease term | ||||||||
| Operating lease | 2.58 to 2.75 years | 2.17 years | ||||||
| Weighted average discount rate | ||||||||
| Operating lease | 10% | 10% | ||||||
The minimum future lease payments are as follows:
| Schedule of maturity of lease liabilities | ||||
| Amount | ||||
| Year ending December 31, 2022 | $ | 73,964 | ||
| Year ending December 31, 2023 | 140,008 | |||
| Year ending December 31, 2024 | 155,709 | |||
| Year ending December 31, 2025 | 26,170 | |||
| Total minimum lease payment | 395,851 | |||
| Less: imputed interest | (50,463 | ) | ||
| Present value of future minimum lease payments | $ | 345,389 | ||
Note 10 – Loans
Paycheck Protection Program
On March 2, 2021, Perfecular Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from Wells Fargo related to the COVID-19 pandemic in the amount of $158,547, which we received on March 3, 2021. The SBA Loan has a fixed interest rate of 1 percent per annum and a maturity date two years from the date loan was issued. On April 4, 2022, the SBA authorized full forgiveness of this loan principal amount of $158,547 and $1,570 interest.
| Schedule of debt | ||||||||
| June 30, 2022 | December 31, 2021 | |||||||
| SBA Loan | $ | 0 | $ | 158,547 | ||||
| Less: current portion | 0 | (132,618 | ) | |||||
| Long term portion | $ | 0 | $ | 25,929 | ||||
Interest expense incurred from the loans amounted to $288 and $22,827 for the six months ended June 30, 2022 and 2021, respectively.
| Schedule of maturity of lease liabilities | ||||
| Amount | ||||
| Year ending December 31, 2023 | $ | 19,834 | ||
| Year ending December 31, 2024 | 102,104 | |||
| Year ending December 31, 2025 | 111,727 | |||
| Year ending December 31, 2026 | 8,264 | |||
| Total minimum lease payment | 241,929 | |||
| Less: imputed interest | (29,156 | ) | ||
| Present value of future minimum lease payments | $ | 212,773 | ||
Note 11 – Stockholders’ Equity
Shares authorized
Upon formation, the total number of shares of all classes of stock that the Company is authorized to issue is seventy-five million () shares of common stock, par value $ per share.
Common stock
On March 23, 2023, the Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held.
During the six months ended June 30, 2023, the Company issued shares of common stock.
On January 17, 2023, the Company retired shares obtained pursuant to a prior stock repurchase agreement as announced in a current report on October 7, 2022.
On February 13, 2023, the Company issued shares to employees based on their Restricted Stock Award Agreements (see Employee compensation).
On February 21, 2023, the Company issued shares to one of the prior board members who exercised his options with cashless exercise.
On April 3, 2023, the Company issued shares to round up the stock dividend effective on March 23, 2023.
Common stock
During the six months ended June 30, 2022, the Company issued shares of common stock.
On April 4, 2022, the Company issued shares of its Common Stockcommon stock to Boustead Securities LLC.LLC (“Boustead”), which iswere for the warrants exercised by Boustead on September 7, 20212021. The warrants were issued to Boustead in connection with the Company’s initial public offering with an exercise price $6.25 and theof $4.16. The shares issued to Boustead were valued at $1,776,044 upon the cashless exercise option of warrants related to completion of the Company’s public offering.warrants.
On May 2, 2022, the Company issued shares to consultants in exchange for professional services rendered. The shares were valued at $154,709 based on the closing price of the Company’s common stock on the dates that the shares were deemed earned, according to the agreements.
Duringterms of the year ended December 31, 2021, the Company issued 2,300,000 shares of common stock.
On September 2, 2021, the Company closed its initial public offering (“IPO”) under a registration statement effective August 30, 2021, in which it issued and sold shares of its Common Stock at a purchase price of $ per share.
On September 2, 2021, the Company closed on the IPO’s overallotment option, selling an additional shares of Common Stock to the IPO’s underwriters at the public offering price of $ per share. The Company received net proceeds of approximately $10.3 million from the IPO after deducting underwriting fee and offering expenses.related agreements.
As of June 30, 20222023 and December 31, 2021 and 2020,2022, the Company had shares and shares of common stock issued and outstanding, respectively.
Shares to be issued for compensationTreasury stock
On August 10, 2022, the Company entered a stock purchase agreement (the “Stock Purchase Agreement”) with a private shareholder to repurchase 400,000 shares of its common stock for $2,000,000. The private shareholder transferred the shares on October 4, 2022, forming a binding agreement, which the Company placed in treasury; and on October 6, 2022, the Company wired the first $1,000,000 of the purchase price. Subsequently, on July 14, 2023, the Company entered into agreements with third party consultants for financingan amendment to the Stock Purchase Agreement that increased the number of shares of its common stock the Company would purchase to 1,300,000 shares and management consulting.revised the total purchase price of the shares to $1,965,000 (See Note 14). The remaining $965,000 was paid on July 14, 2023. Upon receipt of the additional 900,000 shares, the Company has incurred consulting service fees not paidalso placed them in cash amountingtreasury. As of January 17, 2023, the Company retired the initial 400,000 shares and restored them to $8,000 for the threestatus of authorized and unissued shares.
As part of the Company’s repurchase program, during the six months ended June 30, 2022, which2023 the Company intends to issuerepurchased shares of its common stock as compensation for services rendered. Expenses incurred$420,686 and paidplaced them in shares astreasury.
As of June 30, 2023 and December 31, 2022, amountedthe Company had and treasury shares, respectively. The intention of the Company is to $.retire the additional 900,000 shares obtained pursuant to the amendment to the Stock Purchase Agreement along with the 233,040 shares repurchased during the six months ended June 30, 2023.
On August
Employee stock-based compensation
During the six months ended June 30, 2021,2023, the Company entered into employment contracts with three employeesof its engineering staff. These employment contracts contained provisions for a Representative Common Stock Purchase Warrant agreement (“Warrant Agreement”) with its placement agent, Boustead for 161,000 shares andtotal bonus of restricted stock grants valued at $50,000 based on the exerciseshare price is $6.25. Boustead exercisedupon the warrants on September 7, 2021.date of completion of the performance metrics described in the employment contracts. The fair value of the warrantsabove employee compensation was $ and $2,326,450 as of August 30 and September 7, 2021, respectively. For the year ended December 31, 2021, the Company recorded a loss from change in the fair value of warrant liability which amounted to a difference of $.
These warrants were valued using a Black-Scholes pricing model with the following assumptions:
| Schedule of assumptions | ||||||||
| August 30, 2021 (Initial | September 7, | |||||||
| Measurement) | 2021 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected term | years | years | ||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Fair value of units (using Black-Scholes) | $ | $ | ||||||
This Warrant Agreement allowed for cashless exercise option, which is calculated by the percentage difference between exercise and trading price, which resulted in a reduced number of warrants being exercisable. On September 7, 2021, Boustead exercised 121,149 warrants with fair value of $1,776,044 upon cashless exercise option of warrants related to completion of the Company’s public offering. The shares will be issued six months after these warrants have been exercised. For the year ended December 31, 2021, the Company has a gain on settlement of derivative liability which amounted to $550,406. 121,149 shares were issued to Boustead which amounted to $17,776,044 as of June 30, 2022.
Employee compensation2023.
On February 11, 2022 (“Vesting(the “Vesting Date”), the Company entered into a Restricted Stock Award Agreement (“Awardrestricted stock award agreement (the “Award Agreement”) with nineeight employees for 280,000 shares of the $0.001 par value votingCompany’s common stock subject to the terms and to the fulfillment of the conditions set forth in the Company’s equity incentive plan. The first 20% of the restricted shares waswere granted and vested on February 11, 2022. An additional 20% of the restricted shares will vest on each anniversary of the Vesting Date until the fourth anniversary of the Vesting Date. There were shares granted as of March 31, 2022.February 13, 2023. The fair value of the above employee compensation was $ as of June 30, 2022. 2023.
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In November 2021, the Company entered into a one-year employment agreement with the then VP of Finance and Head of Investor Relations of the Company, pursuant to which the Company rewardsawarded a 10,000-share bonus consisting of shares of $0.001 par value votingthe Company’s common stock, which will be granted in blocks of 2,500 blocksshares for every quarter based on certain performance metrics.metrics are achieved. In November 2022, the Company entered into an amendment agreement to amend the performance metrics and extend the term. As of June 30, 2023, shares have vested.
In October 2022, the Company entered into an employee agreement with the CFO of the Company, pursuant to which the Company awarded a 10,000-share bonus consisting of shares of the Company’s common stock, which will be granted in blocks of 2,500 shares every quarter. As of June 30, 2023, shares have vested.
During the six months ended June 30, 2023 and 2022, the Company recognized VP of Finance and Head of Investor Relations of the Companytotal employee stock-based compensation amount offor all employees in the company, was $. During the six months ended June 30, 2022 and 2021, the Company total employee compensation amount were $ and $, respectively.
Stock options
On August 6, 2019, each member of the Board was granted options to purchase shares at $ per share.
On January 4, 2021, each member of the Board was granted options to purchase shares at $ per share.
On December 31, 2021, each member of the Board was granted options to purchase shares at $ per share.
On December 31, 2022, each member of the Board was granted options to purchase shares at $ per share.
As of December 31, 2021,June 30, 2023, there were options granted, options vested and exercisable, options unvested, and outstanding stock options.
For the six months ended June 31,30, 2023 and 2022, and 2021, the Company’s stock option compensation expenses amounted to $ and $, respectively.
The fair value of the stock options listed above was determined using the Black-Scholes option pricing model with the following assumptions:
| Schedule of option activity | ||||||||
| June 30, 2022 | June 30, 2021 | |||||||
| Risk-free interest rate | – % | % | ||||||
| Expected life of the options | years | years | ||||||
| Expected volatility | – % | % | ||||||
| Expected dividend yield | % | % | ||||||
| Schedule of fair value of stock option activity | ||||
| December 31, 2022 | ||||
| Risk-free interest rate | % | |||
| Expected life of the options | years | |||
| Expected volatility | % | |||
| Expected dividend yield | % | |||
The following is a summary of the option activity from December 31, 20212022 to June 30, 2022:2023:
| Schedule of options by exercise price | ||||||||||||||||
| Options | Shares | Weighted average exercise price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||||||||
| Outstanding at December 31, 2021 | 420,000 | $ | 5.82 | – | ||||||||||||
| Granted | 0 | $ | 0 | – | – | |||||||||||
| Exercised | 0 | $ | 0 | – | – | |||||||||||
| Forfeited or expired | 0 | $ | 0 | – | – | |||||||||||
| Outstanding at June 30, 2022 | 420,000 | $ | 5.82 | 2,354,100 | ||||||||||||
| Vested as of June 30, 2022 | 367,787 | $ | 5.38 | 2,220,435 | ||||||||||||
| Exercisable at June 30, 2022 | 367,787 | $ | 5.38 | 2,220,435 | ||||||||||||
| Schedule of options activity | ||||||||||||||||
| Number of Options | Weighted average exercise price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | |||||||||||||
| Outstanding at December 31, 2022 | 615,061 | $ | 5.93 | – | ||||||||||||
| Granted | – | $ | – | – | – | |||||||||||
| Exercised | (78,812 | ) | $ | 5.38 | – | – | ||||||||||
| Forfeited or expired | – | $ | – | – | – | |||||||||||
| Outstanding at June 30, 2023 | 536,249 | $ | 3.96 | – | ||||||||||||
| Vested as of June 30, 2023 | 457,934 | $ | 4.03 | – | ||||||||||||
| Exercisable at June 30, 2023 | 457,934 | $ | 4.03 | – | ||||||||||||
Note 12 – Segment reporting
The Company consists of two types of operations.currently has three operating segments. First, Focus Universal, Inc. (“Corporate”)and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves operations related to research and development of technology products,the non-specific financing, executive expense, operations and investor relations of theour public entity, and the general shared management and costs across subsidiary units whichthe Company’s subsidiaries that spread across all functional categories.categories and research and development of technology products. Second, Perfecular, Inc. (“Perfecular”) involveAVX (doing business as Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instrumentinstruments and devices in the hydroponic and controlled agricultural segments.agriculture segments and of our smart instruments into the commercial and home automation sectors. And third, AVX Design & Integration, Inc. (“AVX”) is an(exclusive of the smart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management companybusiness specializing in high performance and easy to use audio/video systems, home theater,theaters, lighting control, automation, and integration. The table below discloses income statement information by segment.
| Segment Reporting | ||||||||||||||||
| Six Months Ended June 30, 2022 | ||||||||||||||||
| Corporate | Perfecular | AVX | Total | |||||||||||||
| Revenue | $ | 0 | $ | 47,650 | $ | 140,339 | $ | 187,989 | ||||||||
| Revenue - related party | 0 | 31,542 | 2,278 | 33,820 | ||||||||||||
| Total revenue | 0 | 79,192 | 142,617 | 221,809 | ||||||||||||
| Cost and Operating Expenses | ||||||||||||||||
| Cost of Revenue, excluding depreciation & amortization | 0 | 60,702 | 139,861 | 200,563 | ||||||||||||
| Selling expense | 0 | 48,085 | 7,802 | 55,887 | ||||||||||||
| Compensation - officers and directors | 110,040 | 0 | 0 | 110,040 | ||||||||||||
| Research and development | 729,105 | 0 | 0 | 729,105 | ||||||||||||
| Professional fees | 522,546 | 0 | 12,661 | 535,207 | ||||||||||||
| General and administrative | 446,576 | 1,141,522 | 132,118 | 1,720,216 | ||||||||||||
| Total Cost and Operating Expenses | 1,808,267 | 1,250,309 | 292,442 | 3,351,018 | ||||||||||||
| Loss from Operations | (1,808,267 | ) | (1,171,117 | ) | (149,825 | ) | (3,129,209 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest income (expense), net | 490 | (288 | ) | 48 | 250 | |||||||||||
| Unrealized loss on marketable equity securities | (74,626 | ) | 0 | 0 | (74,626 | ) | ||||||||||
| Realized gain on marketable equity securities | 10,281 | – | – | 10,281 | ||||||||||||
| Other income (expense), net | 105,560 | 160,117 | (3,600 | ) | 263,077 | |||||||||||
| Total other income (expense) | 42,705 | 159,829 | (3,552 | ) | 198,982 | |||||||||||
| Loss before income taxes | (1,765,562 | ) | (1,011,288 | ) | (153,377 | ) | (2,930,227 | ) | ||||||||
| Tax expense | 0 | 0 | 0 | 0 | ||||||||||||
| Net Loss | $ | (1,765,562 | ) | $ | (1,011,288 | ) | $ | (153,377 | ) | $ | (2,930,227 | ) | ||||
| Segment Reporting | ||||||||||||||||
| Six Months Ended June 30, 2023 | ||||||||||||||||
Corporate and R&D | IoT Products | IoT Installation Services | Total | |||||||||||||
| Revenue | $ | – | $ | 78,148 | $ | 373,338 | $ | 451,486 | ||||||||
| Revenue – related party | – | – | – | – | ||||||||||||
| Total revenue | – | 78,148 | 373,338 | 451,486 | ||||||||||||
| Cost of revenue | – | 56,355 | 273,648 | 330,003 | ||||||||||||
| Gross Profit | – | 21,793 | 99,690 | 121,483 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling expense | 31,462 | 32,660 | 10,812 | 74,934 | ||||||||||||
| Compensation – officers and directors | 560,937 | – | – | 560,937 | ||||||||||||
| Research and development | 619,473 | – | – | 619,473 | ||||||||||||
| Professional fees | 373,964 | – | – | 373,964 | ||||||||||||
| General and administrative | 704,878 | 8,378 | 91,380 | 804,635 | ||||||||||||
| Total Cost and Operating Expenses | 2,290,714 | 41,038 | 102,192 | 2,433,943 | ||||||||||||
| Loss from Operations | (2,290,714 | ) | (19,245 | ) | (2,501 | ) | (2,312,460 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest income (expense), net | 30,591 | 3 | (40 | ) | 30,554 | |||||||||||
| Gain on bargain purchase | 61,747 | – | – | 61,747 | ||||||||||||
| Unrealized loss on marketable equity securities | 27,565 | – | – | 27,565 | ||||||||||||
| Realized loss on marketable equity securities | (14,249 | ) | – | – | (14,249 | ) | ||||||||||
| Rental income | 80,293 | – | – | 80,293 | ||||||||||||
| Other income (expense), net | (4,464 | ) | 1,999 | (3,394 | ) | (5,859 | ) | |||||||||
| Total other income (expense) | 181,483 | 2,002 | (3,434 | ) | 180,051 | |||||||||||
| Loss before income taxes | (2,109,231 | ) | (17,243 | ) | (5,935 | ) | (2,132,409 | ) | ||||||||
| Tax expense | – | – | – | – | ||||||||||||
| Net Loss | $ | (2,109,231 | ) | $ | (17,243 | ) | $ | (5,935 | ) | $ | (2,132,409 | ) | ||||
Note 13 – Commitments and Contingencies
In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees, and other directly related costs expected to be incurred. There were no recorded litigation loss contingencies as of June 30, 2022 and December 31, 2021.
| Six Months Ended June 30, 2022 | ||||||||||||||||
Corporate and R&D | IoT Products | IoT Installation Services | Total | |||||||||||||
| Revenue | $ | – | $ | 47,650 | $ | 140,339 | $ | 187,989 | ||||||||
| Revenue – related party | – | 31,542 | 2,278 | 33,820 | ||||||||||||
| Total revenue | – | 79,192 | 142,617 | 221,809 | ||||||||||||
| Cost of revenue | – | 61,310 | 139,861 | 201,171 | ||||||||||||
| Gross Profit | – | 17,882 | 2,756 | 20,638 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Selling expense | – | 48,085 | 7,802 | 55,887 | ||||||||||||
| Compensation – officers and directors | 604,290 | – | – | 604,290 | ||||||||||||
| Research and development | 729,105 | – | – | 729,105 | ||||||||||||
| Professional fees | 535,207 | – | – | 535,207 | ||||||||||||
| General and administrative | 970,132 | 123,108 | 132,118 | 1,225,358 | ||||||||||||
| Total Cost and Operating Expenses | 2,838,734 | 171,193 | 139,920 | 3,149,847 | ||||||||||||
| Loss from Operations | (2,838,734 | ) | (153,311 | ) | (137,164 | ) | (3,129,209 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest income (expense), net | 490 | (288 | ) | 48 | 250 | |||||||||||
| Gain on bargain purchase | – | – | – | – | ||||||||||||
| Unrealized loss on marketable equity securities | (74,626 | ) | – | – | (74,626 | ) | ||||||||||
| Realized loss on marketable equity securities | 10,281 | – | – | 10,281 | ||||||||||||
| Rental income | 78,342 | – | – | 78,342 | ||||||||||||
| Other income (expense), net | 28,218 | 160,117 | (3,600 | ) | 184,735 | |||||||||||
| Total other income (expense) | 42,705 | 159,829 | (3,552 | ) | 198,982 | |||||||||||
| Loss before income taxes | (2,796,029 | ) | 6,518 | (140,716 | ) | (2,930,227 | ) | |||||||||
| Tax expense | – | – | – | – | ||||||||||||
| Net Loss | $ | (2,796,029 | ) | $ | 6,518 | $ | (140,716 | ) | $ | (2,930,227 | ) | |||||
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Note 13 – Business Combination
On January 6, 2023, the Company completed the business combination of AT Tech Systems for a purchase price of $1 in cash. The Company’s intangible assets were acquired from AT Tech Systems due to customer relationships using the multi-period excess earnings method. Amortization on the intangible assets was fully amortized during the six months ended June 30, 2023. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. The result of AT Tech Systems’ operations has been included in the condensed consolidated financial statement since that date.
The following table summarizes the purchase consideration and fair value of the assets acquired and liabilities assumed as of January 6, 2023:
| Fair value of assets acquired and liabilities assumed | ||||
| Assets: | ||||
| Accounts receivable | $ | 33,007 | ||
| Intangible assets | 28,741 | |||
| Total assets acquired | $ | 61,747 | ||
| Liabilities: | ||||
| Accounts payable | $ | – | ||
| Total liabilities assumed | – | |||
| Purchase Price | (1 | ) | ||
| Total bargain purchase gain | $ | 61,747 | ||
As a result of above information that existed as of the combination date, the Company recorded a bargain purchase gain of $61,747 during the six months ended June 30, 2023.
The excess of the aggregate net fair value of assets acquired and liabilities assumed over the fair value of consideration transferred as the purchase price has been recorded as a bargain purchase gain. Upon completion of the valuation of the acquired assets, the Company concluded that recording a bargain purchase gain with respect to AT Tech Systems was appropriate and required under U.S. GAAP. The Company believes the seller was motivated to complete the transaction as part of an overall repositioning of its business.
Note 14 –Subsequent Events
Regarding election
As described in Note 11 above, on July 14, 2023, the Company entered into an amendment to that certain previous stock purchase agreement wherein the Company agreed to purchase 400,000 shares of directors,its common stock from a single private, non-affiliate for a total purchase price of $2,000,000. The private shareholder transferred the 400,000 shares on August 10,October 4, 2022, forming a binding agreement; and on October 6, 2022, the BoardCompany wired the first $1,000,000 of Directors appointed Sean Warrenthe purchase price. While a check for the second $1,000,000 of the purchase price was issued and paid on March 31, 2023, the matter was kept open and direct discussion between the shareholder and the Company continued. As the stock market and the Company share prices continued to serve onfluctuate due to both general market conditions and Company-specific conditions at that point in time, the Boardtransaction was not fully completed during the six-month period ended June 30, 2023. Both parties mutually agreed that in fairness to the Company’s shareholders and to benefit the long-term goals of Directors asthe Company in a number of market-related areas, that an independent director. The appointment of Mr. Warren fills a board seat previously vacated by Mr. Greg Butterfield.amendment should be negotiated to facilitate growth for the Company in good faith. As a director, Mr. Warren’s term begins August 10, 2022, and expires atresult of these negotiations, the annual meetingamendment increased the number of shares of its common stock the Company would purchase from two private, non-affiliate shareholders to an aggregate 1,300,000 shares, inclusive of the stockholders to be held in 2023. It has been determinedinitial 400,000 shares, and accepted that Mr. Warren will serve as a member onrevised the audit and compensation committeestotal purchase price of the Board of Directors. Mr. Warren will have the same compensation arrangement for his service as the other independent directors. That compensation currently consists of cash compensation andshares down to an option grant.
Mr. Sean Warren is a seasoned executive with over 25 years of experience in technology and enterprise technology systems and has previously served on Focus Universal’s board of directors beginning on June 8, 2018. His areas of expertise include software development, cloud management, enterprise infrastructure development and full spectrum of IT compliance. Mr. Warren currently serves as the Vice President of OPSA Change Delivery for Wells Fargo and has since 2019. From 2016 to 2018, he served as Director of IT Operations at Domo, Inc. Mr. Warren has also previous served as the CIO of Mountain Medical, Veyo Medical and Vice President of IT at Larry Miller. He has also worked for technology companies including Omniture, Adobe. Mr. Warren graduated from Florida State University with a degree in accounting. He is qualified to serve as a director because of his accounting experience, his experience serving on public company boards and experience with the financial industry and information technology.aggregate $1,965,000.
The Company has evaluated otherall subsequent events through the date these unaudited condensed consolidated financial statements were issued and determined that there were no other subsequent events or transactions other than this election of director event that require recognition or disclosures in the unaudited condensed consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in, Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the ReportReports on Form 10-K and Form 10-Q and any Current Reports on Form 8-K.
Narrative Description of the Business
Focus Universal Inc. (the “Company,” “we,” “us,” or “our”) is a Nevada corporation. We believe we have developed five proprietary technologies utilizing our patent portfolio which we believe solve the most fundamental problems plaguing the internet of things (“IoT”) industry through: (1) increasing overall chip integration by shifting integration from the component level to the device level; (2) creating a faster 5G cellular technology by using ultra-narrowband technology; (3) leveraging ultra-narrowband power line communication (“PLC”) technology; (4) proprietary User Interface Machine auto generation technology; and (5) incorporating all our core technologies into a single chip. Our Universal Smart Technology is designed to overcome instrumentation interoperability and interchangeability. The electronic design starts from a 90% completed common foundation we call our universal smart instrumentation platform (“USIP”), instead of the current method of building each stand-alone instrument from scratch. Our method eliminates redundant hardware and software and results in significant cost savings and production efficiency. We believe we have developed software machine auto generation technology to replace the manual software designs which are currently in use and cannot satisfy the exponential growth of future IoT industry demand. OurInternal testing suggests that our ultra-narrowband PLC technology enables our users to send data over existing electricityelectrical power cables, and immediately establishestablishing a ubiquitous data network without substantial new investment for a new dedicated wiring infrastructure. Our ultra-narrow bandWe believe our ultra-narrowband technology is capable of overcoming the noise problems communicating through power lines that have hindered our competitors for over a century. OurIn our view, our wireless communication technology allows for longer-range coverage, is more energy effectiveefficient and has much faster data sending speeds than the current 5G technology speeds being used. We also provide sensor devices and are a wholesaler of various air filters and digital, analog, and quantum light meter systems.
For the three and six months ended June 30, 20222023 and 2021,2022, we generated a significant amount of our revenue from sales of a broad selection of agricultural sensors and measurement equipment which is currently our primary business.
Our Current Products Include:
We are a wholesaler of various digital, analog, and quantum light meters and filtration products, including fan speed adjusters, carbon filters and HEPA filtration systems. We source these products from various manufacturers in China and then sell them to a major U.S. distributor, Hydrofarm, who resells our products directly to consumers through retail distribution channels and, in some cases, places its own branding on our products. During the development phase, the Company uses generic electronic device casings to house the prototype equipment before the final design and manufacturing process.
| 26 |
As an update to our product line development, we plan to phase out the traditional, lower-margin products and are preparing to launch a new line of products that have been in development for several years. These newer technology products will be released in phases, and we intend that increasing amounts of technology will be layered upon these products. Additionally, we plan to continue to increase our efforts in protecting more intellectual property and have continued to develop technologies for long-term growth. We have developed products in both the controlled agriculture industry and home automation industries. We have existing relationships in both sectors.
We are building a U.S. sales team. The team has already begun marketing our current AVX-branded surveillance camera system (cameras and network video recorders (NVRs)) and indoor and outdoor LED screens.
In our hydroponics segment, our honeycomb activated carbon filter product was issued a patent in October 2022; this product in several different forms is in inventory at our warehouse in Ontario, CA ready for nationwide marketing.
Our products on the home automation front are beginning the production cycle. Of note, smart wall touch light switches, digital control smart wall touch light switches, smart timers, and smart controllers are ready for production. Sourcing of electronic parts for these products is completed, the cost analysis of these products is completed, and most of the tooling for production has been completed.
Currently, our Shenzhen subsidiary mainly focuses on product development and commercialization. An important electrode with a “Total Dissolved Solids” (“TDS”) meter design, with applications in all solubility measurements, was completed and approved by our U.S. management team. The designs of our TDS sensor, carbon dioxide sensor, new quantum PAR sensor and total dissolved oxygen sensors are also completed. Our testing against the state-of-the-art sensors on the market suggests to us that the new sensors are at least as good as the best quality sensors on the market. However, we believe that our sensors are much more cost effective.
The progress in our USIP for the IoT has been smooth, and we have confidence that the first version of our USIP for the IoT can be demonstrated in the first quarter of 2024.
The Focus software machine auto design team has also made significant progress. With mathematical and graphical environments having been created, our team is focusing on developing the 3D user interface machine auto design.
The public reporting automation software is completed and currently undergoing extensive testing. Reports on Forms 10-Q and 10-K are time-consuming, complex processes that require each company’s financial team to gather and translate large amounts of data from multiple sources. The time and expertise required to complete the process is a substantial burden. Meanwhile, SEC reporting deadlines are firm and inflexible. This reality can interfere with other reporting timelines and leave a time-strapped team scrambling for the resources needed to meet all its reporting requirements. We have developed a Microsoft®-based add-on software that aims to streamline and automate the SEC reporting preparation process. We believe the software will significantly simplify the Form 10-Q and Form 10-K preparation processes and make creating, editing and managing documents both simple and accurate. Focus is planning to commercialize this software either in the third or fourth quarter of 2023. A cloud-based version of this software is also under the development.
Focus has received and approved the Ubiquitor’s casing design sample, and tooling for the Ubiquitor’s casing design has begun.
Furthermore, our devices and sensors with applications within hydroponics, including a (1) pH meter, (2) CO2 meter, (3) dissolved oxygen meter, (4) digital light meter, (5) new (and vastly improved) quantum par meter are under intensive testing; and we expect to receive new versions into our U.S. headquarters for management approval.
| 27 |
In summary, our entire smart home and hydroponic IoT lines are expected to be completed by the end of 2023.
Beyond IoT products, as a developer of a Natural Integrated Programming Language (NIPL) derivative product (i.e., our software platform for interoperability within the IoT), we have developed a complementary office automation software product. This specific software was designed to assist in completing financial reports faster, more accurately, and with greater ease of update, thereby eliminating the need for increased staffing especially in time sensitive projects. It is designed to save CPAs, auditors, accounting, and/or legal a significant amount of time in the preparation of SEC financial reports and other internal financial reporting. Eighty percent of this software development has been completed and we hope to launch a beta version of this product.
While we will continue to sell the following products through Hydrofarm, we expect to have upgraded versions of certain of these products to introduce in the event the older versions are discontinued:
Specifically, we sell the following products through Hydrofarm:
Fan speed adjuster device. We provide a fan speed adjuster device to our client Hydrofarm. Designed specifically for centrifugal fans with brushless motors, our adjuster device helps ensure longer life by preventing damage to fan motors by adjusting the speed of centrifugal fans without causing the motor to hum. These devices are rated for 350 watts max, have 120VAC voltage capacity and feature an internal electronic auto-resetting circuit breaker.
Carbon filter devices. We sell two types of carbon filter devices to our client Hydrofarm.devices. These carbon filter devices are professional grade filters specifically designed and used to filter the air in greenhouses that might be polluted by fermenting organics. One of these filters can be attached to a centrifugal fan to scrub the air in a constant circle or can be attached to an exhaust line as a single passsingle-pass filter, which moves air out of the growing area, and filters unwanted odors and removes pollens, dust, and other debris in the air. The other filter is designed to be used with fans from 0-6000 C.F.M.
HEPA filtration device. We provide a high-efficiency particulate arrestance (“HEPA”) filtration device at wholesale prices to our client Hydrofarm. Manufactured, tested, certified, and labeled in accordance with current HEPA filter standards, this device is targeted towards greenhouses and grow rooms and designed to keep insects, bacteria, and mold out of grow rooms. We sell these devices in various sizes.
Digital light meter. We provide a handheld digital light meter that is used to measure luminance in fc units, or foot-candles.
Quantum par meter. We provide a handheld quantum par meter used to measure photosynthetically active radiation (“PAR”). This fully portable handheld PAR meter is designed to measure PAR flux in wavelengths ranging from 400 to 700 nm. It is designed to measure up to 10,000 µmol.
Ubiquitor Wireless Universal Sensor Device
We are developing a device we call the Ubiquitor, which replaces the functions of traditional digital measurement and sensing products by integrating many digital sensors and measurement tools into one single digital device. We believe the platform represents a technological advancement in the IoT marketplace by integrating large numbers of technologies, including cloud technology, wired and wireless communication technology, software programming, instrumentation technology, artificial intelligence, PLC technology, and sensor networking into a single platform. TheWe believe the result of such integration is a smaller, cheaper, and faster circuit system design than those currently offered in the instrumentation market.
Our USIP technology that will make the Ubiquitor possible is an advanced software and hardware integrated instrumentation platform that uses a large-scale modular design approach. The large-scale modular design approach subdivides instruments into a foundation component (a USIP) and architecture-specific components (sensor nodes), which together replaces the functions of traditional instruments at a fraction of their cost. The USIP has an open architecture, incorporating a variety of individual instrument functions, sensors, and probes from different industries and vendors. The platform features the ability to connect potentially thousands of different sensors or probes, addressing major limitations present in traditional instrumentation systems.
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The USIP, which is compatible with a significant percentage of the instruments currently manufactured, consists of universal and reusable hardware and software. The universal hardware in the USIP is (i) a smartphone, computer, or any mobile device capable of running our software that includes a display and either hardware controls or software control surfaces, and (ii) our Ubiquitor, which is designed to be the universal data logger that acts as a bridge between the computer or mobile device and the sensor nodes. We call our flagship USIP device the “Ubiquitor” due to its ability to measure and test a variety of electrical and physical phenomena such as voltage, current, temperature, pressure, sound, light, and humidity—both wired and wirelessly.
We have created and assembled prototype models of the Ubiquitor in limited quantities and plan to expand our assembly in 2023. Our prototype Ubiquitor is compatible with standard desktop computers running either Windows OS or MacOS and Android- or iOS-based mobile devices and acts as a conduit that communicates with a group of sensors or probes manufactured by different vendors in a manner that requires the user to have little orto no knowledge of their unique specifications. The data readout is displayed on the computer or mobile device display in application software we have created for use with a Windows PC and are creating for use with a Mac. We are designing the application software (the “App”) to have a graphical representation of control and indicator elements common in traditional tangible instruments, such as knobs, buttons, dials, and graphs, etc. Utilizing the Ubiquitor and the App, users and instrument manufacturers will be free to add, remove or change a sensor module for their special industrial or educational application without needing to create their own application software and design their own hardware. Our developers are designing and implementing a soft control touch screen interface that supports real-time data monitoring and facilitates instrument control and operation.
Recently, the Company haswe have devoted a substantial number of resources to research and development in both the USU.S. and China to bring the Ubiquitor and its App to full production and distribution. We anticipate that the sales and marketing involved with bringing the Ubiquitor to market will require us to hire a number of new sales and marketing employees in order to gain traction in the market. We expect to continue this process throughout 2023. We intend to introduce the Ubiquitor in smart home installations to reduce costs and increase functionality, as well as implement the Ubiquitor device in greenhouses and other agricultural warehouses that require regulation of light, humidity, temperature, and other measurable scientific units required to create optimal growing conditions.
Our universal smart development protocol focuses not only on the design of the hardware and software modules but also on the design of the overall universal smart instruments system, guided by the principles of structure, universality and modularity. As mentioned, we believe we address the core and fundamental issues facing the IoT marketplace.
Our Ubiquitor device is a fully modular system with a universal sensor node and gateway system that uses a computer or mobile device as the output display module responsible for displaying the readings of various sensor nodes. We have completed an initial production run of prototype Ubiquitor devices and intend to proceed into full-scale production. TheWe intend to design the Ubiquitor’s sensor analytics system integratesto integrate event-monitoring, storage and analytics software in a cohesive package that provides a holistic view of the sensor data it is reading. During the development phase, we use generic electronic device casings to house the prototype equipment before final design and manufacturing process.
The physical hardware of the Ubiquitor will consist of:
| 1. | The sensor nodes, which come in hundreds of different varieties of sensor instruments in the form of a USB stick, with both male and female ports; and |
| 2. | The Ubiquitor instrument as the main hardware gateway, which is a small cell phone-sized device with integrated circuits. |
We believe the Ubiquitor device can connect up to thousands of potential sensor nodes and integrate data using embedded software to display the data and all analytics onto a digital screen (desktop, smartphone or mobile device displays) using a Wi-Fi connection. As disclosed in our patent application, we have already tested up to 256 sensor instrument readouts. Most types of nodes and probes can connect to the hardware. If the sensor size is bigger than the standard probe size, it is possible to simply use a USB cable to connect the probe and the hub. All data and analytics are displayed on a single screen, with tools that record and keep track of all measurements and sort and display analytic information in easy-to-read charts.
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The Ubiquitor will be a general platform that collects data in real time, up to 100 Hz per second;second, and, thus, is intended to be adapted to many industrial uses.
By using the universal hardware or USIP, we believe we could achieve the following efficiencies in instrumentation systems:
| 1. | Cut production costs. Smartphone technology is widely used on the small sensor device market. By utilizing smartphone technology, the Ubiquitor will add superior functionality and performance, improve the product’s quality, and cut production costs. |
| 2. | Reduce the effort required to develop a new sensor product. With the Ubiquitor, we believe that there will be no need for device manufacturers to research and develop new monitoring and operating components because they will just need to develop new sensor nodes or probes that may be integrated into our software technology. |
| 3. | Reduce clutter. It is anticipated that the Ubiquitor could dispense with some of the hassle of connecting cables, since the Ubiquitor allows wireless transmission of sensor data and may allow wireless access to networks, such as a PLC network. |
We have not yet started research and development of a second generation Ubiquitor device, but once we demonstrate the market for this product, we intend to begin such research and development. Currently our research and development is focused on concepts we can implement in the current first generation Ubiquitor device.
Research and Development Efforts of Power Line Communication
Power Line Communication (“PLC”) technology is a communication technology that enables sending data over existing power cables. One advantage of this technology is that PLC does not require substantial new investment for its communications infrastructure. Rather, PLC utilizes existing power lines, thereby forming a distribution network that already penetrates all residential, commercial and industrial premises. Accordingly, connectivity via PLC technology is potentially the most cost-effective, scalable interconnectivity approach for the IoT. We believe PLC technology can be an integral part of our communication infrastructure for the IoT, which enables reliable, real-time measurements, monitoring and control. A large variety of appliances may be interconnected by transmitting data through the same wires that provide electrical energy.
Our patented PLC is an innovative communication technology that enables sending data over existing power cables in the electric grid. Because PLC uses the existing power lines, it does not require substantial new investment for a dedicated wiring infrastructure. Existing power lines already form a distribution network that penetrates most residential, commercial, and industrial properties. Given that the power grid is, for the most part, an established ubiquitous network, we believe that PLC is potentially the most cost-effective, scalable interconnectivity approach for the backbone communication infrastructure required for the IoT. PLC allows IoT devices to be plugged into power outlets to establish a connection using the existing electrical wiring, permitting data sharing without the inconvenience of running dedicated network cables.
Historically, the primary design goal of the power line network was electric power distribution. The power line network was not originally designed to function as a communication channel. Consequently, while PLC has been around for many years, the harsh electrical noise present on power lines and variations in equipment and standards make communications over the power grid difficult and present several challenges for data transfer. Signals propagating along the power line are subjected to substantial amounts of noise, attenuation, and distortion. PLC is susceptible to noise from devices linked to the power supply infrastructure. Because of these factors, previous attempts at implementing PLC technology resulted in power companies and internet service providers deciding that the technology is not a viable means of delivering data or broadband internet access.
We have successfully developed ultra-narrowband PLC technology that we believe can transfer readable data through the power grid. According to our internal testing, our ultra-narrowband PLC technology can send and receive data without the customary interference that occurs in standard office and residential environments, achieving speeds of 4 Mbps at a bandwidth of less than 1000 Hz. To test noise interference and disturbance we utilized six industrial fans simultaneously, and no significant interference was found. By comparison, a single hair dryer will render legacy PLC technology completely useless. We have completed the development of our 4Mbps PLC modules and the printed circuit board layout. These modules will be used for IoT systems involving over 1,000 sensors.
Penetrating physical barriers like walls within a single floor or reaching out to different floors in a single building is a challenge for the wireless technology that current IoT systems are using. Moreover, wireless networks often face performance issues due to radio-frequency interference caused by microwave ovens, cordless telephones, or even Bluetooth devices at home. However, our PLC technology can reach every node connected via the power lines. Our technology converts virtually every standard wall socket into an access point, making it a more consistent and reliable system for crucial and sensitive operations. Our ultra-narrowband PLC technology’s ability to reach long distances via power lines becomes especially useful in commercial networks that require the ability to avoid physical barriers like walls, underground structures, and hills. We believe that our PLC technology can be an integral part of any smart city, community, or campus.
The 5G cellular network, for example, promises exciting advances for telecommunication service providers, but the implementation of the 5G network will be challenging. The implementation will require building out dense, low-latency edge networks in ways that are affordable, secure and easily maintainable. 5G antennas will be able to handle more users and to transmit more data, but they will have a shorter transmission range. 5G networks will also require frequencies of up to 300 GHz. This requirement means wireless carriers will need to bid for the costly higher spectrum bands to roll out their respective 5G networks. Generally speaking, wireless networks are typically slower and more expensive than existing wired networks and extremely susceptible to interference from radio signals, radiation, walls and other forms of interference. Additionally, wireless networks may be accessed by any device within range of the network’s signal, making the information transmitted on a wireless network susceptible to access by unauthorized recipients. We are currently developing a wired alternative to wireless networks that utilizes installed power lines to transmit information. Our PLC technology uses an ultra-narrow bandultra-narrowband spectrum channel of less than 1 KHz to establish a long-distance link between transmitter and receiver. Thus, we believe that our proprietary ultra-narrow bandultra-narrowband PLC technology will offer a promising alternative to wireless networks and provide the backbone communication infrastructure for IoT devices.
The primary design goal of the power line network is electric power distribution, not data transmission. The harsh electrical noise present on power lines and variations in equipment and standards make data transmission over the power grid difficult. These technological challenges have impeded, or even halted, progression of PLC technology.
We continue to build upon our existing research and development with the intention of inventing an ultra-narrowband PLC technology that attempts to tackle two challenges: (1) overcoming interference caused by electronic noise on the power line system; and (2) bandwidth. Preliminary internal testing suggests that we have achieved significant noise rejection and interference suppression. In our preliminary internal testing, we have been able to increase bandwidth to 4 megabits per second with the potential for more, while simultaneously effectively dealing with electrical noise and interference. Based on the promising results of our internal testing, we have begun designing a proprietary PLC microchip and have set an intended launch date for 2023.
We believe that because residential and commercial structures already include multiple power outlets, the power line infrastructure represents an excellent network to share data among intelligent devices, particularly in the smart home installations that we are currently performing through AVX. Using PLC technology would mean that the requirement for costly ethernet cable networks to carry network information could be eliminated, as the same signals may be carried on the existing power lines.
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We plan to leverage the communications technology of PLC to enhance the Ubiquitor and make the Ubiquitor a central component of the smart home and gardening systems we are currently developing. The goal would be that our Ubiquitor would be used to send or receive control signals from a smart device and control hundreds of devices in near real time. We intend to apply the same concept to commercial and industrial applications.
Also, we plan to design a full line of products for the gardening industry by integrating the Ubiquitor device into a gardening system. The system would include a light control node, temperature sensor, humidity sensor, digital light sensor, quantum PAR sensor, pH sensor, total dissolved solids (“TDS”) sensor and carbon dioxide sensor design. We believe the combination of these sensors would offer the same features
On December 23, 2021, Focus Shenzhen was founded as a combination of dozens or even hundreds of different instrumentsmainland China office for manufacturing procurement expertise and support research and development activities. Focus Shenzhen is designed to function as a branch office accessing high level ability to source products and build relationships with manufacturers in the gardening industry. The Ubiquitor wouldregion and as a lower cost form of support research and development as engineers are more plentiful in the region. During the second quarter of 2023, this office has continued to grow and increase its headcount to 41 employees. We have added these new employees to the engineering staff, the sales staff, and the marketing and market analysis staff in house to enhance the internal capabilities within the Company.
Research and Development Efforts of 5G Cellular Technology
Just like our ultra-narrowband technology can be used to replace these devicesreduce noise in powerline communication technology, our internal research suggests that our ultra-narrowband technology can be leveraged to create a type of 5G wireless communication technology that can achieve both low band 5G coverage and could offer another case studyan estimated 1 Gbps high band speed. We employ an ultra-narrow spectrum channel (<1KHz) to establish an ultra-long-distance link between the 5G base station and the receiver which reduces noise and interference entering the bandwidth.
For a description of the effectiveness of the application of universal smartultra-narrowband technology to such systems.
The development of universal smart instruments and the IoT have5G applications, see “Part I - Item 1. Business, Section 2. “Creating a considerable amount of overlap,faster 5G cellular technology by using ultra-narrowband technology” in our Annual Report on Form 10-K filed with the only difference being the number of sensor nodes involved. We plan to take advantage of this overlap and unify universal smart instruments and the IoT into a single system, building the IoT infrastructure for both residential and commercial uses and charging monthly subscription fees. End users will be able to plug any peripheral devices into the power outlet and enjoy the IoT connectivity throughout their home.SEC on March 31, 2023.
Eventually, we hope to establish five divisions to bring our technology together: 1)(1) AVX with new shared distributed smart home products powered by the Ubiquitor; 2)(2) an IT division in software machine design; 3)(3) a Universal Smart Instrumentation; 4) PLC;Instrumentation division; (4) a PLC technology division; and 5)(5) an IoT division.
Intellectual Property Protection
On November 4, 2016, we filed a U.S. patent application number 15/344,041 with the USPTO.U.S. Patent and Trademark Office (USPTO). On March 5, 2018, we issued a press release announcing that the USPTO published an Issue Notification for U.S. Patent Application No. 9924295 entitled “Universal Smart Device,” which covers a patent application regarding the Company’s Universal Smart Device. The patent was issued on March 20, 2018.
Subsequent to our internal research and development efforts, we filed with the USPTO on June 2, 2017 a patent application regarding a process for improving a spectral response curve of a photo sensor. The small and cost-effective multicolor sensor and its related software protected by the patent we believe could achieve a spectral response that approximates an ideal photo response to take optical measurement. The patent was issued on February 26, 2019.
In addition, we have been notified that the USPTO published a notice of allowance for a patent application we filed on March 12, 2018 as application No. 15/925,400. The patent title is a “Universal Smart Device,” which is a universal smart instrument that unifies heterogeneous measurement probes into a single device that can analyze, publish, and share the data analyzed. The issue fee was paid on March 14, 2019.
On November 29, 2019, the Company filed an international utility patent application filed through the patent cooperation treaty as application PCT/US2019/63880. In April 2020, the Company was notified that it received a favorable international search report from the International Searching Authority regarding this patent application, which patents the Company’s PLC technology. The World International Property Organization report cited only three category “A” documents, indicating that the Company’s application met both the novelty and non-obviousness patentability requirements. Consequently, the Company is optimistic that the patent covering the claims for its PLC technology will be issued in due course and will allow the Company to implement strong protections on the PLC technology worldwide.
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In the fourth quarter of 2021, we hired the law firm of Knobbe, Martens, Olson & Bear, LLP (“Knobbe Martens”) to serve as outside intellectual property counsel for the Company. The firm is working on further transferring the Company’s provisional patent applications to formal patent applications, which should number 13 according if all proceedproceeds according to plan. In addition, Knobbe Martens is also working on further filing four previously unfiled patents during the same timeframe and extending an existing patent application into Europe and Australia. In addition, in May 2022, the Company also engaged Chang & Hale, LLP law firm as suggested by our counsel at Knobbe Martens Olsen & Bear, LLP to assist with two new patents, howevernoting that Knobbe Martens still remains our main IP counsel. In all, the companyThe Company now has 2428 total patents and patent applications in various phases with the US Patent and Trademark Office.USPTO, with three more provisional patents filed this quarter.
The Company’s patent number 11,488,468 was allowed and subsequently issued on November 1, 2022. The patent is titled “Sensor for Detecting the Proximity of an IEEE 802.11 Protocol Connectable Device.”
Competitors
There areWe have identified several competitors we have identified, specifically in the wireless sensor node industry, including traditional instruments or devices manufacturers such as Hanna Instruments and Extech Instruments.
device manufacturers. Hach developed and launched the SC1000 Multi-parameter Universal Controller, a probe module for connecting up to 32 digital sensors or analyzers. However, their products are not compatible with smart phones yet; and we believe their price point is still prohibitive to consumers.
Monnit Corporation offers a range of wireless and remote sensors. Many of Monnit’s products are web-based wireless sensors that usually are not portable because of their power consumption. Also, the sensors’ real-time updates are slow; and we believe security of the web-based sensor data acquisition may also may be a concern. In addition to purchasing the device, consumers usually have to pay monthly fees for using web-based services.
We are not trying to compete with traditional instruments or device manufacturers because we utilize our Ubiquitor device in conjunction with our smartphone application, which we believe will be a completely different product category.
IoT Installation Industry
There are several companies that compete with AVX in smart home installations, including Vivint Smart Home, Crestron and Control4. However, we believe we can distinguish ourselves from our competitors by offering a substantially lower price. An installation by Crestron ranges between $20,000 and $100,000 and an installation by Control4 ranges between $20,000 and $40,000. The cheapest competitor we can identify in this sector is Vivint Smart Home, which costs less than $5,000 to install; however, we understand that the Vivint Smart Home focuses on security systems only and that users have no other smart applications, which our smart home product line would include.
Air Filtration Systems and Meter Products Industry
The air filtration system and meter products industry is a niche industry. Air purification methods are an effective way to control contaminants and improve indoor air quality; and as a result, many national and local governments overseeing indoor air quality and other emissions are enacting stricter workforce health and safety regulations in this area, which drives demand.
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Market Potential1
We believe thatuniversal wireless universal smart technology will play a critical role for traditional instrument manufacturers, as itcurrently the undertaking of an IoT project is simply too expensive and difficult to develop for medium or smaller companies.companies and carries a 75% failure rate according to Cisco Systems.1 The cost factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and implement them in their products or use them in their field testing. We also hope to play a role in academic laboratories, particularly with smaller academic laboratories whothat are sensitive to price. Regarding the larger IoT industry statistics, overall enterprise IoT spending increased to $201 billion in 2022, an increase of 21.5%. The outlook for growth in 2023 is 18.5% from this large base of enterprise spending.2 More specifically, the IoT sensors market is projected to reach $26 billion by 2026 from $11.1 billion in 2022.3 The IoT marketplace size assessments usually include the hardware components and the software components, which often contain a Software as a Service (SaaS) model. Additionally, the rising need for reliable high bandwidth communication for IoT devices is expected to rise to $664.75 billion in 2028, spearheaded by the currently predominant services in the 5G category. We would also expect this market to grow with the addition of new categories of services delivering reliable high bandwidth communication for IoT devices and would cannibalize and expand the existing services where the new services proved to be more effective and efficient.
We also expect our recent growth within our IoT Installation Services segment and acquisition of AT Tech Systems to bolster and complement AVX and all other related installation businesses of these IoT products. The number of new contracts we have signed thus far in a limited amount of time through the six months ended June 30, 2023 is 17 with an average value of $32,225 and a total collection value of $547,825 in signed contracts to date, of which we have already collected $281,717. Additionally, thus far, we have an aggregate $1,351,493 in contracts agreed in principle, of which we expect to be signed and deposits paid. This is compared to our highest AVX revenue for a calendar year of $817,233 in 2019, followed by $705,877 in 2020, $252,958 in 2021, and $260,871 in 2022. While statistics regarding the IoT installation sectors are difficult to aggregate given that the work is often are pieced off into various contractor service categories, the residential custom installation market ranges from $5.7 billion to $12.1 billion, and we would expect the commercial and industrial installation markets to be larger than the residential for IoT devices.
Results of Operations
For the three months ended June 30, 20222023 compared to the three months ended June 30, 20212022
Revenue, cost of revenue and gross profit
| For the three months ended June 30, 2023 | For the three months ended June 30, 2022 | Increase (Decrease) $ | ||||||||||
| Revenue | $ | 215,391 | $ | 62,364 | $ | 153,027 | ||||||
| Revenue – related party | – | 2,278 | (2,278 | ) | ||||||||
| Total Revenue | 215,391 | 64,642 | 150,749 | |||||||||
| Cost of revenue | 149,259 | 57,776 | 91,483 | |||||||||
| Gross Profit | $ | 66,132 | $ | 6,866 | $ | 59,266 | ||||||
Our consolidated gross revenue for the three months ended June 30, 2023 and 2022 was $215,391 and 2021 was $64,642, and $261,680, respectively, which included revenue from related parties of $2,278$0 and $4,950,$2,278, respectively. Revenue for the three months ended June 30, 2022 decreased $197,0382023 increased $150,749 due to a sales decreaseincrease from major customerour acquisition of PerfecularAT Tech Systems. This increase of revenue was mainly a result of the increase of IoT Installation Services being bolstered by additional resources such as increased headcount.
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1 Cisco Systems, Connected Futures, Executive Business Insights, May 2017, The Journey to IOT Value, Challenges, Breakthroughs, and AVX Design & Integration Inc.Best Practices, https://newsroom.cisco.com/c/r/newsroom/en/us/a/y2017/m05/cisco-survey-reveals-close-to-three-fourths-of-iot-projects-are-failing.html
2 IoT Analytics, Market Insights for the Internet of Things, February 7, 2023, Global IoT market size to grow 19% in 2023—IoT shows resilience despite economic downturn, https://iot-analytics.com/iot-market-size/
3 Markets and Markets, IoT Sensors Market by Sensor Type, Network Technology, Vertical, Application, and Geography – Global Forecast -2026, https://www.marketsandmarkets.com/Market-Reports/sensors-iot-market-26520972.html
4 Cision PRNewswire, Research and Markets, Global $664.75 Billion 5G Services Markets to 2028: Rising Need for High Bandwidth to Provide Reliable Communication to IoT Devices is Expected to Boost Overall Market Growth, https://www.prnewswire.com/news-releases/global-664-75-billion-5g-services-markets-to-2028-rising-need-for-high-bandwidth-to-provide-
reliable-communication-to-iot-devices-is-expected-to-boost-overall-market-growth-301432173.html
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Cost of revenue for the three months ended June 30, 2023 was $149,259, compared to $57,776 for the three months ended June 30, 2022. While the overall cost of revenue increased, as a percent of revenue, costs went down as a result of higher margin contracts for IoT Installation Services being unablesigned. In addition to generate more service work or develop a big project of high competitive environmentthe increase in Los Angeles area. Additionally,revenue, gross profit increased to $66,132 for the company is midstream in shifting toward more higher technology products and revenues, and diversifying away from more generalized hydroponic equipment of which remain in higher inventory levels withinthree months ended June 30, 2023, compared to $6,866 for the industry.three months ended June 30, 2022.
Cost and Operating Expenses
The major components of our cost and operating expenses for the three months ended June 30, 20222023 and 20212022 are outlined in the table below:
| For the three months ended June 30, 2022 | For the three months ended June 30, 2021 | Increase (Decrease) $ | For the three months ended June 30, 2023 | For the three months ended June 30, 2022 | Increase (Decrease) $ | |||||||||||||||||||
| Cost of revenue, excluding depreciation & amortization | 57,472 | $ | 208,583 | $ | (151,111 | ) | ||||||||||||||||||
| Selling expense | 17,548 | 446 | 17,102 | 63,075 | 17,548 | 45,527 | ||||||||||||||||||
| Compensation – officers and directors | 34,000 | 34,000 | – | 253,403 | 283,625 | (30,222 | ) | |||||||||||||||||
| Research and development | 167,361 | 47,222 | 120,139 | 342,992 | 167,361 | 175,631 | ||||||||||||||||||
| Professional fees | 174,341 | 186,765 | (12,424 | ) | 116,565 | 153,091 | (36,526 | ) | ||||||||||||||||
| General and administrative | 819,268 | 448,199 | 371,069 | 361,583 | 590,589 | (229,006 | ) | |||||||||||||||||
| Total costs and operating expenses | $ | 1,269,990 | $ | 925,215 | $ | 344,775 | ||||||||||||||||||
| Total operating expenses | $ | 1,137,618 | $ | 1,212,214 | $ | (74,596 | ) | |||||||||||||||||
Cost of revenue, excluding depreciation and amortization for the three months ended June 30, 2022 was $57,472, compared to $208,583 for the three months ended June 30, 2021. This decrease in cost of revenue was related to the decrease in revenues.
Selling expense for the three months ended June 30, 20222023 was $17,548,$63,075, compared to $446$17,548 for the three months ended June 30, 2021.2022. Selling expense incurred was mainly from third party advertising fees and marketing related fees. The increase of selling expense was due to an increase in advertising fees.fees and trade show expenses.
Compensation – officers and directors were $34,000was $253,403 and $34,000$283,625 for the three months ended June 30, 2023 and 2022, and 2021, respectively. The decrease was due to a decrease in the compensation received by the board of directors.
Research and development costs were $167,361$342,992 and $47,222$167,361 for the three months ended June 30, 20222023 and 2021,2022, respectively. The increase was due to an increase in the number of research and development employee compensationheadcount in the Ontario, California headquarters and the Shenzhen, China research and development costs.subsidiary.
Professional fees were $174,341during the three months ended June 30, 2022, compared to $186,765$116,565 during the three months ended June 30, 2021. The decrease in third party consulting fee2023, compared to the prior period.
General and administrative expenses of $819,268 incurred$153,091 during the three months ended June 30, 2022 primarily consisted2022. The decrease in these professional fees compared to the prior period was due to a decrease in new transaction-based legal paperwork for the Company (as much of stock-based compensation of $228,375, salaries of $178,530, rent of $161,448, insurance expense of $81,579,this paperwork was completed earlier) and depreciation expense of $41,899. a decrease in employment litigation legal fees.
General and administrative expenses of $448,199 incurred duringfor the three months ended June 30, 2021 primarily consisted of stock-based compensation of $106,838, salaries of $75,845, insurance expense of $86,309 and depreciation expense of $39,156.
Other Income
Other income of $144,051 incurred during2023 was $361,583, compared to $590,589 for the three months ended June 30, 2022 primarily consisted of SBA PPP forgiveness loan of $158,547, unrealized loss on marketable equity securities of $74,6262022. The major decrease was due to decreases in general and cancellation of debt of $20,000. administrative salaries from $178,530 to $76,555 in 2023, a lease expense from $161,448 to $34,989 in 2023, and insurance expense from $81,579 to $66,317 in 2023.
Other Income (expense)
Other income of $183,390 incurred duringfor the three months ended June 30, 2021 primarily consisted of2023 was $53,320, compared to $144,051 for the three months ended June 30, 2022. The decrease was due to there being no SBA PPP forgiveness loan of $151,500.in 2023.
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Net Losses
During the three months ended June 30, 20222023 and 2021,2022, we incurred net losses of $1,061,297$1,018,166 and $480,145$1,061,297, respectively, due to the factors discussed above.
For the six months ended June 30, 20222023 compared to the six months ended June 30, 20212022
Revenue, cost of revenue and gross profit
| For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | Increase (Decrease) $ | ||||||||||
| Revenue | $ | 451,486 | $ | 187,989 | $ | 263,497 | ||||||
| Revenue – related party | – | 33,820 | (33,820 | ) | ||||||||
| Total Revenue | 451,486 | 221,809 | 229,677 | |||||||||
| Cost of revenue | 330,003 | 201,171 | 128,832 | |||||||||
| Gross Profit | $ | 121,483 | $ | 20,638 | $ | 100,845 | ||||||
Our consolidated gross revenue for the six months ended June 30, 2023 and 2022 was $451,486 and 2021 was $221,809 and $625,143, respectively, which included revenue from related parties of $33,820$0 and $15,141,$33,820, respectively. Revenue for the six months ended June 30, 2022 decreased $403,3342023 increased $229,677 due to a sales decreaseincrease from Hydrofarm to Perfecular and AVX Design & Integration Inc. being unable to generate more service work or developour acquisition of AT Tech Systems. This increase of revenue was mainly a big project in the highly competitive environmentresult of the Los Angeles area. As mentioned,increase of IoT Installation Services being bolstered by additional resources such as increased headcount.
Cost of revenue for the company is midstreamsix months ended June 30, 2023 was $330,003, compared to $201,171 for the six months ended June 30, 2022. While the overall cost of revenue increased, as a percent of revenue, costs went down as a result of higher margin contracts for IoT Installation Services being signed. In addition to the increase in shifting toward more higher technology products and revenues and diversifying away from generalized hydroponic equipment.revenue, gross profit increased to $121,483 for the six months ended June 30, 2023, compared to $20,638 for the six months ended June 30, 2022.
Cost and Operating Expenses
The major components of our cost and operating expenses for the six months ended June 30, 20222023 and 20212022 are outlined in the table below:
| For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | Increase (Decrease) $ | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | Increase (Decrease) $ | |||||||||||||||||||
| Cost of revenue, excluding depreciation & amortization | 200,563 | $ | 500,846 | $ | (300,283 | ) | ||||||||||||||||||
| Selling expense | 55,887 | 958 | 54,929 | $ | 74,934 | $ | 55,887 | $ | 19,047 | |||||||||||||||
| Compensation – officers and directors | 110,040 | 73,100 | 36,940 | 560,937 | 604,290 | (43,353 | ) | |||||||||||||||||
| Research and development | 729,105 | 110,372 | 618,733 | 619,473 | 729,105 | (109,632 | ) | |||||||||||||||||
| Professional fees | 535,207 | 457,475 | 77,732 | 373,964 | 535,207 | (161,243 | ) | |||||||||||||||||
| General and administrative | 1,720,216 | 865,120 | 855,096 | 804,635 | 1,225,358 | (420,723 | ) | |||||||||||||||||
| Total costs and operating expenses | $ | 3,351,018 | $ | 2,007,871 | $ | 1,343,147 | ||||||||||||||||||
| Total operating expenses | $ | 2,433,943 | $ | 3,149,847 | $ | (715,904 | ) | |||||||||||||||||
Cost of revenue, excluding depreciation & amortization for the six months ended June 30, 2022 was $200,563, compared to $500,846 for the six months ended June 30, 2021. This decrease in cost of revenue was related to the decrease in revenues.
Selling expense for the six months ended June 30, 20222023 was $55,887,$74,934, compared to $958$55,887 for the six months ended June 30, 2021.2022. Selling expense incurred was mainly from third party advertising fees and marketing related fees. The increase of selling expense was due to an increase in advertising fees.fees and trade show expenses.
Compensation – officers and directors were $110,040$560,937 and $73,100$604,290 for the six months ended June 30, 20222023 and 2021,2022, respectively. The increasedecrease was due to granting equity compensation.a decrease in the compensation received by the board of directors.
Research and development costs were $729,105$619,473 and $110,372$729,105 for the six months ended June 30, 20222023 and 2021,2022, respectively. The increasedecrease was due to an increasea decrease in the research and development employee compensation; and on research and development costs incurred by our Chinese subsidiary.restricted stock award amount in the Ontario, California headquarters.
Professional fees were $373,964 during the six months ended June 30, 2023, compared to $535,207 during the six months ended June 30, 20222022. The decrease in these professional fees compared to $457,475 duringthe prior period was due to a decrease in new transaction-based legal paperwork for the Company (as much of this paperwork was completed earlier) and a decrease in employment litigation legal fees.
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General and administrative expenses for the six months ended June 30, 2021. The increase in professional fees mainly resulted from the pending litigation2023 was $804,635, compared to the prior period.
General and administrative expenses of $1,720,216 incurred during$1,225,358 for the six months ended June 30, 2022 primarily consisted of stock-based compensation of $456,750,2022. The major decrease was due to decreases in general and administrative salaries offrom $469,934 rent ofto $148,511 in 2023, lease expense from $237,045 to $81,069 in 2023, and insurance expense from $258,494 to $167,273 in 2023. The relating decrease was due to the following reasons:
a) Decreased number of $258,494, and depreciation expense of $82,062. Generalgeneral and administrative expensesemployees in our headquarters due to outsourcing of $865,120 incurred duringwork to third parties;
b) Relocated Focus Shenzhen office to lower lease expense; and
c) Obtained better insurance deal from another insurance company.
Other Income (expense)
Other income for the six months ended June 30, 2021 primarily consisted of stock-based compensation of $213,675, salaries of $261,751, insurance expense of $135,144, depreciation expense of $80,872, and rent of $32,590.
Other Income
During2023 was $180,051, compared to $198,982 for the six months ended June 30, 2022 and 2021, we incurred total other income of $198,982 and $220,067, respectively.2022. The major decrease in other income was due to there being no SBA PPP forgiveness loan and cancellation of debt in the current period. The majority of the other income was incurred from lease payments from tenants at our facility2023 or unrealized gain on marketable equity securities in Ontario, California. Also of note, the market value of our facility has increased substantially due to the general rise in Southern California industrial real estate market conditions over the past 5 years.2023.
Net Losses
During the six months ended June 30, 20222023 and 2021,2022, we incurred net losses of $2,930,227$2,132,409 and $1,162,661$2,930,227, respectively, due to the factors discussed above.
Liquidity and Capital Resources
Working Capital
| June 30, 2022 | December 31, 2021 | |||||||
| Current Assets | $ | 7,339,735 | $ | 9,214,340 | ||||
| Current Liabilities | (314,283 | ) | (571,442 | ) | ||||
| Working Capital | $ | 7,025,452 | $ | 8,642,898 | ||||
| June 30, 2023 | December 31, 2022 | |||||||
| Current Assets | $ | 1,796,226 | $ | 4,807,830 | ||||
| Current Liabilities | (432,144 | ) | (1,387,239 | ) | ||||
| Working Capital | $ | 1,364,082 | $ | 3,420,591 | ||||
Cash Flows
The table below, for the periods indicated, provides selected cash flow information:
| For the six months ended June 30, 2022 | For the six months ended June 30, 2021 | For the six months ended June 30, 2023 | For the six months ended June 30, 2022 | |||||||||||||
| Net cash used in operating activities | $ | (1,749,492 | ) | $ | (964,297 | ) | $ | (1,606,739 | ) | $ | (1,749,492 | ) | ||||
| Net cash used in investing activities | (267,537 | ) | – | |||||||||||||
| Net cash provided by financing activities | – | 1,762,407 | ||||||||||||||
| Net cash provided by (used in) investing activities | 40,889 | (267,537 | ) | |||||||||||||
| Net cash used in financing activities | (1,420,686 | ) | – | |||||||||||||
| Effect of exchange rate | (1,228 | ) | – | 1,793 | (1,228 | ) | ||||||||||
| Net change in cash | $ | (2,018,257 | ) | $ | 798,110 | $ | (2,984,743 | ) | $ | (2,018,257 | ) | |||||
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Cash Flows from Operating Activities
Our net cash outflows from operating activities of $1,606,739 for the six months ended June 30, 2023 was primarily the result of our net loss of $2,132,409 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes an increase in accounts receivable of $27,741, a decrease in accounts receivable – related party of $34,507, a decrease in inventories of $15,526, a decrease in prepaid expense of $46,109, an increase in deposit of $8,514, an increase in operating lease right-of-use asset of $4,983, an increase in accounts payable and accrued liabilities of $73,823, an increase in customer deposit of $39,100, and a decrease in lease liabilities of $55,012. Non-cash expense included add-backs of $4,675 in bad debt expense, $84,616 in depreciation expense, $28,741 in amortization of intangible assets, $14,249 in realized loss on marketable securities, $168,304 in stock-based compensation - shares, and $266,806 in stock option compensation, reductions of $27,565 in unrealized gain on marketable equity securities and $61,747 in gain on bargain purchase.
Our net cash outflows from operating activities of $1,749,492 for the six months ended June 30, 2022 was primarily the result of our net loss of $2,930,227 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes an increase in accounts receivable of $47,454, an increase in accounts receivable – related party of $73,094, an increase in inventories of $7,752, a decrease in other receivablereceivables of $13,057, a decrease in prepaid expense of $103,083, an increase in deposit of $4,008, a decrease in operating lease right-of-use asset of $190,790, ana decrease in accounts payable and accrued liabilities of $106,104, a decrease in other current liabilities of $17,135, an increase in customer deposit of $6,131, a decrease in lease liabilities of $60,576, and an increase in other liabilities of $14,736. Non-cash expense included add-backs of $57,147 in bad debt expense, $25,617 in reduction of inventory fair value adjustments, $82,065$82,063 in depreciation expense, $74,626 in unrealized loss on marketable equity securities, $10,281 in realized gain on marketable securities, $158,547 in gain on forgiveness of debt, $692,920 in stock-based compensation - shares, and $456,750 in stock option compensation.
Our net cash outflows from operating activities of $964,297 for the six months ended June 30, 2021, was primarily the result of our net loss of $1,162,661 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes a decrease in accounts receivable of $40,219, an increase of accounts receivable – related party of $5,016, a decrease in inventory of $32,248, an increase in other receivables of $2,400, an increase in prepaid expenses of $98,821, a decrease in deposits of $100,000, a decrease in operating lease right-of-use asset of $23,553, an increase in accounts payable and accrued liabilities of $32,400, a decrease in accounts payable – related party of $17,471, an increase in other current liabilities of $164, a decrease in customer deposits of $52,751, and a decrease lease liabilities of $25,228. Non-cash expense includes add-backs of $5,749 in bad debt expense, $1,329 in inventory reserve reductions, $80,872 in depreciation expense, $151,500 in gain on forgiveness of debt, $24,000 in stock-based compensation, and $213,675 in stock option compensation.
We expect that cash flows from operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our net revenues and operating results, utilization of new revenue streams, in line with our shifting revenue streams, collection of accounts receivable, and timing of billings and payments.
Cash Flows from Investing Activities
For the six months ended June 30, 2023, we had cash inflow from investing activities of $40,889. That inflow was primarily the result from the purchase of property and equipment of $17,203, purchase of marketable securities of $43,644, and proceeds from sales of marketable securities of $101,736. For the six months ended June 30, 2022, we had cash outflow from investing activities of $267,537. That outflow was primarily the result from the purchase of property and equipment of $39,702, purchase of marketable securities of $708,359, and proceeds from sales of marketable securities of $480,524. There were no investing activities for the six months ended June 30, 2021
Cash Flows from Financing Activities
For the six months ended June 30, 2023, we had cash outflows of $1,420,686 due to purchase of treasury stock. There were no financing activities for the six months ended June 30, 2022. For the six months ended June 30, 2021, cash inflows of $1,762,407 were due to proceeds of SBA loans of $267,297, payment of an SBA loan of $227, proceeds from bank loan of $1,500,000, and repayment of the bank loan of $4,663.
Going Concern
In August 2014, the long term,FASB issued ASC 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these unconsolidated financial statements. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern is dependent uponconcern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the continued financial support from its shareholders,recoverability and classification of reported asset amounts or the abilityamount and classification of liabilities that might be necessary should the Company to repay its debt obligations, to obtain necessary equity financingbe unable to continue operations,as a going concern.
The Company has a net loss of $2,132,409 and the attainment of profitable operations. For$2,930,227 for the six months ended June 30, 2023 and 2022, respectively. In addition, the Company had a net lossan accumulated deficit of $2,930,227$19,996,437 and $17,864,028 as of June 30,2023 and December 31, 2022, respectively, and negative cash flow from operating activities of $1,749,492. With a January 1, 2022 beginning cash amount of $8,678,665, the Company will have enough cash to cover its projected annual cash burn rate of $3,152,618 which is an increase from the previous year. This is a result of coming off of a year where the company completed an uplisting transaction causing a greater than normal amount of expenditure, especially in professional service fees. Overall, the Company has adequate cash$1,606,739 and $1,749,492 for the Companysix months ended June 30, 2023 and 2022, respectively. These factors raise substantial doubt about the Company’s ability to continue operation as a going concern throughout 2022 without any additional capital raise. As a result, the previous factors raising substantial doubtconcern. The Company’s ability to continue as a going concern have been alleviated foris dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the following year.recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is operating on a going concern basis as of June 30, 2023.
Off-Balance Sheet Arrangements
As of June 30, 2022,2023, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a15(e) and 15d15(e) under the Securities and Exchange Act of 1934, at the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our Company, particularly during the period when this report was being prepared.
Our management concluded we did not maintain effective controls over the Company’s financial reporting. The material weaknesses in our internal control over financial reporting, caused principally by inadequate staffing and technical expertise in key positions, resulted in overly relying on outside consultants to make numerous adjustments to our financial statements. Additionally, the significant deficiencies or material weaknesses could result in future material misstatement of the consolidated financial statements that would not be prevented or detected. Management has concluded that the identified control deficiencies constitute a material weakness.
Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity'sentity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We were not subject to any new legal proceedings during the six months ended June 30,202230, 2023; and there are currently no new legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
No shares or common stock were sold during the six months ended June 30, 2022.2023.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No senior securities were issued and outstanding during the six-month periods ended June 30, 20222023 or 2021.2022.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable to our Company.
ITEM 5. OTHER INFORMATION
Our common stock has been quoted on the OTCQB and on the OTC Link since July 31, 2014 under the symbol “FCUV” and now trades on the Nasdaq Global Market under the same symbol “FCUV”. “FCUV.”
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The following financial information is filed as part of this report:
| (a) | (1) FINANCIAL STATEMENTS |
| (2) SCHEDULES | |
| (3) EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents: |
Exhibit Number | Description | |
| 31.1 | Certification of CEO pursuant to Sec. 302 | |
| 31.2 | Certification of CFO pursuant to Sec. 302 | |
| 32.1 | Certification of CEO pursuant to Sec. 906 | |
| 32.2 | Certification of CFO pursuant to Sec. 906 | |
| 101.INS | XBRL Instances Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
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.
| Focus Universal Inc. | |||
| Dated: August | By: | /s/ Desheng Wang Desheng Wang Chief Executive Officer | |
| Dated: August | By: | /s/
Chief Financial Officer | |