FOCUS UNIVERSAL INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOCUS UNIVERSAL INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 2020, AND 2019 Index to the Financial Statements Contents Page Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations for the Years Ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 and 2019 F-6 Notes to the Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the shareholders and the board of directors of Focus Universal, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Focus Universal, Inc. (the “Company”) as of December 31, 2020 and 2019, the related statement of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Substantial Doubt about the Company’s Ability to Continue as a Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ BF Borgers CPA PC BF Borgers CPA PC We have served as the Company’s auditor since 2017 Lakewood, CO March 23, 2021 F- 2 FOCUS UNIVERSAL INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2020 2019 ASSETS Current Assets: Cash $ 583,325 $ 2,192,870 Accounts receivable, net 190,556 137,338 Inventories, net 42,496 62,933 Prepaid expenses 91,253 46,971 Deposit - current portion 100,000 – Total Current Assets 1,007,630 2,440,112 Property and equipment, net 4,492,510 4,653,438 Operating lease right-of-use asset 86,558 128,399 Deposits 6,630 6,630 Total Assets $ 5,593,328 $ 7,228,579 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 198,870 $ 192,488 Accounts payable - related party 17,471 – Other current liabilities 6,332 16,820 Interest payable - related party – 1,750 Customer deposit 57,377 127,671 Loan, current portion 194,125 – Lease liability, current portion 53,384 44,270 Promissory note short term - related party – 50,000 Total Current Liabilities 527,559 432,999 Non-Current Liabilities: Lease liability, less current portion 41,287 94,670 Loan, less current portion 202,735 – Other liability 17,135 12,335 Total Non-Current Liabilities 261,157 107,005 Total Liabilities 788,716 540,004 Contingencies (Note 11) – – Stockholders' Equity: Common stock, par value $0.001 per share, 75,000,000 shares authorized; 40,959,741 shares issued and outstanding as of December 31, 2020 and 2019, respectively 40,959 40,959 Additional paid-in capital 14,381,058 13,775,908 Shares to be issued, common shares 98,709 50,709 Accumulated deficit (9,716,114 ) (7,179,001 ) Total Stockholders' Equity 4,804,612 6,688,575 Total Liabilities and Stockholders' Equity $ 5,593,328 $ 7,228,579 The accompanying notes are an integral part of these consolidated financial statements. F- 3 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2020 2019 Revenue $ 1,652,518 $ 1,446,186 Revenue - related party 26,449 14,184 Total Revenue 1,678,967 1,460,370 Cost of Revenue 1,395,187 1,342,139 Gross Profit 283,780 118,231 Operating Expenses: Selling expense 22,590 46,624 Compensation - officers 142,100 150,154 Research and development 256,636 255,232 Professional fees 1,297,160 1,376,995 General and administrative 1,269,207 1,113,201 Goodwill impairment – 458,490 Intangible assets impairment – 47,975 Total Operating Expenses 2,987,693 3,448,671 Loss from Operations (2,703,913 ) (3,330,440 ) Other Income (Expense): Interest income (expense), net (4,072 ) 2,257 Interest (expense) - related party (81 ) (1,750 ) Other income 170,953 154,390 Total other income (expense) 166,800 154,897 Loss before income taxes (2,537,113 ) (3,175,543 ) Income tax expense – – Net Loss $ (2,537,113 ) $ (3,175,543 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 40,959,741 40,945,807 Net Loss per common share: Basic and Diluted $ (0.06 ) $ (0.08 ) The accompanying notes are an integral part of these consolidated financial statements. F- 4 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020 and 2019 Additional Shares to be Total Common stock Paid-In issued Accumulated Stockholders' Description Shares Amount Capital Common Shares Deficit Equity Balance - December 31, 2018 40,907,010 $ 40,907 $ 12,956,486 $ 72,000 $ (4,003,458 ) $ 9,065,935 Common stock issued for prior period service 10,133 10 71,990 (72,000 ) – – Common stock issued for service 3,312 3 24,506 – – 24,509 Common stock issued for acquisition 39,286 39 290,676 – – 290,715 Common stock to be issued for services – – – 50,709 – 50,709 Stock options issued for services – – 432,250 – – 432,250 Net loss – – – – (3,175,543 ) (3,175,543 ) Balance - December 31, 2019 40,959,741 40,959 13,775,908 50,709 (7,179,001 ) 6,688,575 Stock options issued for services – – 605,150 – – 605,150 Common stock to be issued for services – – – 48,000 – 48,000 Net loss – – – – (2,537,113 ) (2,537,113 ) Balance - December 31, 2020 40,959,741 40,959 14,381,058 98,709 (9,716,114 ) 4,804,612 The accompanying notes are an integral part of these consolidated financial statements F- 5 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2020 2019 Cash flows from operating activities: Net Loss $ (2,537,113 ) $ (3,175,543 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense 21,907 5,175 Inventories reserve (852 ) 6,448 Depreciation expense 162,242 151,670 Amortization of intangible assets – 9,025 Impairment of intangible assets – 47,975 Impairment of goodwill – 458,490 Amortization of right-of-use assets (2,428 ) (673 ) Stock-based compensation 48,000 75,218 Stock option compensation 605,150 432,250 Changes in operating assets and liabilities: Accounts receivable (75,125 ) 102,956 Accounts receivable - related party – 39,625 Inventories 21,289 15,932 Prepaid expenses (44,282 ) 68,862 Deposit - Current portion (100,000 ) – Deposits – 7,210 Accounts payable and accrued liabilities 8,132 (38,705 ) Accounts payable - related party 17,471 (4,921 ) Other current liabilities (12,238 ) 9,610 Interest payable - related party (1,750 ) 1,750 Customer deposit (70,294 ) 77,540 Other liabilities 4,800 12,335 Net cash flows used in operating activities (1,955,091 ) (1,697,771 ) Cash flows from investing activities: Cash from acquisition – 201,482 Purchase of property and equipment (1,314 ) (11,148 ) Cash paid for building improvement – (205,444 ) Cash paid for acquisition – (550,000 ) Net cash flows used in investing activities (1,314 ) (565,110 ) Cash flows from financing activities: Proceeds from SBA loan 396,860 – Payment on promissory note (50,000 ) – Net cash flows provided by financing activities 346,860 – Net change in cash (1,609,545 ) (2,262,881 ) Cash beginning of period 2,192,870 4,455,751 Cash end of period $ 583,325 $ 2,192,870 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 1,831 $ – Supplemental disclosures of non-cash investing and financing activities: Promissory note issued for acquisition $ – $ 50,000 Shares issued for acquisition $ – $ 290,716 The accompanying notes are an integral part of these consolidated financial statements. F- 6 FOCUS UNIVERSAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2020 AND 2019 Note 1 – Organization and Operations Focus Universal Inc. (“Focus”) was incorporated under the laws of the State of Nevada on December 4, 2012 (“Inception”). It is a universal smart instrument developer and manufacturer, headquartered in the Los Angeles, California metropolitan area, specializing in the development and commercialization of novel and proprietary universal smart technologies and instruments. 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. Our 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 knowledge of the unique characteristics of the function of each of the sensors 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 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. Perfecular Inc. (“Perfecular”) was founded in September 2009 and is headquartered in Ontario, California, and is engaged in designing certain digital sensor products and sells 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. AVX is an internet of things (“IoT”) installation and management company specializing in high performance and easy to use Audio/Video, Home Theater, Lighting Control, Automation and Integration. Services provided by AVX include full integration of houses, apartment, commercial complex, office spaces with audio, visual and control systems to fully integrate devices in the low voltage field. AVX’s services also include partial equipment upgrade and installation. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include the accounts of Focus and its wholly-owned subsidiaries, Perfecular Inc. and AVX Design & Integration, Inc. (collectively, the “Company”, “we”, “our”, or “us”). All intercompany balances and transactions have been eliminated upon consolidation. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. 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. Recently, the Company has devoted a substantial amount of resources to research and development to bring the Ubiquitor and its mobile application to full production and distribution. For the year ended December 31, 2020, the Company had a net loss of $2,537,113 and negative cash flow from operating activities of $1,955,091. As of December 31, 2020, the Company also had an accumulated deficit of $9,716,114. These factors raise certain doubts regarding the Company’s ability to continue as a going concern. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing for the long-term development and commercialization of its Ubiquitor product. F- 7 Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Perfecular Inc. and AVX Design & Integration. Focus and Perfecular, collectively “the entities” were under common control; therefore, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805-50-45, the acquisition of Perfecular was accounted for as a business combination between entities under common control and treated similar to a pooling of interest transaction. On March 15, 2019, Focus entered into a stock purchase agreement with AVX whereby Focus purchased 100% of the outstanding stock of AVX. All significant intercompany transactions and balances have been eliminated. Segment Reporting The Company currently has two operating segments. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and evaluated regularly by Management in deciding how to allocate resources and to assess performance. Management reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has two operating and reportable segments. 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 consolidated financial statements. Use of Estimates The preparation of 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 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 use asset 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. There were no cash equivalents held by the Company at December 31, 2020 and 2019. 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 90 days of the product sale. F- 8 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 December 31, 2020 and 2019, allowance for doubtful accounts amounted to $44,519 and $22,612, respectively. 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. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory allowances 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 estimated realized value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value. As of December 31, 2020 and 2019, inventory reserve amounted to $ 70,562 and $71,414, respectively. 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: Fixed assets Useful life Furniture 5 years Equipment 5 years Warehouse 39 years Improvement 5 years Construction in progress – Land – Long-Lived Assets The Company applies the provisions of FASB 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 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 December 31, 2020 and 2019, the Company believes there was no impairment of its long-lived assets. F- 9 Intangible Assets The Company’s intangible assets were acquired from AVX. Amortization is computed using the straight-line method, and the Company evaluates for impairments annually. During the year ended December 31, 2019, the Company determined that the intangible assets associated with the acquisition of AVX was fully impaired. During the year ended December 31, 2019, impairment for intangible assets amounted to $47,975. Estimated useful lives of intangible assets are as follows: Intangible assets Useful life Market related intangible assets 5 years Goodwill Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill with indefinite useful lives are tested for impairment at least annually at December 31 and whenever triggering events or changes in circumstances indicate its carrying value may not be recoverable. Assessment of the potential impairment of goodwill is an integral part of the Company’s normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s businesses operate and key economic and business assumptions related to projected selling prices, market growth, inflation rates and operating expense ratios, can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time in which such impairments are recognized. The management tests for impairment annually at year end. During the year ended December 31, 2019, the Company determined that the goodwill associated with the acquisition of certain AVX assets was impaired and took a charge to earnings of $458,490. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of 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 which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model 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. 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), and expands disclosures about fair value measurements. F- 10 To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which 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. Financial assets are considered Level 2 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. The carrying amount of the Company’s financial assets and liabilities, such as cash, prepaid expenses, accounts payable and accrued expenses, 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. Revenue Recognition On September 1, 2018, the Company adopted ASC 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. Revenue from the Company is recognized under Topic 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; ☐ allocation the transaction price to each performance obligation; and ☐ recognition of revenue only when the Company satisfies each performance obligation. F- 11 These five elements, as applied to each of the Company’s revenue category, is summarized below: ☐ Product sales – revenue is recognized at the time of sale of equipment to the customer. ☐ Service sales – revenue is recognized based on the service been provided 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 account receivable is recorded for amounts invoiced based on actual units produced. Cost of Revenue 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. Related Parties The Company follows ASC 850-10 for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20 the related parties include: a) affiliates of the Company; 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) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; 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) 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 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 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 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 ASC 450-20 to report accounting for contingencies. Certain conditions may exist as of the date the 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. F- 12 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 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. Income Tax Provision The Company accounts for income taxes in accordance with 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 was no material deferred tax asset or liabilities as of December 31, 2020 and 2019. As of December 31, 2020 and 2019, the Company did not identify any material uncertain tax positions. Basic and Diluted Net Income (Loss) Per Share Net income (loss) per share is computed pursuant to ASC 260-10-45. 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, 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. F- 13 Year ended December 31, 2020 2019 Stock options 210,000 – Total 210,000 – Subsequent Events The Company follows the guidance in ASC 855-10-50 for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR. Based upon the review, other than described in Note 17 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the consolidated financial statements. Reclassification Certain reclassifications have been made to the consolidated financial statements for prior years to the current year’s presentation. Such reclassifications have no effect on net income as previously reported. Note 3 – Recent Accounting Pronouncement Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Targeted Improvements; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of income. The new standard was effective for the Company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as its date of initial application. Consequently, prior period financial information has not been recast and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, it has not recognized ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all of its leases. The Company believes the most significant effects of the adoption of this standard relate to (1) the recognition of new ROU assets and lease liabilities on its consolidated balance sheet for its office operating leases and (2) providing new disclosures about its leasing activities. There was no change in its leasing activities as a result of adoption. F- 14 In June 2018, the FASB issued ASU 2018-07, Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to nonemployees with the requirements for share-based payments granted to employees. ASU 2018-07 is effective on January 1, 2019. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. In June 2020, the FASB issued ASU 2020-05 in response to the ongoing impacts to US businesses in response to the COVID-19 pandemic. ASU 2020-05, Revenue from Contracts with Customers (Topic 606) and Leases (Topic 842) Effective Dates for Certain Entities provides a limited deferral of the effective dates for implementing previously issued ASU 606 and ASU 842 to give some relief to businesses and the difficulties they are facing during the pandemic. These entities may defer application to fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. As the Company has already adopted ASU 606 and ASU 842, the Company does not anticipate any effect on its financial statements. Recently Issued Accounting Standards Not Yet Adopted In June 2016, FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects the adoption will have on its consolidated financial statements. In December 2019, FASB issued ASU 2019-12 "Income Taxes," which provides for certain updates to reduce complexity in the accounting for income taxes, including the utilization of the incremental approach for intra-period tax allocation, among others. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company does not expect the implementation of ASU 2019-12 to have a material effect on its consolidated financial statements. Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statement s. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. Note 4 – Inventory, net At December 31, 2020 and 2019, inventory consisted of the following: December 31, 2020 December 31, 2019 Parts $ 45,509 $ 31,458 Finished goods 67,549 102,889 Total 113,058 134,347 Less inventory reserve (70,562 ) (71,414 ) Inventory, net $ 42,496 $ 62,933 F- 15 Note 5 – Deposits Deposit balance as of December 31, 2020 amounted to $106,630, including $6,630 for lease agreement deposit and $100,000 for payment made into an escrow account. Balance as of December 31, 2019 amounted to $6,630 for lease agreement deposit. On August 31, 2020, the Company executed a binding letter of intent with Communication Wiring Specialists, Inc., a California S-Corporation (“CWS”) whereby the Company will purchase one hundred percent (100%) of the issued and outstanding common stock of CWS for five million dollars ($5,000,000). When the transaction closes, CWS will be capitalized with one million dollars ($1,000,000). The purchase price structure includes a refundable deposit amount of $100,000 to be held in an escrow account upon execution of the letter of intent. This $100,000 is now nonrefundable. The Company is still currently negotiating the transaction and is expected to close before March 31, 2021. Note 6 – Acquisition On March 15, 2019, the Company entered into and closed an asset purchase agreement with AVX Design & Integration, Inc. (“AVX”) as stated in Note 1. A summary of the purchase price and the purchase price allocations at fair value is below. Purchase price Cash $ 550,000 29,286 shares of common stock (1) 290,716 Secured promissory note 50,000 Total purchase price $ 890,716 Allocation of purchase price Cash $ 201,482 Accounts receivable 234,561 Inventories 16,000 Property and equipment 10,381 Operating lease right-of-use assets 157,213 Deposits 5,968 Intangible assets 57,000 Goodwill 458,016 Accounts payable and accrued liabilities (81,478 ) Operating lease liability (168,427 ) Purchase price $ 890,716 (1) – the fair value of the common stock was calculated based on the closing market price of the Company’s common stock at the date of acquisition. F- 16 Note 7 – Property and Equipment At December 31, 2020 and 2019, property and equipment consisted of the following: December 31, 2020 December 31, 2019 Warehouse $ 3,789,773 $ 3,789,773 Land 731,515 731,515 Building Improvement 238,666 238,666 Furniture and fixture 27,631 27,631 Equipment 48,378 47,064 Software 1,995 1,995 Total cost 4,837,958 4,836,644 Less accumulated depreciation (345,448 ) (183,206 ) Property and equipment, net $ 4,492,510 $ 4,653,438 Depreciation expense for the years ended December 31, 2020 and 2019 amounted to $162,242 and $151,670, respectively. 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 other liability in non-current liability. On January 22, 2019, the Company subleased a portion of the unused warehouse and office space to a third party. The Company subleased 16,000 square feet of warehouse and 446 square feet of office space with base rent at $12,335 per month and $12,335 security deposit. The lease is for three years commencing February 15, 2019 and monthly rent to increase $0.02 per square foot each year. On October 19, 2020, the Company subleased 3,000 feet of the warehouse and one office space for eight months commencing December 1, 2020 with option to extend the lease to twelve months. The monthly lease payment is $2,400 with a $4,800 security deposit . Note 8 – Promissory Note - Related Party On March 15, 2019, when the Company purchased AVX Design & Integration, Inc. the Company agreed to pay the predecessor owner with promissory note as one of the forms of consideration. The note was $50,000 with a fixed interest rate of 6% per annum payable in 12 equal monthly payments commencing on June 1 st , 2019 with interest calculated from the initial payment date through the date in which all amount due under the note is paid off. As of December 31, 2019, the balance of the promissory note was $50,000 and $1,750 accrued interest incurred for the nine months and 15 days ended December 31, 2019. The note and interest amount of $50,000 and $1,831 were paid off on January 10, 2020. Note 9 – Related Party Transactions Revenue generated from Vitashower Corp., a company owned by the CEO’s wife, amounted to $26,449 and $14,184 for the years ended December 31, 2020 and 2019, respectively. There were no accounts receivable balance due from Vitashower Corp. as of December 31, 2020 and 2019, respectively. Purchases generated from Vitashower Corp. amounted to $11,371 and $0 for the years ended December 31, 2020 and 2019, respectively. There were accounts payable balance $11,371 and $0 to Vitashower Corp. as of December 31, 2020 and 2019, respectively. F- 17 Compensation payable to Chief Financial Officer amounted to $6,100 and $0 as of December 31, 2020 and 2019, respectively. Compensation for services provided by the Chief Financial Officer for the years ended December 31, 2020 and 2019 amounted to $22,100 and $29,000, respectively. Compensation for services provided by the President and Chief Executive Officer for the years ended December 31, 2020 and 2019 amounted to $120,000 and $121,154, respectively. Promissory note and interest accrued and payable to the previous owner of AVX amounted to $50,000 and $1,750, respectively, as of December 31, 2019. The note and interest amount of $50,000 and $1,831 were paid off on January 10, 2020. Note 10 – Business Concentration and Risks Major customers One customer accounted for 0% and 18% of the total accounts receivable as of December 31, 2020 and 2019, respectively. This customer accounted for 53% and 43% of total revenue for the years ended December 31, 2020 and 2019, respectively. Major vendors One vendor accounted for 0% and 21% of total accounts payable at December 31, 2020 and 2019, respectively. This vendor accounted for 65% and 46% of the total purchases for the years ended December 31, 2020 and 2019, respectively. Note 11 – 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 reasonable 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. Note 12 – Operating Lease Right-of-use Asset and Operating Lease Liability Operating lease right-of-use assets and liabilities are recognized at the present value of the future lease payments at the lease commencement date. The interest rate used to determine the present value is our incremental borrowing rate, estimated to be 15%, as the interest rate implicit in our lease is not readily determinable. During the years ended December 31, 2020 and 2019, the Company recorded $65,180 and $62,322, respectively as operating lease expense. The Company currently has a lease agreement for AVX’s operation for a monthly payment of $5,258 and shall increase by 3% every year. The lease commenced July 1, 2015 and expires on August 31, 2022. A security deposit of $5,968 was also held for the duration of the lease term. In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter is not applicable to the Company. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 months or less. On March 15, 2019 when AVX was acquired, upon adoption of ASC Topic 842, the Company recorded a right-of-use asset. F- 18 Right-of-use asset is summarized below: December 31, 2020 December 31, 2019 Office lease $ 157,213 $ 157,213 Less: accumulated amortization (70,655 ) (28,814 ) Right-of-use asset, net $ 86,558 $ 128,399 Operating Lease liability is summarized below: December 31, 2020 December 31, 2019 Office lease $ 94,671 $ 138,940 Less: current portion (53,384 ) (44,270 ) Long term portion $ 41,287 $ 94,670 Maturity of lease liability is as follows: Year ending December 31, 2021 $ 64,048 Year ending December 31, 2022 43,655 Total future minimum lease payment 107,703 Imputed interest (13,032 ) Lease Obligation, net $ 94,671 Note 13 – Loans Paycheck protection program On April 24, 2020, AVX Design & Integration, Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from JPMorgan Chase Bank, N.A. related to the COVID-19 pandemic in the amount of $107,460, which we received on May 1, 2020. The SBA Loan has a fixed interest rate of 0.98 percent per annum and a maturity date two years from the date loan was issued. On May 4, 2020, Perfecular Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from Bank of America related to the COVID-19 pandemic in the amount of $151,500, which we received on May 4, 2020. 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. F- 19 Economic Injury Disaster Loan On June 4, 2020, Perfecular Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from Bank of America related to the COVID-19 pandemic in the amount of $81,100, which we received on June 4, 2020. The SBA Loan has a fixed interest rate of 3.75 percent per annum and a maturity date thirty years from the date loan was issued. On June 5, 2020, AVX Design & Integration, Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from JPMorgan Chase Bank, N.A. related to the COVID-19 pandemic in the amount of $56,800, which we received on June 5, 2020. The SBA Loan has a fixed interest rate of 3.75 percent per annum and a maturity date thirty years from the date loan was issued. Borrower will use all the proceeds of this Loan solely as working capital to alleviate economic injury caused by disaster occurring in the month of January 31, 2020 and continuing thereafter. December 31, 2020 SBA Loan $ 396,860 Less: current portion (194,125 ) Long term portion $ 202,735 Interest expense incurred from the loans amounted to $4,746 for the year ended December 31, 2020. Economic Injury Disaster Loan advance In response to the Coronavirus (COVID-19) pandemic, small businesses, including agricultural businesses, and non-profit organizations in all U.S. states, Washington D.C., and territories can apply for an Economic Injury Disaster Loan (EIDL). The amount of the EIDL Advance was determined by the number of employees indicated on the EIDL application at $1,000 per employee, up to a maximum of $10,000. The EIDL Advance does not have to be repaid. Recipients did not have to be approved for an EIDL loan in order to receive the EIDL. On April 21, 2020 and June 16, 2020, the Company received $9,000 and $10,000 EIDL advance and recorded the receipt as other income. Note 14 – 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 (75,000,000) shares of common stock, par value $0.001 per share. Common stock As of December 31, 2019 and 2020 the Company had 40,959,741 shares of common stock issued and outstanding. During the year ended December 31, 2020, the Company did not issue common stock. F- 20 Shares to be Issued for Compensation The Company entered into agreements with third party consultants for financing and management consultation. The Company has incurred consulting service fees not paid in cash amounting to $48,000 for the year ended December 31, 2020, which the Company intends to issue stock as compensation for services rendered. Expenses incurred but not yet paid in shares as of December 31, 2020 and 2019 amounted to $98,709 and $50,709, respectively. During the year ended December 31, 2019, the Company had the following transactions in its common stock: ☐ Issued 13,445 shares to consultants in exchange for professional services rendered. The shares were valued at $96,509 based on the closing price of the Company’s common stock on the dates that the shares were deemed earned, according to the agreements; and ☐ Issued 39,286 shares as consideration for the AVX acquisition valued at $290,716. The value of the common stock was determined based on the market price on the day of the closing of the acquisition. Stock options On August 6, 2019, each member of the Board was granted 30,000 options to purchase shares at $5.70 per share. As of December 31, 2020, there were 210,000 options granted, 210,000 options vested, 0 options unvested, and 210,000 outstanding stock options. The fair value of the warrants listed above was determined using the Black-Scholes option pricing model with the following assumptions: December 31, December 31, 2020 2019 Risk-free interest rate 1.71% 1.71% Expected life of the options 10 years 10 years Expected volatility 158.86% 158.86% Expected dividend yield 0% 0% The following is a summary of options activity from December 31, 2019 to December 31, 2020: Options Shares Weighted average exercise price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2019 210,000 $ 9.61 9.61 – Granted – – – – Exercised – – – – Forfeited or expired – – – – Outstanding at December 31, 2020 210,000 $ 9.61 9.61 – Vested as of December 31, 2020 210,000 5.70 9.61 – Exercisable at December 31, 2020 210,000 $ 9.61 9.61 – F- 21 The exercise price for options outstanding and exercisable at December 31, 2020: Outstanding Exercisable Number of Exercise Number of Exercise Options Price Options Price 30,000 $ 5.70 30,000 $ 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 30,000 5.70 210,000 210,000 Note 15 – Income taxes Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance, nondeductible permanent differences, credits, and state income taxes. A reconciliation of the federal statutory income tax to our effective income tax is as follows: 2020 2019 Federal statutory rates $ (532,794 ) $ (666,864 ) State income taxes (224,281 ) (280,718 ) Permanent differences 57 154,332 Valuation allowance against net deferred tax assets 757,018 793,250 Effective rate $ – $ – The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2020 and 2019 is presented below: 2020 2019 Deferred income tax asset Net operating loss carryforwards $ 2,704,332 $ 1,947,748 Interest 40,261 39,827 Total deferred income tax asset 2,744,593 1,987,575 Less: valuation allowance (2,744,593 ) (1,987,575 ) Total deferred income tax asset $ – $ – F- 22 The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years. During the year ended December 31, 2020 the valuation allowance increased by $757,018. As of December 31, 2020, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $9,062,776, and available tax credit carryforwards of approximately $1,903,183 for federal income tax purposes, which can be carried forward to offset future taxable income. The federal net operating loss carryforwards consists of $6,527,307 of losses incurred prior to January 1, 2020 and which can be used to offset 100% of future taxable income and, $2,535,469 of losses incurred after January 1, 2020, which can be used to offset up to 80% of taxable income in subsequent years. Note 16 – Segment reporting The Company consists of two types of operations. Focus Universal, Inc. and Perfecular Inc. (“Focus”) involve wholesale, research and development of universal smart instrument and farming devices. AVX Design & Integration, Inc. (“AVX”) is an IoT installation and management company, specializes in high performance and easy to use Audio/Video, Home Theater, Lighting Control, Automation and Integration. The table below discloses income statement information by segment. Year ended December 31, 2020 Focus AVX Total Revenue $ 946,641 $ 705,877 $ 1,652,518 Revenue - related party 26,449 – 26,449 Total revenue 973,090 705,877 1,678,967 Cost of Revenue 728,597 666,590 1,395,187 Gross Profit 244,493 39,287 283,780 Operating Expenses: Selling 13,650 8,940 22,590 Compensation - officers 142,100 – 142,100 Research and development 256,636 – 256,636 Professional fees 1,291,729 5,431 1,297,160 General and administrative 959,426 309,781 1,269,207 Total Operating Expenses 2,663,541 324,152 2,987,693 Loss from Operations (2,419,048 ) (284,865 ) (2,703,913 ) Other Income (Expense): Interest income (expense), net (2,073 ) (1,999 ) (4,072 ) Interest (expense) – related party (81 ) – (81 ) Other income 154,194 16,759 170,953 Total other income (expense) 152,040 14,760 166,800 Loss before income taxes (2,267,008 ) (270,105 ) (2,537,113 ) Tax expense – – – Net Loss $ (2,267,008 ) $ (270,105 ) $ (2,537,113 ) F- 23 Note 17 – Subsequent Events On January 8, 2021, Focus Universal Inc. entered into a secured promissory note agreement with East West Bank in the amount of $1,500,000. The note has a variable interest rate of 0.25% above Wall Street Journal Prime Rate. The final payment will be due on January 22, 2026. 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 March 10, 2021, AVX Design & Integration, Inc. entered into an agreement to receive an SBA Loan from Chase Bank related to the COVID-19 pandemic in the amount of $108,750. The SBA Loan has a fixed interest rate of 0.98 percent per annum and a maturity date five years from the date loan was issued. On March 15, 2021, Focus Universal Inc. entered into a secured promissory note agreement with Golden Sunrise Investment LLC in the amount of $1,500,000. The note has an interest rate of 10% per year and has a due date of March 14, 2022. The note is subordinate in priority to the East West Bank loan entered into on January 8, 2021. F- 24 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.