What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-13 compared with 2021-05-10 · 261 added, 395 removed, 125 unchanged (84% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN

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 Report on Form 10-K, Form 10-Q and any Current Reports on Form 8-K.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in

conjunction with our audited financial statements and notes thereto included herein.

In connection with, and because we desire to take

advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding

certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on

our behalf, whether or not in future filings with the Securities and Exchange Commission.

Forward-looking statements are statements not

based on historical information and which relate to future operations, strategies, financial results, or other developments.

Forward-looking

statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive

uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are

subject to change.

These uncertainties and contingencies can affect actual results and could cause actual results to differ materially

from those expressed in any forward-looking statements made by, or our behalf.

We disclaim any obligation to update forward-looking statements.

Narrative Description of the Business

Focus Universal Inc.

(the “Company,”

“we,”

“us,”

or “our”) is a Nevada corporation.

Focus Universal

(the “Company,” “we,” “us,” or “our”) is a Nevada corporation.

We have developed

four fundamental disruptive proprietary technologies which we believe solve the most fundamental problems plaguing the internet of things

(“IoT”) industry through:

four fundamental disruptive proprietary technologies that solve the most fundamental problems plaguing the internet of things (“IoT”)

industry through:

(1) 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”)

and (4) User Interface Machine auto generation technology.

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.

method eliminates redundant hardware and software and results in significant cost savings and production efficiency.

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.

Our ultra-narrowband PLC enables our users to send data over existing electricity power cables and

immediately establish a ubiquitous data network without substantial new investment for a dedicated wiring infrastructure.

Our ultra-narrow

band technology is capable of overcoming the noise problems communicating through power lines that have hindered our competitors for over

Our wireless communication technology allows for longer-range coverage, is more energy effective 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 months ended March 31, 2021 and

2020, we generated significant amount of our revenue from sales of a broad selection of agricultural sensors and measurement equipment

which is currently our primary business.

(2) creating a faster 5G cellular technology

by using ultra-narrowband technology;

(3) leveraging ultra-narrowband power line communication (“PLC”) technology;

User Interface Machine auto generation technology.

manufacture and sell sensor devices and are a wholesaler of various air filters and digital, analog, and quantum light meter systems.

For the years ended December 31, 2020 and 2019,

we generated significant amount of our revenue from sales of a broad selection of agricultural sensors and measurement equipment which

is currently our primary revenue generating business segment.

Our Current Products Include:

Products we are currently selling

We are also a wholesaler of various digital, analog,

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.

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to consumers through retail distribution channels and in some cases, places its own branding on our products.

Specifically, we sell the following products:

Fan speed adjuster device .

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.

Our Fan Speed Adjuster Device

Carbon filter devices.

We sell two types

of carbon filter devices to our client Hydrofarm.

These carbon filter devices are professional grade filters specifically designed and

used to filter 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 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.

Our Carbon Filter Device

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.

Our HEPA Filtration Device

Digital light meter.

We provide a handheld

digital light meter that is used to measure luminance in fc units, or foot-candles.

Our Digital Light Meter Device

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.

Our Quantum Par Meter Device

Strategy behind the AVX Acquisition

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with Patrick Calderone to purchase 100% of the outstanding stock of AVX, an IoT installation and management company based in southern

Through our acquisition of AVX, we are planning

to offer ordinary families an entire smart home product line at a fraction of the current market price.

We have finished the design of

smart lighting control, air conditioner, sprinkler, garden light control, garage door control and heating control.

We are developing a

swimming pool control device, smoke detector and carbon monoxide monitor.

We believe these product lines could be completed by the end

Through our acquisition of AVX, and implementation

of our devices into AVX’s installation business, we are planning to offer ordinary families an entire smart home product line at

a fraction of the current market price.

We have finished the design of smart lighting control, air conditioner, sprinkler, garden light

control, garage door control and heating control.

We are developing a swimming pool control device, smoke detector and carbon monoxide

We believe these product lines could be completed by the end of 2021.

Ubiquitor Wireless Universal Sensor Device

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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.

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, and sensor

networking into a single platform.

The result of such integration is a smaller, cheaper and faster circuit system design than those currently

offered in the instrumentation market.

The USIP, which is compatible with a significant

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between the computer or mobile device and the sensor nodes.

We call our flagship USIP device the “Ubiquitor”

due to its ability

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 2021.

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 or 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,

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.

of the Ubiquitor in limited quantities and plan to expand our assembly in the second half of 2021.

Recently, the Company has devoted a substantial

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moisture, 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.

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.

The Ubiquitor’s sensor analytics system integrates event-monitoring, storage and analytics software

in a cohesive package that provides a holistic view of the sensor data it is reading.

The physical hardware consists of:

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;

The Ubiquitor 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

The Ubiquitor is a general platform that collects

data in real time, up to 100 Hz per 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:

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.

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.

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.

We also offer an array of traditional handheld

measurement and control meters through our wholesale distribution platform.

Filter and Handheld Meter Wholesaler

We are a wholesaler of various filtration products

and digital meters.

We source our products from manufacturers in China and then sell to a major U.S.

distributor who resells our products

directly to consumers through retail distribution channels.

Specifically, we sell the following products:

Fan Speed Adjuster device .

fan speed adjuster device to retailers and distributors.

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

These devices are rated for 350 watts max, have 120VAC voltage capacity and feature an internal, electronic auto-resetting circuit

Carbon filter devices .

We also sell two

types of carbon filter devices to distributors.

These Carbon filter devices are professional grade filters specifically designed and used

to filter 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 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 an organic

air high efficiency particulate arrestance (“HEPA”) filtration device at wholesale prices to distributors and retailers.

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.

The meter we sell is designed to be full cosine corrected

for the angular incidence of light (meaning if you are not holding the sensor perpendicular to the light source, the sensor will still

read the light correctly).

The meter has a built-in low battery indicator and is designed to accurately measure to 40,000 FC.

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 umol.

Research and Development Efforts of Power Line

Communication

Power Line Communication (“PLC”) 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 is

potentially the most cost-effective, scalable interconnectivity approach for the IoT.

We believe PLC 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.

One advantage is that PLC does not require substantial

new investment for its communications infrastructure, it utilizes existing power lines.

These power lines form a distribution network

that already penetrates in to every residential, commercial and industrial premises.

Ideally, the power lines could be used to carry voice,

data and video traffic.

Given that the power grid is an established ubiquitous network, connectivity via PLC is potentially the most cost-effective,

scalable interconnectivity approach for the internet of things.

We believe PLC 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.

Wireless networks allow

multiple users to access large amounts of information without the hassle of running wires to and from each IoT device (See “Risk

Factors”

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

band 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 band PLC technology will offer a promising alternative to wireless networks and provide the backbone communication

infrastructure for IoT devices.

PLC has been around for many years, leading some

to believe that it is a mature technology.

Current leaders in the industry include Siemens (Germany), Netgear (US), ABB (Switzerland),

Ametek (US), Schneider Electric (France), General Electric (US), TP-Link Technologies (China), D-Link (Taiwan), Landis+Gyr (Switzerland),

and Nyx Hemera Technologies (Canada).

The primary design goal of the power line network

is electric power distribution, not data transmission.

Consequently, although PLC is an established technology, the harsh electrical noise

present on power lines and variations in equipment and standards make communications over the power grid difficult and present a number

of fundamental challenges for data transfer.

Signals propagating along the power line are subjected to very large amounts of noise, attenuation,

and distortion that make them erratic, with several attributes varying over time.

PLC is susceptible to noise from devices linked to the

power supply infrastructure, for example, fluorescent tube lights, drills, hair dryers, microwave ovens, computers, switch mode power

supply, cellphone chargers, dimmers, refrigerators, televisions, washing machines, and vacuum cleaners.

All the trials of PLC technology

appear to have resulted in power companies and internet service providers deciding that the technology is not viable as a means of delivering

broadband internet access.

These technological challenges have impeded, or even halted, progression of PLC technology.

We are performing research and development with

the intention of inventing our own ultra-narrow band 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 noise

rejection and interference suppression at five orders of magnitude better than traditional PLC technology.

We believe our ultra-narrow

band PLC technology shows robustness against noise and interference, based on our internal testing where we found no detectable interference

occurring when six industrial blowers, notorious for causing electrical noise, and a large air conditioning unit were connected to an

electrical line passing a control signal.

By comparison, a small air dryer is able to cause interference in legacy PLC systems.

of the art PLC technologies developed by other companies may offer sufficient bandwidth, but they cannot effectively deal with the interference

of electric noise on the system.

However, 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.

Furthermore, such

data transfer rates were delivered at a bandwidth of less than 1000 Hz, thereby achieving a bandwidth efficiency (measured as bits per

second per Hz) greater than 4000.

For comparison purposes, 4G cellular networks have a bandwidth efficiency of less than 6 due to their

requirement of larger bandwidth resources.

The demand for bandwidth resources will only grow with the upcoming 5G and proposed 6G networks.

Accordingly, further research of our PLC technology is warranted as it shows promise for increased data transfer rates at a lower cost

than either of the 5G and proposed 6G networks, particularly given such networks’

requirements for costly new infrastructure and

bandwidth resources.

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 2021.

We believe that because residential and commercial

multiple users to access large amounts of information without the hassle of running wires to and from each IoT device (See “Risk

Factors” above).

However, wireless networks are far from perfect;

and there are a number of disadvantages that an individual or

organization may face when using a wireless network.

Thus, we hope that our proprietary power line communication technology could potentially

offer a promising alternative to wireless networks.

Since every room in 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.

devices, specifically in the smart home installations that we are currently performing.

Using PLC would mean that costly ethernet cable

networks to carry network information could be eliminated, as the same signals may be carried on the existing power lines.

We plan to leverage the communications technology

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We intend to apply the same concept to commercial and industrial applications.

plan to design a full line of products for the gardening industry by integrating the Ubiquitor device into a gardening 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

as a combination of dozens or even hundreds of different instruments in the gardening industry.

The Ubiquitor would be used to replace

these devices and could offer another case study of the effectiveness of the application of universal smart technology to such systems.

The development of universal smart instruments

and the IoT have a considerable amount of overlap, 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.

we hope to establish five divisions to bring our technology together:

1) AVX with new shared distributed smart home products powered by

the Ubiquitor;

2) an IT division in software machine design;

3) Universal Smart Instrumentation;

and 5) an IoT division.

Intellectual Property Protection

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Patent Application No.

9924295 entitled “Universal Smart Device,”

which covers a patent application regarding the

Company’s Universal Smart Device.

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.

Pursuant to recent research and development efforts,

we recently received an issue notification from the USPTO for an application filed on June 2, 2017 that is 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 potential 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

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The patent title is

a “Universal Smart Device,”

which is a universal smart instrument that unifies heterogeneous measurement probes into a single

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.

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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.

There are several competitors we have identified

in the wireless sensor node industry, including traditional instruments or devices manufacturers such as Hanna Instruments and Extech

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

Also, the sensors’

real-time updates are slow;

and we believe security of the web-based sensor data acquisition 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.

Market Potential

We believe that wireless universal smart technology

will play a critical role for traditional instrument manufacturers, as it is too expensive and difficult to develop for medium or smaller

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 who are sensitive to price.

On in late 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 powerline communication 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.

of the Covid-19 pandemic on our operations

our subsidiary AVX was negatively impacted by COVID-19 pandemic.

AVX encountered delays in certain projects due to the pandemic’s

restriction and access control at job sites as well as halts in projects due to confirmed cases at the clients’ sites.

had employees contract the virus.

We were also negatively impacted due to delay in research and development work due to confirmed COVID-19

cases in the office.

In 2021, we had delays in receiving inventory for Perfecular to fulfill our sales order due to shortage of shipment

containers caused by the pandemic, which resulted in delays in completing our sales cycles.

Results of Operations

For the three months ended March 31, 2021 compared to the three

months ended March 31, 2020

Revenue, Cost of Sales and Gross Profit

Our consolidated gross revenue for the three months

ended March 31, 2021 and 2020 was $363,463 and $310,609, respectively, which included revenue from related parties of $10,191 and $14,672,

respectively.

Revenue for the three months ended March 31, 2021 increased $52,854 due to sales increase to new client of Perfecular, resulting

in gross profit of $71,200 and gross loss of $27,463 for the three months ended March 31, 2021 and 2020, respectively.

For the three months ended June 30, 2021 compared to the three

months ended June 30, 2020

Revenue, cost of revenue and gross

Our consolidated gross revenue for the three months ended June 30, 2021 and 2020 was $261,680

and $434,548, respectively, which included revenue from related parties of $4,950 and $6,595, respectively.

Cost of revenue for the three

months ended June 30, 2021 and 2020 were $208,583 and $313,157, respectively.

Revenue for the three months ended June 30, 2021 decreased

$172,868 due to an inability to ship goods sold by Perfecular, Inc.

because the required shipping container was not available, resulting

in gross profit of $53,097 and $121,391 for the three months ended June 30, 2021 and 2020, respectively.

Operating Costs and Expenses

The major components of our operating expenses

for the three months ended March 31, 2021 and 2020 are outlined in the table below:

For the three months ended March 31, 2021

For the three months ended March 31, 2020

for the three months ended June 30, 2021 and 2020 are outlined in the table below:

For the three months ended June 30, 2021

For the three months ended June 30, 2020

Selling expense

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Total operating expenses

Selling expense for the three months ended March

31, 2021 was $512, compared to $15,070 for the three months ended March 31, 2020.

Selling expense incurred was mainly from third party

advertising fees.

Selling expense for the three months ended June

30, 2021 was $446, compared to $1,949 for the three months ended June 30, 2020.

Selling expense incurred was mainly from third party advertising

The decrease of selling expense was due to a decrease in advertising fees.

Officer compensation was $34,000 and $34,000 for

the three months ended March 31, 2021 and 2020, respectively.

The increase was due to an adjustment of the Chief Financial Officer’s

compensation.

Research and development costs were $63,150 and

$70,396 for the three months ended March 31, 2021 and 2020, respectively.

The decrease was due to additional supplies needed for the research

and development work in 2020 which was no longer needed in 2021.

the three months ended June 30, 2021 and 2020, respectively.

Research and development costs were $47,222 and $61,797 for the three months ended June 30, 2021 and 2020, respectively.

The decrease in 2021 is accounted for by decreased spending on supplies in 2021.

The decrease of research and development costs was due

to the fact that our newly developed products have completed the development stage and entered the testing phase.

Professional fees were $394,031 during the three

months ended March 31, 2021 compared to $433,539 during the three months ended March 31, 2020.

The decrease was due stock option fee in

2021 compared to prior period.

months ended June 30, 2020 compared to $293,603 during the three months ended June 30, 2021.

The decrease in professional fees mainly

resulted from fewer stock options being granted to the board of directors.

General and administrative expenses of $341,361

incurred during the three months ended March 31, 2021 primarily consisted of salaries of $136,483, insurance expense of $42,579 and depreciation

incurred during the three months ended June 30, 2021 primarily consisted of salaries of $75,845, insurance expense of $86,309 and depreciation

expense of $39,156.

General and administrative expenses of $389,813 incurred during the three months ended March 31, 2020 primarily consisted

General and administrative expenses of $289,517 incurred during the three months ended June 30, 2020 primarily consisted

of salaries of $115,153, insurance expense of $47,029 and depreciation expense of $40,529.

The decrease was due to decreased salaries

and insurance premiums.

Salary expense decreased due to decrease number of employees.

Insurance expenses decreased due to decrease health

insurance and workers compensation insurance.

During the three months ended March 31, 2021

and 2020, we incurred net losses of $682,516 and $922,306 respectively, due to the factors discussed above.

The increase was mainly due to increased insurance

premiums because of possible future NASDAQ listing.

Salaries decreased due to a decrease in the number of employees.

During the three months ended June 30, 2021 and

2020, due to the factors discussed above we incurred net losses of $480,145 and $627,667 respectively.

For the six months ended June 30, 2021 compared to the six months

ended June 30, 2020

Revenue, cost of revenue and gross

Our consolidated gross revenue for the six months ended

June 30, 2021 and 2020 was $625,143 and $745,157, respectively, which included revenue from related parties of $15,141 and $21,267, respectively.

Cost of revenue for the six months ended June 30, 2021 and 2020 were $500,846 and $651,229, respectively.

Revenue for the six months

ended June 30, 2021 decreased $120,014 due to an inability to ship goods sold by Perfecular, Inc.

because the required shipping container

was not available.

Regardless of the decrease in revenue, gross profit increased to $124,297 compared to $93,928 for the six months ended

June 30, 2021 and 2020, respectively.

Operating Costs and Expenses

The major components of our operating expenses

for the six months ended June 30, 2021 and 2020 are outlined in the table below:

For the six months ended June 30, 2021

For the six months ended June 30, 2020

Selling expense

Officer compensation

Research and development

Professional fees

General and administrative

Total operating expenses

Selling expense for the six months ended June

30, 2021 was $958, compared to $17,019 for the six months ended June 30, 2020.

Selling expense incurred were mainly third party advertising

The decrease of selling expense was due to a decrease in advertising fees.

Officer compensation was $73,100 and $68,000 for

the six months ended June 30, 2021 and 2020, respectively.

The increase was due to an adjustment of the Chief Financial Officer’s

compensation.

Research and development costs were $110,372 and $132,193 for the six months ended June 30, 2021 and

2020, respectively.

The decrease was due to a decrease in the supplies needed for the research and development.

The decrease of research

and development costs was due to the fact that we completed the development stage and our newly developed products entered the testing

Professional fees were $827,570 during the six

months ended June 30, 2020 compared to $671,150 during the six months ended June 30, 2021.

The decrease was due to a decrease in the stock

option fee in 2021 compared to the prior period.

General and administrative expenses of $651,445 incurred during the six months ended June 30,

2021 primarily consisted of salaries of $261,751, depreciation expense of $80,872, and insurance expense of $135,144.

General and administrative

expenses of $679,330 incurred during the six months ended June 30, 2020 primarily consisted of salaries of $262,774, insurance expense

of $132,034 and depreciation expense of $81,125.

The decrease was due to decreased office expenses.

During the six months ended June 30, 2021 and

2020, the company incurred net losses of $1,162,661 and $1,549,973 respectively, due to the factors discussed above.

Liquidity and Capital Resources

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selected cash flow information:

For the three months ended March 31, 2021

For the three months ended March 31, 2020

For the six months ended June 30, 2021

For the six months ended June 30, 2020

Net cash used in operating activities

$ (1,183,486 )

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net change in cash

Cash Flows from Operating Activities

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, 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, and a decrease in customer deposits of $52,751.

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 SBA loan forgiveness, $1,675 in amortization of right-of-use assets, $24,000 in stock-based compensation, and $213,675 in stock option

compensation.

Our net cash outflows from operating activities

of $438,755 for the three months ended March 31, 2021 was primarily the result of our net loss of $682,516 and changes in our operating

of $1,183,486 for the six months ended June 30, 2020 was primarily the result of our net loss of $1,549,973 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 $165,725, decrease in inventory of $20,975, decrease in prepaid expenses of $53,340, decrease in deposits of

$100,000, increase in accounts payable and accrued liabilities of $142,464, decrease in accounts payable –

related party of $17,471,

and decrease in customer deposit of $53,450.

Non-cash expense included add-backs of $8,357 in bad debt expense, $3,287 in reduction of

inventory reserve, $40,537 in depreciation expense, net of $837 in amortization of right-of-use assets, $12,000 in stock-based compensation,

and $106,838 in stock option compensation.

Our net cash outflows from operating activities

of $649,587 for the three months ended March 31, 2020 was primarily the result of our net loss of $922,306 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 increase in

accounts receivable of $94,161, increase of accounts receivable –

related party of $23,977, increase in inventory of $14,437, decrease

in prepaid expenses of $6,634, increase in accounts payable and accrued liabilities of $123,969, decrease in other current liabilities

of $12,334, decrease in interest payable –

related party of $1,750, and decrease in customer deposit of $22,984.

Non-cash expense

included add-backs of $189 in inventory reserve, $40,598 in depreciation expense, $12,000 in stock-based compensation, $259,350 in stock

option compensation, and net of $378 in amortization of right-of-use asset.

in accounts receivable of $123,035, an increase of accounts receivable – related party of $22,410, an increase in inventory of $10,117,

increase in other receivables of $900, a decrease in prepaid expenses of $18,356, a decrease in accounts payable and accrued liabilities

of $20,041, a decrease in other current liabilities of $12,334, a decrease in interest payable – related party of $1,750, and a

decrease in customer deposit of $92,419.

Non-cash expense included add-backs of $3,954 in bad debt expense, $4,113 in inventory reserve,

$81,125 in depreciation expense, $24,000 in stock-based compensation, $518,700 in stock option compensation, and a net of $755 in amortization

of right-of-use assets.

We expect that cash flows from operating activities

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Cash Flows from Investing Activities

There were no investing activities for the three

months ended March 31, 2021 and 2020.

There were no investing activities for the six

months ended June 30, 2021 and 2020.

Cash Flows from Financing Activities

For the three months ended March 31, 2021 the

Company obtained $267,297 in SBA loan, received $1,500,000 in bank loan, and repaid $3,600 in bank loan, resulting in cash inflow of $1,763,697.

For the three months ended March 31, 2020 the Company paid off a promissory note, resulting cash outflow of $50,000.

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 a SBA loan of $227, proceeds from bank loan of $1,500,000, and

repayment of the bank loan of $4,663.

For the six months ended June 30, 2020 the Company paid off a promissory note, resulting in cash

outflows of $50,000 and obtained loans from the SBA in the amount of $405,860.

Going Concern

In the long term, the continuation of the Company

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For the period

ended March 31, 2021, the Company had a net loss of $682,516 and negative cash flow from operating activities of $438,775.

the Company has obtained a $1,500,000 loan from a financial institution and has a $1,500,000 loan commitment from a private related party.

ended June 30, 2021, the Company had a net loss of $1,162,661 and negative cash flow from operating activities of $964,297.

Company has obtained a $1,500,000 loan from a financial institution and has a $1,500,000 loan commitment from a private related party.

The loan from the financial institution requires monthly payments with the final payment due in 2026.

The related party loan will accrue

interest at 10% until March 15, 2022, or six months from the date the loan is funded, whichever is later (the “Initial Interest

Accrual Date”).

interest at 10% until March 15, 2022, or six months from the date the loan is funded, whichever is later (the “Initial Interest

Accrual Date”).

Interest on any unpaid principal after Initial Interest Accrual Date shall accrue at a fixed rate of 12% per annum

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to generate profit once the products and licenses available for the market, which will begin to alleviate the negative cashflow.

the Company is testing 4 Mbps ultra-narrowband power line communication printed circuit boards, the testing is expected to complete in

The ultra-narrowband power line communication products will launch in Q4, 2021.

The portable universal smart device is also in

the final printed circuit board layout stage, the Company is planning to launch this product in Q4 2021.

Initially, new products would

require cash to manufacture and promote.

The Company expects to begin generating positive cashflow with the launch of above-mentioned

products from Q2 of 2022.

the Company is testing 4 Mbps ultra-narrowband power line communication printed circuit boards.

The testing is completed in Q2 2021.

ultra-narrowband power line communication products will launch in Q4, 2021.

A portable universal smart device is also in the final printed

circuit board layout stage.

The Company is planning to launch this product in Q4 2021.

Initially, new products would require cash to manufacture

The Company expects to begin generating positive cashflow with the launch of above-mentioned products from Q2 of 2022.

Overall, we expect that with the loan we obtained,

1 unchanged sentence

as a going concern throughout 2021 and 2022.

The Company expects the loans and offering will generate cash for 2021’s operation

and be able to pay off the loans obtained through the offering with sufficient cashflow for 2021 and 2022.

2 unchanged sentences

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any off-balance-sheet

As of June 30, 2021, we did not have any off-balance-sheet

arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK.

We are a smaller reporting company as defined

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis