What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-15 compared with 2021-08-13 · 176 added, 162 removed, 224 unchanged (60% of the section changed)

14 unchanged sentences

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.

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

We disclaim any obligation to update forward-looking

Narrative Description of the Business

Focus Universal

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

We have developed

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;

Focus Universal Inc.

(the “Company,”

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

We have developed 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”) 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.

and (4) User Interface Machine auto generation

We also 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,

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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” 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.

Wireless networks allow multiple users to access

large amounts of information without the hassle of running wires to and from each IoT device.

However, wireless networks are far from

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

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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.

Impact of the Covid-19 pandemic on our operations

During 2020, 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.

We also had employees contract the virus.

were also negatively impacted due to delay in research and development work due to confirmed COVID-19 cases in the office.

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 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.

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

three months ended September 30, 2020

Revenue, cost of revenue and gross profit

Our consolidated gross revenue for the three months

ended September 30, 2021 and 2020 was $634,777 and $544,003, respectively, which included revenue from related parties of $0 and $0, respectively.

Cost of revenue for the three months ended September 30, 2021 and 2020 were $521,091 and $384,371, respectively.

Revenue for the three

months ended September 30, 2021 increased $90,774 due to Perfecular, Inc.

prior quarter’s order was arrived in this quarter due

to shipping container was not available before, resulting in gross profit of $113,686 and $159,632 for the three months ended September

30, 2021 and 2020, respectively.

Operating Costs and Expenses

The major components of our operating expenses

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

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

three months ended

September 30, 2021

three months ended

September 30, 2020

Selling expense

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Total operating expenses

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.

Selling expense for the three months ended September

30, 2021 was $14,776, compared to $677 for the three months ended September 30, 2020.

Selling expense incurred was mainly from third party

advertising fees.

The increase of selling expense was due to an increase in advertising fees.

Officer compensation was $34,600 and $34,000 for

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.

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

Research and development costs were $55,525 and

$62,039 for the three months ended September 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 $450,624 during the three

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 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 $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 increase was mainly due to increased insurance

premiums because of possible future NASDAQ listing.

months ended September 30, 2020 compared to $243,799 during the three months ended September 30, 2021.

The increase in professional fees

mainly resulted for initial public offering.

General and administrative expenses of $315,715 incurred during the three months ended September 30, 2021 primarily

consisted of salaries of $82,382, insurance expense of $116,546 and depreciation expense of $41,062.

General and administrative expenses

of $294,795 incurred during the three months ended September 30, 2020 primarily consisted of salaries of $115,155, insurance expense

of $56,168, and depreciation expense of $40,559.

The increase was mainly due to increased insurance premiums because of the Company’s

uplist to NASDAQ.

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.

During the three months ended September 30, 2021

and 2020, due to the factors discussed above we incurred net losses of $1,337,754 and $438,360 respectively.

For the nine months ended September 30, 2021 compared to the

nine months ended September 30, 2020

Revenue, cost of revenue and gross profit

Our consolidated gross revenue for the nine months

ended September 30, 2021 and 2020 was $1,259,920 and $1,289,160, respectively, which included revenue from related parties of $15,141

and $21,267, respectively.

Cost of revenue for the nine months ended September 30, 2021 and 2020 were $1,021,937 and $1,035,600, respectively.

Revenue for the nine months ended September 30, 2021 decreased $29,240 due to an inability to ship goods sold by Perfecular, Inc.

the required shipping container was not available.

In addition to the decrease in revenue, gross profit decreased to $237,983 compared

to $253,560 for the nine months ended September 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

for the nine months ended September 30, 2021 and 2020 are outlined in the table below:

nine months ended

September 30, 2021

nine months ended

September 30, 2020

Selling expense

4 unchanged sentences

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

Selling expense for the nine months ended September

30, 2021 was $15,734, compared to $17,696 for the nine months ended September 30, 2020.

Selling expense incurred were mainly third-party

advertising fees.

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.

Officer compensation was $107,700 and $102,000

for the nine months ended September 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.

Research and development costs were $165,897 and

$194,232 for the nine months ended September 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 phase.

Professional fees were $1,121,774 during the nine

months ended September 30, 2020 compared to $1,071,369 during the nine months ended September 30, 2021.

The increase in professional fees

mainly resulted from the IPO in 2021 compared to the prior period.

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.

expenses of $967,160 incurred during the nine months ended September 30, 2021 primarily consisted of salaries of $344,133, depreciation

expense of $121,933, and insurance expense of $251,690.

General and administrative expenses of $974,125 incurred during the nine months

ended September 30, 2020 primarily consisted of salaries of $377,929, insurance expense of $188,202 and depreciation expense of $121,684.

During the nine months ended September 30, 2021

and 2020, the company incurred net losses of $2,500,415 and $1,988,333 respectively, due to the factors discussed above.

Liquidity and Capital Resources

Working Capital

September 30,

Current Assets

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selected cash flow information:

For the six months ended June 30, 2021

For the six months ended June 30, 2020

nine months ended

September 30, 2021

nine months ended

September 30, 2020

Net cash used in operating activities

$ (1,496,812 )

$ (1,725,512 )

Net cash used in investing activities

1 unchanged sentence

Net change in cash

$ (1,370,966 )

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,

Our net cash outflows from operating activities

of $1,496,812 for the nine months ended September 30, 2021, was primarily the result of our net loss of $2,500,415 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 $120,503, a decrease in inventory of $20,969, an increase in prepaid expenses of $55,280,

a decrease in deposits of $100,000, an increase in accounts payable and accrued liabilities of $172,474, 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.

– related party of $17,471, an increase in other current liabilities of $17,299, a decrease in customer deposits of $57,106, and

a decrease in other liabilities of $17,135.

Non-cash expense includes add-backs of $7,794 in bad debt expense, $1,689 in inventory reserve

reductions, $121,932 in depreciation expense, $258,960 in gain on extinguishment of debt, $1,284,780 in change in fair value of

warrant liability, $550,406 in gain on settlement of derivative liability, $2,985 in amortization of right-of-use assets, $36,000 in

stock-based compensation, and $320,512 in stock option compensation.

Our net cash outflows from operating activities

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

of $1,725,512 for the nine months ended September 30, 2020 was primarily the result of our net loss of $1,998,333 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 $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.

in accounts receivable of $179,041, an increase of accounts receivable – related party of $22,410, a decrease in inventory of $788,

an increase in other receivables of $200, an increase in prepaid expenses of $30,689, an increase in deposits of $100,000, a decrease

in accounts payable and accrued liabilities of $34,006, decrease in other current liabilities of $12,334, decrease in interest payable

– related party of $1,750, and a decrease in customer deposit of $121,852.

Non-cash expense included add-backs of $6,927 in bad

debt expense, $3,853 in inventory reserve, $121,684 in depreciation expense, $36,000 in stock-based compensation, $605,150 in stock option

compensation, and $1,593 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 six

months ended June 30, 2021 and 2020.

For the nine months ended September 30, 2021 we

had cash outflow from investing activities of $6,875 from the purchase of property and equipment.

For the nine months ended September

30, 2020 we had cash outflow from investing activities of $1,314 from the purchase of property and equipment.

Cash Flows from Financing Activities

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.

the nine months ended September 30, 2021, cash inflows of $10,455,528 were due to proceeds of SBA loans of $267,297, repayment of SBA

loans of $137,900, proceeds from bank loan of $1,500,000, repayment of the bank loan of $1,500,000, proceeds from IPO, net of $10,326,131.

For the nine months ended September 30, 2020 the Company paid off a promissory note, resulting in cash outflows of $355,860 were due

to repayment on promissory note of $50,000 and obtained loans from the SBA in the amount of $405,860.

Going Concern

3 unchanged sentences

For the period

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.

ended September 30, 2021, the Company had a net loss of $2,500,415 and negative cash flow from operating activities of $1,496,812.

February 2021, 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.

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

The Company reserves the right to prepay this loan agreement (in whole or in part) after 6 months of the first day with no

prepayment penalty.

The Company may make, in its sole discretion, payments of interest only, or interest and principal, provided that

the principal is not paid in full prior to six months from the date the loan is funded.

The Company also plans to raise $10 million through

an underwritten public offering in 2021.

The related party

loan will accrue interest at 10% until March 15, 2022, or nine 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 until paid.

The Company reserves the right to prepay this loan agreement (in whole or in part) after 6 months of the first day

with no prepayment penalty.

The Company may make, in its sole discretion, payments of interest only, or interest and principal, provided

that the principal is not paid in full prior to nine months from the date the loan is funded.

The Company raised $11.5 million through

an underwritten public offering in September 2021.

With the January 1, 2021 beginning cash amount

of $583,325 and the loan of $1,500,000, the Company will have enough cash to cover its projected annual cash burn rate of $1,967,074.

With the additional $1,500,000 related party loan, the Company will have adequate reserves to continue operations in 2021 and 2022.

related party which will provide the loan to the Company is owned by a director of the Company, which we have evaluated to be a reliable

source of cashflow.

The $10 million planned public offering will contribute to a projected December 31, 2021 cash balance of $11,000,000.

Historically, the Company has been successful in reaching planned its fund-raising targets.

In 2020 the Company had negative operating cashflow

of approximately $1.96 million, mainly resulting from net loss.

The Company is currently developing its products and licenses and expects

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 completed in Q2 2021.

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

With IPO $11.5 million, the Company will have adequate reserves to continue operations in 2021 and 2022.

In 2020 the Company had negative operating cashflow of approximately $1.96 million ,

mainly resulting from net loss.

The Company is currently developing its products and licenses and expects to generate profit once the

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

Currently, the Company is testing

4 Mbps ultra-narrowband power line communication printed circuit boards.

The testing is completed in second quarter of 2021.

The ultra-narrowband

power line communication products will launch in fourth quarter of 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,

along with the committed related-party loan, and planned capital raising will provide adequate cash for the Company to continue operation

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.

Thus, the previous factors

raising substantial doubt to continue as a going concern have been alleviated.

The Company is planning to launch this product in fourth quarter of 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 second quarter of 2022.

Overall, with the capital raising in September

2021, the Company will have an adequate cash for the Company to continue operation as a going concern throughout 2021 and 2022.

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.

Thus, the previous factors raising substantial doubt to continue as a going concern have been

Off-Balance Sheet Arrangements

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.

As of September 30, 2021, we did not have any

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES

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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