FOCUS UNIVERSAL INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOCUS UNIVERSAL INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020 Index to the Financial Statements Contents Page Report of Independent Registered Public Accounting Firm F-3 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2021 and 2020 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F-7 Notes to the Consolidated Financial Statements F-8 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, 2021 and 2020, 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, 2021 and 2020, 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. 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. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F- 2 Revenue recognition — identification of contractual terms in certain customer arrangements As described in Note 2 to the consolidated financial statements, management applies FASB Topic 606, Revenue from Contacts with Customers (“ASC 606”) to recognize revenue. Management recognizes revenue upon transfer of control of promised goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. The Company’s revenue is divided into two sources, with one source being from project construction which is recognized over time using the percentage-of-completion method under the cost approach. Management is required to estimate the percentage of completion when determining the amount and timing of revenue recognition. The principal considerations for our determination that performing procedures over the percentage-of-completion method of recognition of revenue contracts and subsequent payment collections is a critical audit matter as there are more significant risks associated with the percentage-of completion recognition of this revenue. This in turn led to significant effort in performing our audit procedures which were designed to evaluate whether the contractual terms, the timing of revenue recognition were appropriately identified and determined by management and to evaluate the reasonableness of management’s estimates. Our audit procedures included, among others, understanding of controls relating to management’s revenue recognition process, examining transaction related documents, confirming revenues and outstanding receivables at the balance sheet date with a sample of the project construction customers, and testing collections subsequent to the balance sheet date. /s/ BF Borgers CPA PC BF Borgers CPA PC We have served as the Company’s auditor since 2017 Lakewood, CO March 8, 2022 5041 F- 3 FOCUS UNIVERSAL INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2021 2020 ASSETS Current Assets: Cash $ 8,678,665 $ 583,325 Accounts receivable, net 177,315 190,556 Accounts receivable – related party 15,176 – Inventories, net 22,889 42,496 Other receivables 13,057 – Prepaid expenses 301,270 91,253 Deposit - current portion 5,968 100,000 Total Current Assets 9,214,340 1,007,630 Property and equipment, net 4,353,340 4,492,510 Operating lease right-of-use asset 420,137 86,558 Deposits 33,933 6,630 Total Assets $ 14,021,750 $ 5,593,328 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 293,354 $ 198,870 Accounts payable - related party – 17,471 Other current liabilities 23,631 6,332 Customer deposit 271 57,377 Loan, current portion 132,618 194,125 Lease liability, current portion 121,568 53,384 Total Current Liabilities 571,442 527,559 Non-Current Liabilities: Lease liability, less current portion 302,387 41,287 Loan, less current portion 25,929 202,735 Other liability – 17,135 Total Non-Current Liabilities 328,316 261,157 Total Liabilities 899,758 788,716 Contingencies (Note 13) – – Stockholders' Equity: Common stock, par value $ 0.001 per share, 75,000,000 shares authorized; 43,259,741 and 40,959,741 shares issued and outstanding as of December 31, 2021 and 2020, respectively 43,259 40,959 Additional paid-in capital 24,093,075 14,381,058 Shares to be issued, common shares 1,922,753 98,709 Accumulated deficit ( 12,937,091 ) ( 9,716,114 ) Accumulated other comprehensive loss ( 4 ) – Total Stockholders' Equity 13,121,992 4,804,612 Total Liabilities and Stockholders' Equity $ 14,021,750 $ 5,593,328 The accompanying notes are an integral part of these consolidated financial statements. F- 4 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2021 2020 Revenue $ 1,405,362 $ 1,652,518 Revenue - related party 29,084 26,449 Total Revenue 1,434,446 1,678,967 Costs and Operating Expenses Cost of revenue, excluding depreciation & amortization 1,136,315 1,395,187 Selling expense 39,821 22,590 Compensation - officers and directors 661,171 832,250 Research and development 220,469 256,636 Professional fees 1,030,159 607,010 General and administrative 1,363,098 1,269,207 Total Cost and Operating Expense 4,451,033 4,382,880 Loss from Operations ( 3,016,587 ) ( 2,703,913 ) Other Income (Expense): Interest income (expense), net ( 37,608 ) ( 4,072 ) Interest (expense) - related party – ( 81 ) Gain on extinguishment of debt 371,118 – Change in fair value of warrant liability ( 1,284,780 ) – Gain on settlement of derivative liability 550,406 – Other income 196,474 170,953 Total other income (expense) ( 204,390 ) 166,800 Loss before income taxes ( 3,220,977 ) ( 2,537,113 ) Income tax expense – – Net Loss $ ( 3,220,977 ) $ ( 2,537,113 ) Other comprehensive items Foreign currency translation loss ( 4 ) – Total comprehensive loss $ ( 3,220,981 ) $ ( 2,537,113 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 41,715,905 40,959,741 Net Loss per common share: Basic and Diluted $ ( 0.08 ) $ ( 0.06 ) The accompanying notes are an integral part of these consolidated financial statements. F- 5 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021 and 2020   Shares to be Accumulated   Common stock Additional issued   Other  Total Description Shares Amount Paid-In Capital Common Shares Accumulated Deficit Comprehensive Loss Stockholders’ Equity Balance - December 31, 2019 40,959,741 $ 40,959 $ 13,775,908 $ 50,709 $ ( 7,179,001 ) $ – $ 6,688,575 Stock based compensation - options – – 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 Issuance of common stock 2,300,000 2,300 9,282,161 1,776,044 – – 11,060,505 Stock based compensation - options – – 429,856 – – – 429,856 Common stock to be issued for services – – – 48,000 – – 48,000 Other comprehensive loss – – – – – ( 4 ) ( 4 ) Net loss – – – – ( 3,220,977 ) – ( 3,220,977 ) Balance - December 31, 2021 43,259,741 43,259 24,093,075 1,922,753 ( 12,937,091 ) ( 4 ) 13,121,992 The accompanying notes are an integral part of these consolidated financial statements F- 6 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2021 2020 Cash flows from operating activities: Net Loss $ ( 3,220,977 ) $ ( 2,537,113 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense 42,116 21,907 Inventories reserve ( 1,622 ) ( 852 ) Depreciation expense 162,160 162,242 Gain on extinguishment of debt ( 258,960 ) – Change in fair value of warrant liability 1,284,780 – Gain on settlement of derivative liability ( 550,406 ) – Amortization of right-of-use assets – ( 2,428 ) Stock-based compensation 48,000 48,000 Stock based compensation - options 429,856 605,150 Changes in operating assets and liabilities: Accounts receivable ( 28,875 ) ( 75,125 ) Accounts receivable - related party ( 15,176 ) – Inventories 21,229 21,289 Other receivable ( 13,057 ) – Prepaid expenses ( 210,017 ) ( 44,282 ) Deposit 66,767 ( 100,000 ) Operating lease right-of-use asset ( 333,140 ) – Accounts payable and accrued liabilities 94,484 8,132 Accounts payable - related party ( 17,471 ) 17,471 Other current liabilities 17,299 ( 12,238 ) Interest payable - related party – ( 1,750 ) Customer deposit ( 57,106 ) ( 70,294 ) Lease liabilities 328,846 – Other liabilities ( 17,135 ) 4,800 Net cash flows used in operating activities ( 2,228,405 ) ( 1,955,091 ) Cash flows from investing activities: Purchase of property and equipment ( 22,990 ) ( 1,314 ) Net cash flows used in investing activities ( 22,990 ) ( 1,314 ) Cash flows from financing activities: Proceeds from SBA loan 267,297 396,860 Repayment on SBA loan ( 246,650 ) – Repayment on promissory note – ( 50,000 ) Proceeds from bank loan 1,500,000 – Repayment on bank loan ( 1,500,000 ) – Proceeds from IPO, net 10,326,131 – Net cash flows provided by financing activities 10,346,778 346,860 Effect of exchange rate ( 43 ) – Net change in cash 8,095,340 ( 1,609,545 ) Cash beginning of year 583,325 2,192,870 Cash end of year $ 8,678,665 $ 583,325 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 42,968 $ 1,831 Supplemental disclosure of non-cash financing activities: Cashless warrant $ 1,776,044 $ – The accompanying notes are an integral part of these consolidated financial statements. F- 7 FOCUS UNIVERSAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2021 AND 2020 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 Ontario, California, 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. The Company’s smart technology software utilizes a smartphone, computer, or a mobile device as an interface platform and display that communicates and works in tandem with a group of external sensors or probes, or both. The external sensors and probes may be manufactured by different vendors, but the universal smart technology functions in a manner that does not require the user to have extensive 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”), a wholly-owned subsidiary of Focus, 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. On December 23, 2021, Focus set up a branch in Shenzhen China, Focus Universal (Shenzhen) Technology Company LTD. The subsidiary was registered to be engaged in IoT research and development, equipment sales, and application services, software development and sales, software outsourcing, intelligent agricultural management, intelligent instrumentation sales, and information consulting services. This excludes any projects subject to approval or that require a separate business license in accordance with the local laws. China allows foreign entities to setup wholly owned limited liability companies in China, also known as Wholly Foreign Owned Enterprises (WFOEs), in non “restricted” or “prohibited” industries and business activities. The subsidiary’s business operation has been approved by the local government in Shenzhen to be qualified as a WFOE entity in China. The entity is 100% owned by Focus Universal, Inc. 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 In the long term, the continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. For the year ended December 31, 2021, the Company had a net loss of $ 3,220,977 and negative cash flow from operating activities of $ 2,228,405 . The Company raised $ 10.3 million through an underwritten public offering in September 2021. With the January 1, 2021 beginning cash amount of $583,325 and underwritten public offering of $10.3 million, the Company will have enough cash to cover its projected annual cash burn rate of $ 1,967,074 , which is a decrease from the previous year. This is a result of coming off of a year where the company completed an uplisting transaction causing a greater than normal amount of expenditure, especially within professional service fees. Overall, the Company has adequate cash for the Company to continue operation as a going concern throughout 2022 without any additional capital raise. As a result, the previous factors raising substantial doubt to continue as a going concern have been alleviated for the following year. F- 8 Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Perfecular Inc., AVX Design & Integration, and Focus Universal (Shenzhen) Technology Co. LTD. 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. On December 23, 2021, Focus established Focus Universal (Shenzhen) Technology Co. LTD as a wholly owned subsidiary. 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. As of December 31, 2021 and 2020, approximately $ 7,464,846 and $ 0 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company at December 31, 2021 and 2020. 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. 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, 2021 and 2020, allowance for doubtful accounts amounted to $ 86,635 and $ 44,519 , respectively. F- 9 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, 2021 and 2020, inventory reserve amounted to $ 68,940 and $ 70,562 , 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: Schedule of estimated useful lives of property, plant and equipment Fixed assets Useful life Furniture 5 years Equipment 5 years Warehouse 39 years Improvement 5 years Land N/A Long-Lived Assets The Company applies the provisions of FASB 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, 2021 and 2020, the Company believes there was no impairment of its long-lived assets. 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 during which services are received. F- 10 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. Warrant The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The fair value of the warrants was estimated using a Black-Scholes pricing model (see Note 11). 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. 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, such as Boustead warrant (Note 11). The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventories, other receivable, prepaid expenses, deposit, accounts payable and accrued expenses, other current liabilities, customer deposit, approximate their fair value because of the short maturity of those instruments. F- 11 Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. However, it is not practical to determine the fair value of advances from stockholders, if any, due to their related party nature. Comprehensive Income (Loss) Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company other comprehensive loss for the years ended December 31, 2021 and 2020 was comprised of foreign currency translation adjustments. 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 of the transaction price to each performance obligation; and ☐ recognition of revenue only when the Company satisfies each performance obligation. 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, excluding depreciation & amortization Cost of revenue includes the cost of services, labor and product incurred to provide product sales, service sales and project sales. Research and development Research and development costs are expensed as incurred. Research and development costs primarily consist of efforts to refine existing product models and develop new product models. F- 12 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. 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. F- 13 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, 2021 and 2020. As of December 31, 2021 and 2020, the Company did no t 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. Schedule of anti dilutive shares Year ended December 31, 2021 2020 Stock options 315,288 210,000 Total 315,288 210,000 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. As of January 5, 2022, the Company founded a wholly owned subsidiary named Lusher Bioscientific, Inc. Lusher Bioscientific was founded to market to the hydroponic and controlled agriculture market and to assist in the product development of product within this sector. As of the date of this filing, the Company has only founded the subsidiary and activities are in the introductory phase. 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. Foreign Currency Translation and Transactions The reporting and functional currency of Focus is the USD. The functional currency of Focus Universal (Shenzhen) Technology Co. LTD, a wholly owned subsidiary of Focus located in China, is the Renminbi (“RMB”). For financial reporting purposes, the financial statements of the Company’s Chinese subsidiary, which are prepared using the RMB, are translated into the Company’s reporting currency, USD. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue and expenses are translated using average exchange rates prevailing during each reporting period. Stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange difference, presented as foreign currency transaction loss, is included in the accompanying consolidated statements of operations. F- 14 Note 3 – Recent Accounting Pronouncement Recently Adopted Accounting Standards In December 2019, Financial Accounting Standards Board (“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 adoption of this ASU did not have a material effect on its condensed consolidated financial statements. In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The guidance provides clarification of the interaction of rules for equity securities, the equity method of accounting and forward contracts and purchase options on certain types of securities. ASU 2020-01 is effective for the Company in the first quarter of 2021. The adoption did not have any significant impact on the Company’s condensed consolidated financial statements. In June 2020, the FASB issued ASU 2020-05 in response to the ongoing impacts to U.S. 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 provide a limited deferral of the effective dates for implementing previously issued ASU 606 and ASU 842 to give some relief to businesses considering 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, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations. In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. ASU 2020-06 will be effective for the Company in the first quarter of 2022. The Company is currently evaluating the amended guidance and the impact on its consolidated financial statements and related disclosures. Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. Note 4 – Inventory, net At December 31, 2021 and 2020, inventory consisted of the following: Schedule of Inventory December 31, 2021 December 31, 2020 Parts $ 38,521 $ 45,509 Finished goods 53,308 67,549 Total 91,829 113,058 Less inventory reserve ( 68,940 ) ( 70,562 ) Inventory, net $ 22,889 $ 42,496 F- 15 Note 5 – Deposits Deposit balance as of December 31, 2021 amounted to $ 39,901 for lease agreement and utility deposit. Deposit balance as of December 31, 2020 amounted to $106,630, including $ 6,630 for lease agreement and utility deposit and $ 100,000 for payment made into an escrow account for purchasing a target company. On March 26, 2021, the management of target company decided to terminate the LOI. The LOI was terminated effective as of March 29, 2021 and $ 100,000 was returned on March 29, 2021. Note 6 – Property and Equipment At December 31, 2021 and 2020, property and equipment consisted of the following: Schedule of property and equipment December 31, 2021 December 31, 2020 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 71,368 48,378 Software 1,995 1,995 Total cost 4,860,948 4,837,958 Less accumulated depreciation ( 507,608 ) ( 345,448 ) Property and equipment, net $ 4,353,340 $ 4,492,510 Depreciation expense for the years ended December 31, 2021 and 2020 amounted to $ 162,160 and $ 162,242 , 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 other current liability as of December 31, 2021 and non-current liabilities as of December 31, 2020. Note 7 – Related Party Transactions Revenue generated from Vitashower Corp., a company owned by the CEO’s wife, amounted to $ 29,084 and $ 26,449 for the year ended December 31, 2021 and 2020, respectively. Account receivable balance due from Vitashower Corp. amounted to $ 15,176 and $ 0 as of December 31, 2021 and 2020, respectively. Purchases generated from Vitashower Corp. amounted to $ 3,379 and $ 0 for the years ended December 31, 2021 and 2020, respectively. There were accounts payable balances of $ 0 and $ 17,471 due to Vitashower Corp. as of December 31, 2021 and 2020, respectively. Compensation for services provided by the President and Chief Executive Officer for the years ended December 31, 2021 and 2020 amounted to $ 124,615 and $ 120,000 , respectively. Note 8 – Business Concentration and Risks Major customers One customer accounted for 9 % and 0 % of the total accounts receivable as of December 31, 2021 and 2020, respectively. This customer accounted for 77 % and 53 % of total revenue for the years ended December 31, 2021 and 2020, respectively. Major vendors One vendor, Tianjin Guanglee, accounted for 0 % and 0 % of total accounts payable at December 31, 2021 and 2020, respectively. This same vendor, Tianjin Guanglee, accounted for 81 % and 65 % of the total purchases for the years ended December 31, 2021 and 2020, respectively. F- 16 Note 9 – Lease The Company recorded its operating lease cost of $ 67,664 and $ 65,180 for the years ended December 31, 2021 and 2020, respectively. On April 8, 2015, AVX Design & Integration Inc. entered an eighty-six month commercial lease with a third party for an approximately 2,592 square foot office space. The lease commenced on July 1, 2015 and will end on August 31, 2022. The monthly rent is $4,536 with approximately a 3% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 15%. Lease expense for the lease is recognized on a straight-line basis over the lease term. On December 7, 2021, Focus Universal (Shenzhen) Technology Co. LTD entered a thirty-eight month commercial lease with a third party for an approximately 5,895 square foot office space. The lease commenced on December 25, 2021 and will end on February 28, 2025. The monthly rent is RMB70,097 (approximately $11,014) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 10%. Lease expense for the lease is recognized on a straight-line basis over the lease term. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of December 31, 2021 and 2020, operating lease right-of use assets and lease liabilities were as follows: Schedule of operating Right-of-use asset and liability December 31, 2021 December 31, 2020 Operating lease right-of-use assets $ 420,137 $ 86,558 Lease liabilities, current portion $ 121,568 $ 53,384 Lease liabilities, less current portion $ 302,387 $ 41,287 Lease term and discount rate: Schedule Lease term and discount rate December 31, 2021 December 31, 2020 Weighted average remaining lease term Operating lease 0.67 to 3.17 years 1.67 years Weighted average discount rate Operating lease 10 % - 15 % 15 % The minimum future lease payments are as follows: Schedule of maturity of lease liabilities Amount Year ending December 31, 2022 $ 159,306 Year ending December 31, 2023 147,318 Year ending December 31, 2024 163,840 Year ending December 31, 2025 27,536 Total minimum lease payment 498,000 Less: imputed interest ( 74,045 ) Present value of future minimum lease payments $ 423,955 Note 10 – 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 the loan was issued. There were no principal and interest due as of December 31, 2020. On July 8, 2021, SBA authorized full forgiveness of this loan and the Company recognized principal amount of $ 107,460 and $ 1,267 interest to other income. F- 17 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. There were no principal and interest due as of December 31, 2020. On April 28, 2021, SBA authorized full forgiveness of this loan and the Company recognized principal amount of $ 151,500 and $ 1,490 interest to other income. 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. The balance of principal and interest were $ 158,547 and $ 1,282 , respectively, due as of December 31, 2021. There were no principal and interest due as of December 31, 2021. 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 October 22, 2021, SBA authorized full forgiveness of this loan and the Company recognized principal amount of $ 108,750 and $ 651 interest to other income. There were no principal and interest due as of December 31, 2021. 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 September 13, 2021, the Company paid this loan off with loan principal amount of $ 81,100 and $ 3,624 interest. 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. On September 22, 2021, the Company paid this loan off with loan principal amount of $ 56,800 and $ 2,743 interest. Bank Loan 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 note requires monthly payments with the final payment of $ 1,357,178 due on January 22, 2026. On September 22, 2021, the Company paid this loan off with loan principal amount of $ 1,500,000 and $ 32,366 interest. Schedule of debt December 31, 2021 December 31, 2020 SBA Loan $ 158,547 $ 396,860 Less: current portion ( 132,618 ) ( 194,125 ) Long term portion $ 25,929 $ 202,735 Interest expense incurred from the loans amounted to $ 38,355 and $ 4,746 for the years ended December 31, 2021 and 2020, respectively. F- 18 Note 11 – Stockholders’ Equity Shares authorized Upon formation, the total number of shares of all classes of stock that the Company is authorized to issue is seventy-five million ( 75,000,000 ) shares of common stock, par value $ 0.001 per share. Common stock During the year ended December 31, 2021, the Company issued 2,300,000 shares of common stock. On September 2, 2021, the Company closed its initial public offering (“IPO”) under a registration statement effective August 30, 2021, in which it issued and sold 2,000,000 shares of its Common Stock at a purchase price of $ 5.00 per share. On September 2, 2021, the Company closed on the IPO’s overallotment option, selling an additional 300,000 shares of Common Stock to the IPO’s underwriters at the public offering price of $ 5.00 per share. The Company received net proceeds of approximately $ 10.3 million from the IPO after deducting underwriting fee and offering expenses. As of December 31, 2021 and 2020, the Company had 43,259,741 and 40,959,741 shares of common stock issued and outstanding, respectively. Shares to be issued for compensation The Company entered into agreements with third party consultants for financing and management consulting. The Company has incurred consulting service fees not paid in cash amounting to $ 48,000 for the year ended December 31, 2021, which the Company intends to issue stock as compensation for services rendered. Expenses incurred but not yet paid in shares as of December 31, 2021 and 2020 amounted to $ 146,709 and $ 98,709 , respectively. On August 30, 2021, the Company entered into a Representative Common Stock Purchase Warrant agreement (“Warrant Agreement”) with its placement agent, Boustead Securities LLC. (“Boustead”) for 161,000 shares and the exercise price is $6.25. Boustead exercised the warrants on September 7, 2021. The fair value of the warrants was $ 1,041,670 and $ 2,326,450 as of August 30 and September 7, 2021, respectively. For the year ended December 31, 2021, the Company recorded a loss from change in the fair value of warrant liability which amounted to a difference of $ 1,284,780 . These warrants were valued using a Black-Scholes pricing model with the following assumptions: Schedule of assumptions August 30, 2021 (Initial September 7, Measurement) 2021 Risk-free interest rate 0.77 % 0.82 % Expected term 5 years 5 years Expected volatility 194.37 % 204.27 % Expected dividend yield 0 % 0 % Fair value of units (using Black-Scholes) $ 6.47 $ 14.45 This Warrant Agreement allowed for cashless exercise option, which is calculated by the percentage difference between exercise and trading price, which resulted in a reduced number of warrants being exercisable. On September 7, 2021, Boustead exercised 121,149 warrants with fair value of $1,776,044 upon cashless exercise option of warrants related to completion of the Company’s public offering. The shares will be issued six months after these warrants have been exercised. For the year ended December 31, 2021, the Company has a gain on settlement of derivative liability which amounted to $550,406. Shares to be issued as of December 31, 2021 and December 31, 2020 amounted to $1,776,044 and $0, respectively. F- 19 Stock options On August 6, 2019, each member of the Board was granted 30,000 options to purchase shares at $ 5.70 per share. On January 4, 2021, each member of the Board was granted 15,000 options to purchase shares at $ 3.00 per share. On December 31, 2021, each member of the Board was granted 15,000 options to purchase shares at $ 8.86 per share. As of December 31, 2021, there were 420,000 options granted, 315,288 options vested, 104,713 options unvested, and 420,000 outstanding stock options. For the years ended December 31, 2021 and 2020, the Company’s stock option compensation expenses amounted to $ 429,856 and $ 605,150 , respectively. The fair value of the stock options listed above was determined using the Black-Scholes option pricing model with the following assumptions: Schedule of option activity December 31, 2021 December 31, 2020 Risk-free interest rate 0.93 – 1.52 % 1.71 % Expected life of the options 10 years 10 years Expected volatility 122.93 – 148.18 % 158.86 % Expected dividend yield 0 % 0 % The following is a summary of options activity from December 31, 2020 to December 31, 2021: Schedule of options by exercise price Options Shares Weighted average exercise price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2020 210,000 $ 9.61 9.61 – Granted 210,000 $ 5.93 – – Exercised – $ – – – Forfeited or expired – $ – – – Outstanding at December 31, 2021 420,000 $ 5.82 8.56 615,300 Vested as of December 31, 2021 315,288 $ 4.80 8.07 153,825 Exercisable at December 31, 2021 315,288 $ 4.80 8.07 153,825 As of December 31, 2021, there were 210,000 options with an exercise price of $ 5.70 , 105,000 options with an exercise price of $ 3.00 , and 105,000 options with an exercise price of $ 8.86 outstanding. As of December 31, 2021, there were 210,000 options with an exercise price of $5.70, 105,000 options with an exercise price of $3.00, and 288 options with an exercise price of $8.86 exercisable. F- 20 Note 12 – 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 specializing 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. Segment information table Year ended December 31, 2021 Focus AVX Total Revenue $ 1,152,404 $ 252,958 $ 1,405,362 Revenue - related party 29,084 – 29,084 Total revenue 1,181,488 252,958 1,434,446 Cost and Operating Expenses Cost of Revenue, excluding depreciation & amortization 926,907 209,408 1,136,315 Selling expense 26,512 13,309 39,821 Compensation - officers and directors 661,171 – 661,171 Research and development 220,469 – 220,469 Professional fees 1,025,812 4,347 1,030,159 General and administrative 1,081,627 281,471 1,363,098 Total Cost and Operating Expenses 3,942,498 508,535 4,451,033 Loss from Operations ( 2,761,010 ) ( 255,577 ) ( 3,016,587 ) Other Income (Expense): Interest income (expense), net ( 35,731 ) ( 1,877 ) ( 37,608 ) Gain on extinguishment of debt 152,990 218,128 371,118 Change in fair value of warrant liability ( 1,284,780 ) – ( 1,284,780 ) Gain on settlement of derivative liability 550,406 – 550,406 Other income (expense), net 201,212 ( 4,738 ) 196,474 Total other income (expense) ( 415,903 ) 211,513 ( 204,390 ) Loss before income taxes ( 3,176,913 ) ( 44,064 ) ( 3,220,977 ) Tax expense – – – Net Loss $ ( 3,176,913 ) $ ( 44,064 ) $ ( 3,220,977 ) Note 13 – Commitments and Contingencies Pending Litigation 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. F- 21 Employment Agreements In November 2021, the Company entered into a one-year employment agreement with VP of Finance and Head of Investor Relations of the Company, pursuant to which the Company rewards 10,000 bonus management shares will be granted in 2,500 blocks every quarter if any of the below three performances metrics are met during the employment term: 1. 90 Day Volume Weighted Average Stock Price: Increase 20% over previous quarter 2. Avg 90 trading volume: Increase 15% over previous quarter 3. Number of Stocktwits watchers: Increase 100% per quarter During the year ended December 31, 2021 and 2020, The Company recognized employee compensation amount of $ 5,791 and $ 0 , respectively. Note 14 – Income taxes The United States of America The Company is subject to taxation in the United States and certain state jurisdictions. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 21 % to the net loss before provision for income taxes. Accordingly, the Company reevaluated its deferred tax assets on net operating loss carryforward in the U.S. As of December 31, 2021, due to uncertainties surrounding future utilization, the Company recorded a full valuation allowance against the deferred tax assets based upon management’s assessment as to their realization. People’s Republic of China Effective January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”) are subject to a uniform tax rate of 25 %. Under the PRC tax law, companies are required to make quarterly estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities. 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: Schedule of effective tax rate 2021 2020 Federal statutory rates $ ( 673,266 ) $ ( 532,794 ) State income taxes ( 283,413 ) ( 224,281 ) Foreign income taxes ( 857 ) – Permanent differences ( 3,439 ) 57 Valuation allowance against net deferred tax assets 960,975 757,018 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, 2021 and 2020 is presented below: Schedule of deferred tax assets and liabilities 2021 2020 Deferred income tax asset Net operating loss carryforwards $ 3,661,868 $ 2,704,332 Interest 43,700 40,261 Total deferred income tax asset 3,705,568 2,744,593 Less: valuation allowance ( 3,705,568 ) ( 2,744,593 ) 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, 2021 the valuation allowance increased by $ 961,140 . As of December 31, 2021, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $ 12,272,231 , and available tax credit carryforwards of approximately $ 2,576,449 for federal income tax purposes, which can be carried forward to offset future taxable income. The federal net operating loss carryforwards consists of $ 9,062,776 of losses incurred prior to January 1, 2021 and which can be used to offset 100% of future taxable income and, $ 3,206,028 of losses incurred after January 1, 2021, which can be used to offset up to 80% of taxable income in subsequent years. Note 15 – Subsequent Events As of January 5, 2022, the Company founded a wholly owned subsidiary named Lusher Bioscientific, Inc. Lusher Bioscientific was founded to market to the hydroponic and controlled agriculture market and to assist in the product development of product within this sector. As of the date of this filing, the Company has only founded the subsidiary and activities are in the introductory phase. F- 23 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.