What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-08 · 236 added, 197 removed, 182 unchanged (70% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in

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

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

Forward-looking statements are statements not

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

our behalf, whether in future filings with the Securities and Exchange Commission.

Forward-looking statements are statements not based

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

Forward-looking

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Focus Universal Inc., a Nevada corporation (the

“Company,” “we,” “us,” or “our”), has developed five proprietary platform technologies

that we believe solve the most fundamental problems plaguing the internet of things (“IoT”) industry by:

(1) increasing the

overall degree of chip integration capabilities by shifting integration from the component level directly to the device level;

a faster 5G cellular technology by using ultra-narrowband technology;

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

(4) developing a natural integrated programming language (“NIPL”) applied to software development, which generates

a user interface through machine auto generation technology, and (5) developing a universal smart instrumentation platform (“USIP”).

In addition to the abovementioned technologies

that we have developed, we provide sensor devices and are a wholesaler of various digital, analog, and quantum light meters and filtration

products, including fan speed adjusters, carbon filters and HEPA filtration systems.

We source these products from manufacturers in China

and then sell them to a major U.S.

distributor, Hydrofarm, who resells our products directly to consumers through retail distribution

channels and, in some cases, places its own branding on our products.

For the years ended December 31, 2021 and 2020, we generated a significant

amount of our revenue from sales of a broad selection of agricultural sensors and measurement equipment, which is currently our primary

“Company,” “we,” “us,” or “our”), has developed the five proprietary platform technologies

described in the Business Section, starting on page 1.

(1) device on a chip;

(2) universal smart instrumentation platform (“USIP”);

(3) ultra-narrowband technology;

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

and (5) natural integrated

programming language (“NIPL”).

Our main sources of revenue are derived from our sales

of sensor devices and our wholesaling of various digital, analog, and quantum light meters and filtration products, including fan speed

adjusters, carbon filters and HEPA filtration systems.

We source these products from manufacturers in China and then sell them to a major

distributor, Hydrofarm, who resells our products directly to consumers through its established retail distribution channels and,

in some cases, places its own branding on our products.

For the year ended December 31, 2021, our primary source of revenue was from sales

of these agricultural sensors and measurement equipment sold through Hydrofarm.

Hydrofarm was not our primary source of revenue for the

year ended December 31, 2022.

For a greater description of our technologies,

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Ubiquitor Wireless Universal Sensor Device

Our USIP technology is an advanced software and

hardware integrated instrumentation platform that uses a large-scale modular design approach.

The large-scale modular design approach

subdivides instruments into a foundation component (a USIP) and architecture-specific components (sensor nodes), which together replaces

the functions of traditional instruments at a fraction of their cost.

The USIP has an open architecture, incorporating a variety of individual

instrument functions, sensors, and probes from different industries and vendors.

The platform features the ability to connect potentially

thousands of different sensors or probes, addressing major limitations present in traditional instrumentation systems.

We believe the

platform represents a technological advancement in the IoT marketplace by integrating large numbers of technologies, including cloud technology,

wired and wireless communication technology, software programming, instrumentation technology, artificial intelligence, PLC, and sensor

networking into a single platform.

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

offered in the instrumentation market.

Our USIP technology is an advanced software

and hardware integrated instrumentation platform that uses a large-scale modular design approach.

The large-scale modular design

approach subdivides instruments into a foundation component (a USIP) and architecture-specific components (sensor nodes).

has an open architecture, incorporating a variety of individual instrument functions, sensors, and probes from different industries

The platform features the ability to connect potentially thousands of different sensors or probes, addressing major

limitations present in traditional instrumentation systems.

The result of such integration is a smaller, cheaper, and faster circuit

system design than those currently offered in the instrumentation market.

The USIP, which is compatible with a significant

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in the USIP is (i) a smartphone, computer, or any mobile device capable of running our software that includes a display and either hardware

controls or software control surfaces, and (ii) our Ubiquitor, which is designed to be the universal data logger that acts as a bridge

between the computer or mobile device and the sensor nodes.

We call our flagship USIP device the “Ubiquitor” due to its ability

to measure and test a variety of electrical and physical phenomena such as voltage, current, temperature, pressure, sound, light, and

humidity—both wired and wirelessly.

controls or software control surfaces, and (ii) our Ubiquitor.

We have created and assembled prototype models

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Our prototype Ubiquitor is compatible with standard desktop

computers running either Windows OS or MacOS and Android- or iOS-based mobile devices and acts as a conduit that communicates with a group

of sensors or probes manufactured by different vendors in a manner that requires the user to have little or no knowledge of their unique

computers running Windows OS or MacOS and Android- or iOS-based mobile devices, and acts as a conduit that communicates with a group of

sensors or probes manufactured by different vendors in a manner that requires the user to have little or no knowledge of their unique

specifications.

The data readout is displayed on the computer or mobile device display in application software we have created for use

with a Windows PC and are creating for use with a Mac.

We are designing the application software (the “App”) to have a graphical

representation of control and indicator elements common in traditional tangible instruments, such as knobs, buttons, dials, and graphs,

Utilizing the Ubiquitor and the App, users and instrument manufacturers will be free to add, remove, or change a sensor module for

their special industrial or educational application without creating their own application software and designing their own hardware.

Our developers are designing and implementing a soft control touch screen interface that supports real-time data monitoring and facilitates

instrument control and operation.

The data readout is displayed on the computer or mobile device display.

We are designing the application software (the

“App”) to have a graphical representation of control and indicator elements common in traditional tangible instruments, such

as knobs, buttons, dials, and graphs, etc.

Our developers are designing and implementing a soft control touch screen interface that supports

real-time data monitoring and facilitates instrument control and operation.

The Company continues to devote a substantial

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We anticipate that the sales and marketing involved with bringing the Ubiquitor to market

will require us to hire a number of new employees in order to gain traction in the market.

We intend to introduce the Ubiquitor in smart

home installations to reduce costs and increase functionality, as well as implement the Ubiquitor device in greenhouses and other agricultural

warehouses that require regulation of light, humidity, moisture, and other measurable scientific units required to create optimal growing

Our universal smart development protocol focuses

not only on the design of the hardware and software modules but also on the design of the overall universal smart instruments system,

guided by the principles of structure, universality and modularity.

Our Ubiquitor device is a fully modular system

with a universal sensor node and gateway system that uses a computer or mobile device as the output display module responsible for displaying

the readings of various sensor nodes.

We have completed an initial production run of prototype Ubiquitor devices and intend to proceed

into full-scale production.

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

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

The physical hardware consists of:

The sensor nodes, which come in hundreds of different varieties of sensor instruments in the form of a USB stick, with both male and female ports;

The Ubiquitor as the main hardware gateway, which is a small cell phone-sized device with integrated circuits.

We believe the Ubiquitor device can connect up

to thousands of potential sensor nodes, and integrate data using embedded software to display the data and all analytics onto a digital

screen (desktop, smartphone or mobile device displays) using a Wi-Fi connection.

As disclosed in our patent application, we have already

tested up to 256 sensor instrument readouts.

will require us to hire several new employees in order to gain traction in the market.

We intend to introduce the Ubiquitor in smart home

and commercial installations to reduce costs and increase functionality, as well as implement the Ubiquitor device in greenhouses and

other agricultural warehouses that require regulation of light, humidity, moisture, and other measurable scientific units required to

create optimal growing conditions.

We have completed an initial production run of

prototype Ubiquitor devices and intend to proceed into full-scale production.

The Ubiquitor’s sensor analytics system integrates

event-monitoring, storage and analytics software in a cohesive package that provides a holistic view of the sensor data it is reading.

For a description of the physical hardware, see illustrations in “Figures

5-10 in Part I - Item 1.

Business Section 5.

“Developing a universal smart instrumentation platform (“USIP”)”

We believe the Ubiquitor device can connect up to thousands of potential

sensor nodes integrate data using embedded software to display the data and all analytics onto a digital screen (desktop, smartphone or

mobile device displays) using a wired or Wi-Fi connection.

As disclosed in our patent application, we have already tested up to 256 sensor

instrument readouts.

Most types of nodes and probes can connect to the hardware.

If the sensor size is bigger

than the standard probe size, it is possible to simply use a USB cable to connect the probe and the hub.

All data and analytics are displayed

on a single screen, with tools that record and keep track of all measurements, and sort and display analytic information in easy-to-read

If the sensor size is bigger than the standard probe

size, it is possible to simply use a USB cable to connect the probe and the hub.

All data and analytics are displayed on a single screen,

with tools that record and keep track of all measurements, and sort and display analytic information in easy-to-read charts.

The Ubiquitor is a general platform that collects

data in real time and is intended to be adapted to many industrial uses.

By using the universal hardware or USIP, we believe

we could achieve the following efficiencies in instrumentation systems:

Cut production costs.

Smartphone technology is widely used on the small sensor device market.

By utilizing smartphone technology, the Ubiquitor will add superior functionality and performance, while cutting manufacturing and production costs.

Reduce the effort required to develop a new sensor product.

With the Ubiquitor, we believe that there will be no need for device manufacturers to research and develop new monitoring and operating components because they will just need to develop new sensor nodes or probes that may be integrated into our software technology.

Reduce clutter.

It is anticipated that the Ubiquitor could also dispense with some of the hassle of connecting cables, since the Ubiquitor allows wired and wireless transmission of sensor data and may allow wireless access to networks, such as a PLC network.

Also, we plan to design a full line of products

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(“TDS”) sensor and carbon dioxide sensor.

We believe the combination of the Ubiquitor with these sensors would offer the same

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

We believe the combination of the Ubiquitor with these sensors would offer the

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

The Ubiquitor-powered

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of universal smart technology to such systems.

The development of universal smart instruments

and the IoT have a considerable amount of overlap, with the only difference being the number of sensor nodes involved.

We plan to take

advantage of this overlap and unify universal smart instruments and the IoT into a single system, building the IoT infrastructure for

both residential and commercial uses and charging monthly subscription fees.

End users will be able to plug any peripheral devices into

the power outlet and enjoy the IoT connectivity throughout their home or business.

Research and Development Efforts of Power Line

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data through the same wires that provide electrical energy.

We are currently developing a wired alternative

to wireless networks that utilizes installed power lines to transmit information.

Our PLC technology uses an ultra-narrowband spectrum

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bandwidth to 4 megabits per second with the potential for more, while simultaneously effectively dealing with electrical noise and interference.

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

per second per Hz) greater than 4000.

Based on the promising results of our internal testing, we have begun designing a proprietary PLC

microchip and have set an intended launch date for 2022.

Based on the promising results of our internal testing, we have begun designing a proprietary PLC microchip and have set an intended launch

date for 2023.

We believe that because residential and commercial

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

On December 23, 2021, Focus Universal (Shenzhen)

Technology Co.

LTD was founded as a mainland China office for manufacturing procurement expertise and support research and development

On December 23, 2021, Focus Universal (Shenzhen) Technology

LTD was founded as a mainland China office for manufacturing procurement expertise and support research and development activities.

Focus Universal (Shenzhen) Technology Co.

LTD is designed to function as a branch office accessing high level ability to source

products and build relationships with manufacturers in the region and as a lower cost form of support research and development as engineers

are more plentiful in the region.

In the future, this office could also handle other online marketing and marketing production activities,

provided a cost and quality benefit exists at the time.

LTD is designed to function as a branch office accessing high level ability to source products

and build relationships with manufacturers in the region and as a lower cost form of support research and development as engineers are

more plentiful in the region.

This last quarter of 2022, this office has continued to grow to double digit headcount and has also begun

to handle other online and simple phone marketing and marketing materials production activities, provided a cost and quality benefit exists

Research and Development Efforts of 5G Cellular

Just like our ultra-narrowband technology can

be used to reduce noise in powerline communication technology, our internal research suggests that our ultra-narrowband technology can

be leveraged to create a type of 5G wireless communication technology that can achieve both low band 5G coverage and we believe 1 Gbps

high band speed.

We employ an ultra-narrow spectrum channel (<1KHz) to establish an ultra-long-distance link between the 5G base station

and the receiver which reduces noise and interference entering the bandwidth.

For a description of the ultra-narrowband technology

and the 5G applications, see “Part I - Item 1.

Business, Section 2.

“Creating a faster 5G cellular technology by using ultra-narrowband

technology” above.

Intellectual Property Protection

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In the fourth quarter of 2021, we hired the law

firm of Knobbe Martens, Olson & Bear, LLP to serve as outside intellectual property counsel for the Company.

The firm is working on

transferring the Company’s provisional patent applications to formal patent applications.

firm of Knobbe Martens, Olson & Bear, LLP based in Orange County, CA to serve as outside intellectual property counsel for the Company.

The firm is working on transferring the Company’s provisional patent applications to formal patent applications in addition to filing

new provisional patents.

In 2021, we filed 14 patents.

We filed 18 domestic patents in 2022 (plus two international patents in 2022),

and so far have filed 3 patents in 2023.

In addition, the Company’s patent number

11,488,468 was allowed and subsequently issued on November 1, 2022.

The patent, titled Sensor for Detecting the Proximity of an IEEE 802.11

Protocol Connectable Device.

There are several competitors we have identified

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Hach developed and launched the SC1000 Multi-parameter

Universal Controller, a probe module for connecting up to 32 digital sensors or analyzers.

However, their products are not compatible

with smart phones yet;

and we believe their price point is still prohibitive to consumers.

Universal Controller, a probe module for connecting a maximum to 32 digital sensors or analyzers.

However, we believe their current price

points are still cost prohibitive to consumers.

Monnit Corporation offers a range of wireless

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will be a completely different product category.

IoT Installation Industry

There are several companies that compete with AVX

in smart home installations, including Vivint Smart Home, Crestron and Control4.

However, we believe we can distinguish ourselves from

our competitors by offering a substantially lower price.

An installation by Crestron ranges between $20,000 and $100,000 and by Control4

between $20,000 and $40,000.

The cheapest competitor we can identify in this sector is Vivint Smart Home, which costs less than $5,000

however, we understand that the Vivint Smart Home focuses on security systems only and that users have no other smart applications,

which our smart home product line would include.

Air Filtration Systems and Meter Products Industry

The air filtration system and meter products industry

is a niche industry.

The global industrial air filtration market was valued at $23.83 billion by 2029 and analysts expect it to register

a CAGR of 7.2% because of the industrial need to control air quality across a range of industries.

Air purification methods are an effective way to control contaminants and improve indoor air quality and as a result, many national and

local governments overseeing indoor air quality and other emissions are enacting stricter workforce health and safety regulations in

this area, which drives demand.

___________________

Fortune, The global air filters market is projected to grow from $14.68 billion in 2022 to $23.83 billion by 2029, exhibiting a

CAGR of 7.2% in forecast period, 2022-2029, https://www.fortunebusinessinsights.com/industry-reports/air-filters-market-101676, (last

accessed March 7, 2023)

Market Potential

We believe that wireless universal smart technology

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

The cost factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and

implement them in their products or use them in their field testing.

We also hope to play a role in academic laboratories, particularly

with smaller academic laboratories who are sensitive to price.

We believe universal wireless smart technology

will play a critical role for traditional instrument manufacturers, as currently simply the undertaking of an IoT project is too expensive

and difficult to develop for medium or smaller companies and carries 75% failure rate according to Cisco Systems 22 .

factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and implement them in

their products or use them in their field testing.

We also hope to play a role in academic laboratories, particularly with smaller academic

laboratories that are sensitive to price.

Regarding the larger IoT industry statistics, overall enterprise IoT spending increased to

$201 Billion in 2022, an increase of 21.5%.

The outlook for growth in 2023 is 18.5% from this large base of enterprise spending 23 .

More specifically, the IoT sensors market is projected to reach $26 Billion by 2026 from $11.1 Billion in 2022 24 .

marketplace size assessments usually include the hardware components and the software components which often contain a Software as a

Service (SaaS) model.

Additionally, the rising need for reliable high bandwidth communication for IoT devices is expected to rise to

$664.75 Billion in 2028, spearheaded by the currently predominant services in the 5G category 25 .

We would also expect this

market to grow with the addition of new categories of services delivering reliable high bandwidth communication for IoT devices and would

cannibalize and expand the existing services where the new services proved to be more effective and efficient.

also expect our recent growth within our IoT Installation Services segment to bolster and complement our AVX Design and Integration and

all other related installation businesses of these IoT products.

The number of new contracts we have signed thus far in a limited amount

of time through the segment is 9 with an average value of $52,257.44 and a total collection value of $470,317 in signed contracts to

date, of which we have already collected $233,515.89.

Additionally, thus far, we have an aggregate $615,797 in contracts agreed

in principle, of which we expect to be signed and deposits paid.

This is compared to our highest AVX revenue for calendar year of $817,233

in 2019, $705,877 for 2020, $252,958 for 2021, and $260,871 for 2022 for the entire calendar year.

While statistics regarding the IoT

installation sectors are difficult to aggregate given that the work is often are pieced off into various contractor service categories,

the residential custom installation market ranges from $5.7B to $12.1B 27 ,

and we would expect the commercial and industrial installation markets to be larger than the residential for IoT devices.

________________________

22 Cisco Systems, Connected

Futures, Executive Business Insights, May 2017, The Journey to IOT Value, Challenges, Breakthroughs, and Best Practices, https://www.slideshare.net/CiscoBusinessInsights/journey-to-iot-value-76163389,

https:// newsroom .cisco.com/c/r/newsroom/en/us/a/y2017/m05/cisco-survey-reveals-close-to-three-fourths-of-iot-projects-are-failing.html

23 IoT Analytics, Market Insights for the Internet of Things,

February 7, 2023, Global IoT market size to grow 19% in 2023—IoT shows resilience despite economic downturn, https://iot-analytics.com/iot-market-size/

24 Markets and Markets, IoT Sensors Market by Sensor Type,

Network Technology, Vertical, Application, and Geography – Global Forecast -2026, https://www.marketsandmarkets.com/Market-Reports/sensors-iot-market-26520972.html

25 Cision PRNewswire, Research and Markets, Global $664.75

Billion 5G Services Markets to 2028:

Rising Need for High Bandwidth to Provide Reliable Communication to IoT Devices is Expected to Boost

Overall Market Growth, https://www.prnewswire.com/news-releases/global-664-75-billion-5g-services-markets-to-2028-rising-need-for-high-bandwidth-to-provide-

reliable-communication-to-iot-devices-is-expected-to-boost-overall-market-growth-301432173.html

How Big is the Custom Installation Market?, February

5, 2018, https://www.cepro.com/news/how_big_is_custom_installation_market/

Results of Operations

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Revenue for the year ended December 31, 2022 decreased $1,080,827 due to AVX Design & Integration Inc.

being unable to

generate more service work or develop a big project during the pandemic.

Cost and Operating Expenses

The major components of our cost and operating

expenses for the years ended December 31, 2021 and 2020 are outlined in the table below:

to generate more service work or develop a big project during the pandemic.

As mentioned, the company is midstream in shifting toward

more higher technology products and revenues and diversifying away from generalized hydroponic equipment.

Cost of revenue and Gross Profit

Cost of revenue for the year ended December 31,

2022 was $330,899, compared to $1,137,287 for the year ended December 31, 2021.

This decrease in cost of revenue was related to the decrease

In addition to the decrease in revenue, gross profit decreased to $22,720 for the year ended December 31, 2022

compared to $297,159 for the year ended December 31, 2021.

Operating Expenses

The major components of our operating expenses

for the years ended December 31, 2022 and 2021 are outlined in the table below:

For the year ended December 31, 2022

For the year ended December 31, 2021

Cost of revenue, excluding depreciation & amortization

Selling expense

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Total costs and operating expenses

Cost of revenue, excluding depreciation &

amortization for the year ended December 31, 2021 was $1,136,315, compared to $1,395,187 for the year ended December 31, 2020.

This decrease

in cost of revenue was related to the decrease in revenues.

Selling expense for the year ended December 31,

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$1,055,133 and $661,171 for the years ended December 31, 2022 and 2021, respectively.

The decrease was due to decrease in directors’

The increase was due to increase in directors’

stock-based compensation - options.

Research and development costs were $220,469 and

$256,636 for the years ended December 31, 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.

Research and development costs were $1,060,385

and $220,469 for the years ended December 31, 2022 and 2021, respectively.

The increase was due to an increase number of employee in research

and development department.

Professional fees were $896,385 during the year

ended December 31, 2022 compared to $1,030,159 during the year ended December 31, 2021.

The increase in professional fees mainly resulted

from the uplist in 2021 compared to the prior period.

The decrease in professional fees mainly resulted

from the Nasdaq uplist in 2021 compared to the current period.

General and administrative expenses of $2,074,091

incurred during the year ended December 31, 2022 primarily consisted of salaries of $739,943, insurance expense of $406,612, rent of $209,738,

office expense of $188,464, payroll taxes of $136,614 and depreciation expense of $165,293.

General and administrative expenses of $1,362,126

incurred during the year ended December 31, 2021 primarily consisted of salaries of $487,073, insurance expense of $359,372 and depreciation

expense of $162,160.

General and administrative expenses of $1,269,207 incurred during the year ended December 31, 2020 primarily consisted

of salaries of $491,638, insurance expense of $210,949 and depreciation expense of $162,242.

The increase was mainly due to increased

insurance premiums because of the Company’s uplist to NASDAQ.

The increase was mainly due to increased expense in China entity.

Other Income (expense)

Other income of $278,709 incurred during the year

ended December 31, 2022, primarily consisted of interest income of $3,887, forgiveness of debt of $158,547, unrealized loss on marketable

equity securities of $42,395, realized loss on marketable equity securities of $21,205, rental income of $166,288 and other income of

Other expense of $204,390 incurred during the year ended December 31, 2021, primarily consisted of interest expense of $37,608,

forgiveness of debt of $371,118, change in fair value of warrant liability of $1,284,780, gain on settlement of derivative liability of

$550,406, rental income of $186,212 and other income of $10,262.

During the years ended December 31, 2022, and

we incurred net losses of $3,220,977 and $2,537,113 respectively, due to the factors discussed above, gain on extinguishment of debt of

$371,118, loss on change in fair value of warrant liability of $1,284,780, and gain on settlement of derivative liability of $550,406.

2021, we incurred net losses of $4,926,937 and $3,220,977 respectively, due to the factors discussed above.

Liquidity and Capital Resources

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Net cash used in operating activities

$ (2,957,983 )

$ (1,969,445 )

Net cash used in investing activities

Net cash provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate

Net change in cash

$ (4,335,239 )

Cash Flows from Operating Activities

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The change in operating assets and liabilities includes an increase

in accounts receivable of $28,875, increase in accounts receivable – related party of $15,176, decrease in inventory of $21,229,

increase in other receivable of $13,057, increase in prepaid expenses of $210,017, decrease in deposits of $66,767, increase in operating

lease right-of-use asset of $333,140, decrease in accounts payable and accrued liabilities of $94,484, decrease in accounts payable –

related party of $17,471, increase in other current liabilities of $17,299, decrease in customer deposit of $57,106, increase in lease

liabilities of $328,846, and decrease in other liabilities of $17,135.

Non-cash expense included add-backs of $42,116 in bad debt expense,

$162,160 in depreciation expense, $1,284,780 in change in fair value of warrant liability, $48,000 in stock-based compensation, $429,856

in stock option compensation, reduction in inventory reserve of $1,622, gain on extinguishment of debt of $258,960 and gain on settlement

of derivative liability of $550,406.

Our net cash outflows from operating activities

of $1,955,091 for the year ended December 31, 2020 was primarily the result of our net loss of $2,537,113 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 $75,125, decrease in inventory of $21,289, increase in prepaid expenses of $44,282, increase in deposits of

$100,000, increase in accounts payable and accrued liabilities of $8,132, increase in accounts payable – related party of $17,471,

decrease in other current liabilities of $12,238, decrease in interest payable – related party of $1,750, decrease in customer deposit

of $70,294, and increase in other liabilities of $4,800.

Non-cash expense included add-backs of $21,907 in bad debt expense, $162,242

in depreciation expense, $48,000 in stock-based compensation, $605,150 in stock option compensation, reduction in inventory reserve of

$852 and a net of $2,428 in amortization of right-of-use assets.

in accounts receivable of $37,335, increase in accounts receivable – related party of $19,331, increase in inventory of $53,684,

decrease in other receivable of $13,057, decrease in prepaid expenses of $158,474, decrease in deposits of $4,035, decrease in operating

lease right-of-use asset of $139,754, decrease in accounts payable and accrued liabilities of $21,722, decrease in other current liabilities

of $17,135, decrease in customer deposit of $271, decrease in lease liabilities of $117,245, and increase in other liabilities of $12,335.

Non-cash expense included add-backs of $136,337 in bad debt expense, $166,266 in depreciation expense, $42,395 in unrealized loss on marketable

equity securities, $21,205 in realized loss on marketable equity securities, $719,975 in stock-based compensation – shares, $849,043

in stock-based compensation - options, reduction in inventory fair value net realizable of $27,199.

Our net cash outflows from operating activities of

$1,969,445 for the year ended December 31, 2021, was primarily the result of our net loss of $3,220,977 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 $28,875, increase in accounts receivable – related party of $15,176, decrease in inventory of $21,229, increase in

other receivable of $13,057, increase in prepaid expenses of $210,017, decrease in deposits of $66,767, increase in operating lease right-of-use

asset of $333,140, increase in accounts payable and accrued liabilities of $94,484, decrease in accounts payable – related party

of $17,471, increase in other current liabilities of $17,299, decrease in customer deposit of $57,106, increase in lease liabilities of

$328,846, and decrease in other liabilities of $17,135.

Non-cash expense included add-backs of $42,116 in bad debt expense, $162,160 in

depreciation expense, $1,284,780 in change in fair value of warrant liability, $48,000 in stock-based compensation, $429,856 in stock

option compensation, reduction in inventory reserve of $1,622, and gain on settlement of derivative liability of $550,406.

We expect that cash flows from operating activities

may fluctuate in future periods as a result of a number of factors, including fluctuations in our net revenues and operating results,

utilization of new revenue streams, collection of accounts receivable, and timing of billings and payments.

may fluctuate in future periods because of a number of factors, including fluctuations in our net revenues and operating results, utilization

of new revenue streams, collection of accounts receivable, and timing of billings and payments.

Cash Flows from Investing Activities

For the year ended December 31, 2022, we had cash

outflow from investing activities of $22,990 from the purchase of property and equipment.

For the year ended December 31, 2020 we

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

outflow from investing activities of $211,257.

That was primarily the result from the purchase of property and equipment of $42,187, purchase

of marketable securities of $768,949 and proceeds from sales of marketable securities of $599,879.

For the year ended December 31, 2021,

we had cash outflow from investing activities of $22,990 from the purchase of property and equipment.

Cash Flows from Financing Activities

For the year ended December 31, 2021, cash inflows

of $10,346,778 were due to proceeds of SBA loans of $267,297, repayment of SBA loans of $246,650, proceeds from bank loan of $1,500,000,

repayment of the bank loan of $1,500,000, proceeds from issuance of shares of $10,326,131.

For the year ended December 31, 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 $396,860.

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.

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.

For the year ended December 31, 2022, cash outflows

from financing activities of $1,158,547.

That was primarily the result from purchase of treasury stock of $1,000,000, and

forgiveness of debt of $158,547.

For the year ended December 31, 2021, cash inflows of $10,087,818 were due to proceeds of SBA loans of

$267,297, repayment of SBA loans of $246,650, proceeds from bank loan of $1,500,000, repayment of the bank loan of $1,500,000, proceeds

from issuance of shares of $10,326,131, and forgiveness of debt of $258,960.

Off-Balance Sheet Arrangements

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined

1 unchanged sentence

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-K

Item 7. Management’s Discussion and Analysis