FOCUS UNIVERSAL INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOCUS UNIVERSAL INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021 Index to the Financial Statements Contents Page Report of Independent Registered Public Accounting Firm (PCAOB No. 6906 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB No. 5041) F-4 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-6 Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021 F-7 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2022 and 2021 F-8 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F-9 Notes to the Consolidated Financial Statements F-10 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 sheet of Focus Universal, Inc. (the “Company”) as of December 31, 2022 the related consolidated 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, 2022 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 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/ Reliant CPA PC Reliant CPA PC We have served as the Company’s auditor since 2023 Newport Beach, CA March 31, 2023 F- 3 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 sheet of Focus Universal, Inc. (the “Company”) as of December 31, 2021, 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 the results of its operations and its cash flows for the year 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- 4 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 to 2022. Lakewood, CO March 8, 2022 F- 5 FOCUS UNIVERSAL INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2022 2021 ASSETS Current Assets: Cash $ 4,343,426 $ 8,678,665 Accounts receivable, net 78,313 177,315 Accounts receivable – related party 34,507 15,176 Inventories 103,772 22,889 Other receivables – 13,057 Prepaid expenses 142,342 301,270 Marketable securities 105,470 – Deposit - current portion – 5,968 Total Current Assets 4,807,830 9,214,340 Property and equipment, net 4,228,630 4,353,340 Operating lease right-of-use asset 253,336 420,137 Deposits 33,264 33,933 Total Assets $ 9,323,060 $ 14,021,750 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 267,685 $ 293,354 Treasury stock payable 1,000,000 – Other current liabilities 6,496 23,902 Loan, current portion – 132,618 Lease liability, current portion 113,058 121,568 Total Current Liabilities 1,387,239 571,442 Non-Current Liabilities: Lease liability, less current portion 165,952 302,387 Loan, less current portion – 25,929 Other liability 12,335 – Total Non-Current Liabilities 178,287 328,316 Total Liabilities 1,565,526 899,758 Contingencies (Note 13) – – Stockholders' Equity: Common stock, par value $ 0.001 per share, 75,000,000 shares authorized; 43,530,915 and 43,259,741 shares issued and outstanding as of December 31, 2022 and 2021, respectively 43,531 43,259 Treasury stock ( 400,000 and 0 shares held at December 31, 2022 and 2021, respectively) ( 2,000,000 ) – Additional paid-in capital 27,536,499 24,093,075 Shares to be issued, common shares 48,075 1,922,753 Accumulated deficit ( 17,864,028 ) ( 12,937,091 ) Accumulated other comprehensive loss ( 6,543 ) ( 4 ) Total Stockholders' Equity 7,757,534 13,121,992 Total Liabilities and Stockholders' Equity $ 9,323,060 $ 14,021,750 The accompanying notes are an integral part of these consolidated financial statements. F- 6 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2022 2021 Revenue $ 303,837 $ 1,405,362 Revenue - related party 49,782 29,084 Total Revenue 353,619 1,434,446 Cost of revenue 330,899 1,137,287 Gross Profit 22,720 297,159 Operating Expenses Selling expense 142,372 39,821 Compensation - officers and directors 1,055,133 661,171 Research and development 1,060,385 220,469 Professional fees 896,385 1,030,159 General and administrative 2,074,091 1,362,126 Total Cost and Operating Expense 5,228,366 3,313,746 Loss from Operations ( 5,205,646 ) ( 3,016,587 ) Other Income (Expense): Interest income (expense), net 3,887 ( 37,608 ) Forgiveness of debt 158,547 371,118 Change in fair value of warrant liability – ( 1,284,780 ) Gain on settlement of derivative liability – 550,406 Unrealized loss on marketable equity securities ( 42,395 ) – Realized loss on marketable equity securities ( 21,205 ) – Rental income 166,288 186,212 Other income 13,587 10,262 Total other income (expense) 278,709 ( 204,390 ) Loss before income taxes ( 4,926,937 ) ( 3,220,977 ) Income tax expense – – Net Loss $ ( 4,926,937 ) $ ( 3,220,977 ) Other comprehensive items Foreign currency translation loss ( 6,539 ) ( 4 ) Total comprehensive loss $ ( 4,933,476 ) $ ( 3,220,981 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 43,413,080 41,715,905 Net Loss per common share: Basic and Diluted $ ( 0.11 ) $ ( 0.08 ) The accompanying notes are an integral part of these consolidated financial statements. F- 7 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 and 2021 Common stock Treasury stock Additional Paid-In Shares to be issued Common Accumulated Accumulated Other Comprehensive Total Stockholders' Description Shares Amount Amount Capital Shares Deficit Loss Equity 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 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 Stock based compensation - options – – – 849,043 – – – 849,043 Stock based compensation - cashless exercise option 54,898 55 – ( 55 ) – – – – Stock based compensation - shares 62,500 63 – 663,837 48,075 – – 711,975 Purchase of treasury stock – – ( 2,000,000 ) – – – – ( 2,000,000 ) Common stock issued for current services 891 1 – 7,999 – – – 8,000 Common stock issued for prior services 31,736 32 – 146,677 ( 146,709 ) – – – Shares issued for cashless exercise of warrants 121,149 121 – 1,775,923 ( 1,776,044 ) – – – Other comprehensive loss – – – – – – ( 6,539 ) ( 6,539 ) Net loss – – – – – ( 4,926,937 ) – ( 4,926,937 ) Balance – December 31, 2022 43,530,915 $ 43,531 $ ( 2,000,000 ) $ 27,536,499 $ 48,075 $ ( 17,864,028 ) $ ( 6,543 ) $ 7,757,534 The accompanying notes are an integral part of these consolidated financial statements. F- 8 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2022 2021 Cash flows from operating activities: Net Loss $ ( 4,926,937 ) $ ( 3,220,977 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense 136,337 42,116 Inventories fair value net realizable ( 27,199 ) ( 1,622 ) Depreciation expense 166,266 162,160 Unrealized loss on marketable equity securities 42,395 – Realized loss on marketable equity securities 21,205 – Change in fair value of warrant liability – 1,284,780 Gain on settlement of derivative liability – ( 550,406 ) Stock-based compensation - shares 719,975 – Stock-based compensation - services – 48,000 Stock based compensation - options 849,043 429,856 Changes in operating assets and liabilities: Accounts receivable ( 37,335 ) ( 28,875 ) Accounts receivable - related party ( 19,331 ) ( 15,176 ) Inventories ( 53,684 ) 21,229 Other receivable 13,057 ( 13,057 ) Prepaid expenses 158,474 ( 210,017 ) Deposit 4,035 66,767 Operating lease right-of-use asset 139,754 ( 333,140 ) Accounts payable and accrued liabilities ( 21,722 ) 94,484 Accounts payable - related party – ( 17,471 ) Other current liabilities ( 17,135 ) 17,299 Customer deposit ( 271 ) ( 57,106 ) Lease liabilities ( 117,245 ) 328,846 Other liabilities 12,335 ( 17,135 ) Net cash flows used in operating activities ( 2,957,983 ) ( 1,969,445 ) Cash flows from investing activities: Purchase of property and equipment ( 42,187 ) ( 22,990 ) Purchase of marketable securities ( 768,949 ) – Proceeds from sales of marketable securities 599,879 – Net cash flows used in investing activities ( 211,257 ) ( 22,990 ) Cash flows from financing activities: Proceeds from SBA loan – 267,297 Repayment on SBA loan – ( 246,650 ) Purchase of treasury stock ( 1,000,000 ) – Proceeds from bank loan – 1,500,000 Repayment on bank loan – ( 1,500,000 ) Forgiveness of debt ( 158,547 ) ( 258,960 ) Proceeds from IPO, net – 10,326,131 Net cash flows provided by (used in) financing activities ( 1,158,547 ) 10,087,818 Effect of exchange rate ( 7,452 ) ( 43 ) Net change in cash ( 4,335,239 ) 8,095,340 Cash beginning of year 8,678,665 583,325 Cash end of year $ 4,343,426 $ 8,678,665 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 12,164 $ 42,968 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- 9 FOCUS UNIVERSAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2022 AND 2021 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. Focus Universal Inc. is also a provider of patented hardware and software design technologies for Internet of Things (IoT) and 5G. The company has developed five disruptive patented technology platforms with 26 patents and patents pending in various phases and 8 trademarks pending in various phases to solve the major problems facing hardware and software design and production within the industry today. These technologies combined to have the potential to reduce costs, product development timelines and energy usage while increasing range, speed, efficiency, and security. 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. The company has multiple subsidiary units, including Perfecular Inc. (“Perfecular”), AVX Design and Integration Inc. (“AVX”), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), Lusher Bioscientific, Inc. (“Lusher”), and AT Tech Systems LLC (“AT Tech LLC”). Perfecular Inc. 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. 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. Focus set up a branch in Shenzhen China, Focus Universal (Shenzhen) Technology Company LTD to be engaged in IoT research and development, equipment sales, and application services, software development and sales, amongst other activities. On 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 IoT technology products within this sector. As of the date of this filing, Lusher’s activities are in the introductory phase. Note 2 – Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Perfecular Inc., AVX Design & Integration, Focus Universal (Shenzhen) Technology Co. LTD, and Lusher Bioscientific. 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 like 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. On January 5, 2022, the Company founded a wholly owned subsidiary named Lusher Bioscientific, Inc. All significant intercompany transactions and balances have been eliminated. F- 10 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 three operating and reportable segments. The Company consists of three types of operations. (1) Focus and Focus Shenzhen (“Corporate”) involve operations related to research and development of technology products, non-specific financing, executive expense, operations and investor relations of the public entity, and general shared management and costs across subsidiary units which spread across all functional categories. (2) Perfecular and Lusher (“Product”) involve wholesale, marketing, and production of universal smart instruments and devices in the hydroponic and controlled agricultural segments. (3) AVX (“Installation service”) is an IoT installation and management company specializing in high performance and easy to use audio/video, home theater, lighting control, automation, and integration. 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, 2022 and 2021, approximately $ 3,120,763 and $ 7,464,846 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company at December 31, 2022 and 2021. 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, 2022 and 2021, allowance for doubtful accounts amounted to $ 222,972 and $ 86,635 , respectively. F- 11 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. Inventories 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 the carrying value to its estimated market value. As of December 31, 2022 and 2021, inventory fair value net realizable amounted to $ 41,741 and $ 68,940 , respectively. Marketable Securities The Company invests part of its excess treasury cash in equity securities and money market funds according to company treasury and investment policies. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized and unrealized gains and losses are recorded in other income (expense), net. 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, 2022 and 2021, the Company believes there was no impairment of its long-lived assets. F- 12 Treasury stock Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are record at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in additional paid in capital, on a first-in first-out basis. The Company does not recognize a gain or loss to income from the purchase and sale of treasury stock. 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. 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. Warrants 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). The Company does no t have any outstanding warrants as of December 31, 2022 and 2021, respectively. F- 13 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. The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2022: Schedule of Fair Value Assets And Liabilities Measured On Recurring Basis December 31, 2022 Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Marketable securities: Stock $ 105,470 $ – $ – $ 105,470 Total assets measured at fair value $ 105,470 $ – $ – $ 105,470 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. 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, 2022 and 2021 was comprised of foreign currency translation adjustments. F- 14 Revenue Recognition 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 upon the delivery of the equipment to the customer. ☐ Service sales – revenue is recognized based on the service been provided and the agreed upon performance obligation has been completed 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. 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. F- 15 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. 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, 2022 and 2021. As of December 31, 2022 and 2021, the Company did no t identify any material uncertain tax positions. F- 16 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, 2022 2021 Stock options 305,616 315,288 Total 305,616 315,288 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. 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. F- 17 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. The exchange rates used for consolidated financial statements are as follows: Schedule Of Intercompany Foreign Currency Balances Average Rate for the Year Ended December 31, 2022 2021 China Yuan (RMB) RMB 6.7263 RMB 6.3714 United States Dollar ($) $ 1.0000 $ 1.0000 Exchange Rate at December 31, 2022 December 31, 2021 China Yuan (RMB) RMB 6.8973 RMB 6.4466 United States Dollar ($) $ 1.0000 $ 1.0000 Note 3 – Recent Accounting Pronouncement 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. 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 – Inventories At December 31, 2022 and 2021, inventory consisted of the following: Schedule of Inventory December 31, 2022 December 31, 2021 Parts $ 3,767 $ 12,470 Finished goods 100,005 10,419 Inventories $ 103,772 $ 22,889 Note 5 – Deposits Deposit balance as of December 31, 2022, amounted to $ 33,264 for lease agreement and utility deposit. Deposit balance as of December 31, 2021, amounted to $ 39,901 for lease agreement and utility deposit. F- 18 Note 6 – Property and Equipment At December 31, 2022 and 2021, property and equipment consisted of the following: Schedule of property and equipment December 31, 2022 December 31, 2021 Warehouse $ 3,789,773 $ 3,789,773 Land 731,515 731,515 Building improvement 240,256 238,666 Furniture and fixture 37,785 27,631 Equipment 101,076 71,368 Software 1,995 1,995 Total cost 4,902,400 4,860,948 Less accumulated depreciation ( 673,770 ) ( 507,608 ) Property and equipment, net $ 4,228,630 $ 4,353,340 Depreciation expense for the years ended December 31, 2022 and 2021 amounted to $ 166,266 and $ 162,160 , respectively. Note 7 – Related Party Transactions Revenue generated from Vitashower Corp., a company owned by the Chief Executive Officer’s wife, amounted to $ 41,536 and $ 29,084 for the year ended December 31, 2022 and 2021, respectively. Account receivable balance due from Vitashower Corp. amounted to $ 34,507 and $ 15,176 as of December 31, 2022 and 2021, respectively. Service revenue generated from the installation of home security equipment by AVX for one of the Company’s directors, amounted to $ 8,246 and $ 0 for the year ended December 31, 2022 and 2021, respectively. Compensation for services provided by the President and Chief Executive Officer for the year ended December 31, 2022 and 2021 amounted to $ 141,020 and $ 124,615 , respectively. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer Desheng Wang, as fully disclosed in the annual report in 2017. Since then, during 2018, the entity was transferred to another individual and was not considered a related party transaction per guidelines. Note 8 – Business Concentration and Risks Major customers Four customers accounted for 11 % of the total accounts receivable as of December 31, 2022 and those customers accounted for 49 % of total revenue for the years ended December 31, 2022. One customer accounted 9 % of the total accounts receivable as of December 31, 2021 and this customer accounted for 77 % of total revenue for the year ended December 31, 2021. Major vendors One vendor, Tianjin Guanglee, accounted for 65 % and 0 % of total accounts payable at December 31, 2022 and 2021, respectively. This same vendor, Tianjin Guanglee, accounted for 22 % and 81 % of the total purchases for the years ended December 31, 2022 and 2021, respectively. F- 19 Note 9 – Leases The Company recorded its operating lease cost of $ 209,738 and $ 67,664 for the years ended December 31, 2022 and 2021, respectively. This included in general and administrative expenses. 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 ended upon August 31, 2022, as AVX operations moved into our corporate headquarters in Ontario. 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, 2022 and 2021, operating lease right-of use assets and lease liabilities were as follows: Schedule of operating Right-of-use asset and liability December 31, 2022 December 31, 2021 Operating lease right-of-use assets $ 253,336 $ 420,137 Lease liabilities, current portion $ 113,058 $ 121,568 Lease liabilities, less current portion $ 165,952 $ 302,387 Lease term and discount rate: Schedule Lease term and discount rate December 31, 2022 December 31, 2021 Weighted average remaining lease term Operating lease 2.17 years 0.67 to 3.17 years Weighted average discount rate Operating lease 10 % 10 % - 15 % The minimum future lease payments are as follows: Schedule of maturity of lease liabilities Amount Year ending December 31, 2023 $ 135,929 Year ending December 31, 2024 151,173 Year ending December 31, 2025 25,407 Total minimum lease payment 312,509 Less: imputed interest ( 33,499 ) Present value of future minimum lease payments $ 279,010 F- 20 Note 10 – Loans Paycheck Protection Program On March 2, 2021, our subsidiary Perfecular Inc. entered into an agreement to receive a U.S. Small Business Administration Loan (“SBA Loan”) from Wells Fargo related to the COVID-19 pandemic in the amount of $ 158,547 , which we received on March 3, 2021. The SBA Loan has a fixed interest rate of 1 percent per annum and a maturity date two years from the date loan was issued. On April 4, 2022, the SBA authorized full forgiveness of this loan principal amount of $ 158,547 and $ 1,570 interest. Schedule of debt December 31, 2022 December 31, 2021 SBA Loan $ – $ 158,547 Less: current portion – ( 132,618 ) Long term portion $ – $ 25,929 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, 2022, the Company issued 271,174 shares of common stock. On April 4, 2022, the Company issued 121,149 shares of its Common Stock to Boustead Securities LLC. (“Boustead”), issued pursuant to the cashless warrant exercise, exercised by Boustead on September 7, 2021 with an exercise price of $6.25 with the shares were valued at $ 1,776,044 upon the cashless exercise option of the warrants related to the completion of the Company’s August 30, 2021, public offering in connection with its listing on Nasdaq. On May 2, 2022, the Company issued 32,627 shares to consultants in exchange for professional services rendered. The shares were valued at $ 154,709 based on the closing price of the Company’s common stock on the dates that the shares were deemed earned, according to the agreements. On August 17, 2022, the Company issued 54,898 shares to two of the board members who exercised their options. On August 22, 2022, the Company issued 62,500 shares to employee based on the Restricted Stock Award Agreements (see Employee compensation ). During the year ended December 31, 2021, the Company issued 2,300,000 shares of common stock. F- 21 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, 2022 and 2021, the Company had 43,530,915 and 43,259,741 shares of common stock issued and outstanding, respectively. Treasury stock On August 10, 2022, the Company entered a stock purchase agreement with a private shareholder to repurchase 400,000 shares of its common stock for $ 2,000,000 and placed it in treasury. The private shareholder transferred the shares on October 4, 2022, forming a binding agreement, and on October 6, 2022, the Company wired the first $1,000,000 of the purchase price. The remaining $1,000,000 was due on or before February 6, 2023. This $1,000,000 is still not paid off as of the filing date. 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 paid in cash amounting to $ 8,000 for the year ended December 31, 2022, which the Company intends to issue stock as compensation for services rendered. Expenses incurred and paid in shares as of December 31, 2022 and 2021 amounted to $ 8,000 and $ 48,000 , 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, 2022 and 2021, the Company recorded a loss from change in the fair value of warrant liability which amounted to a difference of $ 0 and $ 1,284,780 , respectively. These warrants were valued using a Black-Scholes pricing model with the following assumptions: Schedule of warrant 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, 2022 and 2021, the Company has a gain on settlement of derivative liability which amounted to $0 and $550,406, respectively. Shares to be issued as of December 31, 2022 and December 31, 2021 amounted to $0 and $1,776,044, respectively. F- 22 Employee compensation On February 11, 2022 (“Vesting Date”), the Company entered into a Restricted Stock Award Agreement (“Award Agreement”) with eight employees for 280,000 shares of the $0.001 par value voting common stock subject to the terms and to the fulfillment of the conditions set in the Company’s equity incentive plan. The first 20% of the restricted shares was granted and vested on February 11, 2022 (the “Vesting Date”). Twenty percent of the restricted shares will vest on each anniversary of the Vesting Date until fourth anniversary of the Vesting Date. There were 56,000 shares granted on February 11, 2022. The fair value of above employee compensation was $ 588,560 as of December 31, 2022. 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 a 10,000-share bonus consisting of shares of $0.001 par value voting common stock, which will be granted in 2,500 blocks every quarter based on certain performance metrics. In November 2022, the Company entered into an amendment agreement to amend performance metrics. In October 2022, the Company entered into a employee agreement with VP of the Company, pursuant to which the Company rewards a 10,000 -share bonus consisting of shares of $0.001 par value voting common stock, which will be granted in 2,500 shares every quarter. During the years ended December 31, 2022 and 2021, the total employee compensation amount for all employees in the company, was $ 711,975 and $ 0 , respectively. The Company issued 62,500 shares with total value of $ 663,900 for employee compensation as of the year ended December 31, 2022. During the year ended December 31, 2022, the Company recognized employee compensation in amount of $ 107,390 for the fixed salary of the VP of Finance and $ 16,025 for the VP. The Company has incurred expenses amount of $ 48,075 employee compensation for the year ended December 31, 2022 and not yet paid in shares as of December 31, 2022. 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. On December 30, 2022, each member of the Board was granted 15,000 options to purchase shares at $ 6.41 per share. As of December 31, 2022, there were 410,041 options granted, 305,616 options vested, 104,425 options unvested, and 410,041 outstanding stock options. For the years ended December 31, 2022 and 2021, the Company’s stock option compensation expenses amounted to $ 849,043 and $ 429,856 , 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 assumptions December 31, 2022 December 31, 2021 Risk-free interest rate 4.22 % 0.93 – 1.52 % Expected life of the options 3 years 10 years Expected volatility 42.63 % 122.93 – 148.18 % Expected dividend yield 0 % 0 % The following is a summary of options activity from December 31, 2021 to December 31, 2022: Schedule of options activity Options Shares Weighted average exercise price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2021 420,000 $ 5.82 8.56 – Granted 105,000 $ 6.41 – – Exercised ( 107,500 ) $ 5.46 – – Cancelled or forfeited ( 7,459 ) $ 8.86 – – Outstanding at December 31, 2022 410,041 $ 5.93 8.04 362,250 Exercisable at December 31, 2022 305,616 $ 5.87 7.58 362,250 F- 23 Note 12 – Segment reporting The Company consists of three types of operations. (1) Focus and Focus Shenzhen (“Corporate”) involve operations related to research and development of technology products, non-specific financing, executive expense, operations and investor relations of the public entity, and general shared management and costs across subsidiary units which spread across all functional categories. (2) Perfecular and Lusher (“IoT Products”) involve wholesale, marketing, and production of universal smart instruments and devices in the hydroponic and controlled agricultural segments. (3) AVX (“IoT Installation Services”) 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 Reporting Year Ended December 31, 2022 Corporate IoT Products IoT Installation Services Total Revenue $ – $ 51,302 $ 252,535 $ 303,837 Revenue - related party – 41,536 8,246 49,782 Total revenue – 92,838 260,781 353,619 Cost of revenue – 84,296 246,603 330,899 Gross Profit – 8,542 14,178 22,720 Operating Expenses Selling expense – 132,443 9,929 142,372 Compensation - officers and directors 1,055,133 – – 1,055,133 Research and development 1,060,385 – – 1,060,385 Professional fees 883,213 – 13,172 896,385 General and administrative 1,465,121 316,617 292,353 2,074,091 Total Cost and Operating Expenses 4,463,852 449,060 315,454 5,228,366 Loss from Operations ( 4,463,852 ) ( 440,518 ) ( 301,276 ) ( 5,205,646 ) Other Income (Expense): Interest income (expense), net 4,109 ( 288 ) 66 3,887 Gain on extinguishment of debt – 158,547 – 158,547 Unrealized loss on marketable equity securities ( 42,395 ) – – ( 42,395 ) Realized loss on marketable equity securities ( 21,205 ) – – ( 21,205 ) Rental income 166,288 – – 166,288 Other income (expense), net 20,368 – ( 6,781 ) 13,587 Total other income (expense) 127,165 158,259 ( 6,715 ) 278,709 Loss before income taxes ( 4,336,687 ) ( 282,259 ) ( 307,991 ) ( 4,926,937 ) Tax expense – – – – Net Loss $ ( 4,336,687 ) $ ( 282,259 ) $ ( 307,991 ) $ ( 4,926,937 ) F- 24 Note 13 – Commitments and Contingencies Pending Litigation On or about April 13, 2020, Ian Patterson, the Chief Operations Officer of AVX resigned from his position. On May 5, 2020, Mr. Patterson filed an action in the Superior Court for the County of Los Angeles, State of California, against the Company, et al. The complaint alleges claims including discrimination, wrongful termination, retaliation and various other provisions of the California Labor Code, and various other claims under California state law. Trial for this matter is not set, nor has discovery been conducted. AVX intends to contest this matter. Further, AVX disputes that the other defendants are proper parties to the litigation. However, litigation and investigations are inherently uncertain, but the outcome could have a material impact on the Company. Similarly, on or about April 14, 2020, Devesa Sarria, the Sales and Marketing Director, was terminated. On May 13, 2020, she filed an action in the Superior Court for the County of Los Angeles, State of California. The Complaint alleges claims including discrimination, wrongful termination, retaliation and various other provisions of the California Labor Code, and various other claims under California state law. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. Trial is set for October 11, 2023. AVX intends to vigorously contest this matter. Further, AVX disputes that the other defendants are proper parties to the litigation. However, litigation and investigations are inherently uncertain, but the outcome could have a material impact on the Company. On January 19, 2023, the company filed an action in the Superior Court of California, County of San Bernardino against Jaqueline Li. AVX Design and Integration pre-paid for equipment toward a joint project with her father Jeffrey Li. Payment was made to Jaqueline’s father’s company Sing Young Music, while no goods or services were ever received. Upon death, Jacqueline Li distributed assets from the business Sing Young Music without consideration toward the business entity or any formation of an estate for Jeffrey Li. We attended the trial on March 17, 2023 to represent our side of the case and are awaiting judgement from the court. 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, 2022, 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 2022 2021 Federal statutory rates $ ( 1,034,596 ) $ ( 673,266 ) State income taxes ( 435,516 ) ( 283,413 ) Foreign income taxes ( 129,904 ) ( 857 ) Permanent differences ( 86 ) ( 3,439 ) Valuation allowance against net deferred tax assets 1,600,102 960,975 Effective rate $ – $ – F- 25 The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2022 and 2021 is presented below: Schedule of deferred tax assets and liabilities 2022 2021 Deferred income tax asset Net operating loss carryforwards $ 5,261,884 $ 3,661,868 Interest 43,786 43,700 Total deferred income tax asset 5,305,670 3,705,568 Less: valuation allowance ( 5,305,670 ) ( 3,705,568 ) Total deferred income tax asset $ – $ – 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, 2022 the valuation allowance increased by $ 1,600,102 . As of December 31, 2022, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $ 17,718,495 , and available tax credit carryforwards of approximately $ 3,611,045 for federal income tax purposes, which can be carried forward to offset future taxable income. The federal net operating loss carryforwards consists of $ 12,268,804 of losses incurred prior to January 1, 2022 and which can be used to offset 100% of future taxable income and, $ 4,926,649 of losses incurred after January 1, 2022, which can be used to offset up to 80% of taxable income in subsequent years. Note 15 – Subsequent Events As of January 6, 2023, the Company completed the business combination of AT Tech Systems. The transaction included AT Tech Systems’ business, including its cash and cash equivalents, accounts receivable, professional licenses, customer lists and corresponding client relationships, trademarks, trade names, brand names, goodwill and related intangible assets, inventory, and all other assigned contracts. While the agreement was signed on December 19, 2022, in order to complete control, a new entity AT Tech Systems LLC needed to be formed, which was completed on January 6, 2023. The Company also hired certain employees of AT Tech Systems’ business, assuming employment obligations as of December 30, 2023, despite the control of the entity being completed thereafter. AT Tech Systems LLC is now a subsidiary of Focus Universal, as defined in ASC 805, Business Combinations . The Company has integrated the acquired assets and employees throughout its existing business, including key employees serving dual roles with AVX Design and Integration. For example, Mr. Anthony Tejeda will serve as the Company’s director of installation services, as the vice president of operations of AVX, and as chief operating officer of AT Tech Systems LLC. In addition to the provision of services in the positions mentioned above, Mr. Tejeda shall assist with AVX’s management and train certain of its personnel in performing installations. The employment agreement of Mr. Tejeda is for a term of 5 years. The onboarding of Mr. Tejeda, who has extensive experience and expertise in commercial smart installations, will complement the smart installation services and allow Focus and AVX to enter the commercial smart installation market. AT Tech Systems has several clients from medical/dental facilities, commercial, and industrial projects, including notable manufacturers and wholesalers, and provides clients with integrated network, security, and multimedia design solutions and technology systems. As of February 7, the Company approved a fifty percent (50%) stock dividend of the Company’s common stock. The Company will issue one share of common stock for every two shares of common stock held. The record date for the stock dividend will be February 23, 2023, and the payment date will be March 23, 2023. The Company’s common stock shares will be traded in accordance with the “due bill” procedures of NASDAQ from February 7, 2023 through March 2, 2023. This means any trades that are executed on the NASDAQ Stock Exchange during this period will be identified to ensure purchasers of the Company’s common stock receive the entitlement to the stock dividend. The Company’s common stock shares are expected to begin trading on a post-stock dividend basis on the NASDAQ Stock Exchange on March 23, 2023. As of February 13, 2023, the Company granted and vested the second 20% of the restricted shares based on 2022 Award Agreement, which is 34,000 shares with the total fair value of $205,360. As of February 16, 2023, one of the Company predecessor Director accept the cashless exercise of his entirety grant options to be exercised for 7,238 shares. As of March 1, 2023, the Company reduced its previously announced at-the-market (ATM) offering from December 12, 20222 from US $25 million to US $1 million. As of March 8, 2023, the Board of Directors also agreed to include on the Annual Shareholder Meeting ballot the increase of share count from 75,000,000 to 750,000,000. This increase is to facilitate additional stock dividends in the future as needed. The Company has evaluated other subsequent events through the date these consolidated financial statements were issued and determined that there were no other subsequent events or transactions that require recognition or disclosures in the consolidated financial statements. F- 26 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.