FOCUS UNIVERSAL INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Index to the Financial Statements Contents Page Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022 4 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 5 Condensed Consolidated Statements of Changes in Stockholder’s Equity for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited) 8 Notes to the Unaudited Condensed Consolidated Financial Statements 9 3 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 2023 2022 (Unaudited) ASSETS Current Assets: Cash $ 1,358,683 $ 4,343,426 Accounts receivable, net 101,379 78,313 Accounts receivable – related party – 34,507 Inventory 88,246 103,772 Prepaid expenses 187,224 142,342 Marketable equity securities 60,694 105,470 Total Current Assets 1,796,226 4,807,830 Property and equipment, net 4,159,503 4,228,630 Operating lease right-of-use assets 236,116 253,336 Deposits 23,545 33,264 Total Assets $ 6,215,390 $ 9,323,060 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 305,345 $ 267,685 Treasury stock payable – 1,000,000 Other current liabilities 45,596 6,496 Lease liabilities, current portion 81,203 113,058 Total Current Liabilities 432,144 1,387,239 Non-Current Liabilities: Lease liabilities, less current portion 131,570 165,952 Other liability 12,335 12,335 Total Non-Current Liabilities 143,905 178,287 Total Liabilities 576,049 1,565,526 Contingencies (Note 12) – – Stockholders' Equity: Common stock, par value $ 0.001 per share, 75,000,000 shares authorized; 64,771,817 shares issued and outstanding as of June 30, 2023 and 65,296,383 shares issued and outstanding as of December 31, 2022 64,771 65,297 Treasury stock at cost ( 233,040 shares and 400,000 shares held at June 30, 2023 and December 31, 2022, respectively) ( 420,686 ) ( 2,000,000 ) Additional paid-in capital 25,967,044 27,514,733 Shares to be issued, common shares 31,400 48,075 Accumulated deficit ( 19,996,437 ) ( 17,864,028 ) Accumulated other comprehensive loss ( 6,751 ) ( 6,543 ) Total Stockholders' Equity 5,639,341 7,757,534 Total Liabilities and Stockholders' Equity $ 6,215,390 $ 9,323,060 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2023 2022 2023 2022 Revenue $ 215,391 $ 62,364 $ 451,486 $ 187,989 Revenue - related party – 2,278 – 33,820 Total Revenue 215,391 64,642 451,486 221,809 Cost of Revenue 149,259 57,776 330,003 201,171 Gross Profit 66,132 6,866 121,483 20,638 Operating Expenses: Selling expense 63,075 17,548 74,934 55,887 Compensation - officers and directors 253,403 283,625 560,937 604,290 Research and development 342,992 167,361 619,473 729,105 Professional fees 116,565 153,091 373,964 535,207 General and administrative 361,583 590,589 804,635 1,225,358 Total Operating Expenses 1,137,618 1,212,214 2,433,943 3,149,847 Loss from Operations ( 1,071,486 ) ( 1,205,348 ) ( 2,312,460 ) ( 3,129,209 ) Other Income (Expense): Interest income (expense), net 16,118 256 30,554 250 Gain on bargain purchase – – 61,747 – Unrealized gain (loss) on marketable equity securities ( 5,005 ) ( 74,626 ) 27,565 ( 74,626 ) Realized gain (loss) on marketable equity securities 652 – ( 14,249 ) 10,281 Rental income 40,341 39,172 80,293 78,342 Other income (expense), net 1,214 179,249 ( 5,859 ) 184,735 Total other income, net 53,320 144,051 180,051 198,982 Loss before income taxes ( 1,018,166 ) ( 1,061,297 ) ( 2,132,409 ) ( 2,930,227 ) Income tax expense – – – – Net Loss $ ( 1,018,166 ) $ ( 1,061,297 ) $ ( 2,132,409 ) $ ( 2,930,227 ) Other comprehensive items Foreign currency translation gain (loss) ( 3,883 ) ( 431 ) ( 208 ) 121 Total comprehensive loss $ ( 1,022,049 ) $ ( 1,061,728 ) $ ( 2,132,617 ) $ ( 2,930,106 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 65,171,740 65,095,078 55,377,422 64,992,912 Net Loss per common share: Basic and Diluted $ ( 0.02 ) $ ( 0.02 ) $ ( 0.04 ) $ ( 0.05 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 5 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (Unaudited) Common stock Treasury Stock Additional Paid-In Shares to be issued Common Accumulated Accumulated Other Comprehensive Total Stockholders’ Description Shares Amount at Cost Capital Shares Deficit Loss Equity Balance – March 31, 2023 64,769,490 $ 64,769 $ – $ 25,833,643 $ 12,500 $ ( 18,978,271 ) $ ( 2,868 ) $ 6,929,773 Stock based compensation - options – – – 133,403 – – – 133,403 Stock based compensation - shares – – – – 18,900 – – 18,900 Purchase of treasury stock – – ( 420,686 ) – – – – ( 420,686 ) Issued stock dividend 2,327 2 – ( 2 ) – – – – Other comprehensive income – – – – – – ( 3,883 ) ( 3,883 ) Net loss – – – – – ( 1,018,166 ) – ( 1,018,166 ) Balance – June 30, 2023 64,771,817 $ 64,771 $ ( 420,686 ) $ 25,967,044 $ 31,400 $ ( 19,996,437 ) $ ( 6,751 ) $ 5,639,341 Balance – March 31, 2022* 64,889,612 $ 64,889 $ – $ 24,229,820 $ 2,587,123 $ ( 14,806,021 ) $ 548 $ 12,146,359 Stock based compensation - options – – – 228,375 – – – 228,375 Stock based compensation - shares – – – – 28,550 – – 28,550 Common stock to be issued for service 230,664 231 – 1,930,522 ( 1,930,753 ) – – – Other comprehensive income – – – – – – ( 431 ) ( 431 ) Net loss – – – – – ( 1,061,297 ) – ( 1,061,297 ) Balance – June 30, 2022 65,120,276 $ 65,120 $ – $ 26,458,717 $ 684,920 $ ( 15,867,318 ) $ 117 $ 11,341,556 (continued) 6 Common stock Treasury Stock Additional Paid-In Shares to be issued Common Accumulated Accumulated Other Comprehensive Total Stockholders’ Description Shares Amount at Cost Capital Shares Deficit Loss Equity Balance – December 31, 2022 65,296,383 $ 65,297 $ ( 2,000,000 ) $ 27,514,733 $ 48,075 $ ( 17,864,028 ) $ ( 6,543 ) $ 7,757,534 Stock based compensation - options – – – 266,806 – – – 266,806 Stock based compensation – cashless exercise options 10,857 10 – ( 12 ) – – – – Stock based compensation - shares 62,250 62 – 184,917 ( 16,675 ) – – 168,304 Purchase of treasury stock – ( 420,686 ) – – – – ( 420,686 ) Retirement of treasury stock ( 600,000 ) ( 600 ) 2,000,000 ( 1,999,400 ) – – – – Other comprehensive income – – – – – – ( 208 ) ( 208 ) Issued stock dividend 2,327 2 – ( 2 ) – – – – Net loss – – – – – ( 2,132,409 ) – ( 2,132,409 ) Balance – June 30, 2023 64,771,817 $ 64,771 $ ( 420,686 ) $ 25,967,044 $ 31,400 $ ( 19,996,437 ) $ ( 6,751 ) $ 5,639,341 Balance – December 31, 2022* 64,889,612 $ 64,889 $ – $ 24,071,445 $ 1,922,753 $ ( 12,937,091 ) $ ( 4 ) $ 13,121,992 Stock based compensation - options – – – 456,750 – – – 456,750 Stock based compensation - shares – – – – 692,920 – – 692,920 Common stock to be issued for service 230,664 231 – 1,930,522 ( 1,930,753 ) – – – Other comprehensive income – – – – – – 121 121 Net loss – – – – – ( 2,930,227 ) – ( 2,930,227 ) Balance – June 30, 2022* 65,120,276 $ 65,120 $ – $ 26,458,717 $ 684,920 $ ( 15,867,318 ) $ 117 $ 11,341,556 *Retroactively applied to the stock split The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 7 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 2023 2022 Cash flows from operating activities: Net Loss $ ( 2,132,409 ) $ ( 2,930,227 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense 4,675 57,147 Inventory fair value net realizable – ( 25,617 ) Depreciation expense 84,616 82,063 Amortization of intangible assets 28,741 – Unrealized (gain) loss on marketable equity securities ( 27,565 ) 74,626 Realized (gain) loss on marketable equity securities 14,249 ( 10,281 ) SBA loan forgiveness – ( 158,547 ) Gain on bargain purchase ( 61,747 ) – Stock-based compensation – shares 168,304 692,920 Stock option compensation – options 266,806 456,750 Changes in operating assets and liabilities: Accounts receivable ( 27,741 ) ( 47,454 ) Accounts receivable - related party 34,507 ( 73,094 ) Inventory 15,526 ( 7,752 ) Other receivable – 13,057 Prepaid expenses ( 46,109 ) 103,083 Deposit 8,514 ( 4,008 ) Operating lease right-of-use assets 4,983 190,790 Accounts payable and accrued liabilities 73,823 ( 106,104 ) Other current liabilities 39,100 ( 11,004 ) Lease liabilities ( 55,012 ) ( 60,576 ) Other liabilities – 14,736 Net cash flows used in operating activities ( 1,606,739 ) ( 1,749,492 ) Cash flows from investing activities: Purchase of property and equipment ( 17,203 ) ( 39,702 ) Purchase of marketable securities ( 43,644 ) ( 708,359 ) Proceeds from sale of marketable securities 101,736 480,524 Net cash flows provided by (used in) investing activities 40,889 ( 267,537 ) Cash flows from financing activities: Purchase of treasury stock ( 1,420,686 ) – Net cash flows used in financing activities ( 1,420,686 ) – Effect of exchange rate 1,793 ( 1,228 ) Net change in cash ( 2,984,743 ) ( 2,018,257 ) Cash beginning of period 4,343,426 8,678,665 Cash end of period $ 1,358,683 $ 6,660,408 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 8,407 $ 6,153 Supplemental disclosure for noncash financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ 266,101 $ – The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 8 FOCUS UNIVERSAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (UNAUDITED) Note 1 – Organization and Operations Focus Universal Inc. (the “Company”) was incorporated under the laws of the State of Nevada on December 4, 2012. It is a universal smart instrument developer and manufacturer, headquartered in 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 what it believes are five disruptive patented technology platforms with 26 patents and patents pending in various phases and 8 trademarks pending in various phases to solve what it believes are the major problems facing hardware and software design and production within the industry today. These technologies combined have the potential to reduce costs, product development timelines and energy usage while increasing range, speed, efficiency, and security of the IoT and 5G networks. The Company has multiple subsidiaries, including Perfecular Inc. (“Perfecular”), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), AVX Design & Integration, Inc. (“AVX,” also doing business as Smart AVX (“Smart AVX”)), Lusher Bioscientific, Inc. (“Lusher”), and AT Tech Systems LLC (“AT Tech Systems”). Perfecular, a wholly owned subsidiary of Focus that was founded in September 2009 and is headquartered in Ontario, California, is engaged in designing digital sensor products and selling a broad selection of horticultural sensors and filters in North America and Europe. AVX, incorporated on June 16, 2000 in the state of California, is an IoT installation and management company specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation and integration. Services provided by AVX include full integration of houses, apartments, commercial complexes, office spaces with audio, visual and control systems to fully integrate devices in the low voltage field, specializing in high end residential smart IoT install projects in areas throughout the Southern California area. AVX’s services also include partial equipment upgrade and installation. AVX also markets and sells our IoT Products, such as high end LED, live wall panel products and cameras, under the Smart AVX name. Focus set up a branch in Shenzhen China, Focus Shenzhen, to be engaged in IoT research and development, equipment sales, application services, and software development and sales, amongst other activities. As of January 6, 2023, AT Tech Systems is a subsidiary of Focus specializing in commercial and industrial smart IoT install projects in areas throughout the Southern California area. AT Tech Systems has several clients from medical/dental facilities and commercial and industrial projects, including several with notable manufacturers and wholesalers, and provides clients with integrated network, security, and multimedia design solutions and technology systems. The Company has completed integration throughout its existing businesses, including key employees serving dual roles with its subsidiaries. For example, Mr. Anthony Tejeda serves 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. Note 2 – Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Focus and its wholly-owned subsidiaries, Perfecular, AVX, Focus Shenzhen, Lusher and AT Tech Systems (collectively, the “Company,” “we,” “our,” or “us”). All intercompany balances and transactions have been eliminated upon consolidation. The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). 9 Segment Reporting The Company currently has three operating segments. First, Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves the non-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of technology products. Second, Perfecular, AVX (doing business as Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instruments and devices in the hydroponic and controlled agriculture segments and of our smart products into the commercial and home automation sectors. And third, AVX (exclusive of the smart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management business specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation, and integration. Use of Estimates The preparation of unaudited condensed 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 unaudited condensed 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 with the estimate discount rate and lease liability, useful lives of property and equipment, useful lives of intangible assets, allowance for doubtful accounts, inventory reserves, 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 limits. As of June 30, 2023 and December 31, 2022, respectively, approximately $ 781,867 and $ 3,120,763 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company as of either June 30, 2023 or December 31, 2022. 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 180 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 June 30, 2023 and December 31, 2022, allowance for doubtful accounts amounted to $ 227,647 and $ 222,972 , respectively. 10 Concentrations of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company limits its exposure to credit loss by investing its cash with high credit quality financial institutions. Inventory Inventory consists primarily of parts and finished goods and is valued at the lower of the inventory’s cost or net realizable value under the first in, first out method (“FIFO Method”). Management compares the cost of inventory with its market value and a fair value adjustment is made to write down inventory to market value, if lower. Inventory fair value adjustments 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 net realized value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its net realizable value. Marketable Equity 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 gains and losses are recognized the fair value differences when the trading securities been sold based on the FIFO Method. Unrealized gains and losses are recognized the fair value differences of unsold trading securities for the period end based on the FIFO Method. Both realized and unrealized gains and losses are recorded in other income (expense). 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 those 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 June 30, 2023 and December 31, 2022, the Company believes there was no impairment of its long-lived assets. 11 Intangible Assets The Company’s intangible assets were acquired from AT Tech Systems due to customer relationships using the multi-period excess earnings method. These intangible assets were valued based on the AT Tech Systems business acquisition. The value is based on the assessed income expected to be generated from the existing customer list, namely the carry-over of the existing contracts after a careful evaluation of the customer list. Amortization on the intangible assets was computed by the percentage completed for these existing assets and fully amortized as of June 30, 2023. Treasury stock Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. 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 FASB 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 (see Note 11) 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 Topic 480, Distinguishing Liabilities from Equity and FASB ASC Topic 815, Derivatives and Hedging. 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 Company calculates the fair value of warrants utilizing the Black-Scholes pricing model. The Company does no t have any outstanding warrants as of June 30, 2023 and December 31, 2022, respectively. Stock Dividends The Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held. The Company follows paragraph ASC 505-20-25 in treating its stock dividend as a stock split due to the stock dividend being greater than 25% of the shares then outstanding. On March 23, 2023 and April 3, 2023, the Company issued 21,592,164 stock dividends to its shareholders for a stock dividend of one share of common stock for every two shares of common stock issued and outstanding. The Company also adheres to paragraph ASC 260-10-55-12, wherein it retroactively adjusted its statement of stockholders’ equity for all presented periods to incorporate the alteration in capital structure. The retroactive treatment is based on a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders on March 23, 2023. The Company does not capitalize its retained earnings, and there is no impact to the Company’s overall equity or its total assets. 12 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 conformity with 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 that prioritizes the inputs to valuation techniques used to measure fair value into three 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 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 June 30, 2023 and December 31, 2022: Schedule of Fair Value Assets And Liabilities Measured On Recurring Basis June 30, 2023 (unaudited) Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Marketable securities: Stock $ 60,694 $ – $ – $ 60,694 Total assets measured at fair value $ 60,694 $ – $ – $ 60,694 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, inventory, other receivables, prepaid expenses, deposit, accounts payable, treasury stock 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’s other comprehensive loss for the six months ended June 30, 2023 and for the year ended December 31, 2022 was comprised of foreign currency translation adjustments. 13 Revenue Recognition On September 1, 2018, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers using the modified retrospective transition approach. The core principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. The Company’s updated accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue. The impact of adopting ASC 606 was not material to the unaudited condensed consolidated financial statements. Revenue from the Company is recognized under ASC 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 categories, is summarized below: · Product sales – revenue is recognized at the time of sale upon the delivery of equipment to the customer. · Service sales – revenue is recognized based on the service having 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 accounts 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. 14 Related Parties The Company follows Section 10 of FASB ASC Topic 850, Related Party Disclosures for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20 the related parties include: (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of ASC 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. The unaudited condensed 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 unaudited condensed 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 unaudited condensed 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 Section 20 of FASB ASC Topic 450, Contingencies to report accounting for loss contingencies. Certain conditions may exist as of the date the unaudited condensed 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 unaudited condensed 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. Gain on Bargain Purchase A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. 15 Income Tax Provision The Company accounts for income taxes in accordance with FASB 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 were no material deferred tax assets or liabilities as of June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, the Company did no t identify any material uncertain tax positions. Basic and Diluted Net Income (Loss) Per Share Net income (loss) per share is computed pursuant to Section 10-45 of FASB ASC Topic 260, Earnings Per Share. 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 arrangements, 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 Six Months Ended June 30, 2023 2022 Stock options 457,934 367,787 Total 457,934 367,787 While the EPS treatment was applied in Q2 ended June 30, 2032, the adjustment is also retroactive accordingly. Reclassification Certain reclassifications have been made to the unaudited condensed consolidated financial statements for the prior period to the current year’s presentation. Such reclassifications have no effect on net income as previously reported. 16 Foreign Currency Translation and Transactions The reporting and functional currency of Focus is the U.S. dollar (USD). The functional currency of Focus Shenzhen is the renminbi (RMB). For financial reporting purposes, the financial statements of Focus Shenzhen, which are prepared using the RMB, are translated into the USD. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue and expenses are translated using average exchange rates prevailing during each reporting period. Stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange difference, presented as foreign currency transaction loss, is included in the accompanying unaudited condensed consolidated statements of operations. The exchange rates used for unaudited condensed consolidated financial statements are as follows: Schedule Of Intercompany Foreign Currency Balances Average Rate for the Six Months Ended June 30, 2023 (Unaudited) 2022 (Unaudited) China Yuan (RMB) RMB 6.9243 RMB 6.4749 United States Dollar ($) $ 1.0000 $ 1.0000 Exchange Rate at June 30, 2023 December 31, 2022 (Unaudited) China Yuan (RMB) RMB 7.2542 RMB 6.8973 United States Dollar ($) $ 1.0000 $ 1.0000 Going Concern In August 2014, the FASB issued ASC 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these unconsolidated financial statements. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company has a net loss of $ 2,132,409 and $ 2,930,227 for the six months ended June 30, 2023 and 2022, respectively. In addition, the Company had an accumulated deficit of $ 19,996,437 and $ 17,864,028 as of June 30, 2023 and December 31, 2022, respectively, and negative cash flow from operating activities of $1,606,739 and $1,749,492 for the six months ended June 30, 2023 and 2022, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company is operating on a going concern basis as of June 30, 2023. 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 Securities and Exchange Commission 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. 17 Note 4 – Inventory At June 30, 2023 and December 31, 2022, inventory consisted of the following: Schedule of inventory June 30, 2023 December 31, 2022 Parts $ 1,051 $ 3,767 Finished goods 87,195 100,005 Inventory $ 88,246 $ 103,772 Note 5 – Deposits The deposits balance as of June 30, 2023 amounted to $ 23,545 for lease agreement and utility deposits and third-party payroll service deposits. The deposits balance as of December 31, 2022 amounted to $ 33,264 for lease agreement and utility deposits. Note 6 – Property and Equipment As of June 30, 2023 and December 31, 2022, property and equipment consisted of the following: Schedule of property and equipment June 30, 2023 December 31, 2022 Warehouse $ 3,789,773 $ 3,789,773 Land 731,515 731,515 Building improvement 240,256 240,256 Furniture and fixture 38,917 37,785 Equipment 115,061 101,076 Software 1,995 1,995 Total cost 4,917,517 4,902,400 Less accumulated depreciation ( 758,014 ) ( 673,770 ) Property and equipment, net $ 4,159,503 $ 4,228,630 Depreciation expense for the three months ended June 30, 2023 and 2022 amounted to $42,209 and $41,898, respectively. Depreciation expense for the six months ended June 30, 2023 and 2022 amounted to $ 84,616 and $ 82,063 , respectively. Note 7 – Intangible Assets, net The following table presents the intangible assets balances as of June 30, 2023 and December 31, 2022: Schedule of intangible assets June 30, 2023 December 31, 2022 Customer Relationship $ 28,741 $ – Less accumulated amortization ( 28,741 ) – Intangible assets, net $ – $ – 18 Note 8 – Related Party Transactions Revenue generated from Vitashower Corp., a company owned by the Chief Executive Officer’s wife, amounted to $ 0 and $ 33,820 for the six months ended June 30, 2023 and 2022, respectively. The accounts receivable balance due from Vitashower Corp. amounted to $ 0 and $ 34,507 as of June 30, 2023 and December 31, 2022, respectively. Note 9 – Business Concentration and Risks Major customers Two customers accounted for 32 % of the total accounts receivable as of June 30, 2023 and four customers accounted for 11 % of the total accounts receivable as of December 31, 2022. Two customers accounted for 37 % of the total revenue for the six months ended June 30, 2023 and three customers accounted for 54 % of total revenue for the six months ended June 30, 2022. Major vendors No major vendor accounted more than 10 % of total purchases during the six months ended June 30, 2023. One vendor, Tianjin Guanglee, accounted for 0 % of total accounts payable at June 30, 2022; and this vendor accounted for 24 % of total purchases during the six months ended June 30, 2022. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer, as fully disclosed in our annual report in 2017. In 2018, the Chief Executive Officer transferred ownership of the entity to an unrelated third party in a transaction not considered a related party transaction per the relevant guidelines. Note 10 – Lease The Company recorded its operating lease expense of $ 81,069 and $ 237,045 for the six months ended June 30, 2023 and 2022, respectively. This is included in general and administrative expenses. On December 7, 2021, Focus Shenzhen entered into 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 was scheduled to end on February 28, 2025. The monthly rent was RMB70,097 (approximately $9,663) 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 terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term. This lease was terminated on February 22, 2023. On January 16, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 2,017 square foot office space. The lease commenced on February 1, 2023 and will end on January 31, 2026. The monthly rent is RMB29,974 (approximately $4,132) 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 terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term. On February 22, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 3,449 square foot office space. The lease commenced on March 31, 2023 and will end on February 28, 2026. The monthly rent is RMB35,246 (approximately $4,859) 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 terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term. 19 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 June 30, 2023 and December 31, 2022, operating lease right-of-use assets and lease liabilities were as follows: Schedule of operating right-of-use asset and liability June 30, 2023 December 31, 2022 Operating lease right-of-use assets $ 266,098 $ 353,074 Amortization ( 29,982 ) ( 99,738 ) Operating lease right-of-use assets, net $ 236,116 $ 253,336 Lease liabilities, current portion $ 81,203 $ 113,058 Lease liabilities, less current portion $ 131,570 $ 165,952 Lease term and discount rate: Schedule of lease term and discount rate June 30, 2023 December 31, 2022 Weighted average remaining lease term Operating lease 2.58 to 2.75 years 2.17 years Weighted average discount rate Operating lease 10 % 10 % The minimum future lease payments are as follows: Schedule of maturity of lease liabilities Amount Year ending December 31, 2023 $ 19,834 Year ending December 31, 2024 102,104 Year ending December 31, 2025 111,727 Year ending December 31, 2026 8,264 Total minimum lease payment 241,929 Less: imputed interest ( 29,156 ) Present value of future minimum lease payments $ 212,773 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 On March 23, 2023, the Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held. During the six months ended June 30, 2023, the Company issued 75,434 shares of common stock. On January 17, 2023, the Company retired 600,000 shares obtained pursuant to a prior stock repurchase agreement as announced in a current report on October 7, 2022. On February 13, 2023, the Company issued 62,250 shares to employees based on their Restricted Stock Award Agreements (see Employee compensation ). On February 21, 2023, the Company issued 10,857 shares to one of the prior board members who exercised his options with cashless exercise. On April 3, 2023, the Company issued 2,327 shares to round up the stock dividend effective on March 23, 2023. 20 During the six months ended June 30, 2022, the Company issued 230,664 shares of common stock. On April 4, 2022, the Company issued 181,724 shares of its common stock to Boustead Securities LLC (“Boustead”), which were for the warrants exercised by Boustead on September 7, 2021. The warrants were issued to Boustead in connection with the Company’s initial public offering with an exercise price of $4.16. The shares issued to Boustead were valued at $ 1,776,044 upon the cashless exercise option of the warrants. On May 2, 2022, the Company issued 48,940 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 terms of the related agreements. As of June 30, 2023 and December 31, 2022, the Company had 64,771,817 shares and 65,296,383 shares of common stock issued and outstanding, respectively. Treasury stock On August 10, 2022, the Company entered a stock purchase agreement (the “Stock Purchase Agreement”) with a private shareholder to repurchase 400,000 shares of its common stock for $2,000,000. The private shareholder transferred the shares on October 4, 2022, forming a binding agreement, which the Company placed in treasury; and on October 6, 2022, the Company wired the first $1,000,000 of the purchase price. Subsequently, on July 14, 2023, the Company entered into an amendment to the Stock Purchase Agreement that increased the number of shares of its common stock the Company would purchase to 1,300,000 shares and revised the total purchase price of the shares to $1,965,000 (See Note 14). The remaining $965,000 was paid on July 14, 2023. Upon receipt of the additional 900,000 shares, the Company also placed them in treasury. As of January 17, 2023, the Company retired the initial 400,000 shares and restored them to the status of authorized and unissued shares. As part of the Company’s repurchase program, during the six months ended June 30, 2023 the Company repurchased 233,040 shares of its common stock for $ 420,686 and placed them in treasury. As of June 30, 2023 and December 31, 2022, the Company had 233,040 and 400,000 treasury shares, respectively. The intention of the Company is to retire the additional 900,000 shares obtained pursuant to the amendment to the Stock Purchase Agreement along with the 233,040 shares repurchased during the six months ended June 30, 2023. Employee stock-based compensation During the six months ended June 30, 2023, the Company entered into employment contracts with three employees of its engineering staff. These employment contracts contained provisions for a total bonus of restricted stock grants valued at $ 50,000 based on the share price upon the date of completion of the performance metrics described in the employment contracts . The fair value of the above employee compensation was $ 11,250 as of June 30, 2023. On February 11, 2022 (the “Vesting Date”), the Company entered into a restricted stock award agreement (the “Award Agreement”) with eight employees for 280,000 shares of the Company’s common stock subject to the terms and to the fulfillment of the conditions set forth in the Company’s equity incentive plan. The first 20% of the restricted shares were granted and vested on February 11, 2022. An additional 20% of the restricted shares will vest on each anniversary of the Vesting Date until the fourth anniversary of the Vesting Date. There were 41,500 shares granted as of February 13, 2023. The fair value of the above employee compensation was $ 136,904 as of June 30, 2023. 21 In November 2021, the Company entered into a one-year employment agreement with the then VP of Finance and Head of Investor Relations of the Company, pursuant to which the Company awarded a 10,000-share bonus consisting of shares of the Company’s common stock, which will be granted in blocks of 2,500 shares for every quarter certain performance metrics are achieved. In November 2022, the Company entered into an amendment agreement to amend the performance metrics and extend the term. As of June 30, 2023, 5,000 shares have vested. In October 2022, the Company entered into an employee agreement with the CFO of the Company, pursuant to which the Company awarded a 10,000-share bonus consisting of shares of the Company’s common stock, which will be granted in blocks of 2,500 shares every quarter. As of June 30, 2023, 5,000 shares have vested. During the six months ended June 30, 2023 and 2022, the total employee stock-based compensation amount for all employees in the company, was $ 168,304 and $ 692,920 , respectively. Stock options On August 6, 2019, each member of the Board was granted 45,000 options to purchase shares at $ 3.80 per share. On January 4, 2021, each member of the Board was granted 22,500 options to purchase shares at $ 2.00 per share. On December 31, 2021, each member of the Board was granted 22,500 options to purchase shares at $ 5.91 per share. On December 31, 2022, each member of the Board was granted 22,500 options to purchase shares at $ 4.27 per share. As of June 30, 2023, there were 615,061 options granted, 457,934 options vested and exercisable, 78,316 options unvested, and 536,249 outstanding stock options. For the six months ended June 30, 2023 and 2022, the Company’s stock option compensation expenses amounted to $ 266,806 and $ 456,750 , 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 fair value of stock option activity December 31, 2022 Risk-free interest rate 4.22 % Expected life of the options 3 years Expected volatility 42.63 % Expected dividend yield 0 % The following is a summary of the option activity from December 31, 2022 to June 30, 2023: Schedule of options activity Number of Options Weighted average exercise price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2022 615,061 $ 5.93 8.04 – Granted – $ – – – Exercised ( 78,812 ) $ 5.38 – – Forfeited or expired – $ – – – Outstanding at June 30, 2023 536,249 $ 3.96 7.55 – Vested as of June 30, 2023 457,934 $ 4.03 7.54 – Exercisable at June 30, 2023 457,934 $ 4.03 7.54 – 22 Note 12 – Segment reporting The Company currently has three operating segments. First, Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves the non-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of technology products. Second, Perfecular, AVX (doing business as Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instruments and devices in the hydroponic and controlled agriculture segments and of our smart instruments into the commercial and home automation sectors. And third, AVX (exclusive of the smart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management business specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation, and integration. Segment Reporting Six Months Ended June 30, 2023 Corporate and R&D IoT Products IoT Installation Services Total Revenue $ – $ 78,148 $ 373,338 $ 451,486 Revenue – related party – – – – Total revenue – 78,148 373,338 451,486 Cost of revenue – 56,355 273,648 330,003 Gross Profit – 21,793 99,690 121,483 Operating Expenses Selling expense 31,462 32,660 10,812 74,934 Compensation – officers and directors 560,937 – – 560,937 Research and development 619,473 – – 619,473 Professional fees 373,964 – – 373,964 General and administrative 704,878 8,378 91,380 804,635 Total Cost and Operating Expenses 2,290,714 41,038 102,192 2,433,943 Loss from Operations ( 2,290,714 ) ( 19,245 ) ( 2,501 ) ( 2,312,460 ) Other Income (Expense): Interest income (expense), net 30,591 3 ( 40 ) 30,554 Gain on bargain purchase 61,747 – – 61,747 Unrealized loss on marketable equity securities 27,565 – – 27,565 Realized loss on marketable equity securities ( 14,249 ) – – ( 14,249 ) Rental income 80,293 – – 80,293 Other income (expense), net ( 4,464 ) 1,999 ( 3,394 ) ( 5,859 ) Total other income (expense) 181,483 2,002 ( 3,434 ) 180,051 Loss before income taxes ( 2,109,231 ) ( 17,243 ) ( 5,935 ) ( 2,132,409 ) Tax expense – – – – Net Loss $ ( 2,109,231 ) $ ( 17,243 ) $ ( 5,935 ) $ ( 2,132,409 ) 23 Six Months Ended June 30, 2022 Corporate and R&D IoT Products IoT Installation Services Total Revenue $ – $ 47,650 $ 140,339 $ 187,989 Revenue – related party – 31,542 2,278 33,820 Total revenue – 79,192 142,617 221,809 Cost of revenue – 61,310 139,861 201,171 Gross Profit – 17,882 2,756 20,638 Operating Expenses Selling expense – 48,085 7,802 55,887 Compensation – officers and directors 604,290 – – 604,290 Research and development 729,105 – – 729,105 Professional fees 535,207 – – 535,207 General and administrative 970,132 123,108 132,118 1,225,358 Total Cost and Operating Expenses 2,838,734 171,193 139,920 3,149,847 Loss from Operations ( 2,838,734 ) ( 153,311 ) ( 137,164 ) ( 3,129,209 ) Other Income (Expense): Interest income (expense), net 490 ( 288 ) 48 250 Gain on bargain purchase – – – – Unrealized loss on marketable equity securities ( 74,626 ) – – ( 74,626 ) Realized loss on marketable equity securities 10,281 – – 10,281 Rental income 78,342 – – 78,342 Other income (expense), net 28,218 160,117 ( 3,600 ) 184,735 Total other income (expense) 42,705 159,829 ( 3,552 ) 198,982 Loss before income taxes ( 2,796,029 ) 6,518 ( 140,716 ) ( 2,930,227 ) Tax expense – – – – Net Loss $ ( 2,796,029 ) $ 6,518 $ ( 140,716 ) $ ( 2,930,227 ) 24 Note 13 – Business Combination On January 6, 2023, the Company completed the business combination of AT Tech Systems for a purchase price of $1 in cash. The Company’s intangible assets were acquired from AT Tech Systems due to customer relationships using the multi-period excess earnings method. Amortization on the intangible assets was fully amortized during the six months ended June 30, 2023. A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid. The result of AT Tech Systems’ operations has been included in the condensed consolidated financial statement since that date. The following table summarizes the purchase consideration and fair value of the assets acquired and liabilities assumed as of January 6, 2023: Fair value of assets acquired and liabilities assumed Assets: Accounts receivable $ 33,007 Intangible assets 28,741 Total assets acquired $ 61,747 Liabilities: Accounts payable $ – Total liabilities assumed – Purchase Price ( 1 ) Total bargain purchase gain $ 61,747 As a result of above information that existed as of the combination date, the Company recorded a bargain purchase gain of $61,747 during the six months ended June 30, 2023. The excess of the aggregate net fair value of assets acquired and liabilities assumed over the fair value of consideration transferred as the purchase price has been recorded as a bargain purchase gain. Upon completion of the valuation of the acquired assets, the Company concluded that recording a bargain purchase gain with respect to AT Tech Systems was appropriate and required under U.S. GAAP. The Company believes the seller was motivated to complete the transaction as part of an overall repositioning of its business. Note 14 – Subsequent Events As described in Note 11 above, on July 14, 2023, the Company entered into an amendment to that certain previous stock purchase agreement wherein the Company agreed to purchase 400,000 shares of its common stock from a single private, non-affiliate for a total purchase price of $2,000,000. The private shareholder transferred the 400,000 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. While a check for the second $1,000,000 of the purchase price was issued and paid on March 31, 2023, the matter was kept open and direct discussion between the shareholder and the Company continued. As the stock market and the Company share prices continued to fluctuate due to both general market conditions and Company-specific conditions at that point in time, the transaction was not fully completed during the six-month period ended June 30, 2023. Both parties mutually agreed that in fairness to the Company’s shareholders and to benefit the long-term goals of the Company in a number of market-related areas, that an amendment should be negotiated to facilitate growth for the Company in good faith. As a result of these negotiations, the amendment increased the number of shares of its common stock the Company would purchase from two private, non-affiliate shareholders to an aggregate 1,300,000 shares, inclusive of the initial 400,000 shares, and revised the total purchase price of the shares down to an aggregate $1,965,000. The Company has evaluated all subsequent events through the date these unaudited condensed consolidated financial statements were issued and determined that there were no other subsequent events or transactions that require recognition or disclosures in the unaudited condensed consolidated financial statements. 25