Item 7. Management’s Discussion and Analysis
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in
conjunction with our audited financial statements and notes thereto included herein. In connection with, and because we desire to take
advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward-looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on
our behalf, whether in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based
on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking
statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive
uncertainties, and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially
from those expressed in any forward-looking statements made by, or our behalf. We disclaim any obligation to update forward-looking statements.
Focus Universal Inc., a Nevada corporation (the
“Company,” “we,” “us,” or “our”), has developed the five proprietary platform technologies
described in the Business Section, starting on page 1. These are: (1) device on a chip; (2) universal smart instrumentation platform (“USIP”);
(3) ultra-narrowband technology; (4) ultra-narrowband power line communication (“PLC”) technology; and (5) natural integrated
programming language (“NIPL”).
Our
main sources of revenue are derived from our sales of sensor devices and our wholesaling of various digital, analog, and quantum light
meters and filtration products, including fan speed adjusters, carbon filters and HEPA filtration systems. We source these products from
manufacturers in China and then sell them to a major U.S. distributor, Hydrofarm, who resells our products directly to consumers through
its established retail distribution channels and, in some cases, places its own branding on our products. For the year ended December
31, 2021, our primary source of revenue was from sales of these agricultural sensors and measurement equipment sold through Hydrofarm.
Hydrofarm was not our primary source of revenue for the year ended December 31, 2023.
44
While currently, we do not believe that inflation
will play a large role and have a large affect on our current business, as our business grows, inflation may play a larger role as our
need to procure supplies increases and our borrowing requirements increase as well. As we begin to diversify away from both one single
sector and one single large customer, we also believe that market volatility in any single sector is also diminished significantly. We
believe this should have a stabilizing affect on revenues. However, as our new products begin to reach maturation and completion in development,
we do believe supply chain risk as our company needs for consistently procuring reliable inputs increases. We also believe this may hold
the largest risk factor for cash flow as production increases. For a greater description of our technologies, our business segments and
the products we are currently selling, see “Part I – Item 1. Business” above.
Ubiquitor Wireless Universal Sensor Device
Our USIP technology is an advanced software and
hardware integrated instrumentation platform that uses a large-scale modular design approach. The large-scale modular design approach
subdivides instruments into a foundation component (a USIP) and architecture-specific components (sensor nodes). The USIP has an open
architecture, incorporating a variety of individual instrument functions, sensors, and probes from different industries and vendors. The
platform features the ability to connect potentially thousands of different sensors or probes, addressing major limitations present in
traditional instrumentation systems. The result of such integration is a smaller, cheaper, and faster circuit system design than those
currently offered in the instrumentation market.
The USIP, which is compatible with a significant
percentage of the instruments currently manufactured, consists of universal and reusable hardware and software. The universal hardware
in the USIP is (i) a smartphone, computer, or any mobile device capable of running our software that includes a display and either hardware
controls or software control surfaces, and (ii) our Ubiquitor.
We have created and assembled prototype models
of the Ubiquitor in limited quantities and plan to expand our assembly in 2023. Our prototype Ubiquitor is compatible with standard desktop
computers running Windows OS or MacOS and Android- or iOS-based mobile devices, and acts as a conduit that communicates with a group of
sensors or probes manufactured by different vendors in a manner that requires the user to have little or no knowledge of their unique
specifications. The data readout is displayed on the computer or mobile device display. We are designing the application software (the
“App”) to have a graphical representation of control and indicator elements common in traditional tangible instruments, such
as knobs, buttons, dials, and graphs, etc. Our developers are designing and implementing a soft control touch screen interface that supports
real-time data monitoring and facilitates instrument control and operation.
The Company continues to devote a substantial
number of resources to research and development despite a slight decrease to the overall number year over year to bring the Ubiquitor
and its App to full production and distribution. We anticipate that the sales and marketing involved with bringing the Ubiquitor to market
will require us to hire several new employees in order to gain traction in the market. We intend to introduce the Ubiquitor in smart home
and commercial installations to reduce costs and increase functionality, as well as implement the Ubiquitor device in greenhouses and
other agricultural warehouses that require regulation of light, humidity, moisture, and other measurable scientific units required to
create optimal growing conditions.
We have completed an initial production run of
prototype Ubiquitor devices and intend to proceed into full-scale production. The Ubiquitor’s sensor analytics system integrates
event-monitoring, storage and analytics software in a cohesive package that provides a holistic view of the sensor data it is reading.
For a description of the physical hardware, see illustrations in “Figures
5-10 in Part I - Item 1. Business Section 5. “Developing a universal smart instrumentation platform (“USIP”)”
above.
We believe the Ubiquitor device can connect up to thousands of potential
sensor nodes integrate data using embedded software to display the data and all analytics onto a digital screen (desktop, smartphone or
mobile device displays) using a wired or Wi-Fi connection. As disclosed in our patent application, we have already tested up to 256 sensor
instrument readouts. Most types of nodes and probes can connect to the hardware. If the sensor size is bigger than the standard probe
size, it is possible to simply use a USB cable to connect the probe and the hub. All data and analytics are displayed on a single screen,
with tools that record and keep track of all measurements, and sort and display analytic information in easy-to-read charts.
The Ubiquitor is a general platform that collects
data in real time and is intended to be adapted to many industrial uses.
45
Also, we plan to design a full line of products
for the gardening industry by integrating the Ubiquitor device into a gardening system. The system would include the Ubiquitor connected
to a light control node, temperature sensor, humidity sensor, digital light sensor, quantum PAR sensor, pH sensor, total dissolved solids
(“TDS”) sensor and carbon dioxide sensor. We believe the combination of the Ubiquitor with these sensors would offer the same
features as a combination of dozens or even hundreds of different standalone instruments in the gardening industry. The Ubiquitor-powered
gardening system would be used to replace these standalone devices and could offer another case study of the effectiveness of the application
of universal smart technology to such systems.
Research and Development Efforts of Power Line
Communication
Power Line Communication (“PLC”) is
a communication technology that enables sending data over existing power cables. One advantage of this technology is that PLC does not
require substantial new investment for its communications infrastructure. Rather, PLC utilizes existing power lines, thereby forming a
distribution network that penetrates most residential, commercial, and industrial premises. Accordingly, connectivity via PLC is a cost-effective
and scalable interconnectivity approach for the IoT. We believe PLC can be an integral part of our communication infrastructure for the
IoT, which enables reliable, real-time measurements, monitoring and control. A large variety of appliances may be interconnected by transmitting
data through the same wires that provide electrical energy.
Our PLC technology uses an ultra-narrowband spectrum
channel of less than 1 KHz to establish a long-distance link between transmitter and receiver. Thus, we believe that our proprietary ultra-narrowband
PLC technology will offer a promising alternative to wireless networks and provide the backbone communication infrastructure for IoT devices.
The primary design goal of the power line network
is electric power distribution, not data transmission. The harsh electrical noise present on power lines and variations in equipment and
standards make data transmission over the power grid difficult. These technological challenges have impeded, or even halted, progression
of PLC technology.
We continue to build upon our existing research
and development with the intention of inventing an ultra-narrowband PLC technology that attempts to tackle two challenges: 1) overcoming
interference caused by electronic noise on the power line system; and 2) bandwidth. Preliminary internal testing suggests that we have
achieved significant noise rejection and interference suppression. In our preliminary internal testing, we have been able to increase
bandwidth to 4 megabits per second with the potential for more, while simultaneously effectively dealing with electrical noise and interference.
Based on the promising results of our internal testing, we have begun designing a proprietary PLC microchip and have set an intended launch
date for 2023.
46
We believe that because residential and commercial
structures already include multiple power outlets, the power line infrastructure represents an excellent network to share data among intelligent
devices, particularly in the smart home installations that we are currently performing through AVX.
We plan to leverage the communications technology
of PLC to enhance the Ubiquitor and make the Ubiquitor a central component of the smart home and gardening systems we are currently developing.
The goal would be that our Ubiquitor would be used to send or receive control signals from a smart device, and control hundreds of devices
in near real time. We intend to apply the same concept to commercial and industrial applications.
On December 23, 2021, Focus Universal (Shenzhen)
Technology Co. LTD was founded as a mainland China office for manufacturing procurement expertise and support research and development
activities. Focus Universal (Shenzhen) Technology Co. LTD is designed to function as a branch office accessing high level ability to source
products and build relationships with manufacturers in the region and as a lower cost form of support research and development as engineers
are more plentiful in the region. This last quarter of 2022, this office has continued to grow to double digit headcount and has also
begun to handle other online and simple phone marketing and marketing materials production activities, provided a cost and quality benefit
exists at the time.
Research and Development Efforts of 5G Cellular
Technology
Just like our ultra-narrowband technology can
be used to reduce noise in powerline communication technology, our internal research suggests that our ultra-narrowband technology can
be leveraged to create a type of 5G wireless communication technology that can achieve both low band 5G coverage and we believe 1 Gbps
high band speed. We employ an ultra-narrow spectrum channel (<1KHz) to establish an ultra-long-distance link between the 5G base station
and the receiver which reduces noise and interference entering the bandwidth.
For a description of the ultra-narrowband technology
and the 5G applications, see “Part I - Item 1. Business, Section 2. “Creating a faster 5G cellular technology by using ultra-narrowband
technology” above.
Intellectual Property Protection
On November 4, 2016, we filed a U.S. patent application
number 15/344,041 with the USPTO. On March 5, 2018, we issued a press release announcing that the USPTO published an Issue Notification
for U.S. Patent Application No. 9924295 entitled “Universal Smart Device,” which covers a patent application regarding the
Company’s Universal Smart Device. The patent was issued on March 20, 2018.
Subsequent to our internal research and development
efforts, we filed with the USPTO on June 2, 2017, a patent application regarding a process for improving the spectral response curve of
a photo sensor. The small and cost-effective multicolor sensor and its related software protected by the potential patent we believe could
achieve a spectral response that approximates an ideal photo response to measure optical measurement. The patent was issued on February
26, 2019.
On November 29, 2019, the Company filed an international
utility patent application filed through the patent cooperation treaty as application PCT/US2019/63880. In April 2020, the Company was
notified that it received a favorable international search report from the International Searching Authority regarding this patent application,
which patents the Company’s PLC technology. The World International Property Organization report cited only three category “A”
documents, indicating that the Company’s application met both the novelty and non-obviousness patentability requirements. Consequently,
the Company is optimistic that the patent covering the claims for its PLC technology will be issued in due course and will allow the Company
to implement strong protections on the PLC technology worldwide.
47
On May 19, 2021, we filed thirteen provisional
patent applications with the USPTO that we had been researching and developing for years encompassing a broad spectrum of technology areas
including sensor technology, wired and wireless communications, power line communications, computer security, software solutions, interconnected
technological communications, smart home systems and methods for both home and hydroponic areas, dynamic password cipher, local file security,
payment card security, infrared sensor, and a method and apparatus for high data rate transmission.
In the fourth quarter of 2021, we hired the law
firm of Knobbe Martens, Olson & Bear, LLP based in Orange County, CA to serve as outside intellectual property counsel for the Company.
The firm is working on transferring the Company’s provisional patent applications to formal patent applications in addition to filing
new provisional patents. In 2021, we filed 14 patents. We filed 18 domestic patents in 2022 (plus two international patents in 2022),
and so far have filed 3 patents in 2023.
In addition, the Company’s patent number
11,488,468 was allowed and subsequently issued on November 1, 2022. The patent, titled Sensor for Detecting the Proximity of an IEEE 802.11
Protocol Connectable Device.
Competitors
There are several competitors we have identified
in the wireless sensor node industry, including traditional instruments or devices manufacturers such as Hanna Instruments and Extech
Instruments.
Hach developed and launched the SC1000 Multi-parameter
Universal Controller, a probe module for connecting a maximum to 32 digital sensors or analyzers. However, we believe their current price
points are still cost prohibitive to consumers.
Monnit Corporation offers a range of wireless
and remote sensors. Many of Monnit’s products are web-based wireless sensors that usually are not portable because of their power
consumption. Also, the sensors’ real-time updates are slow; and we believe security of the web-based sensor data acquisition also
may be a concern. In addition to purchasing the device, consumers usually have to pay monthly fees for using web-based services.
We are not trying to compete with traditional
instruments or device manufacturers because we utilize our Ubiquitor device in conjunction with our smartphone application, which we believe
will be a completely different product category.
IoT Installation Industry
There are several companies that compete with
AVX in smart home installations, including Vivint Smart Home, Crestron and Control4. However, we believe we can distinguish ourselves
from our competitors by offering a substantially lower price. An installation by Crestron ranges between $20,000 and $100,000 and by Control4
between $20,000 and $40,000. The cheapest competitor we can identify in this sector is Vivint Smart Home, which costs less than $5,000
to install; however, we understand that the Vivint Smart Home focuses on security systems only and that users have no other smart applications,
which our smart home product line would include.
Air Filtration Systems and Meter Products
Industry
The air filtration system and meter products industry
is a niche industry. The global industrial air filtration market was valued at $23.83 billion by 2029 and analysts expect it to register
a CAGR of 7.2% because of the industrial need to control air quality across a range of industries. [22] Air purification methods
are an effective way to control contaminants and improve indoor air quality and as a result, many national and local governments overseeing
indoor air quality and other emissions are enacting stricter workforce health and safety regulations in this area, which drives demand.
___________________
[22] Fortune, The global air filters market is projected to grow from
$14.68 billion in 2022 to $23.83 billion by 2029, exhibiting a CAGR of 7.2% in forecast period, 2022-2029, https://www.fortunebusinessinsights.com/industry-reports/air-filters-market-101676,
(last accessed March 7, 2023)
48
Market Potential
We believe universal wireless smart technology
will play a critical role for traditional instrument manufacturers, as currently simply the undertaking of an IoT project is too expensive
and difficult to develop for medium or smaller companies and carries 75% failure rate according to Cisco Systems [23] . The cost
factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and implement them in their
products or use them in their field testing. We also hope to play a role in academic laboratories, particularly with smaller academic
laboratories that are sensitive to price. Regarding the larger IoT industry statistics, overall enterprise IoT spending increased to $201
Billion in 2022, an increase of 21.5%. The outlook for growth in 2023 is 18.5% from this large base of enterprise spending [24] .
More specifically, the IoT sensors market is projected to reach $26 Billion by 2026 from $11.1 Billion in 2022 [25] . The IoT marketplace
size assessments usually include the hardware components and the software components which often contain a Software as a Service (SaaS)
model. Additionally, the rising need for reliable high bandwidth communication for IoT devices is expected to rise to $664.75 Billion
in 2028, spearheaded by the currently predominant services in the 5G category [26] . We would also expect this market to grow with
the addition of new categories of services delivering reliable high bandwidth communication for IoT devices and would cannibalize and
expand the existing services where the new services proved to be more effective and efficient.
We also expect our recent
growth within our IoT Installation Services segment to bolster and complement our AVX Design and Integration and all other related installation
businesses of these IoT products. While statistics regarding the IoT installation sectors are difficult to aggregate given that the work
is often are pieced off into various contractor service categories, the residential custom installation market ranges from $5.7B to $12.1B [27] ,
and we would expect the commercial and industrial installation markets to be larger than the residential for IoT devices.
Financial Reporting
Software
We have launched a beta
version of our new SEC financial reporting automation software and are testing this new software product so that we can obtain marketing
data and feedback to our development team.
___________________
[23] Cisco Systems, Connected Futures, Executive Business Insights,
May 2017, The Journey to IOT Value, Challenges, Breakthroughs, and Best Practices, https://www.slideshare.net/CiscoBusinessInsights/journey-to-iot-value-76163389,
https://newsroom.cisco.com/c/r/newsroom/en/us/a/y2017/m05/cisco-survey-reveals-close-to-three-fourths-of-iot-projects-are-failing.html
[24] IoT Analytics, Market Insights for the Internet of Things, February
7, 2023, Global IoT market size to grow 19% in 2023—IoT shows resilience despite economic downturn, https://iot-analytics.com/iot-market-size/
[25] Markets and Markets, IoT Sensors Market by Sensor Type, Network
Technology, Vertical, Application, and Geography – Global Forecast -2026, https://www.marketsandmarkets.com/Market-Reports/sensors-iot-market-26520972.html
[26] Cision PRNewswire, Research and Markets, Global $664.75 Billion 5G Services Markets to 2028: Rising Need for High Bandwidth to Provide Reliable Communication to IoT Devices is Expected to Boost Overall Market Growth, https://www.prnewswire.com/news-releases/global-664-75-billion-5g-services-markets-to-2028-rising-need-for-high-bandwidth-to-provide-reliable-
communication-to-iot-devices-is-expected-to-boost-overall-market-growth-301432173.html
[27] CEPro. How Big is the Custom Installation Market?, February 5,
2018, https://www.cepro.com/news/how_big_is_custom_installation_market/
49
Results of Operations
For the year ended December 31, 2023 compared to the year ended
December 31, 2022
Revenue in operating segments is primarily generated
from IoT product and IoT project construction and installation services. The following tables summarize revenue from each segment.
Year Ended December 31, 2023
Corporate
IoT Products
IoT Installation Services
Total
Revenue
$
–
$
281,117
$
705,538
$
986,655
Revenue - related party
–
28,375
37,168
65,543
Total revenue
$
–
$
309,492
$
742,706
$
1,052,198
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
Revenue, cost of revenue and gross profit
For the year ended December 31, 2023
For the year ended December 31, 2022
Increase
(Decrease)
$
Revenue
$
986,655
$
303,837
$
682,818
Revenue – related party
65,543
49,782
15,761
Total Revenue
1,052,198
353,619
698,579
Cost of revenue
958,413
330,899
627,514
Gross Profit
$
93,785
$
22,720
$
71,065
Our consolidated gross revenue for the years ended
December 31, 2023 and 2022 was $1,052,198 and $353,619, respectively, which included revenue from related parties of $65,543 and $49,782,
respectively. Revenue for the year ended December 31, 2023 increased $698,579 due to a sales increase from our acquisition of AT Tech
Systems and sales increase in AVX sales due to ramping up marketing efforts. This increase of revenue was mainly a result of the increase
of IoT Installation Services being bolstered by additional resources such as increased headcount.
Cost of revenue for the year ended December 31, 2023
was $958,413, compared to $330,899 for the year ended December 31, 2022. While the overall cost of revenue increased, as a percent of
revenue, costs went down because of higher margin contracts for IoT Installation Services being signed. In addition to the increase in
revenue, gross profit increased to $93,785 for the year ended December 31, 2023, compared to $22,720 for the year ended December 31, 2022.
50
Operating Expenses
The major components of our operating expenses
for the years ended December 31, 2023 and 2022 are outlined in the table below:
For the year ended December 31, 2023
For the year ended December 31, 2022
Increase
(Decrease)
$
Selling expense
$
140,994
$
142,372
$
(1,378
)
Compensation – officers and directors
1,082,775
1,055,133
27,642
Research and development
1,386,810
1,060,385
326,425
Professional fees
705,234
896,385
(191,151
)
General and administrative
1,740,779
2,074,091
(333,312
)
Total operating expenses
$
5,056,592
$
5,228,366
$
(171,774
)
Selling expense for the year ended December 31,
2023 was $140,994, compared to $142,372 for the year ended December 31, 2022. Selling expense incurred was mainly from third party advertising
fees. The decrease of selling expense was due to a decrease in advertising fees and trade show expenses.
Compensation – officers and directors were $1,082,775
and $1,055,133 for the years ended December 31, 2023 and 2022, respectively. The increase was due to increase in directors’ stock-based
compensation - options.
Research and development costs were $1,386,810
and $1,060,385 for the years ended December 31, 2023 and 2022, respectively. The increase was due to an increase in total number of research
and development employee headcount in the Ontario, California headquarters and the Shenzhen, China subsidiary.
Professional fees were $705,234 during the year ended
December 31, 2023 compared to $896,385 during the year ended December 31, 2022. The decrease in these professional fees compared to the
prior period was due to a decrease in new transaction-based legal paperwork for the Company (as much of this paperwork was completed earlier)
and a decrease in employment litigation legal fees.
General and administrative expenses for the year
ended December 31, 2023 was $1,740,779, compared to $2,074,091 for the year ended December 31, 2022. The relating decrease was due to
the following reasons:
a) Decreased number of general and administrative
employees in our headquarters due to outsourcing of work to third parties;
b) Relocated Focus Shenzhen office to lower lease
expense; and
c) Obtained better insurance deal from another
insurance company.
Other Income (expense)
Other income of $244,665 incurred during the year
ended December 31, 2023, primarily consisted of interest income of $38,339, interest expense – related party of $38,333, unrealized
gain on marketable equity securities of $8,033, realized loss on marketable equity securities of $2,002, rental income of $160,910 and
other income of $77,718. Other income of $278,709 incurred during the year ended December 31, 2022, primarily consisted of interest income
of $3,887, forgiveness of debt of $158,547, unrealized loss on marketable equity securities of $42,395, realized loss on marketable equity
securities of $21,205, rental income of $166,288 and other income of $13,587.
Net Losses
During the years ended December 31, 2023, and 2022,
we incurred net losses of $4,718,142 and $4,926,937 respectively, due to the factors discussed above.
51
Liquidity and Capital Resources
Working Capital
December 31,
2023
December 31,
2022
Current Assets
$
1,028,278
$
4,807,830
Current Liabilities
(1,657,646
)
(1,387,239
)
Working Capital
$
(629,368
)
$
3,420,591
Cash Flows
The table below, for the periods indicated, provides
selected cash flow information:
For the year ended December 31, 2023
For the year ended December 31, 2022
Net cash used in operating activities
$
(3,528,762
)
$
(2,957,983
)
Net cash provided by (used in) investing activities
54,146
(211,257
)
Net cash used in financing activities
(434,048
)
(1,158,547
)
Effect of exchange rate
(6,508
)
(7,452
)
Net change in cash
$
(3,915,172
)
$
(4,335,239
)
Cash Flows from Operating Activities
Our net cash outflows from operating activities of
$3,528,762 for the year ended December 31, 2023, was primarily the result of our net loss of $4,718,142 and changes in our operating assets
and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes an increase in accounts
receivable of $112,716, decrease in accounts receivable – related party of $34,507, increase in inventory of $178,299, increase
in other receivable of $20,519, decrease in prepaid expenses of $45,602, decrease in deposits of $8,336, decrease in operating lease right-of-use
asset of $325,329, increase in accounts payable and accrued liabilities of $215,531, increase in other current liabilities of $78,455,
and decrease in lease liabilities of $342,732. Non-cash expense included add-backs of $26,631in bad debt expense, $167,983 in depreciation
expense, $8,033 in unrealized gain on marketable equity securities, $2,002 in realized loss on marketable equity securities, $431,813
in stock-based compensation – shares, and $515,490 in stock-based compensation – options.
Our net cash outflows from operating activities of
$2,957,983 for the year ended December 31, 2022, was primarily the result of our net loss of $4,926,937 and changes in our operating assets
and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes an increase in accounts
receivable of $37,335, increase in accounts receivable – related party of $19,331, increase in inventory of $53,684, decrease in
other receivable of $13,057, decrease in prepaid expenses of $158,474, decrease in deposits of $4,035, decrease in operating lease right-of-use
asset of $139,754, decrease in accounts payable and accrued liabilities of $21,722, decrease in other current liabilities of $17,135,
decrease in lease liabilities of $117,245, and increase in other liabilities of $12,064. Non-cash expense included add-backs of $136,337
in bad debt expense, $166,266 in depreciation expense, $42,395 in unrealized loss on marketable equity securities, $21,205 in realized
loss on marketable equity securities, $719,975 in stock-based compensation – shares, $849,043 in stock-based compensation - options,
and reduction in inventory fair value net realizable of $27,199.
We expect that cash flows from operating activities
may fluctuate in future periods because of a number of factors, including fluctuations in our net revenues and operating results, utilization
of new revenue streams, collection of accounts receivable, and timing of billings and payments.
Cash Flows from Investing Activities
For the year ended December 31, 2023, we had cash
inflow from investing activities of $54,146. That was primarily the result from the purchase of property and equipment of $20,620, purchase
of marketable securities of $43,644 and proceeds from sales of marketable securities of $118,410. For the year ended December 31, 2022,
we had cash outflow from investing activities of $211,257. That was primarily the result from the purchase of property and equipment of
$42,187, purchase of marketable securities of $768,949 and proceeds from sales of marketable securities of $599,879.
52
Cash Flows from Financing Activities
For the year ended December 31, 2023, cash outflows
from financing activities of $434,048. That was primarily the result from related party loan of $1,000,000, and purchases of treasury
stock of $1,434,048. For the year ended December 31, 2022, cash outflows from financing activities of $1,158,547. That was primarily the
result from purchase of treasury stock of $1,000,000 and forgiveness of debt of $158,547.
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. The Company has a
net loss of $4,718,142 and $4,926,937 for the years ended December 31, 2023 and 2022, respectively. In addition, the Company had an accumulated
deficit of $22,582,170 and $17,864,028 as of December 31, 2023 and 2022, respectively, and negative cash flow from operating activities
of $3,528,762 and $2,957,983 for the years ended December 31, 2023 and 2022, respectively. 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 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 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.
At December 31, 2023, the Company had cash and cash
equivalents, and short-term investments, in the amount of $464,989. The ability to continue as a going concern is dependent on the Company
attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities
arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity
and debt financings, and it expects to continue to rely on these sources of capital in the future. In addition, subsequent to year end,
the Company has entered into an agreement to sell its Land and Buildings which upon completion, will provide additional working capital
to the Company. No assurance can be given that the sale of the land and building will occur, or any future financing will be available
or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing,
it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders,
in case of equity financing, or grant unfavorable terms in future licensing agreements.
Related Party Loan
On August 3, 2023, the Company submitted a written consent, and the Board
approved a loan amount between $1 million and $5 million. On September 7, 2023, the Company entered into a loan agreement with Golden
Sunrise Investment LLC in the amount of $1,000,000. This loan is secured against the Company’s property, which serves as collateral,
with a net book value of $4.5 million pledged. At the time of entering the loan agreement, Golden Sunrise Investment LLC was owned by
two of the Company’s shareholders who collectively owned approximately 19% of the Company’s outstanding shares. The loan has
an annual interest rate of 12% and the principal amount has a due date of September 7, 2024. The interest expense amount was $38,333 for
the year ended December 31, 2023. There was no accrued interest as of December 31, 2023, and the total principal outstanding loan amount
was $1,000,000 as of December 31, 2023. As a note, the interest rate increases to 15% as of the due date of loan on any unpaid principal
balance outstanding.
Off-Balance Sheet Arrangements
As of December 31, 2023, we did not have any off-balance-sheet
arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined
by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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