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 March 31, 2024 (unaudited) and December 31, 2023 4 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited) 5 Condensed Consolidated Statements of Changes in Stockholder’s Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited) 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited) 7 Notes to the Unaudited Condensed Consolidated Financial Statements 8 3 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 2024 2023 (Unaudited) ASSETS Current Assets: Cash $ 78,836 $ 428,254 Accounts receivable, net 84,164 164,398 Inventory 407,357 282,071 Other receivables – 20,519 Prepaid expenses 110,236 96,301 Marketable equity securities 35,260 36,735 Total Current Assets 715,853 1,028,278 Property and equipment, net 4,049,652 4,080,663 Operating lease right-of-use asset 176,038 201,048 Deposits 23,655 24,135 Total Assets $ 4,965,198 $ 5,334,124 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 748,023 $ 482,523 Related party loan 1,300,000 1,000,000 Short-term loan 250,000 – Other current liabilities 153,908 84,951 Lease liability, current portion 96,517 90,172 Total Current Liabilities 2,548,448 1,657,646 Non-Current Liabilities: Lease liability, less current portion 43,470 118,517 Other liability 12,335 12,335 Total Non-Current Liabilities 55,805 130,852 Total Liabilities 2,604,253 1,788,498 Contingencies – – Stockholders' Equity: Common stock, par value $ 0.001 per share, 75,000,000 shares authorized; 64,771,817 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively 64,771 64,771 Treasury stock at cost ( 1,163,040 shares held at March 31, 2024 and December 31, 2023, respectively) ( 434,048 ) ( 434,048 ) Additional paid-in capital 26,473,156 26,436,161 Shares to be issued, common shares 169,386 74,476 Accumulated deficit ( 23,897,767 ) ( 22,582,170 ) Accumulated other comprehensive loss ( 14,553 ) ( 13,564 ) Total Stockholders' Equity 2,360,945 3,545,626 Total Liabilities and Stockholders' Equity $ 4,965,198 $ 5,334,124 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 4 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Three Months Ended March 31, 2024 2023 Revenue $ 219,158 $ 236,095 Cost of Revenue 219,357 180,744 Gross Profit (Loss) ( 199 ) 55,351 Operating Expenses: Selling expense 39,285 11,859 Compensation - officers 56,793 307,534 Research and development 343,277 276,481 Professional fees 352,611 257,399 General and administrative 527,645 443,052 Total Operating Expenses 1,319,611 1,296,325 Loss from Operations ( 1,319,810 ) ( 1,240,974 ) Other Income (Expense): Interest income (expense), net ( 1,253 ) 14,436 Interest (expense) - related party ( 33,000 ) – Unrealized gain (loss) on marketable equity securities ( 1,475 ) 32,570 Realized loss on marketable equity securities – ( 14,901 ) Rental income 41,145 39,952 Other income (expense), net ( 1,204 ) 54,674 Total other income 4,213 126,731 Net Loss $ ( 1,315,597 ) $ ( 1,114,243 ) Other comprehensive items Foreign currency translation gain and (loss) ( 989 ) ( 6,539 ) Total comprehensive loss $ ( 1,316,586 ) $ ( 1,120,782 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 64,771,817 45,149,834 Net Loss per common share: Basic and Diluted $ ( 0.02 ) $ ( 0.02 ) 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 MONTHS ENDED MARCH 31, 2024 AND 2023 (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 – December 31, 2023 64,771,817 $ 64,771 $ ( 434,048 ) $ 26,436,161 $ 74,476 $ ( 22,582,170 ) $ ( 13,564 ) $ 3,545,626 Stock based compensation – options – – – 36,995 – – – 36,995 Stock based compensation – shares – – – – 94,910 – – 94,910 Other comprehensive income – – – – – – ( 989 ) ( 989 ) Net loss – – – – – ( 1,315,597 ) – ( 1,315,597 ) Balance – March 31, 2024 64,771,817 $ 64,771 $ ( 434,048 ) $ 26,473,156 $ 169,386 $ ( 23,897,767 ) $ ( 14,553 ) $ 2,360,945 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 – – – 133,403 – – – 133,403 Stock based compensation – cashless exercise options 10,857 10 – ( 10 ) – – – – Stock based compensation – shares 62,250 62 – 184,917 ( 35,575 ) – – 149,404 Retirement of treasury stock ( 600,000 ) ( 600 ) 2,000,000 ( 1,999,400 ) – – – – Other comprehensive income – – – – – – 3,675 3,675 Net loss – – – – – ( 1,114,243 ) – ( 1,114,243 ) Balance – March 31, 2023 64,769,490 $ 64,769 $ – $ 25,833,643 $ 12,500 $ ( 18,978,271 ) $ ( 2,868 ) $ 6,929,773 * Retroactively applied to the stock split The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 6 FOCUS UNIVERSAL INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Three Months Ended March 31, 2024 2023 Cash flows from operating activities: Net Loss $ ( 1,315,597 ) $ ( 1,114,243 ) Adjustments to reconcile net loss to net cash from operating activities: Bad debt expense 7,629 5,114 Depreciation expense 35,330 42,041 Amortization of intangible assets – 28,741 Unrealized gain on marketable equity securities 1,475 ( 32,570 ) Realized loss on marketable equity securities – 14,901 Gain on bargain purchase – ( 61,747 ) Stock-based compensation – shares 94,910 149,404 Stock option compensation – options 36,995 133,403 Changes in operating assets and liabilities: Accounts receivable 72,605 8,832 Accounts receivable - related party – 34,507 Inventory ( 125,286 ) 13,109 Other receivable 20,435 – Prepaid expenses ( 14,041 ) ( 80,511 ) Deposit – 8,617 Operating lease right-of-use asset 21,039 ( 16,075 ) Accounts payable and accrued liabilities 268,420 ( 20,011 ) Other current liabilities 68,957 98,838 Lease liabilities ( 64,960 ) ( 50,885 ) Net cash flows used in operating activities ( 892,089 ) ( 838,535 ) Cash flows from investing activities: Purchase of property and equipment ( 5,044 ) ( 9,920 ) Purchase of marketable securities – ( 17,690 ) Proceeds from sale of marketable securities – 89,434 Net cash flows provided by (used in) investing activities ( 5,044 ) 61,824 Cash flows from financing activities: Proceeds from short-term loan 300,000 – Proceeds from related party loan 300,000 – Repayment on third party loan ( 50,000 ) – Purchase of treasury stock – ( 1,000,000 ) Net cash flows provided by (used in) financing activities 550,000 ( 1,000,000 ) Effect of exchange rate ( 2,285 ) 3,760 Net change in cash ( 349,418 ) ( 1,772,951 ) Cash beginning of period 428,254 4,343,426 Cash end of period $ 78,836 $ 2,570,475 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 33,816 $ 4,085 Supplemental disclosure for noncash financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ – $ 270,481 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements 7 FOCUS UNIVERSAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023 (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, and office spaces with audio, visual and control systems to fully integrate devices in the low voltage field, specializing in high end residential smart IoT installation 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. On December 23, 2021, Focus Shenzhen was founded as a mainland China office for manufacturing procurement expertise and support research and development activities. Focus Shenzhen is designed to function as a branch office accessing high level ability to source products and build relationships with manufacturers in China and as a lower cost form of support, research and development as engineers bound in China. During the third quarter of 2023, this office continued to grow and increase its headcount to 28 employees. Employees of Focus Shenzhen are added to the engineering staff, the sales staff, and the marketing and market analysis staff in house to enhance the internal capabilities of the Company. As of January 6, 2023, AT Tech Systems is a subsidiary of Focus specializing in commercial and industrial smart IoT installation projects in areas throughout Southern California. AT Tech Systems has several clients including medical/dental facilities and commercial and industrial projects, and several 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. 8 Note 2 – Summary of Significant Accounting Policies Basis of Presentation The unaudited condensed financial statements of the Company for the three months ended March 31, 2024 and 2023 have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2023 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2023 and 2022 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on April 1, 2024. These financial statements should be read in conjunction with that report. 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”). Segment Reporting The Company currently has two operating segments. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and evaluated regularly by Management in deciding how to allocate resources and to assess performance. Management reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has three operating and reportable segments. The Company consists of three types of operations. (1) Focus and Focus Shenzhen 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. (2) Perfecular, AVX (doing business as and branded under 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. (3) 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 and lease liability, useful lives of property and equipment, allowance for doubtful accounts, inventory reserves, and the valuation allowance on deferred tax assets. The Company regularly evaluates its estimates and assumptions. 9 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 March 31, 2024 and December 31, 2023, allowance for doubtful accounts amounted to $ 249,603 and $ 249,603 , respectively. Concentrations of Credit and Business 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. Major customers Three customers accounted for 69 % of the total revenue for the three months ended March 31, 2024 and four customers accounted for 59 % of the total revenue for the three months ended March 31, 2023. One customer accounted for 31 % of the total accounts receivable as of March 31, 2024 and one customer accounted for 43 % of the total accounts receivable as of December 31, 2023. Major vendors No major vendor accounted more than 10% of total purchase during three months ended March 31, 2024 and 2023. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock-Based Compensation. Stock-based compensation to employees consist of stock options, grants, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period during which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. 10 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. Fair Value of Financial Instruments The Company follows paragraph ASC 825-10-50-10 for disclosures about fair value of its financial instruments and paragraph ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below: · Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. · Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. · Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data. The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023: Schedule of financial assets and liabilities measured at fair value March 31, 2024 (unaudited) Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Marketable securities: Stock $ 35,260 $ – $ – $ 35,260 Total assets measured at fair value $ 35,260 $ – $ – $ 35,260 December 31, 2023 Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Marketable securities: Stock $ 36,735 $ – $ – $ 36,735 Total assets measured at fair value $ 36,735 $ – $ – $ 36,735 The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventories, other receivable, prepaid expenses, deposit, accounts and accrued expenses, payable, treasury stock payable, short-term loan, other current liabilities, customer deposit, approximate their fair value because of the short maturity of those instruments. 11 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 three months ended March 31, 2024 and 2023 was comprised of foreign currency translation adjustments. Revenue Recognition Revenue from the Company is recognized under Topic 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements: · executed contracts with the Company’s customers that it believes are legally enforceable; · identification of performance obligations in the respective contract; · determination of the transaction price for each performance obligation in the respective contract; · Allocation of the transaction price to each performance obligation; and · recognition of revenue only when the Company satisfies each performance obligation. These five elements, as applied to each of the Company’s revenue category, is summarized below: · Product sales – revenue is recognized at the time of sale upon the delivery of the equipment to the customer and completion of performance obligation. · Service sales – revenue is recognized based on the service been provided and the agreed upon performance obligation has been completed to the customer. Revenue from our project construction is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by estimating stage of work completed. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Our construction contracts are unit priced, and an account receivable is recorded for amounts invoiced based on actual units produced. A summary of our revenue by product type for the three months ended March 31, 2024 and 2023 is as follows: Schedule of revenue by product type March 31, 2024 March 31, 2023 IoT Products $ 179,505 $ 13,281 IoT Project Construction and Installation Services 39,653 222,814 Total $ 219,158 $ 236,095 12 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. Basic and Diluted Net Income (Loss) Per Share Net income (loss) per share is computed pursuant to ASC 260-10-45. Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of stock and potentially outstanding shares of stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Due to the net loss incurred by the Company, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive. Schedule of anti-dilutive shares Three Months Ended March 31, 2024 2023 Stock options 626,374 423,457 Total 626,374 423,457 Foreign Currency Translation and Transactions The reporting and functional currency of Focus is the USD. The functional currency of Focus Universal (Shenzhen) Technology Co. LTD, a wholly owned subsidiary of Focus located in China, is the Renminbi (“RMB”). For financial reporting purposes, the financial statements of the Company’s Chinese subsidiary, which are prepared using the RMB, are translated into the Company’s reporting currency, USD. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue and expenses are translated using average exchange rates prevailing during each reporting period. Stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity. 13 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 exchange rates Average Rate for the Three Months Ended March 31, 2024 (Unaudited) 2023 (Unaudited) China Yuan (RMB) RMB 7.1555 RMB 6.8413 United States Dollar ($) $ 1.0000 $ 1.0000 Exchange Rate at March 31, 2024 December 31, 2023 (Unaudited) China Yuan (RMB) RMB 7.2190 RMB 7.0698 United States Dollar ($) $ 1.0000 $ 1.0000 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 condensed consolidated financial statements. The Company has a net loss of $ 1,315,597 and $ 1,114,243 for the three months ended March 31, 2024 and 2023, respectively. In addition, the Company had an accumulated deficit of $ 23,897,767 and $ 22,582,170 as of March 31, 2024 and December 31, 2023, respectively, and negative cash flow from operating activities of $ 892,089 and $ 838,535 for the three months ended March 31, 2024 and 2023, 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 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’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, has also expressed substantial doubt about the Company’s ability to continue as a going concern. At March 31, 2024, the Company had cash and cash equivalents, and short-term investments, in the amount of $ 114,096 . 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 a letter of intent from a secondary buyer to potentially sell its land and buildings which upon completion, would 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. 14 Note 3 – Recent Accounting Pronouncement In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosure, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expense categories that are regularly provided to the chief operating decision maker and included in each reported measure of a segment’s profit or loss. The update also requires all annual disclosures about a reportable segment’s profit or loss and assets to be provided in interim periods and for entities with a single reportable segment to provide all the disclosures required by ASC 280, Segment Reporting, including the significant segment expense disclosures. This standard will be effective for the Company on January 1, 2024 and interim periods beginning in fiscal year 2025, with early adoption permitted. The updates required by this standard should be applied retrospectively to all periods presented in the financial statements. The Company does not expect this standard to have a material impact on its results of operations, financial position or cash flows. Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances. Note 4 – Inventory At March 31, 2024 and December 31, 2023, inventory consisted of the following: Schedule of inventory March 31, 2024 December 31, 2023 Parts $ 1,051 $ 1,051 Finished goods 406,306 281,020 Inventory $ 407,357 $ 282,071 Note 5 – Property and Equipment At March 31, 2024 and December 31, 2023, property and equipment consisted of the following: Schedule of property and equipment March 31, 2024 December 31, 2023 Warehouse $ 3,789,773 $ 3,789,773 Land 731,515 731,515 Building improvement 240,256 240,256 Furniture and fixture 38,974 39,223 Equipment 123,850 119,556 Software 1,995 1,995 Total cost 4,926,363 4,922,318 Less accumulated depreciation ( 876,711 ) ( 841,655 ) Property and equipment, net $ 4,049,652 $ 4,080,663 Depreciation expense for the three months ended March 31, 2024 and 2023 amounted to $ 35,330 and $ 42,041 , respectively. 15 Note 6 – Related Party Loan 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 cost 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 . On March 5, 2024, the Company entered into an addendum to the loan agreement with Golden Sunrise Investment LLC, a related party obtaining an additional secured loan amount of $ 300,000 at an annual interest rate of 12 % which is due September 7, 2024. The interest expense amount was $ 33,000 for the three months ended March 31, 2024. There was no accrued interest as of March 31, 2024, and the total principal outstanding loan amount was $ 1,300,000 as of March 31, 2024. The interest rate increases to 15% as of the maturity date of the loan on any unpaid principal balance outstanding. Note 7 – Short-Term Loan On January 2, 2024, the board of directors of the Company authorized the Company to enter into a revolving credit facility or series of promissory notes for up to $ 5 million with one or more lenders. The Company accepted the first $ 300,000 tranche on January 9, 2024 (the “Loan”) with a third-party private lender (the “Lender”) whereby the Lender loaned $ 300,000 to the Company (the “Principal Amount”). The Loan has an annual 3 % compound interest rate and note payments begins on February 4, 2024 (“Due Date”) whereby the Company will pay Lender in 12 equal installment payments of $ 25,408 .11 beginning on the Due Date. The interest amount for the three months ended March 31, 2024 was $ 816 , and the total principal outstanding loan amount was $ 250,000 as of March 31, 2024. Note 8 – Lease The Company recorded its operating lease expense of $ 27,687 and $ 46,080 for the three months ended March 31, 2024 and 2023, respectively. This is included in general and administrative expenses. On January 16, 2023, Focus Universal (Shenzhen) Technology Co. LTD 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 $4,152) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 10%. Lease expense for the lease is recognized on a straight-line basis over the lease term. On February 22, 2023, Focus Universal (Shenzhen) Technology Co. LTD 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 $4,882) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 10%. Lease expense for the lease is recognized on a straight-line basis over the lease term. 16 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 March 31, 2024 and December 31, 2023, operating lease right-of use assets and lease liabilities were as follows: Schedule of operating lease right of use assets and lease liabilities March 31, 2024 December 31, 2023 Operating lease right-of-use assets, net $ 176,038 $ 201,048 Lease liabilities, current portion $ 96,517 $ 90,172 Lease liabilities, less current portion $ 43,470 $ 118,517 Lease term and discount rate: Schedule of lease term and discount rate March 31, 2024 December 31, 2023 Weighted average remaining lease term Operating lease 1.83 to 2.00 years 2.08 to 2.25 years Weighted average discount rate Operating lease 10 % 10 % The minimum future lease payments are as follows: Schedule of minimum future lease payments Amount Year ending December 31, 2024 $ 33,632 Year ending December 31, 2025 112,272 Year ending December 31, 2026 8,304 Total minimum lease payment 154,208 Less: imputed interest ( 14,221 ) Present value of future minimum lease payments $ 139,987 Note 9 – Stockholders’ Equity Stock Dividend 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. The Company followed 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. As such, 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 adhered 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. Common stock On February 13, 2023, the Company issued 62,250 shares with a fair value of $ 149,404 to employees based on their Restricted Stock Award Agreements (see Employee stock-based compensation below). 17 On February 21, 2023, the Company issued 10,857 shares to a prior board member who exercised his options with cashless exercise. Treasury stock On August 10, 2022, the Company entered a stock purchase agreement (the “Stock Purchase Agreement”) with a private shareholder to repurchase 600,000 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 resulting in a $35,000 change in our obligation to purchase Treasury stock. 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 600,000 shares and restored them to the status of authorized and unissued shares. Employee compensation On February 11, 2022 (the “Vesting Date”), the Company entered into a restricted stock award agreements (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. The initial fair value of the awards on the date of grant was determined to be $ 2,942,800 which is being amortized over the 5 year vesting period. As of December 31, 2023 the unamortized amount of the award was $ 1,072,020 . During the three months ended March 31, 2024 the Company amortized $ 89,335 of this amount leaving an unamortized balance of $ 982,685 at March 31, 2024. As of March 31, 2024, 135,000 of the shares had been vested and 88,000 of the shares had been forfeited. The company has entered into two employment agreements that require the annual award of 15,000 shares of common stock to each of these employees to be vested on a quarterly basis. During the period ended March 31, 2024, 7,500 shares of common stock with a fair value of $ 3,075 had vested. In addition, the Company entered into another employment contract that 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. During the period the employee earned 6,098 shares with a fair value of $ 2,500 during the period ended March 31, 2024. As of March 31, 2024, 55,241 shares of common stock earned under these contracts have vested but not been issued. During the three months ended March 31, 2024 and 2023, the total employee stock-based compensation amount for all employees in the Company was $ 94,910 and $ 149,404 , respectively. Stock options On January 2, 2024, each member of the Board was granted 22,500 options to purchase shares at $ 1.50 per share with a fair value of $ 29,595 . The options vest on a monthly basis over 1 year, and have a 10 year life. In the aggregate, 112,500 options were granted with a fair value of $ 147,975 . During the three months ended March 31, 2023, the Company recognized $ 36,995 of compensation cost relating to the vesting of these options and $ 110,980 remained unvested which will be amortized over the remainder of 2024. For the three months ended March 31, 2024 and 2023, the Company’s stock option compensation expenses amounted to $ 36,995 and $ 133,403 , respectively. 18 The fair value of the stock options issued during the periods was determined using the Black-Scholes option pricing model with the following assumptions: Schedule of assumptions March 31, 2024 Risk-free interest rate 3.94 % Expected life of the options 5.5 years Expected volatility 126.73 % Expected dividend yield 0 % The following is a summary of the option activity from December 31, 2023 to March 31, 2024: Schedule of option activity Number of Options Weighted average exercise price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value Outstanding at December 31, 2023 513,874 $ 4.05 7.25 – Granted 112,500 $ 1.50 – – Exercised – – – – Cancelled or forfeited – – – – Outstanding at March 31, 2024 626,374 $ 3.60 7.50 – Vested as of March 31, 2024 541,999 $ 3.92 7.15 – Exercisable as of March 31, 2024 541,999 $ 3.92 7.15 – 19 Note 10 – 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. The following tables summarize the financial information of each operating segment of the Company for the three months ended March 31, 2024: Schedule of operating segment For the Three Months Ended March 31, 2024 Corporate IoT Products IoT Installation Services Total Revenue $ – $ 179,505 $ 39,653 $ 219,158 Cost of revenue – 105,082 114,275 219,357 Gross profit (loss) – 74,423 ( 74,622 ) ( 199 ) Total operating expense 1,299,360 16,664 3,587 1,319,611 Income (loss) from operations ( 1,299,360 ) 57,759 ( 78,209 ) ( 1,319,810 ) Total other income (expense) 2,737 335 1,141 4,213 Net income (loss) $ ( 1,296,623 ) $ 58,094 $ ( 77,068 ) $ ( 1,315,597 ) The following tables summarize the financial information of each operating segment of the Company for the three months ended March 31, 2023: For the Three Months Ended March 31, 2023 Corporate IoT Products IoT Installation Services Total Revenue $ – $ 13,281 $ 222,814 $ 236,095 Cost of revenue – 8,803 171,941 180,744 Gross profit – 4,478 50,873 55,351 Total operating expense 1,237,660 6,421 52,244 1,296,325 Loss from operations ( 1,237,660 ) ( 1,943 ) ( 1,371 ) ( 1,240,974 ) Total other income (expense) 128,835 109 ( 2,213 ) 126,731 Net loss $ ( 1,108,825 ) $ ( 1,834 ) $ ( 3,584 ) $ ( 1,114,243 ) 20 Note 11 – Subsequent Events On April 2, 2024, the Company entered into a two year loan agreement with the Company’s CEO Desheng Wang for the amount of $300,000. The loan has an annual interest rate of 12% and the principal and interest amount has a due date of April 1, 2026, as consistent with the previous and separate loan agreement with Golden Sunrise Investment LLC. On April 5, 2024, the Company hired Warren Wang as Vice President and Chief Strategy Officer. Mr. Wang’s employment agreement is for a term of 2 years, and he will receive a base compensation of $10,000 per month for providing investor outreach and investor relations services for the Company. On May 7, 2024, the Company entered into a purchase agreement (the “Purchase Agreement”) with a third-party purchaser (the “Buyer”) to sell the Company’s warehouse. The purchase price for the Property is $7,460,250 with $2,611,088 paid directly to the Company in cash, and the remaining $4,849,162 will be financed by the Buyer and paid to the Company upon approval of the financing. The Purchase Agreement allows for a contingency period of thirty days and includes a requirement for Buyer to deposit $100,000 into escrow, which has been satisfied. Additional contingencies are set forth in the Purchase Agreement and the closing date will occur thirty days after their satisfaction or waiver. On April 26, 2024, the Company issued a press release announcing a planned spinoff of its wholly owned subsidiary Lusher Inc. along with a presentation about its core business, which is a provider of patented hardware and software design technologies for Internet of Things (IoT) and 5G. The company had previously dedicated resources and employees toward development of this software, which has been expensed. On May 9, 2024, Focus Universal Inc., received a letter from the Listing Qualifications Department of the Nasdaq Stock Market. The May 9, 2024, letter notified the Company that based on the Staff’s review of the Company’s Market Value of Publicly Held Shares, the Company’s MVPHS has fallen below the required minimum of $15,000,000 for the last 32 consecutive business days. Therefore, the Company no longer meets the Nasdaq Listing Rule 5450(b)(2)(C) and 5450(b)(3)(C). The notification received has no immediate effect on the Company’s Nasdaq listing. In accordance with Nasdaq Listing Rule 5810(c)(3)(A) and 5810(c)(3)(C), the Company has been provided an initial period of 180 calendar days, or until November 5, 2024, to regain compliance with the MVPHS Rules. If, at any time before the Compliance Date, the Company’s MVPHS closes at $15,000,000 or more for a minimum of ten consecutive business days, the Staff will provide written confirmation of compliance to the Company and this matter will be closed with respect to the MVPHS Rules. As of April 30, 2024, the Company founded a wholly owned subsidiary named Lusher Inc. This company Lusher Inc. was founded to develop, market, and commercialize automation software initially for the financial reporting software market sector. As of the date of this filing, the Company has solely begun ongoing development of the software and founded the subsidiary after board approval, as other business activities are only in the introductory phase. The Company has evaluated all other subsequent events through the date these consolidated financial statements were issued and determined that there were no other subsequent events or transactions that require recognition or disclosures in the consolidated financial statements. 21