FOCUS UNIVERSAL INC. 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FOCUS UNIVERSAL INC. AND SUBSIDIARY FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023 Index to the Financial Statements Contents Page Report of Independent Registered Public Accounting Firm (PCAOB No. 572 ) F-2 Consolidated Balance Sheets as of December 31, 2024 and 2023 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023 F-5 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2024 and 2023 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 F-7 Notes to the Consolidated Financial Statements F-8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Focus Universal Inc. Ontario, California Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Focus Universal Inc. and Subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has experienced negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F- 2 Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Sale of Warehouse and Land As described in Note 5 to the consolidated financial statements, the Company sold its warehouse and land during the year ended December 31, 2024 resulting in a gain of $3,181,706, and subsequently entered into a short term lease agreement to rent the facility back from the buyer. We identified the recognition of the gain on sale of these assets as a critical audit matter due to the significance of this transaction to the Company’s operations, and to the complex accounting relating to sale/leaseback transactions. This in turn led to significant effort in performing our audit procedures which were designed to evaluate the proper accounting and presentation of the sale/lease back transaction. The primary audit procedures we performed to address this critical audit matter included; · Obtaining, examining and testing the underlying contractual documentation related to the sale transaction · Obtaining and understanding the lease agreement · Recalculating the gain recorded by the Company · Ensuring the Company properly accounted for the recognition of the gain in accordance with current accounting guidance We have served as the Company’s auditor since 2024. Weinberg & Company, P.A . February 28, 2025 Los Angeles, CA. F- 3 FOCUS UNIVERSAL INC. CONSOLIDATED BALANCE SHEETS December 31, December 31, 2024 2023 ASSETS Current Assets: Cash $ 3,589,318 $ 428,254 Accounts receivable, net 5,584 13,528 Inventories, net 126,071 282,071 Other receivables – 20,519 Prepaid expenses 100,730 87,874 Marketable securities 24,660 36,735 Current assets of discontinued operations – 159,297 Total Current Assets 3,846,363 1,028,278 Property and equipment, net 60,485 4,080,663 Operating lease right-of-use asset 108,270 201,048 Deposits 65,195 24,135 Total Assets $ 4,080,313 $ 5,334,124 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 702,065 $ 435,018 Related party loan – 1,000,000 Other current liabilities 68,204 25,859 Lease liability, current portion 106,706 90,172 Current liabilities of discontinued operations – 106,597 Total Current Liabilities 876,975 1,657,646 Non-Current Liabilities: Lease liability, less current portion 8,114 118,517 Other liability – 12,335 Total Non-Current Liabilities 8,114 130,852 Total Liabilities 885,089 1,788,498 Contingencies (Note 12) – – Stockholders’ Equity: Common stock, par value $ 0.001 per share, 15,000,000 shares authorized; 7,153,647 and 6,477,182 shares issued and outstanding as of December 31, 2024 and 2023, respectively 7,154 6,477 Treasury stock ( 348,968 and 116,304 shares held at December 31, 2024 and 2023, respectively) ( 1,055,592 ) ( 434,048 ) Additional paid-in capital 30,025,587 26,494,455 Shares to be issued, common shares ( 5,681 and 4,164 shares at December 31, 2024 and 2023, respectively) 25,573 74,476 Accumulated deficit ( 25,782,308 ) ( 22,582,170 ) Accumulated other comprehensive loss ( 25,190 ) ( 13,564 ) Total Stockholders’ Equity 3,195,224 3,545,626 Total Liabilities and Stockholders’ Equity $ 4,080,313 $ 5,334,124 The accompanying notes are an integral part of these consolidated financial statements. F- 4 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 2024 2023 Revenue $ 398,137 $ 440,543 Cost of revenue 387,936 380,884 Gross Profit 10,201 59,659 Operating Expenses Selling expense 100,189 118,762 Compensation - officers and directors 951,845 1,082,775 Research and development 1,381,937 1,324,438 Professional fees 1,660,590 767,606 General and administrative 2,115,891 1,717,864 Total Operating Expense 6,210,452 5,011,445 Loss from Operations ( 6,200,251 ) ( 4,951,786 ) Other Income (Expense): Interest income, net 40,853 38,339 Interest expense - related party ( 89,098 ) ( 38,333 ) Gain on disposal of property 3,181,706 – Unrealized gain (loss) on marketable equity securities ( 12,075 ) 8,033 Realized loss on marketable equity securities – ( 2,002 ) Rental income 96,541 160,910 Other income 60,449 74,604 Total other income 3,278,376 241,551 Loss from continuing operations before income taxes ( 2,921,875 ) ( 4,710,235 ) Loss from discontinued operations, net of tax ( 278,263 ) ( 7,907 ) Net Loss $ ( 3,200,138 ) $ ( 4,718,142 ) Other comprehensive items Foreign currency translation loss ( 11,626 ) ( 7,021 ) Total comprehensive loss $ ( 3,211,764 ) $ ( 4,725,163 ) Basic and fully diluted net loss per shares: Continuing operations: $ ( 0.44 ) $ ( 0.78 ) Discontinued operations: $ ( 0.04 ) $ ( 0.00 ) Net Loss $ ( 0.48 ) $ ( 0.78 ) Weight Average Number of Common Shares Outstanding: Basic and Diluted 6,714,478 6,031,487 The accompanying notes are an integral part of these consolidated financial statements. F- 5 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2024 and 2023 Common stock Treasury stock Additional Paid-In Shares to be issued Common Accumulated Accumulated Other Comprehensive Total Stockholders’ Description Shares Amount Amount Capital Shares Deficit Loss Equity Balance – December 31, 2022 6,529,638 $ 6,530 $ ( 2,000,000 ) $ 27,573,500 $ 48,075 $ ( 17,864,028 ) $ ( 6,543 ) $ 7,757,534 Stock based compensation - options – – – 515,490 – – – 515,490 Stock based compensation - cashless exercise option 1,086 1 – ( 1 ) – – – – Stock based compensation - shares 6,225 6 – 405,406 26,401 – – 431,813 Purchase of treasury stock – – ( 469,048 ) – – – – ( 469,048 ) Retirement of treasury stock ( 60,000 ) ( 60 ) 2,000,000 ( 1,999,940 ) – – – – Amendment stock purchase agreement – treasury stock – – 35,000 – – – – 35,000 Issued stock dividend 233 – – – – – – – Other comprehensive loss – – – – – – ( 7,021 ) ( 7,021 ) Net loss – – – – – ( 4,718,142 ) – ( 4,718,142 ) Balance – December 31, 2023 6,477,182 $ 6,477 $ ( 434,048 ) $ 26,494,455 $ 74,476 $ ( 22,582,170 ) $ ( 13,564 ) $ 3,545,626 Stock based compensation - options – – – 147,975 – – – 147,975 Stock based compensation - shares 12,594 13 – 466,183 ( 48,903 ) – – 417,293 Retirement of treasury stock ( 3,000 ) ( 3 ) 48,362 ( 48,359 ) – – – – Purchase of treasury stock ( 243,304 ) ( 243 ) ( 669,906 ) 243 – – – ( 669,906 ) Stock issued for placement agent 375,000 375 – 1,085,625 – – – 1,086,000 Stock issued for private placement 430,000 430 – 1,289,570 – – – 1,290,000 Fair value of stock issued to placement agent as commitment fee 105,175 105 – 249,895 – – – 250,000 Stock based compensation related to discount on shares sold to related parties – – – 340,000 – – – 340,000 Other comprehensive loss – – – – – – ( 11,626 ) ( 11,626 ) Net loss – – – – – ( 3,200,138 ) – ( 3,200,138 ) Balance – December 31, 2024 7,153,647 $ 7,154 $ ( 1,055,592 ) $ 30,025,587 $ 25,573 $ ( 25,782,308 ) $ ( 25,190 ) $ 3,195,224 The accompanying notes are an integral part of these consolidated financial statements. F- 6 FOCUS UNIVERSAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2024 2023 Cash flows from operating activities: Net Loss $ ( 3,200,138 ) $ ( 4,718,142 ) Adjustments to reconcile net loss to net cash from operating activities: Gain on sale of warehouse ( 3,181,706 ) – Bad debt expense 4,852 26,631 Inventory reserve 211,014 – Depreciation expense 73,611 167,983 Unrealized (gain) or loss on marketable equity securities 12,075 ( 8,033 ) Realized loss on marketable equity securities – 2,002 Stock-based compensation - shares 417,293 431,813 Stock based compensation - options 147,975 515,490 Compensation cost related to sale of common shares to related parties 340,000 – Fair value of shares issued as commitment fee 250,000 – Changes in operating assets and liabilities: Accounts receivable 3,092 38,154 Accounts receivable - related party – 34,507 Inventories ( 55,014 ) ( 178,299 ) Other receivable 20,407 ( 20,519 ) Prepaid expenses ( 13,075 ) 54,029 Deposit ( 41,825 ) 8,336 Operating lease right-of-use asset 87,869 325,329 Accounts payable and accrued liabilities 272,841 168,026 Other current liabilities 42,345 19,363 Lease liabilities ( 88,735 ) ( 342,732 ) Other liabilities ( 12,335 ) – Net cash flows used in operating activities from continuing operations ( 4,709,454 ) ( 3,476,062 ) Net cash flows provided by (used in) operating activities from discontinuing operations 52,700 ( 52,700 ) Net cash used in operating activities ( 4,656,754 ) ( 3,528,762 ) Cash flows from investing activities: Purchase of property and equipment ( 18,687 ) ( 20,620 ) Purchase of marketable securities – ( 43,644 ) Proceeds from sales of marketable securities – 118,410 Proceeds from sales of property 7,145,808 – Net cash flows provided by investing activities 7,127,121 54,146 Cash flows from financing activities: Proceeds from third party loan 350,000 – Proceeds from related party loan 1,101,000 1,000,000 Repayment on related party loan ( 2,101,000 ) – Repayment on third party loan ( 350,000 ) – Stock issued for placement agent 1,086,000 – Stock issued for private placement 1,290,000 – Purchase of treasury stock ( 669,906 ) ( 1,434,048 ) Net cash flows provided by (used in) financing activities 706,094 ( 434,048 ) Effect of exchange rate ( 15,397 ) ( 6,508 ) Net change in cash 3,161,064 ( 3,915,172 ) Cash beginning of year 428,254 4,343,426 Cash end of year $ 3,589,318 $ 428,254 Supplemental cash flow disclosure: Cash paid for income taxes $ – $ – Cash paid for interest $ 4,209 $ 13,142 Supplemental disclosure of non-cash investing and financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ – $ 273,041 Cashless exercise of options $ – $ 41,401 The accompanying notes are an integral part of these consolidated financial statements. F- 7 FOCUS UNIVERSAL INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2024, AND 2023 Note 1 – Organization and Operations Focus Universal Inc. (“Focus”) was incorporated under the laws of the State of Nevada on December 4, 2012 (“Inception”). The Company 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 five disruptive patented technology platforms with 28 patents and patents pending in various phases and 8 trademarks pending in various phases to solve the major problems facing hardware and software design and production within the industry today. These technologies combined have the potential to reduce costs, product development timelines and energy usage while increasing range, speed, efficiency, and security. The smartphone or other mobile device, foundation, and sensor readouts together perform the functions of many traditional scientific and engineering instruments and are intended to replace the traditional, wired stand-alone instruments at a fraction of their cost. The Company has multiple subsidiaries, including Perfecular Inc. (“Perfecular”), AVX Design and Integration Inc. (“AVX,” also doing business as Smart AVX (“Smart AVX”)), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), Lusher Bioscientific, Inc. (“Lusher”), and until August, 2024, AT Tech Systems LLC (“AT Tech LLC”), which activities’ have since been discontinued. Perfecular Inc. a wholly owned subsidiary of Focus, was founded in September 2009 and is headquartered in Ontario, California, and is engaged in designing certain digital sensor products and sells a broad selection of horticultural sensors and filters in North America and Europe. AT Tech Systems was a subsidiary of Focus and specialized in commercial and industrial smart IoT installation projects in areas throughout Southern California. On August 5, 2024, the Company and the segment manager of AT Tech Systems LLC reached a tentative oral agreement to terminate his employment, and the employment of his two team members. The Company discontinued operations of AT Tech Systems on August 21, 2024, with a termination cost of $ 22,000 and is now presenting these operations as discontinued. (See Note 10) F- 8 Note 2 – Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Perfecular, AVX, Focus Shenzhen, Lusher, Lusher Inc. and AT Tech Systems (collectively, the “Company,” “we,” “our,” or “us”). All significant intercompany transactions and balances have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include the useful lives of property and equipment, allowance for doubtful accounts, inventory reserves, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and the valuation allowance on deferred tax assets. The Company regularly evaluates its estimates and assumptions. F- 9 Segment Reporting The Company’s management team is provided financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. In addition, substantially all of the Company’s revenue and long-lived assets are attributable to operations in the United States for all periods presented. 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 two operating and reportable segments. The Company consists of two types of operations. (1) AVX and Smart AVX (inclusive of the smart IoT Products sales under Smart AVX) cooperatively run our “LED and IoT Installation Services” segment, which handles our LED and IoT installation and management business specializing in high performance and easy to use LED and display systems, audio/video systems, home theaters, lighting control, automation, and integration. This includes the Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment focused on R&D development for the IoT, 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 these IoT technology products and of our smart products into the commercial and home automation sectors. (2) Perfecular and Lusher jointly operate the SEC Financial Software segment, which involves the development, marketing, and production of our SEC Financial Reporting AI-Driven Automation Software package and also includes our universal smart instruments and devices in the hydroponic and controlled agriculture segments. Asset information by operating segment is not presented as the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. Cash The Company considers all highly liquid investments with a maturity of three months or less to be cash. At times, such investments may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limit. As of December 31, 2024, and 2023, approximately $ 2,781,560 and $ 0 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company at December 31, 2024 and 2023. F- 10 Accounts Receivable The Company grants credit to clients that sell the Company’s products or engage in construction service under credit terms that it believes are customary in the industry and do not require collateral to support customer receivables. The accounts receivable balances are generally collected within 30 to 90 days of the product sale. Allowance for doubtful accounts The Company estimates an allowance for doubtful accounts based on historical collection trends and review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of December 31, 2024 and 2023, allowance for doubtful accounts amounted to $ 278,201 and $ 249,603 , respectively. 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. Major customers For the years ended of December 31, 2024 and 2023, the Company’s revenue received from the following customers and were set out as below: Schedule of concentrations of credit risk For the years ended December 31, 2024 2023 Amount % of Total Revenue Amount % of Total Revenue Customer A $ 83,548 21 % $ – – Customer B 69,325 17 % – – Customer C 54,479 14 % – – Customer D 50,053 13 % – – Customer E – – 60,000 14 % Customer F – – 50,000 11 % Customer G (*) (*) 44,147 10 % Customer H – – 41,955 10 % _________________ (*) Revenue for the year ended had not exceeded 10% or more of the consolidated revenue. F- 11 Major vendors For the years ended of December 31, 2024 and 2023, the Company’s purchase from the following vendors and were set out as below: For the years ended December 31, 2024 2023 Amount % of Total Purchase Amount % of Total Purchase Vendor A $ 147,591 83 % $ 152,969 39 % Vendor B – – 189,151 49 % Vendor C 21,822 12 % (*) (*) (*) Purchase for the year ended had not exceeded 10% or more of the consolidated purchase. 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. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory allowances are recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as discontinued products. These estimates could vary significantly from actual requirements, for example, if future economic conditions, customer inventory levels or competitive conditions differ from expectations. The Company regularly reviews the value of inventory based on historical usage and estimated future usage. If estimated realized value of our inventory is less than cost, we make provisions in order to reduce the carrying value to its estimated market value. 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 and unrealized gains and losses are recorded in other income (expense), net. Property and Equipment Property and equipment are stated at cost. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is included in earnings. Maintenance and repairs are expensed currently. Major renewals and betterments are capitalized. Depreciation is computed using the straight-line method. Estimated useful lives are as follows: Schedule of estimated useful lives, property and equipment Fixed assets Useful life Furniture 5 years Equipment 5 years Warehouse 39 years Improvement 5 years Land N/A F- 12 Long-Lived Assets The Company applies the provisions of FASB ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair values are reduced for the cost of disposal. Long-term assets of the Company are reviewed when circumstances warrant as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. Based on its review at December 31, 2024 and 2023, the Company believes there was no impairment of its long-lived assets. 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. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in additional paid in capital, on a first-in first-out basis. Share-based Compensation The Company accounts for stock-based compensation to employees in conformity with the provisions of ASC Topic 718, Stock-Based Compensation. Stock-based compensation to employees consist of stock options, grants, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period during which services are received. The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award. Stock Dividends The Company follows paragraph ASC 505-20-25 in treating stock dividends as a stock split when the stock dividend is greater than 25% of the shares then outstanding. On March 23, 2023, and April 3, 2023, the Company issued 2,159,216 shares of common stock as 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 followed paragraph ASC 260-10-55-12, wherein it retroactively adjusted all share amounts and its statement of stockholders’ equity for all presented periods to incorporate the alteration in capital structure. F- 13 Fair Value of Financial Instruments The Company follows paragraph ASC 825-10-50-10 for disclosures about fair value of its financial instruments and paragraph ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP) and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below: ☐ Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. ☐ Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. ☐ Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data. The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023: Schedule of fair value of assets and liabilities measured on recurring basis December 31, 2024 Fair Value Carrying Level 1 Level 2 Level 3 Value Assets Marketable securities: Stock $ 24,660 $ – $ – $ 24,660 Total assets measured at fair value $ 24,660 $ – $ – $ 24,660 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 F- 14 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, 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. We believe the related party loan approximates its fair value based on interest rate of the loan. 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. Other comprehensive loss for the years ended December 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. F- 15 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. Currently, the software segment is not generating any revenue. A summary of our revenue by product type for the fiscal years ended December 31, 2024 and 2023 is as follows: Schedule of revenue by product type December 31, 2024 December 31, 2023 IoT Products $ 398,137 $ 384,168 IoT Project Construction and Installation Services – 56,375 Total $ 398,137 $ 440,543 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. Advertising Expenses During the years ended December 31, 2024 and 2023, the Company incurred advertising costs of $ 15,125 and $ 0 , respectively. 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. Income Tax Provision The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. F- 16 Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented. Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. There was no material deferred tax asset or liabilities as of December 31, 2024 and 2023. As of December 31, 2024 and 2023, 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 ASC 260-10-45. Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of stock and potentially outstanding shares of stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants. Due to the net loss incurred by the Company, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive. Schedule of anti-dilutive shares Year ended December 31, 2024 2023 Stock options 62,637 51,387 Total 62,637 51,387 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”). F- 17 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. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange difference, presented as foreign currency transaction loss, is included in the accompanying consolidated statements of operations. The exchange rates used for consolidated financial statements are as follows: Schedule of exchange rates foreign currency Average Rate for the Year Ended December 31, 2024 2023 China Yuan (RMB) RMB 7.1843 RMB 7.0714 United States Dollar ($) $ 1.0000 $ 1.0000 Exchange Rate at December 31, 2024 December 31, 2023 China Yuan (RMB) RMB 7.2975 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 financial statements. The Company has a net loss of $ 3,200,138 and $ 4,718,142 for the years ended December 31, 2024 and 2023, respectively. In addition, the Company had an accumulated deficit of $ 25,782,308 and $ 22,582,170 as of December 31, 2024 and 2023, respectively, and negative cash flow from operating activities of $ 4,656,754 and $ 3,528,762 for the years ended December 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 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. F- 18 At December 31, 2024, the Company had cash and cash equivalents, and short-term investments, in the amount of $ 3,613,978 . 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. No assurance can be given that 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. 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 became effective for the Company on January 1, 2024. The adoption of this standard did not have a material impact on its results of operations, financial position or cash flows. In November 2024, FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation and amortization expense for each caption on the income statement where such expenses are included. The update is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. We are currently evaluating the provisions of this guidance and assessing the potential impact on our financial statement disclosures. 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. F- 19 Note 4 – Inventory At December 31, 2024 and 2023, inventory consisted of the following: Schedule of inventory December 31, 2024 December 31, 2023 Parts $ – $ 1,051 Finished goods 337,085 281,020 Less: Inventory reserve ( 211,014 ) – Inventories $ 126,071 $ 282,071 Note 5 – Property and Equipment At December 31, 2024 and 2023, property and equipment consisted of the following: Schedule of property and equipment December 31, 2024 December 31, 2023 Warehouse $ – $ 3,789,773 Land – 731,515 Building improvement 14,620 240,256 Furniture and fixture 42,033 39,223 Equipment 137,966 119,556 Software 1,995 1,995 Total cost 196,614 4,922,318 Less accumulated depreciation ( 136,129 ) ( 841,655 ) Property and equipment, net $ 60,485 $ 4,080,663 Depreciation expense for the years ended December 31, 2024 and 2023 amounted to $ 73,611 and $ 167,983 , respectively. On July 3, 2024, the Company completed a purchase agreement (the “Purchase Agreement”) with a third-party purchaser (the “Buyer”) to sell the Company’s warehouse. The net book value of the sales of the property consisted of the following: Schedule of net book value of the sales of the property Amount Warehouse $ 3,789,773 Land 731,515 Building improvement 225,636 Total carrying amount 4,746,924 Less: Accumulated depreciation 782,822 Net book value $ 3,964,102 F- 20 The purchase price for the property was $ 7,460,250 . The Company received net proceeds of $ 7,145,808 after closing costs, of which $ 1,481,208 was paid directly to settle certain outstanding debt and accrued interest and other amounts owed. In addition, the Company incurred $ 314,442 of closing costs resulting in a gain of $ 3,181,706 from the sale of the property. On July 8, 2024, the Company entered into a twelve-month Standard Industrial/Commercial Single-Tenant Lease with the buyer for an approximately 14,004 square foot office and warehouse space. The lease commenced on July 4, 2024 and will end on July 31, 2025. The monthly rent is $16,804 (See Note 8). Note 6– Related Party Loans 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 principal of $ 1,300,000 and interest of $ 28,208 were paid off on July 3, 2024 from the proceeds of the sale of the building. As of December 31, 2024, principal and interest under this loan was $ 0 . The interest expense amount was $ 77,208 for the year ended December 31, 2024. 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 have a due date of April 1, 2026 , as consistent with the previous and separate loan agreement with Golden Sunrise Investment LLC. During the year, the principal loan amount has been increased from $ 300,000 to $ 801,000 . The interest expense amount was $ 19,501 for the year ended December 31, 2024. The principal and interest were paid off on July 9, 2024. As of December 31, 2024, principal and interest under this loan was $ 0 . Note 7 – Short-Term Loans 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”). On the Due Date, the Company will begin to pay Lender in 12 equal monthly installment payments of $ 25,408 .11 each. The interest amount for the year ended December 31, 2024 was $ 4,897 , and the total principal of $ 300,000 and interest were paid off on December 31, 2024. On June 18, 2024, the Company entered into a one-month loan agreement with a third party for the amount of $ 50,000 . The loan has an annual interest rate of 12 % and the principal and interest amount have a due date of July 19, 2024 . The interest expense amount was $ 500 for the year ended December 31, 2024. The principal and interest were paid off on July 19, 2024. As of December 31, 2024, principal of $ 50,000 and interest under this loan was $ 0 . F- 21 Note 8 – Leases Operating Leases The Company recorded its operating lease cost of $ 143,097 and $ 143,097 for the years ended December 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 $4,172) 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 $4,906) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 10%. Lease expense for the lease is recognized on a straight-line basis over the lease term. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of December 31, 2024 and 2023, operating lease right-of use assets and lease liabilities were as follows: Schedule of operating lease right of use assets and lease liabilities December 31, 2024 December 31, 2023 Operating lease right-of-use assets, net $ 108,270 $ 201,048 Lease liabilities, current portion $ 106,706 $ 90,172 Lease liabilities, less current portion $ 8,114 $ 118,517 Lease term and discount rate: Schedule of lease term and discount rate December 31, 2024 December 31, 2023 Weighted average remaining lease term: Operating lease 1.08 to 1.25 years 2.08 to 2.25 years Weighted average discount rate: Operating lease 10 % 10 % F- 22 The minimum future lease payments are as follows: Schedule of minimum future lease payments Amount Year ending December 31, 2025 $ 111,065 Year ending December 31, 2026 8,215 Total minimum lease payment 119,280 Less: imputed interest ( 4,460 ) Present value of future minimum lease payments $ 114,820 Short-term leases On June 1, 2024, Focus Universal (Shenzhen) Technology Co. LTD entered into a twelve-month commercial lease with a third party for an approximately 1,701 square foot office space as a sales-focused office. The lease commenced on June 1, 2024 and will end on May 31, 2025. The monthly rent is RMB8,000 (approximately $1,141). On July 8, 2024, the Company entered into a Standard Industrial/Commercial Single-Tenant Lease (the “Lease”) with the Veena Asset Management, LLC to lease the same Focus Universal premises located at 2311 East Locust Court, Ontario, CA 91761 back for one year commencing at the close of escrow of the Purchase Agreement and ending on July 31, 2025, for 14,004 square foot office and warehouse space. Base monthly rent is $16,804, with a total of $58,812 due upon execution of the lease. Note 9 – Stockholders’ Equity Stock Dividend On March 23, 2023, the Company issued 2,159,216 shares of common stock as a dividend 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 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. The Company adhered to paragraph ASC 260-10-55-12, and retroactively adjusted the common shares outstanding and its statement of stockholders’ equity for all presented periods to incorporate the alteration in capital structure. Common stock On September 15, 2024, the Company entered into a placement agency agreement (the “Placement Agency Agreement”), with Univest Securities, LLC (the “Placement Agent”). Pursuant to the Placement Agency Agreement, the Placement Agent agrees to use its reasonable best efforts to sell the Company’s common stock, par value $ 0.001 per share (the “Common Stock”) in a registered direct offering (the “Offering”). In the Offering, an aggregate of 375,000 shares of Common Stock (the “Common Shares”) of the Company will be sold to a certain institutional purchaser, pursuant to a securities purchase agreement, dated September 15, 2024 (the “Securities Purchase Agreement”). The purchase price of each Common Share was $ 3.20 . The net proceeds from the Offering, after deducting placement agent discounts, commissions, and estimated offering expenses payable by the Company, was approximately $ 1,086,000 . F- 23 On September 18, 2024, the Company completed the sale of 430,000 shares of Common Stock (the “Shares”) in a private placement to certain eligible investors for an aggregate purchase price of $ 1,290,000 , or $3.00 per share (the “Private Placement”). As part of the offering, Dr. Desheng Wang, Chief Executive Officer, Secretary, and Director of the Company, and Dr. Edward Lee, Chairman of the Board of the Company entered into a Subscription Agreements pursuant to which the Company agreed to issue and sell 100,000 shares of the Company’s Common Stock for $300,000 in cash to each of these individuals (for an aggregate sale of 200,000 shares for proceeds of $ 600,000 in cash.) The Subscription Agreements contain customary representations and warranties and was exempt from registration under Section 4(a)(2) of the Securities Act. The Company determined that the officer and director were granted an inherent compensation/benefit since the trading price at the issuance date was $4.70. As such, the Company recorded stock compensation cost of $ 340,000 related to the issuance of these shares during the year ended December 31, 2024. On November 16, 2024, the Company entered into a securities purchase agreement with Alumni Capital LP (“Alumni Capital”) relating to the offer and sale of 200,000 shares of Common Stock (the “Common Stock”), par value $ 0.001 per share, offered by a prospectus supplement and accompanying prospectus. Pursuant to the securities purchase agreement with Alumni Capital, the Company may offer and sell up to $ 20,000,000 in shares of its Common Stock, from time to time at a purchase price of 91% of the previous 5 Business Days’ VWAP, as defined in the agreement. The Company has also agreed to pay Alumni Capital an upfront commitment fee in shares of Common Stock equal to 1.25% of the full $ 20,000,000 commitment amount, as defined in the agreement, which shall count towards the life of the securities purchase agreement, divided by the VWAP for the trading day immediately prior to the shares being issued. The Company issued 105,175 shares of common stock valued at $ 250,000 to Alumni Capital which was recorded as a finance cost during the year ended December 31, 2024. On January 31, 2025, we effected a 10 for 1 reverse stock split of the Company’s authorized stock, and issued and outstanding shares of Common Stock by filing a Certificate of Change pursuant to pursuant to Nevada Revised Statutes (“NRS”) Section 78.209. As a result of the reverse split, the Company is authorized to issue 15,000,000 common shares (the Company’s authorized common shares were reduced in the same ratio (10-for-1) as its outstanding Common Stock shares were reduced). All share and per share amounts were retroactively adjusted to reflect this split as if it occurred at the earliest period presented. Treasury stock On August 10, 2022, the Company entered a stock purchase agreement (the “Stock Purchase Agreement”) with a private shareholder to repurchase 60,000 shares of its common stock for $2,000,000. The private shareholder transferred the shares on October 4, 2022, 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 130,000 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 90,000 shares, the Company also placed them in treasury. As of January 17, 2023, the Company retired the initial 60,000 shares and restored them to the status of authorized and unissued shares. On June 11, 2024, the Company retired 3,000 shares with a cost of $ 48,362 and restored them to the status of authorized and unissued shares. As part of the Company’s repurchase program, during the year ended December 31, 2023 the Company repurchased 26,304 shares of its common stock for $ 464,486 in the public market at average price of $ 1.77 and placed them in treasury. During the year 2024, the Company repurchased 243,304 shares of its common stock for $ 669,906 in the public market at average price of $ 2.78 and placed them in treasury. As of December 31, 2024, 348,968 shares remain as treasury shares. F- 24 Employee compensation In prior years, the Company entered into several employment agreements that require the issuance of common shares for services that vest on a quarterly basis. During the year ended December 31, 2023, an aggregate of 4,146 shares with a fair value of $ 74,473 vested during the period and were recognized as compensation costs. During the year ended December 31, 2024, an aggregate of 9,011 shares with a fair value of $ 59,953 vested during the period and were recognized as compensation costs. During the year ending December 31, 2024, 7,494 shares with a fair value of $ 108,856 that previously vested were issued. As of December 31, 2024, 5,681 shares of common stock with a fair value of $ 25,573 remain vested but not issued. On February 11, 2022 (the “Vesting Date”), the Company entered into a restricted stock award agreements (the “Award Agreement”) with eight employees for 28,000 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. During the year ended December 31, 2023, the Company amortized $ 357,340 leaving an unamortized balance of $ 1,072,020 at December 31, 2023. During the year ended December 31, 2024 the Company amortized $ 357,340 of this amount leaving an unamortized balance of $ 714,680 at December 31, 2024. As of December 31, 2024, 20,400 of the shares had been vested. Stock options On December 30, 2022, each member of the Board was granted 22,500 options to purchase shares at $ 4.27 per share with a fair value of $ 533,611 at the date of grant. These shares fully vested during 2023. On January 2, 2024, each member of the Board was granted 2,250 options to purchase shares at $ 15.00 per share with a fair value of $ 29,595 . The options vest monthly over 1 year, and may be exercised during a 10 -year term. In the aggregate, 11,250 options were granted with a fair value of $ 147,975 . During the year ended December 31, 2024, the Company recognized $ 147,975 of compensation cost relating to the vesting of these options. For the years ended December 31, 2024 and 2023, the Company’s stock option compensation expenses amounted to $ 147,975 and $ 515,490 , respectively. 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 December 31, 2024 Risk-free interest rate 3.94 % Expected life of the options 5.5 years Expected volatility 126.73 % Expected dividend yield 0 % F- 25 The following is a summary of options activity from December 31, 2022 to December 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, 2022 61,506 $ 59.34 8.04 – Granted – $ – – – Exercised ( 7,881 ) $ 35.88 – – Cancelled or forfeited ( 2,238 ) $ 42.70 – – Outstanding at December 31, 2023 51,387 $ 40.55 7.25 – Granted 11,250 $ 15.00 – – Exercised – $ – – – Cancelled or forfeited – $ – – – Outstanding at December 31, 2024 62,637 $ 35.96 6.74 – Exercisable at December 31, 2024 62,637 $ 35.96 6.74 – Note 10 – Discontinued Operation On August 5, 2024, the Company and the segment manager of AT Tech Systems LLC reached a tentative oral agreement to terminate his employment and the employment of his two direct report team members. The Company discontinued operations of AT Tech Systems on August 21, 2024, with a termination cost of $ 22,000 . The carrying amount of assets and liabilities of discontinued operations as of December 31, 2024 and 2023 consist of the following: Schedule of discontinued operations December 31, December 31, 2024 2023 Current assets of discontinued operations: Accounts receivable, net $ – $ 150,870 Prepaid expenses – 8,427 Total current assets of discontinued operations $ – $ 159,297 Current liabilities of discontinued operations: Accounts payable and accrued liabilities $ – $ 47,505 Other current liabilities – 59,092 Total current liabilities of discontinued operations $ – $ 106,597 F- 26 The loss from discontinued operations presented in the statement of operations for the years ended December 31, 2024 and 2023 as follows: For the Years Ended December 31, 2024 2023 Revenue $ 50,772 $ 611,655 Cost of Revenue 241,327 577,529 Gross Profit (loss) ( 190,555 ) 34,126 Operating Expenses: Selling expense 9,834 22,232 General and administrative 81,375 22,915 Total Operating Expenses 91,209 45,147 Loss from Operations ( 281,764 ) ( 11,021 ) Other Income: Other income, net 3,501 3,114 Total other income, net 3,501 3,114 Net Loss $ ( 278,263 ) $ ( 7,907 ) Total operating cash flows from discontinued operations were $ 52,700 and $ ( 52,700 ) , respectively, for the years ended December 31, 2024 and 2023, respectively. F- 27 Note 11 – 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 two operating and reportable segments. The Company consists of two types of operations. (1) AVX and Smart AVX (inclusive of the smart IoT Products sales under Smart AVX) cooperatively run our “LED and IoT Installation Services” segment, which handles our LED and IoT installation and management business specializing in high performance and easy to use LED and display systems, audio/video systems, home theaters, lighting control, automation, and integration. This includes the Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment focused on R&D development for the IoT, 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 these IoT technology products and of our smart products into the commercial and home automation sectors. (2) Perfecular and Lusher jointly operate the SEC Financial Software segment, which involves the development, marketing, and production of our SEC Financial Reporting AI-Driven Automation Software package and also includes our universal smart instruments and devices in the hydroponic and controlled agriculture segments. Asset information by operating segment is not presented as the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. The management team reviews financial information on a consolidated level and allocates resources based on net loss, which also serves as the key metric for evaluating financial performance. The following tables summarize the financial information of each operating segment of the Company for the year ended December 31, 2024: Schedule of segment reporting For the Year ended December 31, 2024 Perfecular & Lusher Corporate & IoT Total Revenue $ 26,052 $ 372,085 $ 398,137 Cost of revenue 39,772 348,164 387,936 Gross profit (loss) ( 13,720 ) 23,921 10,201 Operating expenses Selling expense 24,866 75,323 100,189 Compensation – officers and directors – 951,845 951,845 Research and development 213,487 1,168,450 1,381,937 Professional fees – 1,660,590 1,660,590 General and administrative 19,866 2,096,025 2,115,891 Total operating expense 258,219 5,952,233 6,210,452 Loss from operations ( 271,939 ) ( 5,928,312 ) ( 6,200,251 ) Total other income 1,329 3,277,047 3,278,376 Loss from discontinued operations, net of tax – ( 278,263 ) ( 278,263 ) Net loss $ ( 270,610 ) $ ( 2,929,528 ) $ ( 3,200,138 ) F- 28 The following tables summarize the financial information of each operating segment of the Company for the year ended December 31, 2023: For the Year ended December 31, 2023 Perfecular & Lusher Corporate & IoT Total Revenue $ 44,147 $ 396,396 $ 440,543 Cost of revenue 36,424 344,460 380,884 Gross profit 7,723 51,936 59,659 Operating expenses Selling expense 22,407 96,355 118,762 Compensation – officers and directors – 1,082,775 1,082,775 Research and development 212,037 1,112,401 1,324,438 Professional fees – 767,606 767,606 General and administrative 17,101 1,700,763 1,717,864 Total operating expense 251,545 4,759,900 5,011,445 Loss from operations ( 243,822 ) ( 4,707,964 ) ( 4,951,786 ) Total other income 4,028 237,523 241,551 Loss from discontinued operations, net of tax – ( 7,907 ) ( 7,907 ) Net loss $ ( 239,794 ) $ ( 4,478,348 ) $ ( 4,718,142 ) F- 29 Note 12 – Contingencies Pending Litigation On or about April 13, 2020, Ian Patterson, the Chief Operations Officer of AVX resigned from his position. On May 5, 2020, Mr. Patterson filed an action in the Superior Court for the County of Los Angeles, State of California, against the company, et al. The complaint alleges claims including discrimination, wrongful termination, retaliation and various other provisions of the California Labor Code, and various other claims under California state law. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. We have conducted written discovery, depositions, and expert discovery. We have a motion for summary judgment set to be heard on June 17, 2025. Trial for this matter is set for August 6, 2025. AVX intends to vigorously contest this matter. Further, AVX disputes that the other defendants are proper parties to the litigation. However, litigation and investigations are inherently uncertain, but the outcome could have a material impact on the Company. Similarly, on or about April 14, 2020, Devesa Sarria, the Sales and Marketing Director, was terminated. On May 13, 2020, she filed an action in the Superior Court for the County of Los Angeles, State of California. The Complaint alleges claims including discrimination, wrongful termination, retaliation and various other provisions of the California Labor Code, and various other claims under California state law. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. We have conducted written discovery, depositions, and expert discovery. Trial for this matter is set for August 13, 2025. AVX intends to vigorously contest this matter. Further, AVX disputes that the other defendants are proper parties to the litigation. However, litigation and investigations are inherently uncertain, but the outcome could have a material impact on the Company. On August 26, 2024, a former software engineer filed an action against Perfecular Inc., a wholly owned subsidiary of the Company, in the Superior Court for the County of San Bernardino, State of California alleging wrongful termination and other violations of the California Labor Code. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. The Company is investigating and intends to vigorously defend itself in the foregoing matters. The case has currently been stayed until a status conference on September 17, 2025, which is when the expected trial date will be set. However, litigation and investigations are inherently uncertain. The Company does possess EPLI insurance, and the legal team as selected by the insurance company is currently handling the matter. The Company vigorously disputes these allegations. On October 28, 2024, MGR Real Estate, Inc. a California corporation, filed an action in the Superior Court of the State of California, County of San Bernardino, against the Company. The complaint alleges a variety of things including breach of contract and declaratory relief. The complaint is in connection with a listing agreement executed between the Company and the plaintiff, which plaintiff alleges gave it exclusive rights to list and sale the property located at 2311 E. Locust St., Ontario, CA 91761 (the “Premises”). The complaint seeks damages in a minimum amount of $ 373,025 , plus interest at a rate of 10% per annum. The Company is negotiating a resolution and if such resolution falls through then the Company intends to contest this matter. Management believes it has made a provision for the probable settlement of the outcome in these financial statements. However, since litigation and investigations are inherently uncertain, the outcome may have a material impact on the Company. F- 30 Note 13 – Income taxes The United States of America The Company is subject to taxation in the United States and certain state jurisdictions. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 21 % to the net loss before provision for income taxes. Accordingly, the Company reevaluated its deferred tax assets on net operating loss carryforward in the U.S. As of December 31, 2024, due to uncertainties surrounding future utilization, the Company recorded a full valuation allowance against the deferred tax assets based upon management’s assessment as to their realization. People’s Republic of China Effective January 1, 2008, the New Taxation Law of PRC stipulates that domestic enterprises and foreign invested enterprises (the “FIEs”) are subject to a uniform tax rate of 25 %. Under the PRC tax law, companies are required to make quarterly estimate payments based on 25% tax rate; companies that received preferential tax rates are also required to use a 25% tax rate for their installment tax payments. The overpayment, however, will not be refunded and can only be used to offset future tax liabilities. Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of the changes in valuation allowance, nondeductible permanent differences, credits, and state income taxes. A reconciliation of the federal statutory income tax to our effective income tax is as follows: Schedule of effective tax rate 2024 2023 Federal statutory rates $ ( 691,000 ) $ ( 991,000 ) State income taxes ( 146,000 ) ( 313,000 ) Foreign income taxes ( 66,000 ) ( 46,000 ) Permanent differences – – Valuation allowance against net deferred tax assets 903,000 1,350,000 Effective rate $ – $ – F- 31 The tax effect of temporary differences that give rise to a significant portion of the deferred tax assets and liabilities at December 31, 2024 and 2023 is presented below: Schedule of deferred tax assets and liabilities 2024 2023 Deferred income tax asset Net operating loss carryforwards $ 7,514,325 $ 6,612,282 Interest 45,128 43,872 Total deferred income tax asset 7,559,453 6,656,154 Less: valuation allowance ( 7,559,453 ) ( 6,656,154 ) Total deferred income tax asset $ – $ – The Company recognizes valuation allowances to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s net deferred income tax asset is not more likely than not to be realized due to the lack of sufficient sources of future taxable income and cumulative losses that have resulted over the years. During the year ended December 31, 2024 the valuation allowance increased by $ 420,448 . As of December 31, 2024, we had cumulative net operating loss carryforwards for federal and state income tax purposes of $ 24,547,667 , and available tax credit carryforwards of approximately $ 4,701,230 for federal income tax purposes, which can be carried forward to offset future taxable income. The federal net operating loss carryforwards consists of $ 20,736,041 of losses incurred prior to January 1, 2024 and which can be used to offset 100% of future taxable income and, $ 1,650,773 of losses incurred after January 1, 2024, which can be used to offset up to 80% of taxable income in subsequent years. Note 14 – Subsequent Events On January 28, 2025, the Company filed a Certificate Change pursuant to Nevada Revised Statutes (“NRS”) 78.209 with the Secretary of State of the State of Nevada to effect a 1-for-10 reverse stock split of the Company’s (i) authorized common stock shares and (ii) issued and outstanding common stock shares. The reverse stock split became effective on January 31, 2025. All common stock shares, options, warrants and securities convertible or exercisable into common stock shares have been adjusted to give retroactive effect to this reverse stock split for all periods presented. An additional 65,947 common stock shares were included in the Company’s issued and outstanding shares as a result of rounding-up fractional shares into whole shares as a result of the reverse stock split. On February 20, 2025, the Company received formal written confirmation from The Nasdaq Stock Market, LLC ("Nasdaq"), confirming that Nasdaq has determined that for the last 13 consecutive business days, from January 31, 2025, to February 19, 2025, the closing bid price of the Company's shares has been at $1.00 per share or greater. Accordingly, the Company has regained compliance with Listing Rule 5550(a)(2). The Company has regained compliance with Nasdaq's minimum bid price requirement, noting that this matter is now closed. 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. F- 32 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.