FOCUS UNIVERSAL INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in, Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements. Forward-Looking Statements This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. Narrative Description of the Business Focus Universal Inc. (the “Company,” “we,” “us,” or “our”) is a Nevada corporation. Prior to our acquisition of the Property (as defined below), we had two sources of revenue: generated from our Universal Smart Technology and our software to streamline SEC financial reporting.: Upon our acquisition of the Property in April 2026, our primary source of revenue shifted to revenue generated from rental of our Property. Accordingly, periods prior to the acquisition reflect the historical financial statements of the Company, and the results of operations of the Property are included beginning on the acquisition date. As a result, the results of operations, liquidity and capital resources information for the six months ended June 30, 2026 is not directly comparable to the prior-year period. During the six months ended June 30, 2026, we generated $651,950 from rental income from the Property. We currently have executed leases for rental of 91,366 space through December 31, 2026 from 12 tenants and anticipate generating $1,464,523 of revenue through December 31, 2026 from the rental income derived from the Property assuming no current leases are terminated. We have developed five proprietary technologies utilizing our patent portfolio which we believe solve the most fundamental problems plaguing the internet of things (“IoT”) industry through: (1) increasing overall chip integration by shifting integration from the component level to the device level; (2) creating a faster 5G cellular technology by using ultra-narrowband technology; (3) leveraging ultra-narrowband power line communication (“PLC”) technology; (4) proprietary User Interface Machine auto generation technology; and (5) incorporating all our core technologies into a single chip. Our Universal Smart Technology is designed to overcome instrumentation interoperability and interchangeability. The electronic design starts from a 90% completed common foundation we call our universal smart instrumentation platform (“USIP”), instead of the current method of building each stand-alone instrument from scratch. Our method has the potential to eliminates redundant hardware and software and results in significant cost savings and production efficiency. We also provide sensor devices and are a wholesaler of various air filters and digital, analog, and quantum light meter systems. We holds 28 patents and patents pending in various phases of the patent process. Our Lusher subsidiary is developing and designing a software to streamline SEC financial reporting for financial reporting and tax firms. Currently, we have completed the SEC financial reporting software in a Microsoft Word format. Our team is focused on streamlining the entire SEC financial reporting process for SEC attorneys, PCAOB accounting firms, and other financial reporting professionals. Our goal is that with a single click, our software automatically retrieves financial data from external accounting systems and generates consolidated financial statements and SEC reports in WORD, PDF, HTML, and XBRL formats—all within just a few minutes. Our developers are trying to eliminate human involvement when it comes to manually updating the numbers. This automation is designed to create an error-free, seamless process. Customer testing of the fully automated SEC financial reporting software began in July 2025. Our securities are currently traded on Nasdaq Capital Market effective as of September 23, 2024. 25 Recent Developments Acquisition of Office and Commercial Building On April 17, 2026, our wholly owned subsidiary, Lusher Holding LLC (the “ Lusher Holding ”), closed the acquisition of a Class A office and commercial building along with a four-level parking structure, located at 901 Corporate Center Drive, Monterey Park, California 91754 (the “Property”). The Seller of the Property was 901 Corporate Center, LP (the “ Seller ”). The aggregate purchase price of the Property was $17,700,000, exclusive of closing costs (the “ Purchase Price ”). We made an initial down payment of $525,000 on January 26, 2026. On April 17, 2026, we funded the Purchase Price with a loan of $11,050,000 facilitated by a term loan agreement with East West Bank and $5,797,152 in cash as a downpayment to close escrow. The Purchase Price was discounted approximately $419,153 due to rent prorations, security deposits, and other such pre-paid amounts which resulted in the Company receiving a balance of $2,434 after closing costs. The surveyed aggregate land area of the Property amounts to approximately 464,955 useable square feet or 10.73 acres, which is comprised of four parcels (i.e., Parcel Numbers, 5237-022-014, 046, 047, and 5237-002-021) (the “ Parcels ”). The Parcels, including its land and improvements, have an aggregate value of approximately $28,424,982 in 2026 according to the Los Angeles County Assessor. The Property provides approximately 100,743 sq. ft. in rentable Class A office space and has a parking ratio of 4.1/1,000, offering a blend of surface parking and adjacent four-level parking structure with a canopy of solar panels that are currently leased. Currently, the Property is 99.2% occupied by approximately 16 tenants. The Company does not intend to alter the terms of lease agreements in place with the current tenants, most of which have a term of 5 to 8 years. The Company plans to occupy approximately 2,000 square feet of space. Loan with East West Bank Lusher Holding entered into a loan with East West Bank to borrow $11,050,000 to pay the Purchase Price, at 6.25% interest for the first 3 years, then floating at the Wall Street Journal Prime Rate plus (+) 0.25% for the remaining term, with a floor interest rate at 6.25% to facilitate the purchase of the Property (“ East West Loan ”). The East West Loan provides for 83 consecutive monthly principal and interest payments of approximately $68,698.64, beginning on May 1, 2026, and subsequently, 83 consequent instalments of principal and interest payments of an estimated amount of approximately $73,917.99 (subject to change based on Wall Street Journal Prime Rate plus 0.25%) each beginning May 1, 2029. A final principal and interest payment of approximately $9,533,143.67 is due on April 1, 2036 (subject to change based on Wall Street Journal Prime Rate plus 0.25%). We are listed as the primary guarantor of the East West Loan and our Chief Executive Officer, Dr. Desheng Wang, is listed as a secondary guarantor. Reverse Stock Split On June 23, 2026, we effected a four-to-one reverse stock split of our common stock. Except as otherwise stated, all numbers in this Quarterly Report on Form 10-Q reflect the reverse stock split . Our Current Products Include: We are a wholesaler of various digital, analog, and quantum light meters and filtration products, including fan speed adjusters, carbon filters and HEPA filtration systems. 26 Ubiquitor Wireless Universal Sensor Device We have developed a device we call the Ubiquitor (the "Ubiquitor"), which replaces the functions of traditional digital measurement and sensing products by integrating many digital sensors and measurement tools into one single digital device. We believe the platform represents a technological advancement in the IoT marketplace by integrating large numbers of technologies, including cloud technology, wired and wireless communication technology, software programming, instrumentation technology, artificial intelligence, PLC technology, and sensor networking into a single platform. We believe the result of such integration is a smaller, cheaper, and faster circuit system design than those currently offered in the instrumentation market. Our USIP technology that will make the Ubiquitor possible is an advanced software and hardware integrated instrumentation platform that uses a large-scale modular design approach. The large-scale modular design approach subdivides instruments into a foundation component (a USIP) and architecture-specific components (sensor nodes), which together are intended to replaces the functions of traditional instruments at a fraction of their cost. The USIP has an open architecture, incorporating a variety of individual instrument functions, sensors, and probes from different industries and vendors. The platform features the ability to connect potentially thousands of different sensors or probes, addressing major limitations present in traditional instrumentation systems. Additional Focus Universal Inc. IoT Products under Smart AVX. We also sell integrated IoT equipment under the Smart AVX brand to connect devices across platform systems and to facilitate unified collaboration across audio-visual technologies, digital media technologies, security and surveillance technologies and communication technologies. This approach allows us to provide customers ease of use, design and integration, and installation and maintenance by utilizing technology that integrates our five core technologies. We have integrated our Smart AVX-branded products across the following strategic sub-sectors: LED Audio-visual Panel Products, large format Smart Multimedia Touch Screens, Pan Tilt Zoom (“PTZ”) Dome Cameras and Network Video Recorders (“NVRs”), and VOIP Phone Services. 1. LED Audio-visual Panel Products. LED panel digital displays have become an integral and modern-day solution that address the communication and display demands of the residential and commercial customer base. Due to the flexible configuration of the LED panels, the modular design that enables the ability to incorporate a design into any size space, the flexibility of the standard size panels to accommodate curvature in the design space, the ability to address transparency in the panel displays and the ability to create new areas for delivering media to the public, our LED panel digital displays allow us to easily adapt our display design to spaces of any size and shape, making any customer space a customizable output and connected piece within a system. The option to create full size screens in any space, while addressing any environmental demands, allows us to use state-of-the-art media resulting in immersive, three-dimensional, captivating content delivery within any system. 2. Large Format Smart Multimedia Touch Screens. Smart AVX-branded large format touch screens deliver interactive solutions for a wide variety of industries and applications, including education, healthcare, commercial, residential and government applications. While interacting with a touch display is commonplace in public-consumer spaces, we integrate large format Smart touch screens in small business, commercial applications such as dental offices and other business scenarios. These market applications continue to be underserved with touch-enabled devices, and our installation engineers and design staff can customize solutions for unique business and commercial application projects. The Company, through the Smart AVX brand, offers a myriad of customized choices and a long list of options within the current touch screen technology in a refined product. Our products allow future integration of our core platform technologies, such as the LED digital displays, the Ubiquitor, PTZ Dome Cameras and VOIP Phone Systems, allowing for pinch, zoom, scrolling, and videoconferencing within the touch screen format. 27 Lusher Corporate Services, One Touch Financial Software Financial reporting is the annual and quarterly reporting process by which a public company keeps investors aware of a company’s financial condition, allowing them to have the information they need before making an investment decision. Because of the depth and nature of the information they contain, reports on Forms 10-K and 10-Q can become time-consuming, especially given the complex processes that require a company’s internal teams to gather large amounts of data across multiple sources. The time and expertise required to complete the process is a substantial burden. SEC reporting deadlines are firm and inflexible. Delays and mistakes in SEC financial reporting can have far-reaching consequences for companies and their shareholders including. SEC review, enforcement actions, and penalties. Late, inaccurate, or incomplete filings can often lead to a drop in the company’s stock price and a decrease in investor confidence. Human data entry of hundreds or thousands of financial numbers in the financial report imposes another challenge and presented by regularly occurring human error. This risk is compounded by a frequent requirement to update or revise these hundreds or thousands of numbers during the time-constrained review processes and auditing processes prior to submission. Given the complexity and volume of data involved, companies are looking for solutions that not only save cost, and reduce the time and effort required to report in a timely manner but also improve accuracy and compliance. We began customer testing of our fully automated SEC financial reporting software on July 22, 2025. The Company plans to launch a technology roadshow to showcase this groundbreaking platform. Interested clients, partners, corporate filers, and investors will be welcomed to contact us for meetings and product demonstrations. 28 Currently, several companies offer semi-automated solutions that address only part of the tagging process. We have developed a fully automated, end-to-end solution powered by both automation and Variegated AI. We believe the technology enables the computer to conduct the activities for which the computer is designed and optimal, while allowing humans to remain in the decision loop and center upon what they excel at. With a single click, our software can: · Retrieve financial statements from accounting platforms, · reformat data into spreadsheets for consolidated financial reporting, · automatically generate consolidated financials, · populate the word-processed version of SEC filings, · convert the documents to SEC-compliant versions via formatting, and · embed accurate tags into the HTML file — with very limited manual input. Research and Development Efforts of Power Line Communication Power Line Communication (“PLC”) technology is a communication technology that enables sending data over existing power cables. One advantage of this technology is that PLC does not require substantial new investment for its communications infrastructure. Rather, PLC utilizes existing power lines, thereby utilizing a distribution network that already penetrates all residential, commercial and industrial premises. Accordingly, connectivity via PLC technology is potentially the most cost-effective, scalable interconnectivity approach for the IoT. We believe PLC technology can be an integral part of our communication infrastructure for the IoT, which enables reliable, real-time measurements, monitoring, and control. A large variety of appliances may be interconnected by transmitting data through the same wires that provide electrical energy. Our patented PLC technology uses an ultra-narrowband spectrum channel of less than 1 KHz to establish a long-distance link between transmitter and receiver. Thus, we believe that our proprietary ultra-narrowband PLC technology will offer a promising alternative to wireless networks and provide the backbone communication infrastructure for IoT devices. The primary design goal of the power line network is electric power distribution, not data transmission. The harsh electrical noise present on power lines and variations in equipment and standards make data transmission over the power grid difficult. These technological challenges have impeded, or even halted, progression of PLC technology. For a description of our products and services offering, please refer to Item 1. “Business” beginning on page 1 of our Annual Report on Form 10-K for the fiscal year ending December 31, 2025, filed with the Securities and Exchange Commission on March 31, 2026. 29 Research and Development Efforts of 5G Cellular Technology Just like our ultra-narrowband technology can be used to effectively reduce noise in powerline communication technology, our internal research suggests that our ultra-narrowband technology can be leveraged to create a type of 5G wireless communication technology that can achieve both low band 5G coverage and an estimated 1 Gbps high band speed. We employ an ultra-narrow spectrum channel (<1KHz) to establish an ultra-long-distance link between the 5G base station and the receiver which reduces noise and interference entering the bandwidth. For a description of the ultra-narrowband technology and the 5G applications, see “Part I - Item 1. Business in our Annual Report on Form 10-K filed with the SEC on March 31, 2026. We signed a contract with Shenzhen Donghui Precision Mold Manufacturing Co., Ltd. and officially commenced the mold tooling design for the Universal Smart Internet of Things (IoT). For our Company this marks a pivotal milestone in the commercialization of the Universal Smart IoT, a breakthrough that has been over a decade in the making. With over a decade of innovation, we are now ready to move forward with full-scale production and commercialization. In doing so, we hope not only fulfill our promise to shareholders but also demonstrate to the world that deploying complex IoT technology can be as easy as plugging in an office phone. Our internal research suggests that our platform provides both a competitive edge and cost savings when compared to traditional, non-IoT devices—thanks to universal hardware and software shared across all sensors. Switching from one sensor to another requires no change to the underlying device’s hardware or software, enabling true interoperability across devices. Intellectual Property Protection Currently, the Company has 18 pending U.S. nonprovisional patent applications and 9 issued U.S. patents. Competitors We have identified several competitors specifically in the wireless sensor node industry, including traditional instruments or device manufacturers. However, we are not trying to compete with traditional instruments or device manufacturers because we utilize our Ubiquitor device in conjunction with our smartphone application, which we believe will be a completely different product category. There are many competitors in the SEC Financial Reporting software space, including Workiva, ActiveDisclosure, Datarails, and Carta. We believe that our product will be superior because our pricing will be substantially cheaper than the current competitors in the market. Also, since it is an integration for common desktop applications, we expect software implementation to be rapid, accessible, and straightforward. 30 IoT Installation Industry There are several companies that compete with AVX in smart home installations, including Vivint Smart Home, Savant, Crestron and Control4. However, we believe we can distinguish ourselves from our competitors by offering substantially more customization and interoperability with existing platforms. While our service offerings do not rely on always providing the entire installation for the end client, our Company is able to seamlessly provide accenting, replacement, or conversion home automation systems which are easier to use and interoperate for the end client, and with limited rewiring. Complete installation by Crestron ranges between $100,000 and $500,000 and an installation by Control4 ranges between $70,000 and $250,000. The cheapest competitor we can identify in this sector is Vivint Smart Home, which costs less than $50,000 to install; however, we understand that the Vivint Smart Home focuses on security systems only and that users have no other smart applications, which our smart home product line would include. Our sales staff have encountered a growing client base of unhappy customers with the pre-existing and completely siloed platform systems that reportedly are not easy to use or program, require costly specialty service for simple operations, are subject to lengthy software and hardware backlogs, and despite being based on the same platform, fail to operate compatibly, possessing frequent errors and bugs. Our products are being designed to solve the foregoing problems. Air Filtration Systems and Meter Products Industry The air filtration system and meter products industry is a niche industry. Air purification methods are an effective way to control contaminants and improve indoor air quality; and as a result, many national and local governments overseeing indoor air quality and other emissions are enacting stricter workforce health and safety regulations in this area, which drives demand. Market Potential We believe universal wireless smart technology will play a critical role for traditional instrument manufacturers, as currently the undertaking of an IoT project is simply too expensive and difficult to develop for medium or smaller companies and carries a 75% failure rate according to Cisco Systems. The cost factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and implement them into their products or use them in their field testing. We also hope to play a role in academic laboratories, particularly with smaller academic laboratories that are sensitive to price. Regarding the larger IoT industry statistics, overall enterprise IoT spending increased to $201 billion in 2022, an increase of 21.5%. The outlook for growth in 2023 is 18.5% from this large base of enterprise spending. More specifically, the IoT sensors market is projected to reach $26 billion by 2026 from $11.1 billion in 2022. The IoT marketplace size assessments usually include the hardware components and the software components, which often contain a Software as a Service (SaaS) model. Additionally, the rising need for reliable high bandwidth communication for IoT devices is expected to rise to $664.75 billion in 2028, spearheaded by the currently predominant services in the 5G category. We would also expect this market to grow with the addition of new categories of services delivering reliable high bandwidth communication for IoT devices and would cannibalize and expand the existing services where the new services proved to be more effective and efficient. The financial reporting software market size was estimated at 13.9 billion in 2022 and is projected to reach $36.6 billion by 2030. The expanding demand of software solutions to reduce the overall cost of compliance and boost efficiency is one of the main reasons the financial reporting software sector is projected to grow. 31 Results of Operations Our results of operations for the three and six months ended June 30, 2026 include the revenue generated from the Property and related expenses from April 17, 2026 through June 30, 2026 which is not included in our results of operations for the three and six months ended June 30, 2025. Accordingly, the results of operations for the three and six months ended June 30, 2026 is not directly comparable to the prior-year periods. For the three months ended June 30, 2026 compared to the three months ended June 30, 2025 Revenue For the three months ended June 30, 2026 For the three months ended June 30, 2025 Increase (Decrease) $ Rental revenue $ 651,950 $ – $ 651,950 Other revenue 23,220 35,330 (12,110 ) Total revenue $ 675,170 $ 35,330 $ 639,840 Our consolidated gross revenue for the three months ended June 30, 2026 and 2025 was $675,170 and $35,330, respectively. The increase in revenue was primarily attributable to an increase in rental revenue from Lusher Holding LLC. 32 The major components of our cost and operating expenses for the three months ended June 30, 2026 and 2025 are outlined in the table below: For the three months ended June 30, 2026 For the three months ended June 30, 2025 Increase (Decrease) $ Property operating expense $ 259,663 $ – $ 259,663 Cost of other revenue 17,227 47,742 (30,515 ) Depreciation and amortization 201,024 5,506 195,518 Selling expense 691 7,420 (6,729 ) Compensation – officers and directors 117,638 125,357 (7,719 ) Research and development 362,165 467,297 (105,132 ) Professional fees 751,144 429,155 321,989 General and administrative 515,193 495,613 19,580 Total operating expenses $ 2,224,745 $ 1,578,090 $ 646,655 Property operating expense for the three months ended June 30, 2026 were $259,663, compared to $0 for the three months ended June 30, 2025. The increase in property operating expenses was primarily due to the acquisition of the commercial property during the quarter. Cost of other revenue for the three months ended June 30, 2026 were $17,227, compared to $47,742 for the three months ended June 30, 2025. The decrease in the cost of other revenue was primarily due to a decrease in the number and quantity of other revenue-generating transactions. Depreciation and amortization for the three months ended June 30, 2026 were $201,024, compared to $5,506 for the three months ended June 30, 2025. The increase in depreciation and amortization expense was primarily due to depreciation expense recognized on the commercial property acquired during the quarter. Selling expenses for the three months ended June 30, 2026 were $691, compared to $7,420 for the three months ended June 30, 2025. Selling expenses were mainly from third party advertising fees and marketing related fees. The decrease in selling expenses was due to a decrease in advertising fees. Compensation – officers and directors were $117,638 and $125,357 for the three months ended June 30, 2026 and 2025, respectively. The decrease in cost was a result of the decrease in the share price, which reduced the stock-based compensation expense for the associated directors. Research and development costs were $362,165 and $467,297 for the three months ended June 30, 2026 and 2025, respectively. The decrease was primarily due to a reduction in the number of research and development employees during the current year. Professional fees were $751,144 during the three months ended June 30, 2026, compared to $429,155 during the three months ended June 30, 2025. The increase in these professional fees compared to the prior period was primarily due to an increase in legal advisory fees related to preferred stock and other securities matters. General and administrative expenses for the three months ended June 30, 2026 was $515,193 compared to $495,613 during the three months ended June 30, 2025. The increase in general and administrative expenses was primarily due to the Company having received its employee retention credit from the Internal Revenue Service in 2025, which reduced that year’s comparable expenses. Other Income (expense) Other income for the three months ended June 30, 2026 was $30,617, compared to $37,112 for the three months ended June 30, 2025. Net Losses During the three months ended June 30, 2026 and 2025, we incurred net loss of $1,518,958 and $1,505,648 respectively, due to the factors discussed above. 33 For the six months ended June 30, 2026 compared to the six months ended June 30, 2025 Revenue For the six months ended June 30, 2026 For the six months ended June 30, 2025 Increase (Decrease) $ Rental revenue $ 651,950 $ – $ 651,950 Other revenue 71,193 225,585 (154,392 ) Total revenue $ 723,143 $ 225,585 $ 497,558 Our consolidated gross revenue for the six months ended June 30, 2026 and 2025 was $723,143 and $225,585, respectively. The increase in revenue was primarily attributable to an increase in rental revenue from Lusher Holding LLC. The major components of our cost and operating expenses for the six months ended June 30, 2026 and 2025 are outlined in the table below: For the six months ended June 30, 2026 For the six months ended June 30, 2025 Increase (Decrease) $ Property operating expense $ 259,663 $ – $ 259,663 Cost of other revenue 49,956 207,453 (157,497 ) Depreciation and amortization 207,746 10,959 196,787 Selling expense 33,539 56,400 (22,861 ) Compensation – officers and directors 235,189 250,744 (15,555 ) Research and development 626,962 839,555 (212,593 ) Professional fees 1,136,349 902,146 234,203 General and administrative 995,025 772,615 222,410 Total operating expenses $ 3,544,429 $ 3,039,872 $ 504,557 Property operating expense for the six months ended June 30, 2026 were $259,663, compared to $0 for the six months ended June 30, 2025. The increase in property operating expenses was primarily due to the acquisition of the commercial property during the quarter. Cost of other revenue for the six months ended June 30, 2026 were $49,956, compared to $207,453 for the six months ended June 30, 2025. The decrease in the cost of other revenue was primarily due to a decrease in the number and quantity of other revenue-generating transactions. Depreciation and amortization for the six months ended June 30, 2026 were $207,746, compared to $10,959 for the six months ended June 30, 2025. The increase in depreciation and amortization expense was primarily due to depreciation expense recognized on the commercial property acquired during the quarter. Selling expenses for the six months ended June 30, 2026 were $33,539, compared to $56,400 for the six months ended June 30, 2025. Selling expenses were mainly from third party advertising fees and marketing related fees. The decrease in selling expenses was due to a decrease in advertising fees. Compensation – officers and directors were $235,189 and $250,744 for the six months ended June 30, 2026 and 2025, respectively. The decrease in cost was a result of the decrease in the share price, which reduced the stock-based compensation expense for the associated directors. Research and development costs were $626,962 and $839,555 for the six months ended June 30, 2026 and 2025, respectively. The decrease was due to software costs being capitalized in the current year. Professional fees were $1,136,349 during the six months ended June 30, 2026, compared to $902,146 during the six months ended June 30, 2025. The increase in these professional fees compared to the prior period was primarily due to an increase in legal advisory fees related to preferred stock and other securities matters. General and administrative expenses for the six months ended June 30, 2026 was $995,025 compared to $772,615 during the six months ended June 30, 2025. The increase in general and administrative expenses was primarily due to the Company having received its employee retention credit from the Internal Revenue Service in 2025, which reduced that year’s comparable expenses. 34 Other Income (expense) Other income for the six months ended June 30, 2026 was $56,250, compared to $57,261 for the six months ended June 30, 2025. Net Losses During the six months ended June 30, 2026 and 2025, we incurred net loss of $2,765,036 and $2,757,026 respectively, due to the factors discussed above. Liquidity and Capital Resources Working Capital June 30, 2026 December 31, 2025 Current Assets $ 2,043,988 $ 8,647,129 Current Liabilities (836,423 ) (366,471 ) Working Capital $ 1,207,565 $ 8,280,658 Cash Flows The table below, for the periods indicated, provides selected cash flow information: For the six months ended June 30, 2026 For the six months ended June 30, 2025 Net cash used in operating activities $ (1,889,277 ) $ (2,648,288 ) Net cash used in investing activities (6,632,052 ) (25,091 ) Net cash provided by financing activities 2,180,050 207,387 Effect of exchange rate 6,579 (12,125 ) Net change in cash $ (6,334,700 ) $ (2,478,117 ) 35 Cash Flows from Operating Activities Our net cash outflows from operating activities of $1,889,277 for the six months ended June 30, 2026 was primarily the result of our net loss of $2,765,036 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. Our net cash outflows from operating activities of $2,648,288 for the six months ended June 30, 2025 was primarily the result of our net loss of $2,757,026 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. We expect that cash flows from operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our net revenues and operating results, utilization of new revenue streams, in line with our shifting revenue streams, collection of accounts receivable, and timing of billings and payments. Cash Flows from Investing Activities For the six months ended June 30, 2026 we had cash outflow from investing activities of $6,632,052 from the proceed from sale of marketable securities of $121,823 offset by the purchase of property and equipment of $6,656,031 and capitalized software cost of $97,844. For the six months ended June 30, 2025 we had cash outflow from investing activities of $25,091 from the purchase of property and equipment of $25,091. Cash Flows from Financing Activities For the six months ended June 30, 2026, we had cash inflows of $2,180,050, consisting of $3,547,348 in gross proceeds from the sale of pre-funded units in a private placement offering, offset by $961,861 of redemption of preferred stock, $51,294 of repayment on a bank loan, and $354,143 spent on the purchase of treasury stock. For the six months ended June 30, 2025, we had cash inflows of $207,387, consisting of $381,224 of gross proceeds from the sale of stock issued in a private placement offering and offset by $173,837 spent on the purchase of treasury stock. 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 $2,765,036 for the six months ended June 30, 2026. In addition, the Company had an accumulated deficit of $34,015,113 as of June 30, 2026, and negative cash flow from operating activities of $1,889,277 for the six months ended June 30, 2026. 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 losses 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 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, 2025, has also expressed substantial doubt about the Company’s ability to continue as a going concern. 36 At June 30, 2026, the Company had cash, and short-term investments, in the amount of $1,600,258. 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. 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. 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. Off-Balance Sheet Arrangements As of June 30, 2026, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. Recent Accounting Pronouncements Our Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements. Except for ASU 2024-03, which the Company is currently evaluating as discussed in Note 3, the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. 37