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Table of Contents

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended September 30, 2023

 

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 001-40770

 

FOCUS UNIVERSAL INC.

(Exact Name of Small Business Issuer as specified in its charter)

 

Nevada 46-3355876
(State or other jurisdiction (IRS Employer File Number)
of incorporation)  

 

2311 E. Locust Court, Ontario, CA 91761
(Address of principal executive offices) (Zip Code)

 

(626) 272-3883

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value FCUV

The Nasdaq Stock Market LLC

(Nasdaq Global Market)

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files. Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer  ☒ Smaller reporting company  
Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No

 

As of November 14, 2023, registrant had 64,821,817 shares outstanding of the registrant's common stock at a par value of $0.001 per share.

 

   

 

 

FORM 10-Q

 

FOCUS UNIVERSAL INC.

 

TABLE OF CONTENTS

 

PART I FINANCIAL INFORMATION 3
   
Item 1. Condensed Consolidated Financial Statements (Unaudited) 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 48
   
Item 4. Controls and Procedures 48
   
PART II OTHER INFORMATION 49
   
Item 1. Legal Proceedings 49
   
Item 1A. Risk Factors 49
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49
   
Item 3. Defaults Upon Senior Securities 49
   
Item 4. Mine Safety Disclosures 49
   
Item 5. Other Information 49
   
Item 6. Exhibits 49
   
Signatures 50

 

 

 

 2 

 

 

PART I.  FINANCIAL INFORMATION

 

References in this document to "us," "we," or "Company" refer to Focus Universal Inc.

 

ITEM 1.  FINANCIAL STATEMENTS

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Index to the Financial Statements

 

Contents Page
   
Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 4
   
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited) 5
   
Condensed Consolidated Statements of Changes in Stockholder’s Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (unaudited) 6
   
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (unaudited) 8
   
Notes to the Unaudited Condensed Consolidated Financial Statements 9

 

 

 

 3 

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

         
   September 30,   December 31, 
   2023   2022 
   (Unaudited)     
ASSETS          
Current Assets:          
Cash  $1,408,687   $4,343,426 
Accounts receivable, net   172,903    78,313 
Accounts receivable – related party       34,507 
Inventory   299,973    103,772 
Other receivables   10,000     
Prepaid expenses   109,941    142,342 
Marketable equity securities   39,165    105,470 
Total Current Assets   2,040,669    4,807,830 
           
Property and equipment, net   4,119,973    4,228,630 
Operating lease right-of-use assets   214,900    253,336 
Deposits   23,420    33,264 
           
Total Assets  $6,398,962   $9,323,060 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities:          
Accounts payable and accrued liabilities  $285,206   $267,685 
Related party loan   1,000,000     
Treasury stock payable       1,000,000 
Other current liabilities   40,255    6,496 
Lease liabilities, current portion   84,036    113,058 
Total Current Liabilities   1,409,497    1,387,239 
           
Non-Current Liabilities:          
Lease liabilities, less current portion   122,959    165,952 
Other liability   12,335    12,335 
Total Non-Current Liabilities   135,294    178,287 
           
Total Liabilities   1,544,791    1,565,526 
           
Contingencies (Note 13)        
           
Stockholders' Equity:          
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 64,771,817 and 65,296,383 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively   64,771    65,297 
Treasury stock at cost (1,183,040 shares and 400,000 shares held at September 30, 2023 and December 31, 2022, respectively)   (385,686)   (2,000,000)
Additional paid-in capital   26,100,446    27,514,733 
Shares to be issued, common shares   46,100    48,075 
Accumulated deficit   (20,964,470)   (17,864,028)
Accumulated other comprehensive loss   (6,990)   (6,543)
Total Stockholders' Equity   4,854,171    7,757,534 
           
Total Liabilities and Stockholders' Equity  $6,398,962   $9,323,060 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

 4 

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

                 
  

Three Months Ended

September 30,

   Nine Months Ended
September 30,
 
   2023   2022   2023   2022 
Revenue  $318,370   $54,686   $769,856   $242,675 
Revenue - related party       5,968        39,788 
Total Revenue   318,370    60,654    769,856    282,463 
                     
Cost of Revenue   201,394    42,441    531,397    243,004 
                     
Gross Profit   116,976    18,213    238,459    39,459 
                     
Operating Expenses:                    
Selling expense   33,636    76,984    108,570    132,871 
Compensation - officers and directors   267,002    265,449    827,939    874,739 
Research and development   305,872    133,109    925,345    862,214 
Professional fees   132,914    150,943    506,878    686,150 
General and administrative   407,851    365,694    1,212,486    1,586,660 
Total Operating Expenses   1,147,275    992,179    3,581,218    4,142,634 
                     
Loss from Operations   (1,030,299)   (973,966)   (3,342,759)   (4,103,175)
                     
Other Income (Expense):                    
Interest income (expense), net   (3,035)   2,635    27,519    2,885 
Gain on bargain purchase           61,747     
Unrealized gain (loss) on marketable equity securities   (17,102)   42,101    10,463    (32,525)
Realized gain (loss) on marketable equity securities   12,247    (31,486)   (2,002)   (21,205)
Rental income   40,731    39,172    121,024    117,513 
Other income (expense), net   29,425    (20,476)   23,566    164,260 
Total other income, net   62,266    31,946    242,317    230,928 
                     
Loss before income taxes   (968,033)   (942,020)   (3,100,442)   (3,872,247)
                     
Income tax expense                
                     
Net Loss  $(968,033)  $(942,020)  $(3,100,442)  $(3,872,247)
                     
Other comprehensive items                    
Foreign currency translation gain (loss)   (239)   4,596    (447)   121 
                     
Total comprehensive loss  $(968,272)  $(937,424)  $(3,100,889)  $(3,872,126)
                     
Weight Average Number of Common Shares Outstanding: Basic and Diluted   65,171,817    65,193,654    58,678,098    65,035,833 
                     
Net Loss per common share: Basic and Diluted  $(0.01)  $(0.01)  $(0.05)  $(0.06)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

 5 

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited)

 

                                 
   Common stock   Treasury Stock   Additional Paid-In   Shares to be issued Common   Accumulated   Accumulated Other Comprehensive   Total Stockholders’ 
Description  Shares   Amount   at Cost   Capital   Shares   Deficit   Loss   Equity 
Balance – June 30, 2023   64,771,817   $64,771   $(420,686)  $25,967,044   $31,400   $(19,996,437)  $(6,751)  $5,639,341 
                                         
Stock based compensation - options               133,402                133,402 
                                         
Stock based compensation - shares                   14,700            14,700 
                                         
Amendment stock purchase agreement – treasury stock           35,000                    35,000 
                                         
Other comprehensive income                           (239)   (239)
                                         
Net loss                       (968,033)       (968,033)
                                         
Balance – September 30, 2023   64,771,817   $64,771   $(385,686)  $26,100,446   $46,100   $(20,964,470)  $(6,990)  $4,854,171 
                                         
                                         
                                         
Balance – June 30, 2022*   65,120,276   $65,120   $   $26,458,717   $684,920   $(15,867,318)  $117   $11,341,556 
                                         
Stock based compensation - options   82,347    82        195,669                195,751 
                                         
Stock based compensation - shares   90,750    91        642,789    (663,900)           (21,020)
                                         
Purchase of treasury stock           (2,000,000)                   (2,000,000)
                                         
Other comprehensive income                           4,596    4,596 
                                         
Net loss                       (942,020)       (942,020)
                                         
Balance – September 30, 2022*   65,293,373   $65,293   $(2,000,000)  $27,297,175   $21,020   $(16,809,338)  $4,713   $8,578,863 

 

(continued)

 

 

 6 

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Unaudited)

 

                                 
   Common stock   Treasury Stock   Additional Paid-In   Shares to be issued Common   Accumulated   Accumulated Other Comprehensive   Total Stockholders’ 
Description  Shares   Amount   at Cost   Capital   Shares   Deficit   Loss   Equity 
Balance – December 31, 2022*   65,296,383   $65,297   $(2,000,000)  $27,514,733   $48,075   $(17,864,028)  $(6,543)  $7,757,534 
                                         
Stock based compensation - options               400,208                400,208 
                                         
Stock based compensation – cashless exercise options   10,857    10        (10)                
                                         
Stock based compensation - shares   62,250    62        184,917    (1,975)           183,004 
                                         
Purchase of treasury stock            (420,686)                   (420,686)
                                         
Retirement of treasury stock   (600,000)   (600)   2,000,000    (1,999,400)                
                                         
Amendment stock purchase agreement – treasury stock           35,000                    35,000 
                                         
Other comprehensive income                           (447)   (447)
                                         
Issued stock dividend   2,327    2        (2)                
                                         
Net loss                       (3,100,442)       (3,100,442)
                                         
Balance – September 30, 2023   64,771,817   $64,771   $(385,686)  $26,100,446   $46,100   $(20,964,470)  $(6,990)  $4,854,171 
                                         
                                         
                                         
Balance – December 31, 2021*   64,889,612   $64,889   $   $24,071,445   $1,922,753   $(12,937,091)  $(4)  $13,121,992 
                                         
Stock based compensation - options   82,347    82        652,419                652,501 
                                         
Stock based compensation - shares   90,750    91        642,789    21,020            663,900 
                                         
Purchase of treasury stock           (2,000,000)                   (2,000,000)
                                         
Common stock issued for this period service   1,337    1        7,999                8,000 
                                         
Common stock issued for prior period service   47,604    48        146,661    (146,709)            
                                         
Common stock issued for cashless exercise of warrants   181,723    182        1,775,862    (1,776,044)            
                                         
Other comprehensive income                           4,717    4,717 
                                         
Net loss                       (3,872,247)       (3,872,247)
                                         
Balance – September 30, 2022*   65,293,373   $65,293   $(2,000,000)  $27,297,175   $21,020   $(16,809,338)  $4,713   $8,578,863 

 

*Retroactively applied to the stock split

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

 7 

 

 

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

         
   Nine Months Ended September 30, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(3,100,442)  $(3,872,247)
Adjustments to reconcile net loss to net cash from operating activities:          
Bad debt expense   6,871    72,108 
Inventory fair value net realizable       (21,133)
Depreciation expense   127,171    123,908 
Amortization of intangible assets   28,741     
Unrealized (gain) loss on marketable equity securities   (10,463)   32,525 
Realized loss on marketable equity securities   2,002    21,205 
SBA loan forgiveness       (158,547)
Gain on bargain purchase   (61,747)    
Stock-based compensation – shares   183,004    671,901 
Stock-based compensation – options   400,208    652,500 
Changes in operating assets and liabilities:          
Accounts receivable   (101,461)   (32,257)
Accounts receivable - related party   34,507    (45,413)
Inventory   (196,201)   (5,087)
Other receivables   (10,000)    
Prepaid expenses   31,811    116,648 
Deposit   8,388    1,998 
Operating lease right-of-use assets   25,585    226,468 
Accounts payable and accrued liabilities   53,709    (120,121)
Other current liabilities   33,759    (17,406)
Lease liabilities   (58,987)   (94,542)
Other liabilities       12,335 
Net cash flows used in operating activities   (2,603,545)   (2,435,157)
           
Cash flows from investing activities:          
Purchase of property and equipment   (20,294)   (39,193)
Purchase of marketable securities   (144,907)   (768,949)
Proceeds from sale of marketable securities   219,673    630,404 
Net cash flows provided by (used in) investing activities   54,472    (177,738)
           
Cash flows from financing activities:          
Proceeds from related party loan   1,000,000     
Purchase of treasury stock   (1,385,686)    
Net cash flows used in financing activities   (385,686)    
           
Effect of exchange rate   20    (3,352)
           
Net change in cash   (2,934,739)   (2,616,247)
           
Cash beginning of period   4,343,426    8,678,665 
           
Cash end of period  $1,408,687   $6,062,418 
           
Supplemental cash flow disclosure:          
Cash paid for income taxes  $   $ 
Cash paid for interest  $13,142   $8,794 
           
Supplemental disclosure for noncash investing and financing activities:          
Right-of-use assets obtained in exchange for operating lease liabilities  $264,641   $ 
Treasury stock payable  $   $2,000,000 
Cashless exercise of options  $41,401   $612,662 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 8 

 

 

FOCUS UNIVERSAL INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(UNAUDITED)

 

Note 1 – Organization and Operations

 

Focus Universal Inc. (the “Company”) was incorporated under the laws of the State of Nevada on December 4, 2012. It is a universal smart instrument developer and manufacturer, headquartered in Ontario, California, specializing in the development and commercialization of novel and proprietary universal smart technologies and instruments. Focus Universal Inc. is also a provider of patented hardware and software design technologies for Internet of Things (IoT) and 5G. The Company has developed what it believes are five disruptive patented technology platforms with 26 patents and patents pending in various phases and 8 trademarks pending in various phases to solve what it believes are the major problems facing hardware and software design and production within the industry today. These technologies combined have the potential to reduce costs, product development timelines and energy usage while increasing range, speed, efficiency, and security of the IoT and 5G networks.

 

The Company has multiple subsidiaries, including Perfecular Inc. (“Perfecular”), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), AVX Design & Integration, Inc. (“AVX,” also doing business as Smart AVX (“Smart AVX”)), Lusher Bioscientific, Inc. (“Lusher”), and AT Tech Systems LLC (“AT Tech Systems”). Perfecular, a wholly owned subsidiary of Focus that was founded in September 2009 and is headquartered in Ontario, California, is engaged in designing digital sensor products and selling a broad selection of horticultural sensors and filters in North America and Europe. AVX, incorporated on June 16, 2000 in the state of California, is an IoT installation and management company specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation and integration. Services provided by AVX include full integration of houses, apartments, commercial complexes, office spaces with audio, visual and control systems to fully integrate devices in the low voltage field, specializing in high end residential smart IoT install projects in areas throughout the Southern California area. AVX’s services also include partial equipment upgrade and installation. AVX also markets and sells our IoT Products, such as high end LED, live wall panel products and cameras, under the Smart AVX name.

 

On December 23, 2021, Focus Shenzhen was founded as a mainland China office for manufacturing procurement expertise and support research and development activities. Focus Shenzhen is designed to function as a branch office accessing high level ability to source products and build relationships with manufacturers in the region and as a lower cost form of support research and development as engineers are more plentiful in the region. During the third quarter of 2023, this office has continued to grow and increase its headcount to 28 employees. Employees of Focus Shenzhen are added to the engineering staff, the sales staff, and the marketing and market analysis staff in house to enhance the internal capabilities of the Company.

 

As of January 6, 2023, AT Tech Systems is a subsidiary of Focus specializing in commercial and industrial smart IoT install projects in areas throughout the Southern California area. AT Tech Systems has several clients from medical/dental facilities and commercial and industrial projects, including several with notable manufacturers and wholesalers, and provides clients with integrated network, security, and multimedia design solutions and technology systems.

 

The Company has completed integration throughout its existing businesses, including key employees serving dual roles with its subsidiaries. For example, Mr. Anthony Tejeda serves as the Company’s director of installation services, as the vice president of operations of AVX, and as chief operating officer of AT Tech Systems. 

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of Focus and its wholly-owned subsidiaries, Perfecular, AVX, Focus Shenzhen, Lusher and AT Tech Systems (collectively, the “Company,” “we,” “our,” or “us”). All intercompany balances and transactions have been eliminated upon consolidation. The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

 

 

 9 

 

 

Segment Reporting

 

The Company currently has three operating segments. First, Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves the non-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of technology products. Second, Perfecular, AVX (doing business as and branded under Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instruments and devices in the hydroponic and controlled agriculture segments and of our smart products into the commercial and home automation sectors. And third, AVX (exclusive of the smart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management business specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation, and integration.

 

Use of Estimates

 

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

 

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include the lease term impacting right-of-use asset with the estimate discount rate and lease liability, useful lives of property and equipment, useful lives of intangible assets, allowance for doubtful accounts, inventory reserves, stock option valuation, share-based compensation, fair value of warrants, and the valuation allowance on deferred tax assets. The Company regularly evaluates its estimates and assumptions.

 

Cash

 

The Company considers all highly liquid investments with a maturity of three months or less to be cash. At times, such investments may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limits. As of September 30, 2023 and December 31, 2022, respectively, approximately $616,174 and $3,120,763 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company as of either September 30, 2023 or December 31, 2022.

 

Accounts Receivable

 

The Company grants credit to clients that sell the Company’s products or engage in construction service under credit terms that it believes are customary in the industry and do not require collateral to support customer receivables. The accounts receivable balances are generally collected within 30 to 180 days of the product sale.

 

Allowance for Doubtful Accounts

 

The Company estimates an allowance for doubtful accounts based on historical collection trends and review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of September 30, 2023 and December 31, 2022, allowance for doubtful accounts amounted to $229,843 and $222,972, 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.

 

 

 

 10 

 

 

Inventory

 

Inventory consists primarily of parts and finished goods and is valued at the lower of the inventory’s cost or net realizable value under the first in, first out method (“FIFO Method”). Management compares the cost of inventory with its market value and a fair value adjustment is made to write down inventory to market value, if lower. Inventory fair value adjustments are recorded for obsolete or slow-moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as discontinued products. These estimates could vary significantly from actual requirements, for example, if future economic conditions, customer inventory levels or competitive conditions differ from expectations. The Company regularly reviews the value of inventory based on historical usage and estimated future usage. If net realized value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its net realizable value.

 

Marketable Equity Securities

 

The Company invests part of its excess treasury cash in equity securities and money market funds according to company treasury and investment policies. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized gains and losses are recognized the fair value differences when the trading securities been sold based on the FIFO Method. Unrealized gains and losses are recognized the fair value differences of unsold trading securities for the period end based on the FIFO Method. Both realized and unrealized gains and losses are recorded in other income (expense).

 

Property and Equipment

 

Property and equipment are stated at cost. The cost and accumulated depreciation of assets sold or retired are removed from the respective accounts and any gain or loss is included in earnings. Maintenance and repairs are expensed currently. Major renewals and betterments are capitalized. Depreciation is computed using the straight-line method. Estimated useful lives are as follows:

 
Fixed assets Useful life
Furniture 5 years
Equipment 5 years
Warehouse 39 years
Improvement 5 years
Land N/A

 

Long-Lived Assets

 

The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that those fair values are reduced for the cost of disposal. Long-term assets of the Company are reviewed when circumstances warrant as to whether their carrying value has become impaired. The Company considers assets to be impaired if the carrying value exceeds the future projected cash flows from related operations. The Company also re-evaluates the periods of amortization to determine whether subsequent events and circumstances warrant revised estimates of useful lives. Based on its review at September 30, 2023 and December 31, 2022, the Company believes there was no impairment of its long-lived assets.

 

Intangible Assets

 

The Company’s intangible assets were acquired from AT Tech Systems due to customer relationships using the multi-period excess earnings method. These intangible assets were valued based on the AT Tech Systems business acquisition during January 2023. The value is based on the assessed income expected to be generated from the existing customer list, namely the carry-over of the existing contracts after a careful evaluation of the customer list. Amortization on the intangible assets was computed by the percentage completed for these existing assets and fully amortized as of September 30, 2023.

 

 

 

 11 

 

 

Treasury stock

 

Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are recorded at the acquisition price directly to the treasury stock account. The Company does not recognize a gain or loss to income from the purchase and sale of treasury stock.

 

Share-Based Compensation

  

The Company accounts for stock-based compensation to employees in conformity with the provisions of FASB ASC Topic 718, Stock-Based Compensation. Stock-based compensation to employees consist of stock options, grants, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant.

 

The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period during which services are received.

 

The Company calculates the fair value of option grants utilizing the Black-Scholes pricing model (see Note 12) and estimates the fair value of the stock based upon the estimated fair value of the common stock. The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.

 

The resulting stock-based compensation expense for both employee and non-employee awards is generally recognized on a straight- line basis over the requisite service period of the award.

 

Warrants

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC Topic 480, Distinguishing Liabilities from Equity and FASB ASC Topic 815, Derivatives and Hedging. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

 

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Company calculates the fair value of warrants utilizing the Black-Scholes pricing model. The Company does not have any outstanding warrants as of September 30, 2023 and December 31, 2022, respectively.

 

Stock Dividends

 

The Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held. The Company follows paragraph ASC 505-20-25 in treating its stock dividend as a stock split due to the stock dividend being greater than 25% of the shares then outstanding. On March 23, 2023 and April 3, 2023, the Company issued 21,592,164 stock dividends to its shareholders for a stock dividend of one share of common stock for every two shares of common stock issued and outstanding. The Company also adheres to paragraph ASC 260-10-55-12, wherein it retroactively adjusted its statement of stockholders’ equity for all presented periods to incorporate the alteration in capital structure. The retroactive treatment is based on a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders on March 23, 2023. The Company does not capitalize its retained earnings, and there is no impact to the Company’s overall equity or its total assets.

 

 

 

 

 

 12 

 

 

Fair Value of Financial Instruments

 

The Company follows paragraph ASC 825-10-50-10 for disclosures about fair value of its financial instruments and paragraph ASC 820-10-35-37 (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in conformity with U.S. GAAP, and expands disclosures about fair value measurements.

 

To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

 

  · Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
  · Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
  · Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.

  

The following table summarize financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022: 

                
   September 30, 2023 (unaudited) 
   Fair Value   Carrying 
   Level 1   Level 2   Level 3   Value 
Assets                
Marketable securities:                    
Stock  $39,165   $   $   $39,165 
Total assets measured at fair value  $39,165   $   $   $39,165 

 

 

   December 31, 2022 
   Fair Value   Carrying 
   Level 1   Level 2   Level 3   Value 
Assets                
Marketable securities:                    
Stock  $105,470   $   $   $105,470 
Total assets measured at fair value  $105,470   $   $   $105,470 

 

The carrying amount of the Company’s financial assets and liabilities, such as cash, accounts receivable, inventory, other receivables, prepaid expenses, deposits, accounts payable, treasury stock payable and accrued expenses, other current liabilities, and customer deposits, approximate their fair value because of the short maturity of those instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

However, it is not practical to determine the fair value of advances from stockholders, if any, due to their related party nature.

 

 

 

 

 13 

 

 

Comprehensive Income (Loss)

 

Other comprehensive income (loss) refers to revenues, expenses, gains and losses that under generally accepted accounting principles are included in comprehensive income but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to stockholders’ equity. The Company’s other comprehensive loss for the nine months ended September 30, 2023 and for the year ended December 31, 2022 was comprised of foreign currency translation adjustments.

 

Revenue Recognition

 

On September 1, 2018, the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers using the modified retrospective transition approach. The core principle of ASC 606 is that revenue should be recognized in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled for exchange of those goods or services. The Company’s updated accounting policies and related disclosures are set forth below, including the disclosure for disaggregated revenue. The impact of adopting ASC 606 was not material to the unaudited condensed consolidated financial statements.

 

Revenue from the Company is recognized under ASC 606 in a manner that reasonably reflects the delivery of its services and products to customers in return for expected consideration and includes the following elements:

 

  · executed contracts with the Company’s customers that it believes are legally enforceable;
     
  · identification of performance obligations in the respective contract;
     
  · determination of the transaction price for each performance obligation in the respective contract;
     
  · allocation of the transaction price to each performance obligation; and
     
  · recognition of revenue only when the Company satisfies each performance obligation.

  

These five elements, as applied to each of the Company’s revenue categories, is summarized below:

 

  · Product sales – revenue is recognized at the time of sale upon the delivery of equipment to the customer.
     
  · Service sales – revenue is recognized based on the service having been provided and the agreed upon performance obligation has been completed to the customer.

 

Revenue from our project construction is recognized over time using the percentage-of-completion method under the cost approach. The percentage of completion is determined by estimating stage of work completed. Under this approach, recognized contract revenue equals the total estimated contract revenue multiplied by the percentage of completion. Our construction contracts are unit priced, and an accounts receivable is recorded for amounts invoiced based on actual units produced.

 

Cost of Revenue, excluding depreciation & amortization

 

Cost of revenue includes the cost of services, labor and product incurred to provide product sales, service sales and project sales.

 

Research and development

 

Research and development costs are expensed as incurred. Research and development costs primarily consist of efforts to refine existing product models and develop new product models.

 

 

 

 

 14 

 

 

Related Parties

 

The Company follows Section 10 of FASB ASC Topic 850, Related Party Disclosures for the identification of related parties and disclosure of related party transactions. Pursuant to ASC 850-10-20 the related parties include: (a) affiliates of the Company; (b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of ASC 825–10–15, to be accounted for by the equity method by the investing entity; (c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; (d) principal owners of the Company; (e) management of the Company; (f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and (g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The unaudited condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of unaudited condensed consolidated financial statements is not required in those statements. The disclosures shall include: (a) the nature of the relationship(s) involved; (b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the unaudited condensed consolidated financial statements; (c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and (d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows Section 20 of FASB ASC Topic 450, Contingencies to report accounting for loss contingencies. Certain conditions may exist as of the date the unaudited condensed consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s unaudited condensed consolidated financial statements. If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Gain on Bargain Purchase

 

A bargain purchase gain is recognized when the net assets acquired in a business combination have a higher fair value than the consideration paid.

 

Income Tax Provision

 

The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes. ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, the Company does not foresee generating taxable income in the near future and utilizing its deferred tax asset, therefore, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

 

 

 

 

 15 

 

 

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The Company has no material uncertain tax positions for any of the reporting periods presented.

 

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. There were no material deferred tax assets or liabilities as of September 30, 2023 and December 31, 2022.

 

As of September 30, 2023 and December 31, 2022, the Company did not identify any material uncertain tax positions.

 

Basic and Diluted Net Income (Loss) Per Share

 

Net income (loss) per share is computed pursuant to Section 10-45 of FASB ASC Topic 260, Earnings Per Share. Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period.

 

Diluted EPS is computed by dividing net income (loss) by the weighted average number of shares of stock and potentially outstanding shares of stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangements, stock options or warrants.

 

Due to the net loss incurred by the Company, potentially dilutive instruments would be anti-dilutive. Accordingly, diluted loss per share is the same as basic loss for all periods presented. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive. 

        
Nine Months Ended September 30,  2023   2022 
Stock options   497,092    305,041 
Total   497,092    305,041 

 

While the EPS treatment was applied in the quarter ended September 30, 2023, and a fifty percent stock dividend adjustment on March 23, 2023 is also retroactive accordingly.

 

Reclassification

 

Certain reclassifications have been made to the unaudited condensed consolidated financial statements for the prior period to the current year’s presentation. Such reclassifications have no effect on net income as previously reported.

 

Foreign Currency Translation and Transactions

 

The reporting and functional currency of Focus is the U.S. dollar (USD). The functional currency of Focus Shenzhen is the renminbi (RMB).

 

For financial reporting purposes, the financial statements of Focus Shenzhen, which are prepared using the RMB, are translated into the USD. Assets and liabilities are translated using the exchange rate on the balance sheet date. Revenue and expenses are translated using average exchange rates prevailing during each reporting period. Stockholders’ equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive loss in stockholders’ equity.

 

 

 

 

 

 16 

 

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange difference, presented as foreign currency transaction loss, is included in the accompanying unaudited condensed consolidated statements of operations. The exchange rates used for unaudited condensed consolidated financial statements are as follows:

               
   

Average Rate for the Nine Months Ended

September 30,

 
   

2023

(Unaudited)

   

2022

(Unaudited)

 
China Yuan (RMB)   RMB 7.2942     RMB 6.5985  
United States Dollar ($)   $ 1.0000     $ 1.0000  

 

    Exchange Rate at  
    September 30, 2023     December 31, 2022  
    (Unaudited)        
China Yuan (RMB)   RMB 7.0279     RMB 7.1100  
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 unconsolidated financial statements. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

  

The Company has a net loss of $3,100,442 and $3,872,247 for the nine months ended September 30, 2023 and 2022, respectively. In addition, the Company had an accumulated deficit of $20,964,470 and $17,864,028 as of September 30, 2023 and December 31, 2022, respectively, and negative cash flow from operating activities of $2,603,545 and $2,435,157 for the nine months ended September 30, 2023 and 2022, respectively. As noted above, the Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 3 – Recent Accounting Pronouncement

 

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.

 

Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.

 

 

 

 

 17 

 

 

Note 4 – Inventory

 

At September 30, 2023 and December 31, 2022, inventory consisted of the following:

        
   September 30, 2023   December 31, 2022 
Parts  $1,051   $3,767 
Finished goods   298,922    100,005 
Inventory  $299,973   $103,772 

 

Note 5 – Deposits

 

The deposits balance as of September 30, 2023 amounted to $23,420 for lease agreement and utility deposits and third-party payroll service deposits. The deposits balance as of December 31, 2022 amounted to $33,264 for lease agreement and utility deposits.

 

Note 6 – Property and Equipment

 

As of September 30, 2023 and December 31, 2022, property and equipment consisted of the following:

        
   September 30, 2023   December 31, 2022 
Warehouse  $3,789,773   $3,789,773 
Land   731,515    731,515 
Building improvement   240,256    240,256 
Furniture and fixture   38,852    37,785 
Equipment   118,083    101,076 
Software   1,995    1,995 
Total cost   4,920,474    4,902,400 
Less accumulated depreciation   (800,501)   (673,770)
Property and equipment, net  $4,119,973   $4,228,630 

 

Depreciation expense for the three months ended September 30, 2023 and 2022 amounted to $43,723 and $41,845, respectively. Depreciation expense for the nine months ended September 30, 2023 and 2022 amounted to $127,171 and $123,908, respectively.

 

Note 7 – Intangible Assets, Net

 

The following table presents the intangible assets balances as of September 30, 2023 and December 31, 2022: 

        
   September 30, 2023   December 31, 2022 
Customer Relationships  $28,741   $ 
Less accumulated amortization   (28,741)    
Intangible assets, net  $   $ 

 

Note 8 – Related Party Transactions

 

Revenue generated from Vitashower Corp., a company owned by the Chief Executive Officer’s wife, amounted to $0 and $33,820 for the nine months ended September 30, 2023 and 2022, respectively. The accounts receivable balance due from Vitashower Corp. amounted to $0 and $34,507 as of September 30, 2023 and December 31, 2022, respectively.

 

Note 9 – Related Party Loan

 

On August 3, 2023, the Company submitted a written consent, and the Board approved a loan amount from $1 million to $5 million. On September 7, 2023, the Company entered into a loan agreement with Golden Sunrise Investment LLC in the amount of $1,000,000. This loan is secured against the Company’s property, which serves as collateral, with a net book value of $4.5 million pledged. At the time of entering the loan agreement, Golden Sunrise Investment LLC was owned by two of the Company’s shareholders who collectively owned approximately 19% of the Company’s outstanding shares. The loan has an annual interest rate of 12% and the principal amount has a due date of September 7, 2024. The interest expense amount was $8,333 for the nine months ended September 30, 2023. There was no accrued interest as of September 30, 2023 and the total principal outstanding loan amount was $1,000,000 as of September 30, 2023. As a note, the interest rate increases to 15% as of the due date of loan on any unpaid principal balance outstanding.

 

 

 

 18 

 

 

Note 10 – Business Concentration and Risks

 

Major customers

 

One customer accounted for 46% of the total accounts receivable as of September 30, 2023 and four customers accounted for 11% of the total accounts receivable as of December 31, 2022. One customer accounted for 30% of the total revenue for the nine months ended September 30, 2023, and three customers accounted for 43% of total revenue for the nine months ended September 30, 2022.

 

Major vendors

 

No major vendor accounted more than 10% of total purchases during the nine months ended September 30, 2023, One vendor, Tianjin Guanglee, accounted for 0% of total accounts payable at September 30, 2022; and this vendor accounted for 24% of total purchases during the nine months ended September 30, 2022. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer, as fully disclosed in our annual report in 2017. In 2018, the Chief Executive Officer transferred ownership of the entity to an unrelated third party in a transaction not considered a related party transaction per the relevant guidelines.

 

Note 11 – Lease

 

The Company recorded its operating lease expense of $104,156 and $280,311 for the nine months ended September 30, 2023 and 2022, respectively. This is included in general and administrative expenses.

 

On December 7, 2021, Focus Shenzhen entered into a thirty-eight month commercial lease with a third party for an approximately 5,895 square foot office space. The lease commenced on December 25, 2021 and was scheduled to end on February 28, 2025. The monthly rent was RMB70,097 (approximately $9,610) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term. This lease was terminated on February 22, 2023.

 

On January 16, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 2,017 square foot office space. The lease commenced on February 1, 2023 and will end on January 31, 2026. The monthly rent is RMB29,974 (approximately $4,109) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term.

 

On February 22, 2023, Focus Shenzhen entered into a thirty-six month commercial lease with a third party for an approximately 3,449 square foot office space. The lease commenced on March 31, 2023 and will end on February 28, 2026. The monthly rent is RMB35,246 (approximately $4,832) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar terms, which is 10%. Lease expense for this lease is recognized on a straight-line basis over the lease term.

 

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 September 30, 2023 and December 31, 2022, operating lease right-of-use assets and lease liabilities were as follows: 

         
   September 30, 2023   December 31, 2022 
Operating lease right-of-use assets  $264,650   $353,074 
Amortization   (49,750)   (99,738)
Operating lease right-of-use assets, net  $214,900   $253,336 
Lease liabilities, current portion  $84,036   $113,058 
Lease liabilities, less current portion  $122,959   $165,952 

 

Lease term and discount rate:

             
    September 30, 2023     December 31, 2022  
Weighted average remaining lease term                
Operating lease     2.33 to 2.50 years       2.17 years  
Weighted average discount rate                
Operating lease     10%       10%  

 

 

 

 

 19 

 

 

The minimum future lease payments are as follows:

     
   Amount 
Year ending December 31, 2023  $9,862 
Year ending December 31, 2024   101,544 
Year ending December 31, 2025   111,114 
Year ending December 31, 2026   8,219 
Total minimum lease payment   230,739 
Less: imputed interest   (23,744)
Present value of future minimum lease payments  $206,995 

 

Note 12 – Stockholders’ Equity

 

Shares authorized

 

Upon formation, the total number of shares of all classes of stock that the Company is authorized to issue is seventy-five million (75,000,000) shares of common stock, par value $0.001 per share.

 

Common stock

 

On March 23, 2023, the Company issued a fifty percent (50%) stock dividend of the Company’s common stock to its shareholders for a stock dividend of one share of common stock for every two shares of common stock held.

 

During the nine months ended September 30, 2023, the Company issued 75,434 shares of common stock, not including the abovementioned stock dividend.

  

On January 17, 2023, the Company retired the 400,000 shares (representing 600,000 shares of common stock after a fifty percent stock dividend adjustment on March 23, 2023, and then valued at $2,000,000. The value of $1,965,000 was determined several months later for a total of 1.3 million shares) obtained pursuant to a prior stock repurchase agreement as announced in a current report on October 7, 2022.

 

On February 13, 2023, the Company issued 62,250 shares (for consideration of $184,979, based on their share price on grant date of $4.03 and $4.27) to employees based on their Restricted Stock Award Agreements (see Employee stock-based compensation below).

 

On February 21, 2023, the Company issued 10,857 shares (for consideration of $41,401, based on their share price on grant date of $5.72) to a prior board member who exercised his options with cashless exercise.

 

On April 3, 2023, the Company issued 2,327 shares to round up the stock dividend effective on March 23, 2023.

 

During the nine months ended September 30, 2022, the Company issued 403,761 shares of common stock.

 

On April 4, 2022, the Company issued 181,723 shares of its common stock to Boustead Securities LLC (“Boustead”), which were for the warrants exercised by Boustead on September 7, 2021. The warrants were issued to Boustead in connection with the Company’s initial public offering with an exercise price of $4.16. The shares issued to Boustead were valued at $1,776,044 upon the cashless exercise option of the warrants.

 

On May 2, 2022, the Company issued 48,941 shares to consultants in exchange for professional services rendered. The shares were valued at $154,709 based on the closing price of the Company’s common stock on the dates that the shares were deemed earned, according to the terms of the related agreements.

 

On August 17, 2022, the Company issued 82,347 shares to two board members who exercised their options. The board members exercised a combined 107,500 options, and the shares were valued at $652,501 upon the cashless exercise option of the options.

 

On August 22, 2022, the Company issued 90,750 shares (for consideration of $642,789, based on their share price on grant date of $7.44) to employees based on the Restricted Stock Award Agreement (see Employee stock-based compensation).

 

As of September 30, 2023 and December 31, 2022, the Company had 64,771,817 shares and 65,296,383 shares of common stock issued and outstanding, respectively.

 

 

 

 20 

 

 

Treasury stock

 

On August 10, 2022, the Company entered a stock purchase agreement (the “Stock Purchase Agreement”) with a private shareholder to repurchase 400,000 shares (600,000 shares after a fifty percent stock dividend adjustment on March 23, 2023) of its common stock for $2,000,000. The private shareholder transferred the shares on October 4, 2022, forming a binding agreement, which the Company placed in treasury; and on October 6, 2022, the Company wired the first $1,000,000 of the purchase price. Subsequently, on July 14, 2023, the Company entered into an amendment to the Stock Purchase Agreement that increased the number of shares of its common stock the Company would purchase to 1,300,000 shares and revised the total purchase price of the shares to $1,965,000. The remaining $965,000 was paid on July 14, 2023. Upon receipt of the additional 900,000 shares, the Company also placed them in treasury. As of January 17, 2023, the Company retired the initial 400,000 shares (600,000 shares after a fifty percent stock dividend adjustment on March 23, 2023) and restored them to the status of authorized and unissued shares.

 

As part of the Company’s repurchase program, during the nine months ended September 30, 2023 the Company repurchased 233,040 shares of its common stock for $420,686 in the public market at average price of $1.80 and placed them in treasury.

 

As of September 30, 2023 and December 31, 2022, the Company had 1,183,040 and 400,000 treasury shares, respectively. The intention of the Company is to retire the additional 900,000 shares obtained pursuant to the amendment to the Stock Purchase Agreement along with the additional 233,040 shares repurchased during the nine months ended September 30, 2023.

 

Employee stock-based compensation

 

During the nine months ended September 30, 2023, the Company entered into employment contracts with three employees of its engineering staff. These employment contracts contained provisions for a total bonus of restricted stock grants valued at $50,000 based on the share price upon the date of completion of the performance metrics described in the employment contracts. The fair value of the above employee compensation was $16,250 (approximately 9,931 shares) as of September 30, 2023.

 

On February 11, 2022 (the “Vesting Date”), the Company entered into a restricted stock award agreement (the “Award Agreement”) with eight employees for 280,000 shares of the Company’s common stock subject to the terms and to the fulfillment of the conditions set forth in the Company’s equity incentive plan. The first 20% of the restricted shares were granted and vested on February 11, 2022. An additional 20% of the restricted shares will vest on each anniversary of the Vesting Date until the fourth anniversary of the Vesting Date. There were 51,000 shares granted as of February 13, 2023. The fair value of the above employee compensation was $136,904 as of September 30, 2023.

 

In November 2021, the Company entered into a one-year employment agreement with the then VP of Finance and Head of Investor Relations of the Company, pursuant to which the Company awarded a 10,000-share bonus consisting of shares of the Company’s common stock, which will be granted in blocks of 2,500 shares for every quarter certain performance metrics are achieved. The share price will be determined based on the closing price as of the last day of each quarter. Pursuant to the terms of the employment agreement, if the Company determined it was satisfied with the performance of the VP, his position would be promoted to Chief Financial Officer after the one-year anniversary. In November 2022, the Company entered into an amendment agreement to amend the performance metrics and extend the term. As of September 30, 2023, 7,500 shares have vested, collectively valued at $14,925.

 

In October 2022, the Company entered into an employee agreement with the VP of the Company, pursuant to which the Company awarded a 10,000-share bonus consisting of shares of the Company’s common stock, which will be granted in blocks of 2,500 shares every quarter. As of September 30, 2023, 7,500 shares have vested, collectively valued at $14,925.

 

During the nine months ended September 30, 2023 and 2022, the total employee stock-based compensation amount for all employees in the company, was $183,004 and $671,901, respectively.

 

Stock options

 

On August 6, 2019, each member of the Board was granted 45,000 options to purchase shares at $3.80 per share.

 

On January 4, 2021, each member of the Board was granted 22,500 options to purchase shares at $2.00 per share.

 

On December 31, 2021, each member of the Board was granted 22,500 options to purchase shares at $5.91 per share.

 

 

 

 

 21 

 

 

On December 31, 2022, each member of the Board was granted 22,500 options to purchase shares at $4.27 per share.

 

As of September 30, 2023, there were 615,063 options granted, 497,092 options vested and exercisable, 39,158 options unvested, and 536,249 outstanding stock options.

 

For the nine months ended September 30, 2023 and 2022, the Company’s stock option compensation expenses amounted to $400,208 and $652,501, respectively.

 

The fair value of the stock options listed above was determined using the Black-Scholes option pricing model with the following assumptions:

    
   December 31, 2022 
Risk-free interest rate   4.22% 
Expected life of the options   3 years 
Expected volatility   142.63% 
Expected dividend yield   0% 

 

The following is a summary of the option activity from December 31, 2022 to September 30, 2023:

                
   Number of Options   Weighted average exercise price   Weighted Average Remaining Contractual Life   Aggregate Intrinsic Value 
Outstanding at December 31, 2022   615,061   $5.93    8.04     
Vested at December 31, 2022   458,424   $3.91    7.09     
Exercisable at December 31, 2022   458,424   $3.91    7.09     
Granted      $         
Exercised   (78,812)  $5.38         
Forfeited or expired      $         
Outstanding at September 30, 2023   536,249   $3.96    7.55     
Vested as of September 30, 2023   497,092   $4.05    7.70     
Exercisable at September 30, 2023   497,092   $4.05    7.70     

  

Note 13 – Commitments and Contingencies

 

In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees, and other directly related costs expected to be incurred. There were no recorded litigation loss contingencies as of September 30, 2023 and December 31, 2022.

 

Note 14 – Segment Reporting

 

The Company currently has three operating segments. First, Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment, which involves the non-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of technology products. Second, Perfecular, AVX (doing business as Smart AVX) and Lusher jointly operate the “IoT Products” segment, which involves the wholesale, marketing, and production of our universal smart instruments and devices in the hydroponic and controlled agriculture segments and of our smart instruments into the commercial and home automation sectors. And third, AVX (exclusive of the smart IoT Products sales under Smart AVX) and AT Tech Systems cooperatively run our “IoT Installation Services” segment, which handles our IoT installation and management business specializing in high performance and easy to use audio/video systems, home theaters, lighting control, automation, and integration.

 

 

 

 

 

 22 

 

 

The following tables summarize the performance of each operating segment of the Company for the three months ended September 30, 2023 and the performance of the IoT Installation Service segment broken out between its residential and commercial services for the same period:

Schedules of segment reporting                
   Three Months Ended September 30, 2023 
  

Corporate

and R&D

  

IoT

Products

  

IoT Installation

Services

   Total 
                 
Revenue  $   $97,513   $220,857   $318,370 
Revenue – related party                
Total revenue       97,513    220,857    318,370 
                     
Cost of revenue       47,855    153,539    201,394 
                     
Gross Profit       49,658    67,318    116,976 
                     
Operating Expenses                    
Selling expense   6,516    18,677    8,443    33,636 
Compensation – officers and directors   267,002            267,002 
Research and development   305,872            305,872 
Professional fees   132,914            132,914 
General and administrative   358,631    2,503    46,717    407,851 
Total Operating Expenses   1,070,935    21,180    55,160    1,147,275 
                     
Income (loss) from Operations   (1,070,935)   28,478    12,158    (1,030,299)
                     
Other Income (Expense):                    
Interest income (expense), net   (2,956)   1    (80)   (3,035)
Unrealized loss on marketable equity securities   (17,102)           (17,102)
Realized income on marketable equity securities   12,247            12,247 
Rental income   40,731            40,731 
Other income (expense), net   32,209    (8,255)   5,471    29,425 
Total other income (expense)   65,129    (8,254)   5,391    62,266 
                     
Income (loss) before income taxes   (1,005,806)   20,224    17,549    (968,033)
                     
Tax expense                
                     
Net Income (Loss)  $(1,005,806)  $20,224   $17,549   $(968,033)

 

 

 

 

 

 23 

 

 

             
   Three Months Ended September 30, 2023 
   Residential   Commercial  

Total IoT Installation

Services

 
             
Revenue  $23,758   $197,099   $220,857 
Revenue – related party            
Total revenue   23,758    197,099    220,857 
                
Cost of revenue   45,255    88,815    153,539 
                
Gross Profit   (21,497)   88,815    67,318 
                
Operating Expenses               
Selling expense       8,443    8,443 
General and administrative   3,392    43,325    46,717 
Total Operating Expenses   3,392    51,768    55,160 
                
Income (loss) from Operations   (24,899)   37,047    12,158 
                
Other Income (Expense):               
Interest income (expense), net       (80)   (80)
Other income (expense), net       5,471    5,471 
Total other income (expense)       5,391    5,391 
                
Income (loss) before income taxes   (24,899)   42,438    17,549 
                
Tax expense            
                
Net Income (Loss)  $(24,899)  $42,438   $17,549 

 

 

 

 

 

 24 

 

 

The following tables summarize the performance of each operating segment of the Company for the three months ended September 30, 2022 and the performance of the IoT Installation Service segment broken out between its residential and commercial services for the same period:

                 
   Three Months Ended September 30, 2022 
  

Corporate

and R&D

  

IoT

Products

  

IoT Installation

Services

   Total 
                 
Revenue  $   $1,444   $53,242   $54,686 
Revenue – related party           5,968    5,968 
Total revenue       1,444    59,210    60,654 
                     
Cost of revenue       10,167    32,274    42,441 
                     
Gross Profit       (8,723)   26,936    18,213 
                     
Operating Expenses                    
Selling expense   75,032        1,952    76,984 
Compensation – officers and directors   265,449            265,449 
Research and development   133,109            133,109 
Professional fees   150,943            150,943 
General and administrative   230,001    76,129    59,564    365,694 
Total Operating Expenses   854,534    76,129    61,516    992,179 
                     
Loss from Operations   (854,534)   (84,852)   (34,580)   (973,966)
                     
Other Income (Expense):                    
Interest income (expense), net   363        2,272    2,635 
Unrealized income on marketable equity securities   42,101            42,101 
Realized loss on marketable equity securities   (31,486)           (31,486)
Rental income   39,172            39,172 
Other income (expense), net   144,547    (160,117)   (4,906)   (20,476)
Total other income (expense)   194,697    (160,117)   (2,634)   31,946 
                     
Loss before income taxes   (659,837)   (244,969)   (37,214)   (942,020)
                     
Tax expense                
                     
Net Loss  $(659,837)  $(244,969)  $(37,214)  $(942,020)

 

 

 

 

 25 

 

 

             
   Three Months Ended September 30, 2022 
   Residential   Commercial  

Total IoT Installation

Services

 
             
Revenue  $53,242   $   $53,242 
Revenue – related party   5,968        5,968 
Total revenue   59,210        59,210 
                
Cost of revenue   32,274        32,274 
                
Gross Profit   26,936        26,936 
                
Operating Expenses               
Selling expense   1,952        1,952 
General and administrative   59,564        59,564 
Total Operating Expenses   61,516        61,516 
                
Loss from Operations   (34,580)       (34,580)
                
Other Income (Expense):               
Interest income (expense), net   2,272        2,272 
Other income (expense), net   (4,906)       (4,906)
Total other income (expense)   (2,634)       (2,634)
                
Loss before income taxes   (37,214)       (37,214)
                
Tax expense            
                
Net Loss  $(37,214)  $   $(37,214)

   

 

 

 

 

 26 

 

 

The following tables summarize the performance of each operating segment of the Company for the nine months ended September 30, 2023 and the performance of the IoT Installation Service segment broken out between its residential and commercial services for the same period:

                
   Nine Months Ended September 30, 2023 
  

Corporate

and R&D

  

IoT

Products

  

IoT Installation

Services

   Total 
                 
Revenue  $   $175,661   $594,195   $769,856 
Revenue – related party                
Total revenue       175,661    594,195    769,856 
                     
Cost of revenue       104,210    427,187    531,397 
                     
Gross Profit       71,451    167,008    238,459 
                     
Operating Expenses                    
Selling expense   37,978    51,337    19,255    108,570 
Compensation – officers and directors   827,939            827,939 
Research and development   925,345            925,345 
Professional fees   506,878            506,878 
General and administrative   1,063,509    10,881    138,096    1,212,486 
Total Operating Expenses   3,361,649    62,218    157,351    3,581,218 
                     
Income (loss) from Operations   (3,361,649)   9,233    9,657    (3,342,759)
                     
Other Income (Expense):                    
Interest income (expense), net   27,635    4    (120)   27,519 
Gain on bargain purchase   61,747            61,747 
Unrealized income on marketable equity securities   10,463            10,463 
Realized loss on marketable equity securities   (2,002)           (2,002)
Rental income   121,024            121,024 
Other income (expense), net   27,745