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, 2022

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

SECURITIES EXCHANGE ACT OF 1934

Commission File No. 000-55247

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, 2022, registrant had 43,528,915 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	24

Item 3. Quantitative and Qualitative Disclosures About Market Risk	34

Item 4. Controls and Procedures	34

PART II OTHER INFORMATION	35

Item 1. Legal Proceedings	35

Item 1A. Risk Factors	35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	35

Item 3. Defaults Upon Senior Securities	35

Item 4. Mine Safety Disclosures	35

Item 5. Other Information	35

Item 6. Exhibits	36

Signatures	37

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, 2022 (unaudited) and December 31, 2021	4

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	5

Condensed Consolidated Statement of Changes in Stockholder’s Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	7

Notes to the Unaudited Condensed Consolidated Financial Statements	8

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)



	September 30,			December 31,
	2022			2021
	(Unaudited)
ASSETS
Current Assets:
Cash	$	6,062,418		$	8,678,665
Accounts receivable, net		137,464			177,315
Accounts receivable – related party		60,589			15,176
Inventory		49,109			22,889
Other receivables		13,057			13,057
Prepaid expenses		183,620			301,270
Marketable equity securities		84,815			–
Deposit - current portion		–			5,968
Total Current Assets		6,591,072			9,214,340

Property and equipment, net		4,266,907			4,353,340
Operating lease right-of-use asset		167,122			420,137
Deposits		34,296			33,933

Total Assets	$	11,059,397		$	14,021,750

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	168,600		$	293,354
Other current liabilities		6,496			23,902
Treasury stock payable		2,000,000			–
Loan, current portion		–			132,618
Lease liability, current portion		103,344			121,568
Total Current Liabilities		2,278,440			571,442

Non-Current Liabilities:
Lease liability, less current portion		189,759			302,387
Loan, less current portion		–			25,929
Other liability		12,335			–
Total Non-Current Liabilities		202,094			328,316

Total Liabilities		2,480,534			899,758

Contingencies (Note 13)		–			–

Stockholders' Equity:
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 43,528,915 shares issued and outstanding as of September 30, 2022 and 43,259,741 shares issued and outstanding as of December 31, 2021		43,529			43,259
Treasury stock, 400,000 shares at par value $0.001		(400	)		–
Additional paid-in capital		25,319,339			24,093,075
Shares to be issued, common shares		21,020			1,922,753
Accumulated deficit		(16,809,338	)		(12,937,091	)
Accumulated other comprehensive income (loss)		4,713			(4	)
Total Stockholders' Equity		8,578,863			13,121,992

Total Liabilities and Stockholders' Equity	$	11,059,397		$	14,021,750

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

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue	$	54,686		$	634,777		$	242,675		$	1,244,779
Revenue - related party		5,968			–			39,788			15,141
Total Revenue		60,654			634,777			282,463			1,259,920

Cost of Revenue		42,441			521,334			243,004			1,022,666

Gross Profit		18,213			113,443			39,459			237,254

Operating Expenses:
Selling expense		76,984			14,776			132,871			15,734
Compensation - officers		34,000			34,600			144,040			107,700
Research and development		133,109			55,525			862,214			165,897
Professional fees		150,943			343,787			686,150			801,262
General and administrative		597,143			422,309			2,317,359			1,286,943
Total Operating Expenses		992,179			870,997			4,142,634			2,377,536

Loss from Operations		(973,966	)		(757,554	)		(4,103,175	)		(2,140,282	)

Other Income (Expense):
Interest income (expense), net		2,635			(14,069	)		2,885			(36,825	)
Gain on extinguishment of debt		–			107,460			–			260,450
Change in fair value of warrant liability		–			(1,284,780	)		–			(1,284,780	)
Gain on settlement of derivative liability		–			550,406			–			550,406
Unrealized gain and (loss) on marketable equity securities		42,101			–			(32,525	)		–
Realized loss on marketable equity securities		(31,486	)		–			(21,205	)		–
Other income (expense), net		18,696			60,783			281,773			150,616
Total other income (expense)		31,946			(580,200	)		230,928			(360,133	)

Loss before income taxes		(942,020	)		(1,337,754	)		(3,872,247	)		(2,500,415	)

Income tax expense		–			–			–			–

Net Loss	$	(942,020	)	$	(1,337,754	)	$	(3,872,247	)	$	(2,500,415	)

Other comprehensive items
Foreign currency translation gain and (loss)		4,596			–			4,717			–

Total comprehensive loss	$	(937,424	)	$	(1,337,754	)	$	(3,867,530	)	$	(2,500,415	)

Weight Average Number of Common Shares Outstanding: Basic and Diluted		43,462,436			43,259,741			43,373,708			43,259,741

Net Loss per common share: Basic and Diluted	$	(0.02	)	$	(0.03	)	$	(0.09	)	$	(0.06	)

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

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(Unaudited)



										Additional			Shares to be issued						Accumulated Other		Total
	Common stock				Treasury stock					Paid-In			Common			Accumulated			Comprehensive		Stockholders'
Description	Shares		Amount		Shares		Amount			Capital			Shares			Deficit			Loss		Equity
Balance - June 30, 2022		43,413,517	$	43,413		–	$	–		$	26,480,424		$	684,920		$	(15,867,318	)	$	117	$	11,341,556
Stock based compensation - options		54,898		55		–		–			195,696			–			–			–		195,751
Stock based compensation - shares		60,500		61		–		–			642,819			(663,900	)		–			–		(21,020	)
Purchase of treasury stock		–		–		400,000		(400	)		(1,999,600	)		–			–			–		(2,000,000	)
Other comprehensive loss		–		–		–		–			–			–			–			4,596		4,596
Net loss		–		–		–		–			–			–			(942,020	)		–		(942,020	)
Balance - September 30, 2022		43,528,915	$	43,529		400,000	$	(400	)	$	25,319,339		$	21,020		$	(16,809,338	)	$	4,713	$	8,578,863




Balance - June 30, 2021		40,959,741	$	40,959		–	$	–		$	14,594,733		$	122,709		$	(10,878,775	)	$	–	$	3,879,626
Issuance of common stock		2,300,000		2,300		–		–			9,282,161			1,776,044			–			–		11,060,505
Stock based compensation - options		–		–		–		–			106,837			–			–			–		106,837
Common stock issued for service		–		–		–		–			–			12,000			–			–		12,000
Net loss		–		–		–		–			–			–			(1,337,754	)		–		(1,337,754	)
Balance - September 30, 2021		43,259,741	$	43,259		–	$	–		$	23,983,731		$	1,910,753		$	(12,216,529	)	$	–	$	13,721,214

										Additional			Shares to be issued						Accumulated Other			Total
	Common stock				Treasury stock					Paid-In			Common			Accumulated			Comprehensive			Stockholders'
Description	Shares		Amount		Shares		Amount			Capital			Shares			Deficit			Loss			Equity
Balance - December 31, 2021		43,259,741	$	43,259		–	$	–		$	24,093,075		$	1,922,753		$	(12,937,091	)	$	(4	)	$	13,121,992
Stock based compensation - options		54,898		55		–		–			652,446			–			–			–			652,500
Stock based compensation - shares		60,500		61		–		–			642,819			21,020			–			–			663,900
Purchase of treasury stock		–		–		400,000		(400	)		(1,999,600	)		–			–			–			(2,000,000	)
Common stock issued for current services		891		1		–		–			7,999			–			–			–			8,000
Common stock issued for prior services		31,736		32		–		–			146,677			(146,709	)		–			–			–
Shares issued for cashless exercise of warrants		121,149		121		–		–			1,775,923			(1,776,044	)		–			–			–
Other comprehensive loss		–		–		–		–			–			–			–			4,717			4,717
Net loss		–		–		–		–			–			–			(3,872,247	)		–			(3,872,247	)
Balance - September 30, 2022		43,528,915	$	43,529		400,000	$	(400	)	$	25,319,339		$	21,020		$	(16,809,338	)	$	4,713		$	8,578,863




Balance - December 31, 2020		40,959,741	$	40,959		–	$	–		$	14,381,058		$	98,709		$	(9,716,114	)	$	–		$	4,804,612
Issuance of common stock		2,300,000		2,300		–		–			9,282,161			1,776,044			–			–			11,060,505
Stock based compensation - options		–		–		–		–			320,512			–			–			–			320,512
Common stock to be issued for services		–		–		–		–			–			36,000			–			–			36,000
Net loss		–		–		–		–			–			–			(2,500,415	)		–			(2,500,415	)
Balance - September 30, 2021		43,259,741	$	43,259		–	$	–		$	23,983,731		$	1,910,753		$	(12,216,529	)	$	–		$	13,721,214

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

FOCUS UNIVERSAL INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net Loss	$	(3,872,247	)	$	(2,500,415	)
Adjustments to reconcile net loss to net cash from operating activities:
Bad debt expense		72,108			7,794
Inventory fair value adjustments		(21,133	)		1,689
Depreciation expense		123,908			121,932
Unrealized loss on marketable equity securities		32,525			–
Realized loss on marketable equity securities		21,205			–
Gain on forgiveness of debt		(158,547	)		(258,960	)
Change in fair value of warrant liability		–			1,284,780
Gain on settlement of derivative liability		–			(550,406	)
Stock-based compensation – shares		671,901			–
Stock-based compensation – services		–			36,000
Stock option compensation – options		652,500			320,512
Changes in operating assets and liabilities:
Accounts receivable		(32,257	)		(120,503	)
Accounts receivable - related party		(45,413	)		–
Inventories		(5,087	)		20,969
Prepaid expenses		116,648			(55,280	)
Deposit		1,998			100,000
Operating lease right-of-use asset		226,468			36,059
Accounts payable and accrued liabilities		(120,121	)		172,474
Accounts payable - related party		–			(17,471	)
Other current liabilities		(17,135	)		17,299
Customer deposit		(271	)		(57,106	)
Lease liabilities		(94,542	)		(39,044	)
Other liabilities		12,335			(17,135	)
Net cash flows used in operating activities		(2,435,157	)		(1,496,812	)

Cash flows from investing activities:
Purchase of property and equipment		(39,193	)		(6,875	)
Purchase of marketable securities		(768,949	)		–
Proceeds from sale of marketable securities		630,404			–
Net cash flows used in investing activities		(177,738	)		(6,875	)

Cash flows from financing activities:
Proceeds from SBA loan		–			267,297
Repayment on SBA loan		–			(137,900	)
Proceeds from bank loan		–			1,500,000
Repayment on bank loan		–			(1,500,000	)
Proceeds from IPO, net		–			10,326,131
Net cash flows provided by financing activities		–			10,455,528

Effect of exchange rate		(3,352	)		–

Net change in cash		(2,616,247	)		8,951,841

Cash beginning of period		8,678,665			583,325

Cash end of period	$	6,062,418		$	9,535,166

Supplemental cash flow disclosure:
Cash paid for income taxes	$	–		$	–
Cash paid for interest	$	8,794		$	42,968

Supplemental disclosure of non-cash financing activities:
Treasury stock payable	$	2,000,000		$	–
Cashless warrant	$	–		$	1,776,044

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

FOCUS UNIVERSAL INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

(UNAUDITED)

Note 1 – Organization and Operations

Focus Universal Inc. (“Focus”) was incorporated under the laws of the State of Nevada on December 4, 2012 (“Inception”). Focus Universal Inc. is a universal smart instrument developer and manufacturer focused on the internet of things (“IoT”) industry, headquartered in Ontario, California, specializing in the development and commercialization of novel and proprietary universal smart technologies and instruments that solve problems plaguing the internet of things (“IoT”) industry by: (1) increasing overall chip integration by shifting it 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; and (4) User Interface Machine auto generation technology. Universal smart technology is an off-the-shelf technology utilizing an innovative hardware integrated platform. The Focus platform provides a unique and universal combined wired and wireless solution for embedded design, industrial control, functionality test, and parameter measurement instruments and functions. The Company’s smart technology software utilizes a smartphone, computer, or a mobile device as an interface platform and display that communicates and works in tandem with a group of external sensors or probes, or both. The external sensors and probes may be manufactured by different vendors, but the universal smart technology functions in a manner that does not require the user to have extensive knowledge of the unique characteristics of the function of each of the sensors and probes. The universal smart instrument Focus developed (the “Ubiquitor”) will consist of a reusable foundation component which will include a wireless gateway (which allows the instrument to connect to the smartphone via Bluetooth and WiFi technology), universal smart application software (“Application”) which is installed on the user’s smartphone or other mobile device and allows monitoring of the sensor readouts on the smartphone screen. The Ubiquitor also connects to a variety of individual scientific sensors that collect data, from moisture, light, airflow, voltage, and a wide variety of applications. The data is then sent through a wired or wireless connection, or a combination thereof to the smartphone or other mobile device and the data is organized and displayed on the smartphone screen. The smartphone or other mobile device, foundation, and sensor readouts together perform the functions of many traditional scientific and engineering instruments and are intended to replace the traditional, wired stand-alone instruments at a fraction of their cost. Focus Universal is also developing ultra-narrow band technology that is hopefully capable of overcoming the noise problems communicating through power lines that have hindered the industry for over a century. Focus Universal’s wireless communication technology may allow for longer-range coverage, might be more energy effective and management believes has much faster data sending speeds than the current 5G technology speeds being used.

Perfecular Inc. (“Perfecular”), a wholly-owned subsidiary of Focus, was founded in September 2009 and is headquartered in Ontario, California, and is engaged in designing certain digital sensor products and sells a broad selection of horticultural sensors and filters in North America and Europe.

AVX Design & Integration, Inc. (“AVX”) was incorporated on June 16, 2000 in the state of California. AVX is an IoT installation and management company specializing in high performance and easy to use Audio/Video, Home Theater, Lighting Control, Automation and Integration. Services provided by AVX include full integration of houses, apartment, commercial complex, office spaces with audio, visual and control systems to fully integrate devices in the low voltage field. AVX’s services also include partial equipment upgrade and installation.

On December 23, 2021, Focus set up a branch in Shenzhen China, Focus Universal (Shenzhen) Technology Company LTD. The subsidiary was registered to be engaged in IoT research and development, equipment sales, and application services, software development and sales, software outsourcing, intelligent agricultural management, intelligent instrumentation sales, and information consulting services. This excludes any projects subject to approval or that require a separate business license in accordance with the local laws. China allows foreign entities to setup wholly owned limited liability companies in China, also known as Wholly Foreign Owned Enterprises (WFOEs), in non “restricted” or “prohibited” industries and business activities. The subsidiary’s business operation has been approved by the local government in Shenzhen to be qualified as a WFOE entity in China. The entity is 100% owned by Focus Universal, Inc.

On January 5, 2022, the Company founded a wholly owned subsidiary named Lusher Bioscientific, Inc. (“Lusher”) Lusher Bioscientific was founded to market to the hydroponic and controlled agriculture market and to assist in the product development of IoT technology products within this sector. As of the date of this filing, Lusher’s activities are in the introductory phase.

In addition, the Company’s patent number 11,488,468 was allowed and subsequently issued on November 1, 2022. The patent, titled Sensor for Detecting the Proximity of an IEEE 802.11 Protocol Connectable Device.

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 Inc., AVX Design & Integration, Inc., Focus Universal (Shenzhen) Technology Co., LTD and Lusher Bioscientific (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”).

Going Concern

In the long term, the continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. For the nine months ended September 30, 2022, the Company had a net loss of $3,872,247 and negative cash flow from operating activities of $2,435,157. With the January 1, 2022 beginning cash amount of $8,678,665, the Company will have enough cash to cover its projected annual cash burn rate of $3,152,618 which is an increase from the previous year. This is a result of coming off of a year where the company completed an uplisting transaction causing a greater than normal amount of expenditure, especially in professional fees. Overall, the Company has adequate cash for the Company to continue operation as a going concern throughout 2022 without any additional capital raise. As a result, the previous factors raising substantial doubt to continue as a going concern have been alleviated for the following year.

Segment Reporting

The Company currently has two operating segments. In accordance with ASC 280, Segment Reporting (“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and evaluated regularly by Management in deciding how to allocate resources and to assess performance. Management reviews financial information presented on an unaudited condensed consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it has two operating and reportable segments.

Asset information by operating segment is not presented as the chief operating decision maker does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s unaudited condensed consolidated financial statements.

Use of Estimates

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

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates in the accompanying financial statements include the lease term impacting right-of use asset and lease liability, useful lives of property and equipment, useful lives of intangible assets, allowance for doubtful accounts, inventory reserves, debt discounts, valuation of derivatives, 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 limit. As of September 30, 2022 and December 31, 2021, approximately $5,032,437 and $7,464,846 of the Company’s cash was not insured by the FDIC. There were no cash equivalents held by the Company as of September 30, 2022 and December 31, 2021.

Accounts Receivable

The Company grants credit to clients that sell the Company’s products or engage in construction service under credit terms that it believes are customary in the industry and do not require collateral to support customer receivables. The accounts receivable balances are generally collected within 30 to 90 days of the product sale.

Allowance for doubtful accounts

The Company estimates an allowance for doubtful accounts based on historical collection trends and review of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change. As of September 30, 2022 and December 31, 2021, allowance for doubtful accounts amounted to $158,743 and $86,635, 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.

Inventory

Inventory consists primarily of parts and finished goods and is valued at the lower of the inventory’s cost or net realizable value under the first-in-first-out method. Management compares the cost of inventory with its market value and 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 estimated realized value of our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value. Once established, these adjustments are considered permanent and are not revised until the related inventory is sold or disposed of. As of September 30, 2022 and December 31, 2021, inventory fair value adjustments amounted to $47,807 and $68,940, respectively.

Marketable Securities

The Company invests part of its excess treasury cash in equity securities and money market funds according to company treasury and investment policies. Marketable securities represent trading securities bought and held primarily for sale in the near-term to generate income on short-term price differences and are stated at fair value. Realized and unrealized gains and losses are recorded in other income (expense), net.

Property and Equipment

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


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 FASB ASC Topic 360, Property, Plant, and Equipment, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that 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, 2022 and December 31, 2021, the Company believes there was no impairment of its long-lived assets.

Treasury stock

Purchases and sales of treasury stock are accounted for using the cost method. Under this method, shares acquired are record at the acquisition price directly to the treasury stock account. Upon sale, the treasury stock account is reduced by the original acquisition price of the shares and any difference is recorded in additional paid in capital, on a first-in first-out basis. 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 ASC Topic 718, Stock-Based Compensation. Stock-based compensation to employees consist of stock options, grants, and restricted shares that are recognized in the statement of operations based on their fair values at the date of grant.

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

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

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

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 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). 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 fair value of the warrants was estimated using a Black-Scholes pricing model (see Note 11). The Company does not have any outstanding warrants as of September 30, 2022 and December 31, 2021, respectively.

Fair Value of Financial Instruments

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

To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

	·	Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

	·	Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

	·	Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.

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


	September 30, 2022 (unaudited)
	Fair Value						Carrying
	Level 1		Level 2		Level 3		Value
Assets
Marketable securities:
Stock	$	84,815	$	–	$	–	$	84,815
Total assets measured at fair value	$	84,815	$	–	$	–	$	84,815

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

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

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

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, 2022 and for the years ended December 31, 2021 was comprised of foreign currency translation adjustments.

Revenue Recognition

On September 1, 2018, the Company adopted ASC 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 Consolidated Financial Statements.

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

	·	executed contracts with the Company’s customers that it believes are legally enforceable;

	·	identification of performance obligations in the respective contract;

	·	determination of the transaction price for each performance obligation in the respective contract;

	·	Allocation of the transaction price to each performance obligation; and

	·	recognition of revenue only when the Company satisfies each performance obligation.

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

	·	Product sales – revenue is recognized at the time of sale of equipment to the customer.

	·	Service sales – revenue is recognized based on the service provided to the customer.

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

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.

Related Parties

The Company follows ASC 850-10 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 ASC 450-20 to report accounting for 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.

Income Tax Provision

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

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

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax basis of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. There was no material deferred tax asset or liabilities as of September 30, 2022 and December 31, 2021.

As of September 30, 2022 and December 31, 2021, 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 ASC 260-10-45. Basic net income (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period.

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

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

Schedule of anti dilutive shares
Nine Months Ended September 30,	2022		2021
Stock options		305,041		288,750
Total		305,041		288,750

Reclassification

Certain reclassifications have been made to the unaudited condensed consolidated financial statements for prior years 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 USD. The functional currency of Focus Universal (Shenzhen) Technology Co. LTD, a wholly owned subsidiary of Focus located in China, is the Renminbi (“RMB”).

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

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,
	2022 (Unaudited)		2021 (Unaudited)
China Yuan (RMB)	RMB	6.5985	RMB	6.4717
United States Dollar ($)	$	1.0000	$	1.0000

	Exchange Rate at
	September 30, 2022		December 31, 2021
	(Unaudited)
China Yuan (RMB)	RMB	7.1100	RMB	6.4466
United States Dollar ($)	$	1.0000	$	1.0000

Note 3 – Recent Accounting Pronouncement

In June 2016, the FASB issued 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 SEC 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.

Note 4 – Inventory

At September 30, 2022 and December 31, 2021, inventory consisted of the following:

Schedule of Inventory

	September 30, 2022		December 31, 2021
Parts	$	12,902	$	12,470
Finished goods		36,207		10,419
Inventory	$	49,109	$	22,889

Note 5 – Deposits

Deposit balance as of September 30, 2022 amounted to $34,296 for lease agreement and utility deposit and third-party payroll service deposit. Deposit balance as of December 31, 2021 amounted to $39,901 for lease agreement and utility deposit.

Note 6 – Property and Equipment

At September 30, 2022 and December 31, 2021, property and equipment consisted of the following:

Schedule of property and equipment
	September 30, 2022			December 31, 2021
Warehouse	$	3,789,773		$	3,789,773
Land		731,515			731,515
Building improvement		240,256			238,666
Furniture and fixture		37,467			27,631
Equipment		97,217			71,368
Software		1,995			1,995
Total cost		4,898,223			4,860,948
Less accumulated depreciation		(631,316	)		(507,608	)
Property and equipment, net	$	4,266,907		$	4,353,340

Depreciation expense for the nine months ended September 30, 2022 and 2021 amounted to $123,908 and $121,932, respectively.

Note 7 – Related Party Transactions

Revenue generated from Vitashower Corp., a company owned by the Chief Executive Officer’s wife, amounted to $31,542 and $15,141 for the nine months ended September 30, 2022 and 2021, respectively. Account receivable balance due from Vitashower Corp. amounted to $52,343 and $0 as of September 30, 2022 and December 31, 2021, respectively. Purchases generated from Vitashower Corp. amounted to $0 and $3,379 for the nine months ended September 30, 2022 and 2021, respectively. There were accounts payable balances of $0 and $0 due to Vitashower Corp. as of September 30, 2022 and December 31, 2021, respectively.

Service revenue generated from the installation of home security equipment by AVX for one of the Company’s directors, amounted to $8,246 and $0 for the nine months ended September 30, 2022 and 2021, respectively. Account receivable balance due from this director amounted to $8,246 and $0 as of September 30, 2022 and December 31, 2021, respectively.

Compensation for services provided by the President and Chief Executive Officer for the nine months ended September 30, 2022 and 2021 amounted to $111,020 and $90,000, respectively. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer Desheng Wang, as fully disclosed in the annual report in 2017. Since then, during 2018, the entity was transferred to another individual and was not considered a related party transaction per guidelines, and further subsequent changes to the vendor are noted in Note 8 found below.

Note 8 – Business Concentration and Risks

Major customers

Three customers accounted for 16% of the total accounts receivable as of September 30, 2022 and one customer accounted for 9% of the total accounts receivable as of December 31, 2021, respectively. These three customers accounted for 43% of the total revenue for the nine months ended September 30, 2022 and one customer accounted for 81% of total revenue for the nine months ended September 30, 2021, respectively.

Major vendors

One vendor, Tianjin Guanglee, accounted for 0% and 0% of total accounts payable at September 30, 2022 and December 31, 2021, respectively. This same vendor, Tianjin Guanglee, accounted for 24% and 83% of the total purchases for the nine months ended September 30, 2022 and 2021, respectively. Of subsequent note, Tianjin Guanglee was once owned by the Chief Executive Officer Desheng Wang, as fully disclosed in the annual report in 2017. In 2018, Dr. Wang transferred the ownership of the entity to an unrelated third party in a transaction not considered a related party transaction per the guidelines.

Note 9 – Lease

The Company recorded its operating lease expense of $280,311 and $48,885 for the nine months ended September 30, 2022 and 2021, respectively.

On April 8, 2015, AVX Design & Integration Inc. entered into an eighty-six month commercial lease with a third party for an approximately 2,592 square foot office space. The lease commenced on July 1, 2015, and ended on August 31, 2022. The monthly rent is $4,536 with approximately a 3% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 15%. Lease expense for the lease is recognized on a straight-line basis over the lease term. As of the date of this Quarterly Report, the company has not entered into any new commercial lease for AVX Design & Integration Inc.

On December 7, 2021, Focus Universal (Shenzhen) Technology Co. LTD 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 will end on February 28, 2025. The monthly rent is RMB70,097 (approximately $11,053) with approximately an 11.1% to 12.5% increase rate in each additional year. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 10%. Lease expense for the lease is recognized on a straight-line basis over the lease term.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. As of September 30, 2022 and December 31, 2021, operating lease right-of use assets and lease liabilities were as follows:


	September 30, 2022		December 31, 2021
Operating lease right-of-use assets	$	167,122	$	420,137
Lease liabilities, current portion	$	103,344	$	121,568
Lease liabilities, less current portion	$	189,759	$	302,387

Lease term and discount rate:

Schedule Lease term and discount rate
	September 30, 2022	December 31, 2021
Weighted average remaining lease term
Operating lease	2.42 years	0.67 to 3.17 years
Weighted average discount rate
Operating lease	10%	10% - 15%

The minimum future lease payments are as follows:


	Amount
Year ending December 31, 2022	$	29,577

SEC Form 10-Q filed by Focus Universal Inc.