FOCUS UNIVERSAL INC

Previous wording

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Report on Form 10-K, Form 10-Q and any Current Reports on Form 8-K.

Current wording

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking statements. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, readers should carefully review the risk factors set forth herein and in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.

Previous wording

In an effort to continually develop our product lines, we plan to phase out the traditional, lower-margin products and are preparing to launch a new line of products that have been in development for several years. These newer technology products will be released in phases, and we intend that increasing amounts of technology will be layered upon these products. Additionally, we plan to continue to increase our efforts in protecting more intellectual property and have continued to develop technologies for long-term growth. We have developed products in both the controlled agriculture industry and home automation industries, taking advantage of our existing relationships in both sectors.

Current wording

In an effort to continually develop our product lines, we plan to phase out the traditional, lower-margin products, such as the first-generation digital light meter, and are preparing to launch a new line of products that have been in development for several years. These newer technology products will be released in phases, and we intend that increasing amounts of technology will be layered upon these products. Additionally, we plan to continue to increase our efforts in protecting more intellectual property and have continued to develop technologies for long-term growth. We have developed products in both the controlled agriculture industry and home automation industries, taking advantage of our existing relationships in both sectors.

Previous wording

We are building a U.S. sales team to market our product lines. The team has already begun marketing our current Smart AVX-branded large format multimedia touch screens, surveillance camera system (cameras and network video recorders (NVRs)), indoor and outdoor LED screens, and Focus Universal-branded VOIP phone service systems.

Current wording

We are building a U.S.-based sales team to market our Smart AVX-branded product lines. The team has already begun marketing our current large format multimedia touch screens, surveillance camera system (cameras and network video recorders (NVRs)), indoor and outdoor LED screens, and Focus Universal-branded voice over internet protocol (VOIP) phone service systems for use in commercial and corporate settings.

Previous wording

Our software machine auto design team has also made significant progress. With mathematical and graphical environments having been created, our team is focusing on developing the 3D user interface machine auto design. Our public reporting automation software is completed and currently undergoing extensive testing. Reports on Forms 10-Q and 10-K are time-consuming, complex processes that require each company’s financial team to gather and translate large amounts of data from multiple sources. The time and expertise required to complete the process is a substantial burden. Meanwhile, SEC reporting deadlines are firm and inflexible. This reality can interfere with other reporting timelines and leave a time-strapped team scrambling for the resources needed to meet all its reporting requirements. We have developed a Microsoft®-based add-on software that aims to streamline and automate the SEC reporting preparation process. We believe the software will significantly simplify the Form 10-Q and Form 10-K preparation processes and make creating, editing and managing documents both simple and accurate. We are planning to commercialize this software in the fourth quarter of 2024 or the first quarter of 2025. A cloud-based version of this software is also under the development.

Current wording

Our software machine auto design team has also made significant progress during the last period. Having the mathematical and graphical environments created, our team is focused on developing the 3D-user interface machine auto design. Our public reporting automation software is completed and currently undergoing extensive testing. As reports on Forms 10-Q and 10-K are time-consuming, complex processes that require each company’s financial team to gather and translate large amounts of data from multiple sources, the time and expertise required to complete the process is a substantial burden for any company, large or small. Meanwhile, SEC reporting deadlines are firm and inflexible. This conflict can interfere with other reporting and internal timelines and leave teams time-strapped and scrambling for the resources needed to meet any reporting requirements. We have developed a Microsoft®-based add-on software that aims to streamline and automate the SEC reporting preparation process. We believe the software will significantly simplify the Form 10-Q and Form 10-K preparation processes and make creating, editing and managing documents both simple and accurate. We are planning to commercialize this software in the fourth quarter of 2024 or the first quarter of 2025. A cloud-based version of this software is also under the development.

Previous wording

**Additional Focus Universal Inc. IoT Products under Smart AVX.**Focus Universal Inc. is integrating its own Smart AVX- branded IoT equipment to connect devices across platform systems and to facilitate unified collaboration across audiovisual technologies, digital media technologies, security and surveillance technologies and communication technologies. This approach allows the Company to service its customers for ease of use, design and integration, and installation and maintenance by utilizing technology that integrates our five core technologies.

Current wording

**Additional Focus Universal Inc. IoT Products under Smart AVX.**Focus Universal Inc. is integrating its own Smart AVX- branded IoT equipment to connect devices across platform systems and to facilitate unified collaboration across audio-visual technologies, digital media technologies, security and surveillance technologies and communication technologies. This approach allows the Company to service its customers for ease of use, design and integration, and installation and maintenance by utilizing technology that integrates our five core technologies.

Previous wording

We have integrated our branded products across the following strategic sub-sectors: LED Audio-visual Panel Products, large format Smart Multimedia Touch Screens, Pan Tilt Zoom (“PTZ”) Dome Cameras and Network Video Recorders (“NVRs”), and VOIP Phone Services.

Current wording

We have integrated our Smart AVX-branded products across the following strategic sub-sectors: LED Audio-visual Panel Products, large format Smart Multimedia Touch Screens, Pan Tilt Zoom (“PTZ”) Dome Cameras and Network Video Recorders (“NVRs”), and VOIP Phone Services.

Previous wording

An annual report on Form 10-K is a comprehensive report filed annually by a publicly traded company information such as its history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and other relevant data.

Current wording

An annual report on Form 10-K is a comprehensive report filed annually by a publicly traded containing company information such as its history, organizational structure, financial statements, earnings per share, subsidiaries, executive compensation, and other relevant data.

Previous wording

The quarterly report on Form 10-Q is a comprehensive report of a company’s quarterly performance that must be submitted by all public companies to the SEC on a quarterly basis. The quarterly report on Form 10-Q is generally submitted with unaudited financial statements including condensed financial statements, a management discussion and analysis on the financial condition of the company, and disclosures regarding market risk and internal controls. In the quarterly reports, companies are required to disclose additional relevant quarterly financial information regarding their financial position.

Current wording

The quarterly report on Form 10-Q is a comprehensive report of a company’s quarterly performance that must be submitted by public companies to the SEC on a quarterly basis. The quarterly report on Form 10-Q is generally submitted with unaudited financial statements including condensed financial statements, a management discussion and analysis on the financial condition of the company, and disclosures regarding market risk and internal controls. In the quarterly reports, companies are required to disclose additional relevant quarterly financial information regarding their financial position.

Previous wording

Because of the depth and nature of the information they contain, reports on Forms 10-K and 10-Q can become time-consuming, especially given the complex processes that require a company’s finance team to gather large amounts of data from multiple sources. The time and expertise required to complete the process is a substantial burden. SEC reporting deadlines are firm and inflexible. These reporting requirements can interfere with other reporting timelines and leave a time-strapped team scrambling for the resources needed to meet all of their mandated reporting requirements.

Current wording

Because of the depth and nature of the information they contain, reports on Forms 10-K and 10-Q can become time-consuming, especially given the complex processes that require a company’s internal teams to gather large amounts of data across multiple sources. The time and expertise required to complete the process is a substantial burden. SEC reporting deadlines are firm and inflexible. These reporting requirements can interfere with other reporting timelines and leave a time-strapped team scrambling for the resources needed to meet mandated reporting requirements.

Previous wording

Delays and mistakes in SEC financial reporting can have far-reaching consequences for companies and their shareholders including. SEC review, enforcement actions, and penalties. Late filings can often lead to a drop in the company’s stock price and a decrease in investor confidence.

Current wording

Delays and mistakes in SEC financial reporting can have far-reaching consequences for companies and their shareholders including. SEC review, enforcement actions, and penalties. Late, inaccurate, or incomplete filings can often lead to a drop in the company’s stock price and a decrease in investor confidence.

Previous wording

However, it is critically important that the company’s financial reporting is accurate, thorough, and up to date. Office software packages are widely used in all report preparation. While this software can do an excellent job on word processing, it often fails in the creation of the rigorously formatted tables and spreadsheets needed to populate the requisite financial information in the reports. Furthermore, because of the frequent incompatibility between programs in office software packages, the formatted tables required by financial reporting standards that are created by spreadsheets programs are destroyed when they are transferred a word processing file.

Current wording

However, it is critically important that the company’s financial reporting is accurate, thorough, and up to date. Office software packages are widely used in all report preparation. While current software can do an excellent job on word processing, it often fails in the creation of the rigorously formatted tables and spreadsheets needed to populate requisite financial information in report. Furthermore, because of the frequent incompatibility between programs from software packages, the formatted tables required by financial reporting standards that are created by spreadsheets programs are mismatched, incomplete, or even destroyed when they are transferred via word processing files.

Previous wording

Human data entry of hundreds or thousands of financial numbers in the financial report imposes another challenge and presents risk of human error. This risk is compounded by the frequent requirement to update or revise these hundreds or thousands of numbers during the reviewing and auditing processes before submission.

Current wording

Human data entry of hundreds or thousands of financial numbers in the financial report imposes another challenge and presented by regularly occurring human error. This risk is compounded by a frequent requirement to update or revise these hundreds or thousands of numbers during the time-constrained review processes and auditing processes prior to submission.

Previous wording

Given the complexity and volume of data involved. Companies are looking for solutions that not only save cost, and reduce the time and effort required to report in a timely manner but also improve accuracy and compliance. We have has developed an automated software solution to address these challenges effectively and efficiently in the following ways:

Current wording

Given the complexity and volume of data involved, companies are looking for solutions that not only save cost, and reduce the time and effort required to report in a timely manner but also improve accuracy and compliance. We have developed an automated software solution to address these challenges effectively and efficiently in the following ways:

Previous wording

Data Entry Automation: Our software’s automated data entry function reduces the risk of human errors and saves time. It is able to extract data from various sources and populate financial reports accurately.

Current wording

Data Entry Automation: Our software’s automated data entry function reduces the risk of human errors and saves time. It can extract data from various sources and populate financial reports accurately.

Previous wording

Validation Checks: Our software includes built-in validation checks to ensure that the data is accurate and compliant with regulatory requirements. It also helps in identifying potential errors early in the reporting process.

Current wording

Validation Checks: Our One Touch Financial Software includes built-in validation checks to ensure that the data is accurate and compliant with regulatory requirements. It also helps in identifying potential errors early in the reporting process.

Previous wording

In the fourth quarter of 2021, we hired the law firm of Knobbe, Martens, Olson & Bear, LLP (“Knobbe Martens”) to serve as outside intellectual property counsel for the Company. The firm is working on converting the Company’s provisional patent applications to formal nonprovisional patent applications and expanding existing patent portfolios. In addition, Knobbe Martens is working on filing four previously unfiled patents and pursuing patent coverage in Europe and Australia. In addition, in May 2022, the Company engaged Chang & Hale, LLP as suggested by our counsel at Knobbe Martens to assist with two new patents, noting that Knobbe Martens still remains our main IP counsel. Currently, the Company has 18 pending U.S. nonprovisional patent applications and 9 issued U.S. patents.

Current wording

In 2021, we hired the law firm of Knobbe, Martens, Olson & Bear, LLP (“Knobbe Martens”) to serve as outside intellectual property counsel for the Company. The firm is working on converting the Company’s provisional patent applications to formal nonprovisional patent applications and expanding existing patent portfolios. In addition, Knobbe Martens is working on filing four previously unfiled patents and pursuing patent coverage in Europe and Australia. In addition, in May 2022, the Company engaged Chang & Hale, LLP as suggested by our counsel at Knobbe Martens to assist with two new patents, noting that Knobbe Martens still remains our main IP counsel. Currently, the Company has 18 pending U.S. nonprovisional patent applications and 9 issued U.S. patents. As a result of our primary IP attorney switching firms from Knobbe Martens to Dority Manning, Focus Universal Inc, hired Dority Manning on July 16, 2024 to serve as outside intellectual property counsel for the Company.

Previous wording

Our consolidated gross revenue for the three months ended March 31, 2024 and 2023 was $219,158 and $236,095, respectively. Revenue for the three months ended March 31, 2024 decreased $16,937 due to a sales decrease from our IoT installation service due to a reduction in the number of projects in 2024.

Current wording

Our consolidated gross revenue for the three months ended June 30, 2024 and 2023 was $19,753 and $215,391, respectively. Revenue for the three months ended June 30, 2024 decreased $195,638 due to a sales decrease from our IoT installation service due to a reduction in the number of projects in 2024.

Previous wording

Selling expenses for the three months ended March 31, 2024 was $39,285, compared to $11,859 for the three months ended March 31, 2023. Selling expense incurred was mainly from third party advertising fees and marketing related fee. The increase of selling expense was due to an increase in advertising fees.

Current wording

Selling expenses for the three months ended June 30, 2024 was $35,640, compared to $63,075 for the three months ended June 30, 2023. Selling expense incurred was mainly from third party advertising fees and marketing related fees. The decrease of selling expense was due to a decrease in advertising fees.

Previous wording

Compensation – officers and directors were $56,793 and $307,534 for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Compensation – officers and directors were $55,255 and $253,403 for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Professional fees were $352,611 during the three months ended March 31, 2024, compared to $257,399 during the three months ended March 31, 2023. The increase in these professional fees compared to the prior period was due to an increase in professional legal fees for prior employment litigation.

Current wording

Professional fees were $354,421 during the three months ended June 30, 2024, compared to $116,565 during the three months ended June 30, 2023. The increase in these professional fees compared to the prior period was due to an increase in professional legal fees for prior employment litigation.

Previous wording

General and administrative expenses for the three months ended March 31, 2024 was $527,645 compared to $443,052 during the three months ended March 31, 2023. The increase of general and administrative expenses was primarily due to an increase in the number of office employees in 2024.

Current wording

General and administrative expenses for the three months ended June 30, 2024 was $625,492 compared to $361,583 during the three months ended June 30, 2023. The increase of general and administrative expenses was primarily due to an increase in the number of office employees in 2024.

Previous wording

Other income for the three months ended March 31, 2024 was $4,213, compared to $126,731 for the three months ended March 31, 2023. The decrease was due to decreased other income and unrealized gain on marketable equity securities.

Current wording

Other income for the three months ended June 30, 2024 was $14,031, compared to $53,320 for the three months ended June 30, 2023. The decrease was due to increased interest expense.

Previous wording

During the three months ended March 31, 2024 and 2023, we incurred net losses of $1,315,597 and $1,114,243 respectively, due to the factors discussed above.

Current wording

During the three months ended June 30, 2024 and 2023, we incurred net losses of $1,365,106 and $1,018,166 respectively, due to the factors discussed above.

Previous wording

Cost of revenue for the three months ended March 31, 2024 was $219,357, compared to $180,744 for the three months ended March 31, 2023. In addition to the decrease in revenue, gross profit decreased to $199 compared to $55,351 three months ended March 31, 2024 and 2023, respectively.

Current wording

Cost of revenue for the six months ended June 30, 2024 was $251,191, compared to $330,003 for the six months ended June 30, 2023. In addition to the decrease in revenue, gross profit (loss) decreased to $(12,280) compared to $121,483 six months ended June 30, 2024 and 2023, respectively.

Previous wording

Research and development costs were $343,277 and $276,481 for the three months ended March 31, 2024 and 2023, respectively. The increase was due to an increase in the number of research and development patent fees.

Current wording

Research and development costs were $639,525 and $619,473 for the six months ended June 30, 2024 and 2023, respectively. The increase was due to an increase in the number of research and development patent fees.

Previous wording

Our net cash outflows from operating activities of $892,089 for the three months ended March 31, 2024 was primarily the result of our net loss of $1,315,597 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses. The change in operating assets and liabilities includes a decrease in accounts receivable of $72,605, an increase in inventory of $125,286, a decrease in other receivable of $20,435, an increase in prepaid expense of $14,041, a decrease in operating lease right-of-use asset of $21,039, an increase in accounts payable and accrued liabilities of $268,420, an increase in other current liabilities of $68,957, and an increase in lease liabilities of $64,960. Non-cash expense included add-backs of $7,629 in bad debt expense, $35,330 in depreciation expense, $1,475 in unrealized loss on marketable securities, $94,910 in stock-based compensation - shares, and $36,995 in stock option compensation.

Current wording

Our net cash outflows from operating activities of $1,721,946 for the six months ended June 30, 2024 was primarily the result of our net loss of $2,680,703 and changes in our operating assets and liabilities offset by the add-back of non-cash expenses.

Previous wording

For the three months ended March 31, 2024 we had cash outflow from investing activities of $5,044 from the purchase of property and equipment. For the three months ended March 31, 2023, we had cash inflow from investing activities of $61,824. That was primarily the result from the purchase of property and equipment of $9,920, purchase of marketable securities of $17,690, and proceeds from sales of marketable securities of $89,434.

Current wording

For the six months ended June 30, 2024 we had cash outflow from investing activities of $9,743 from the purchase of property and equipment. For the six months ended June 30, 2023, we had cash inflow from investing activities of $40,889. That was primarily the result from the purchase of property and equipment of $17,203, purchase of marketable securities of $43,644, and proceeds from sales of marketable securities of $101,736.

Previous wording

For the three months ended March 31, 2024, we had cash inflows of $550,000 due to proceeds from third party and related party loan amount of $600,000 and repayment on third party loan amount of $50,000. For the three months ended March 31, 2023, we had cash outflows of $1,000,000 due to purchase of treasury stock.

Current wording

For the six months ended June 30, 2024, we had cash inflows of $1,326,000 due to proceeds from third party and related party loan amount of $1,451,000 and repayment on third party loan amount of $125,000. For the six months ended June 30, 2023, we had cash outflows of $1,420,686 due to purchase of treasury stock.

Previous wording

The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these condensed consolidated financial statements. The Company has a net loss of $1,315,597 and $1,114,243 for the three months ended March 31, 2024 and 2023, respectively. In addition, the Company had an accumulated deficit of $23,897,767 and $22,582,170 as of March 31, 2024 and December 31, 2023, respectively, and negative cash flow from operating activities of $892,089 and $838,535 for the three months ended March 31, 2024 and 2023, respectively. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Current wording

The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these condensed consolidated financial statements. The Company has a net loss of $2,680,703 and $2,132,409 for the six months ended June 30, 2024 and 2023, respectively. In addition, the Company had an accumulated deficit of $25,262,873 and $22,582,170 as of June 30, 2024 and December 31, 2023, respectively, and negative cash flow from operating activities of $1,721,946 and $1,606,739 for the six months ended June 30, 2024 and 2023, respectively. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These unaudited condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, has also expressed substantial doubt about the Company’s ability to continue as a going concern.

Previous wording

At March 31, 2024, the Company had cash and cash equivalents, and short-term investments, in the amount of $114,096. The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financings, and it expects to continue to rely on these sources of capital in the future. In addition, subsequent to year end, the Company has entered into a letter of intent with a secondary buyer to sell its land and buildings which upon completion, will provide additional working capital to the Company. No assurance can be given that the sale of the land and building will occur, or any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing, or grant unfavorable terms in future licensing agreements. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2023, has also expressed substantial doubt about the Company’s ability to continue as a going concern.

Current wording

At June 30, 2024, the Company had cash and cash equivalents, and short-term investments, in the amount of $40,644. The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financings, and it expects to continue to rely on these sources of capital in the future. In addition, subsequent to June 30, 2024, the Company has sold its land and buildings which provided additional working capital to the Company. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing, or grant unfavorable terms in future licensing agreements.