FOCUS UNIVERSAL INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2026 AND 2025

Note 1 –Organization and Operations

Focus Universal Inc. (“Focus” or the “Company”) was incorporated under the laws of the State of Nevada on December 4, 2012. The Company is a universal smart instrument developer and manufacturer, headquartered in Monterey Park, California, specializing in the development and commercialization of novel and proprietary universal smart technologies and instruments. Focus Universal Inc. is also a provider of patented hardware and software design technologies for Internet of Things (“IoT”) and 5G. The Company has developed five disruptive patented technology platforms with 28 patents and patents pending in various phases and 8 trademarks pending in various phases to solve 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. The smartphone or other mobile device serves as the foundation to the platform of our products where the user can review the sensor readouts together which performs the function of many traditional scientific and engineering instruments. The Company’s products are intended to replace the traditional, wired stand-alone instruments at a fraction of their cost.

The Company has multiple subsidiaries, including Perfecular Inc. (“Perfecular”), AVX Design & Integration, Inc. (“AVX,” also doing business as Smart AVX (“Smart AVX”), Focus Universal (Shenzhen) Technology Company LTD (“Focus Shenzhen”), Lusher Bioscientific, Inc., Lusher, Inc., Lusher Holding LLC, (together “Lusher”), and until August, 2024, AT Tech Systems LLC (“AT Tech LLC”), which activities have since been discontinued.

On February 2, 2026, the Company founded a wholly owned subsidiary named Lusher Holding LLC. Lusher Holding LLC was established to provide commercial real estate property management services.

On April 1, 2026, and April 16, 2026, the Company founded two wholly owned subsidiaries, Lusher LLC and Lusher Service LLC respectively, both registered under the laws of the State of California. Both of these subsidiaries were established to support the Company’s future planned financial services operations. On May 18, 2026, the Company entered into a Cross-Border E-Commerce Acquiring Service Cooperation Agreement. Focus Universal Inc. held a 51% ownership interest in Lusher LLC, while Avantgarde Service Inc. held the remaining 49% ownership interest. There were no transactions involving Lusher LLC through June 30, 2026.

Note 2 –Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements of the Company for the three and six months ended June 30, 2026 and 2025 have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation S-K (“Regulation S-K”) for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year. The balance sheet information as of December 31, 2025 was derived from the audited financial statements included in the Company’s financial statements as of and for the years ended December 31, 2025 contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 31, 2026. These financial statements should be read in conjunction with that report.

The accompanying unaudited condensed consolidated financial statements include the accounts of Focus and its wholly-owned subsidiaries, Perfecular, AVX, Focus Shenzhen, Lusher, Lusher Holding LLC, Lusher Service LLC, as well as its 51% ownership interest in Lusher LLC and, until August of 2024, 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”).

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 assumptions impacting right-of use asset and lease liability, useful lives of property and equipment, allowance for doubtful accounts, inventory reserves, and the valuation allowance on deferred tax assets. The Company regularly evaluates its estimates and assumptions.

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 June 30, 2026 and December 31, 2025, allowance for doubtful accounts amounted to $278,201 and $278,201, respectively.

Concentrations of Credit and Business Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company limits its exposure to credit loss by investing its cash with high credit quality financial institutions.

Major customers

Two major tenants accounted for approximately 37% and 12% of the Company’s total rental revenue during the three and six months ended June 30, 2026, respectively. No individual tenant accounted for more than 10% of the Company’s total rental revenue during either the three or six months ended June 30, 2025.

Two major customers accounted for approximately 80% and 12% of the Company’s total other revenue during the three months ended June 30, 2026, compared to approximately 55% and 29%, respectively, during the three months ended June 30, 2025. Three major customers accounted for approximately 43%,26%, and 13% of the Company’s total other revenue during the six months ended June 30, 2026, compared to approximately 36%,24%, and 12%, respectively, during the six months ended June 30, 2025.

Major vendors

No major vendors accounted for more than 10% of our total purchases during the three and six months ended June 30, 2026, and one major vendor accounted for more than 66% of total purchases during the three and six months ended June 30, 2025.

Share-based Compensation

The Company accounts for stock-based compensation to employees in conformity with the provisions of Accounting Standards Codification (“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.

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:

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2025:

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

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 six months ended June 30, 2026 and 2025 was comprised of foreign currency translation adjustments.

Revenue Recognition

Rental Income

Rental income from operating leases is recognized on a straight-line basis over the non-cancelable lease term when collectability is probable and the tenant has been provided access to and control of the leased premises. Rental income includes fixed contractual lease payments and, when applicable, variable lease payments that are recognized in the period in which the underlying conditions giving rise to such payments are satisfied.

The Company evaluates each lease to determine whether it is an operating or finance lease in accordance with ASC 842, Leases. The Company's leases of office and commercial space are classified as operating leases. Lease payments received in advance are recorded as deferred revenue and recognized as rental income over the applicable lease term.

The Company recognizes reimbursements from tenants for operating expenses, including common area maintenance, property taxes and other recoverable costs, as rental income when the Company is the principal in providing the related services. Variable lease payments, including amounts based on tenant sales or other specified conditions, are recognized when the applicable conditions are met.

Other Revenue

Revenue from the Company is recognized under ASC Topic 606, Revenue from Contracts with Customers (“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:

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

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. The Company discontinued operations of AT Tech Systems in August 2024, and added the operations of Lusher to service the financial reporting software sector, so the Company currently retains three operating and reportable segments which are (1) Perfecular and Lusher, (2) Corporate and IoT Products and (3) Lusher Holding LLC.

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.

Software Development Costs

In accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed, the Company expenses software development costs as research and development until technological feasibility is established. Technological feasibility is established when the Company has completed all planning, designing, coding, and testing activities that are necessary to establish that the product can be produced to meet its design specifications, including functions, features, and performance requirements. Costs incurred prior to the establishment of technological feasibility are expensed as research and development.

Subsequent to achieving technological feasibility, and until the product is available for general release, the Company will capitalize qualifying development costs, which primarily include payroll and related costs for employees directly involved in coding and testing, fees paid to third-party developers, and other direct costs incurred to complete the software product. Capitalization ceases when the product is ready for release.

Capitalized software development costs will be amortized on a product-by-product basis using the greater of (i) the ratio of current gross revenues to total anticipated gross revenues or (ii) the straight-line method over the estimated economic life of the product, generally three to five years. Amortization expense will be included in cost of revenues. Capitalized software will be reviewed for impairment when indicators of loss are present.

Redeemable Convertible Preferred Stock

The Company accounts for its Series B Convertible Preferred Stock in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity, and related SEC guidance for redeemable equity instruments.

The Series B Convertible Preferred Stock contains redemption features that are exercisable at the option of the holders and upon the occurrence of certain events that are not solely within the Company’s control. Accordingly, the Series B Convertible Preferred Stock is classified as temporary equity and presented outside of permanent equity in the consolidated balance sheets.

The Series B Convertible Preferred Stock is initially recorded at its issuance date carrying amount, net of directly attributable issuance costs. The Company subsequently adjusts the carrying amount of the redeemable preferred stock to equal the redemption value at the end of each reporting period. Changes in redemption value are recognized immediately as they occur through charges or credits to additional paid-in capital (or accumulated deficit if additional paid-in capital is not available).

Upon conversion of the Series B Convertible Preferred Stock into common stock, the related carrying amount is reclassified to stockholders’ equity.

Warrants

We evaluate the appropriate balance sheet classification of warrants we issue as either equity or as a derivative liability. In accordance with ASC 815, we classify a warrant as equity if it is “indexed to the Company’s equity” and meets several specific conditions for equity classification. A warrant is not considered “indexed to the Company’s equity,” in general, when it contains certain types of exercise contingencies or potential adjustments to its exercise price. If a warrant is not indexed to the Company’s equity or it has net cash settlement provisions that result in the warrants being accounted for under ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) or ASC 815, it is classified as a derivative liability which is carried on the consolidated balance sheets at fair value with any changes in its fair value recognized in the statements of operations and comprehensive loss. At June 30, 2026 and 2025 all of the Company’s outstanding warrants were classified as equity

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.

Basic and Fully 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.

Fully 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, unless these shares are covered by anti-dilutive protections. The denominator comprises the Company’s weighted average number of outstanding shares to extent the related shares are dilutive and, if dilutive, and other contracts to issue shares of common stock and stock options. Because the Company incurred a net loss, potentially dilutive securities, including warrants, were excluded from the calculation of diluted loss per share because their inclusion would have been antidilutive. As a result, they are included in the fully diluted EPS computation to the extent that the effect would be dilutive.

As of each period end, all 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.

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:

As of June 30, 2026 and December 31, 2025, the Company had cash balances of $25,801 and $26,552 denominated in China Yuan (RMB), respectively.

Going Concern

The Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these condensed consolidated financial statements. The Company has a net loss of $2,765,036 for the six months ended June 30, 2026. In addition, the Company had an accumulated deficit of $34,015,113 as of June 30, 2026, and negative cash flow from operating activities of $1,889,277 for the six months ended June 30, 2026. Substantial doubt about the Company’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the Company will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring losses from operations, generated negative cash flow from operating activities, has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These condensed consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2025, has also expressed substantial doubt about the Company’s ability to continue as a going concern.

At June 30, 2026, the Company had cash, and short-term investments, in the amount of $1,600,258. The ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future and raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. Since inception, the Company has funded its operations primarily through equity and debt financings, and it expects to continue to rely on these sources of capital in the future. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in case of equity financing, or grant unfavorable terms in future licensing agreements. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company.

Reclassification

During the period we made certain reclassifications to the format of our statement of operations to more properly reflect the commencement of our rental operations.

Note 3 –Recent Accounting Pronouncements

In November 2024, the Financial Accounting Standards Board (“FASB”) issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40) Disaggregation of Income Statement Expenses. The guidance in ASU 2024-03 requires public business entities to disclose in the notes to the financial statements, among other things, specific information about certain costs and expenses including purchases of inventory; employee compensation; and depreciation and amortization expense for each caption on the income statement where such expenses are included. The update is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied prospectively to reporting periods after the effective date or retrospectively to all periods presented in the financial statements. The Company is currently evaluating the provisions of this guidance and assessing the potential impact on our financial statement disclosures.

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

Note 4 –Inventory

At June 30, 2026 and December 31, 2025, inventory consisted of the following:

Note 5 –Property and Equipment

On January 21, 2026, the Company entered into a purchase, sale, and escrow agreement with 901 Corporate Center, LP to acquire a 100,743 sq. ft. office and commercial building, along with a four-level parking structure, located in Monterey Park, California. The purchase price was $17,700,000, of which $8,862,095 and $5,148,306 has been preliminarily allocated to Building, Land, respectively. As of April 17, 2026, the Company and Lusher Holding LLC completed the purchase of the building. The building will serve as Focus Universal’s principal headquarters and is expected to carry the same rent roll in 2026 as it did in 2025.

At June 30, 2026 and December 31, 2025, property and equipment consisted of the following:

Depreciation expense for the six months ended June 30, 2026 and 2025 amounted to $198,588 and $10,959, respectively.

Note 6 –Rental Operations

Rental income from operating leases, is recognized on a straight-line basis over the lease term once we have determined that the collectability of substantially all of the lease payments is probable. Accounts receivable, included $59,243 of rent receivables at June 30, 2026.

The following operating lease maturity analysis presents the future contractual lease payments to be received by the Company as of June 30, 2026:

Note 7 –Series B Redeemable Preferred Stock (Temporary Equity)

On October 21, 2025, the Company entered into a Series B Preferred Stock Purchase Agreement with Spartan Capital Securities, LLC (“Spartan”). Pursuant to the terms and conditions of the Series B Preferred Stock Purchase Agreement, the Investors committed to purchase up to $7,000,000 or 8,236 shares (the “Commitment Amount”) of the Company’s Series B Convertible Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”) at a price per share of $850.00 (the “Series B Private Placement”), which represents a 15% original issuance discount. There were three Closings: (i) $3,000,000 for the purchase of the Series B Preferred Stock funded at the Initial Closing; (ii) $1,000,000 for the purchase of the Series B Preferred Stock funded on the date the Company files: (a) the Registration Statement on Form S-1 required by and pursuant to the Registration Rights Agreement, and (b) the Information Statement with the SEC; and (iii) $3,000,000 for the purchase of the Series B Preferred Stock funded within two (2) Business Days after: (a) such Registration Statement is declared effective by the SEC, and (b) the Information Statement has become effective under Rule 14c-2. The Company received net proceeds of $6,320,000 on December 19, 2025. The proceeds were net of closing costs of $680,000 which was recorded as a discount and will be amortized over the earliest date of the redemption period. On December 5, 2025, the Company filed the Amended and Restated Certificate of Designations, Preferences, and Rights of the Series B Convertible Preferred Stock that had the effect of altering the conversion price and floor price calculations of the Series B Preferred Stock in the event that the Company approves a subdivision, reverse stock split, or similar transaction. The amendment to Series B Designation also provided for voluntary redemption rights at the option of the holder of Series B Preferred Stock and upon the occurrence of events outside the Company’s control. On or after January 19, 2026, and for a period of two years thereafter, each holder of Series B Preferred Stock had the right, but not the obligation, to require the Company to redeem all or a portion of the outstanding Series B shares held by them during specified periods within the redemption window. The initial redemption period was to last ninety days, beginning on January 19, 2026. Subsequent redemption periods were to each last thirty days and commence on the following dates: (i) July 1, 2026; (ii) October 1, 2026; (iii) December 1, 2026; (iv) July 1, 2027; (v) October 1, 2027; and (vi) December 1, 2027.

The holders of the Series B Preferred Stock had the right, at any time and from time to time, to require the Company to convert their Series B Preferred Stock shares into common stock. The conversion price was to be equal to 85% of the lowest daily volume-weighted average price (VWAP) of the Company’s common stock during the ten trading days immediately preceding the applicable conversion date or other determination date, subject to the adjustments set forth herein. In no event, however, could the conversion price be less than the floor price of $7.84. The Company initially classified the Series B Preferred Stock outside of permanent equity (as temporary equity within the mezzanine section between liabilities and equity on the consolidated balance sheets) since the redemption of such shares was not solely within the Company’s control. During the year ended December 31, 2025,973 shares of Series B Preferred Stock were converted into 93,926 shares of common stock, and there was an accretion of the discount of $453,334 which has been reflected as an addition to the net loss allocated to common stockholders. At December 31, 2025,7,263 shares of the Series B Preferred Stock remained outstanding and the Series B Preferred Stock had been recorded at its redemption value of $5,946,284. During the six months ended June 30, 2026,6,032 shares of Series B Preferred Stock were converted into 192,357 shares of common stock. The Company recorded an accretion of the discount of $226,666, which was reflected as an addition to the net loss attributable to common stockholders. The remaining outstanding shares of Series B Convertible Preferred Stock were held by Great Point Capital LLC, and the Company entered into a redemption agreement dated April 13, 2026, with Great Point Capital LLC to redeem the 1,231 remaining shares with a stated value $1,045,750 at a price of $782 per share for an aggregate amount of $961,860, resulting in a gain of $83,890 which has been reflected as additional paid in capital. As of June 30, 2026, there areno shares of Series B Convertible Preferred Stock outstanding.

As of June 30, 2026 and December 31, 2025 Series B Preferred Stock shares reflected on the balance sheet are reconciled on the following table:

Note 8 –Leases

Operating Lease

In January 2026, Focus Universal (Shenzhen) Technology Co., Ltd. entered into two thirty-six-month commercial leases with a third party for office spaces of approximately 3,700 and 4,230 square feet. The first lease commenced on January 31, 2026 and will expire on January 30, 2029, with a monthly rent of RMB 14,612 (approximately $2,128). The second lease commenced on February 1, 2026 and will expire on January 31, 2029, with a monthly rent of RMB 24,771 (approximately $3,608). The Company’s incremental borrowing rate for these leases is 10%, representing the rate it would incur on a collateralized basis to borrow an amount equal to the lease payments over a similar term. Lease expense is recognized on a straight-line basis over the lease term. The Company recorded a right of use assets and a lease obligation of $175,271 upon inception of these leases.

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 June 30, 2026 and December 31, 2025, operating lease right-of use assets and lease liabilities were as follows:

Lease term and discount rate:

The minimum future lease payments are as follows:

Related Party Short-term Lease

On February 26, 2026, the Company entered into a one-year storage lease agreement with the CEO’s wife, commencing on March 1, 2026, at a monthly fee of $5,000.

The Company recorded an operating lease expense of $102,259 and $168,417 for the six months ended June 30, 2026 and 2025, respectively. This is included in general and administrative expenses.

Note 9 –Bank Loan

Lusher Holding LLC, a subsidiary of the Company entered into a term loan agreement with East West Bank (the “East West Loan”) to borrow $11,050,000, at 6.25% interest for the first 3-years, then floating at the Wall Street Journal Prime Rate plus (+) 0.25% for the remaining term, with a floor interest rate at 6.25%. The loan provides for 36 consecutive monthly principal and interest payments of approximately $68,698.64, beginning on May 1, 2026 and subsequently, 83 monthly principal and interest payments of an initially estimated amount of approximately $73,917.99 (subject to change based on Wall Street Journal Prime Rate plus 0.25%) beginning May 1, 2029. A final principal and interest payment of approximately $9,533,143.67 (subject to change based on Wall Street Journal Prime Rate plus 0.25%) is due on April 1, 2036. Focus Universal Inc. is listed as the primary guarantor of this East West Loan with Desheng Wang listed as a backup guarantor. This loan is secured by 901 Corporate Center building.

Interest expense incurred from the loan amounted to $86,103 for the six months ended June 30,2026.

Future maturities of payments on the bank loan are as follows as of June 30, 2026:

Note 10 –Stockholders’ Equity

Common stock

On February 9, 2026, the Company effected a reverse stock split of its outstanding common stock on a 1-for-10 basis. On June 23,2026, the Company effected another reverse stock split of its outstanding common stock on a 1-for-4 basis. No adjustment was made to the Company’s authorized shares of capital stock. All share and per share amounts have been retroactively restated to reflect the split as if it occurred at the beginning of the earliest period presented.

Treasury stock

During the six months ended June 30, 2026, the Company repurchased 50,223 shares of its common stock for $354,143 in the public market at average price of $12.81 and placed them in treasury. As of June 30, 2026 and December 31, 2025,54,494 and 4,271 shares remain as treasury shares, respectively. These were all purchased as part of publicly announced plans or program and currently, as also noted in the previous 10-K filing.

Employee compensation

In prior years, the Company entered into several employment agreements that require the issuance of common shares to employees, which vest on a quarterly basis. During the period ended June 30, 2026,2,311 shares with a fair value of $91,215 that previously vested were issued. During the period ended June 30, 2026, an aggregate of 1,534 shares with a fair value of $12,019 vested during the period and were recognized as compensation costs.

On February 11, 2022 (the “Vesting Date”), the Company entered into a restricted stock award agreements (the “Award Agreement”) with eight employees for 700 shares of the Company’s common stock subject to the terms and to the fulfillment of the conditions set forth in the Company’s equity incentive plan. The first 20% of the restricted shares were granted and vested on February 11, 2022. An additional 20% of the restricted shares will vest on each anniversary of the Vesting Date until the fourth anniversary of the Vesting Date. The initial fair value of the awards on the date of grant was determined to be $2,942,800 which is being amortized over the 5 year vesting period. During the year ended December 31, 2025, the Company amortized $357,340 of this amount leaving an unamortized balance of $357,340 at December 31, 2025. During the period ended June 30, 2026,131 shares of common stock vested and the Company amortized $178,670 of this amount leaving an unamortized balance of $178,670 at June 30, 2026. As of June 30, 2026,700 of the shares had been vested.

Warrants

On April 6, 2026, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) to issue and sell to Armistice Capital Master Fund Ltd. (“Armistice”) approximately $4,000,000 worth of Pre-Funded Units resulting in net proceeds to the Company of $3,547,348. Pursuant to the terms of the Purchase Agreement, Armistice purchased an aggregate of 279,330 Pre-Funded Units at a purchase price of $14.3199 per unit. Each Pre-Funded Unit consists of (i) one (1) Pre-Funded Warrant (the “Pre-Funded Warrant”), (ii) one (1) Series A PIPE Common Warrant (“Series A Common Warrant”) to purchase one (1) share of common stock, and (iii) one (1) Series B PIPE Common Warrant (“Series B Common Warrant”) to purchase one (1) share of common stock. Each Pre-Funded Warrant is exercisable for one (1) share of common stock at a nominal exercise price of $0.00001 per share, with the aggregate exercise price having been pre-funded to the Company and is exercisable immediately upon issuance until all of the Pre-Funded Warrants are exercised in full. Alternatively, the Pre-Funded Warrants may be exercised on a cashless basis. Armistice also received (i) a Series A Common Warrant to purchase up to 279,330 shares of Common Stock with an exercise price of $13.32, which expires 24 months after its initial issuance date; and (ii) a Series B Common Warrant to purchase up to 279,330 shares of Common Stock at an exercise price of $13.32, which expires sixty (60) months after its initial issuance date. The Series A Common Warrants and Series B Common Warrants are exercisable immediately upon issuance until their respective expiration dates. The number of shares of Common Stock issuable under the warrants are subject to adjustments for stock splits, dividends, and fundamental transactions as further described in the agreement. The Series A Common Warrants and Series B Common Warrants may be exercised on a cashless basis if there is no effective registration statement registering the issuance or resale of the warrant shares at the time of exercise. During the six months ended June 30, 2026, Armistice has exercised 279,330 shares of its Pre-Funded Warrant and as a result, the Company has issued 279,330 shares of Common Stock.

Stock options

On January 2, 2026, each member of the Board was granted 56 options to purchase shares at $34 per share with a fair value of $1,721. On March 27, 2026, one new member of the Board was granted 56 options to purchase shares at $15.32 per share with a fair value of $775. The options vest monthly over one (1) year, and may be exercised during a 10-year term. In the aggregate,338 options were granted with a fair value of $9,380. During the six months ended June 30, 2026, the Company recognized $4,504 of compensation cost relating to the vesting of these options and $4,876 remained unvested which will be amortized over the remainder of 2026.

For the six months ended June 30, 2026 and 2025, the Company’s stock option compensation expenses amounted to $4,504 and $20,568, respectively.

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

The following is a summary of the option activity from December 31, 2025 to June 30, 2026:

Note 11 –Segment Reporting

The Company currently has two operating and reportable segments. In accordance with ASC 280,Segment Reporting(“ASC 280”), the Company considers operating segments to be components of the Company’s business for which separate financial information is available and evaluated regularly by Management in deciding how to allocate resources and to assess performance. Management reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. Accordingly, the Company has determined that it hasthree operating and reportable segments. The Company consists of three types of operations. (1) AVX and Smart AVX (inclusive of the smart IoT Products sales under Smart AVX) cooperatively run our “LED and IoT Installation Services” segment, which handles our LED and IoT installation and management business specializing in high performance and easy to use LED and display systems, audio/video systems, home theaters, lighting control, automation, and integration. This includes the Focus and Focus Shenzhen collectively operate our “Corporate and R&D” segment focused on R&D development for the IoT, which involves the non-specific financing, executive expense, operations and investor relations of our public entity, and the general shared management and costs across the Company’s subsidiaries that spread across all functional categories and research and development of these IoT technology products and of our smart products into the commercial and home automation sectors. (2) Perfecular and Lusher jointly operate the SEC Financial Software segment, which involves the development, marketing, and production of our SEC Financial Reporting AI-Driven Automation Software package and also includes our universal smart instruments and devices in the hydroponic and controlled agriculture segments. (3) Lusher Holding LLC provide commercial real estate property management services.

Asset information by operating segment is not presented as the Chief Executive Officer does not review this information by segment. The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements. The management team reviews financial information on a consolidated level and allocates resources based on net loss, which also serves as the key metric for evaluating financial performance.

The following tables summarize the financial information of each operating segment of the Company for the three months ended June 30, 2026:

The following tables summarize the financial information of each operating segment of the Company for the three months ended June 30, 2025:

The following tables summarize the financial information of each operating segment of the Company for the six months ended June 30, 2026:

The following tables summarize the financial information of each operating segment of the Company for the six months ended June 30, 2025:

Note 12 –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. As described in Part II, Item 1 of this report, a former engineer filed a claim against Focus Shenzhen in July 2025 alleging wrongful termination. Approximately $24,412 (RMB 165,802) in Focus Shenzhen's bank account has been frozen pending resolution. The Company intends to vigorously defend itself. The outcome remains uncertain, and a reasonable estimate of potential loss cannot be determined at this time.

Note 13 –Subsequent Events

The Company has evaluated all other subsequent events through the date these consolidated financial statements were issued and determined that there were no other subsequent events or transactions that require recognition or disclosures in the consolidated financial statements.