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FOCUS UNIVERSAL INC. - Quarter Report: 2018 March (Form 10-Q)

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly period ended March 31, 2018

 

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

SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 333-193087

 

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)  
   
20511 East Walnut Drive North, Walnut, CA 91789
(Address of principal executive offices) (zip code)

 

(626) 272-3883

(Registrant's telephone number, including area code)

 

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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files. Yes o  No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. (Check one

 

Large accelerated filer o     Accelerated filer o
Non-accelerated filer   o (Do not check if a smaller reporting company)   Smaller reporting company  x
Emerging growth company o    

 

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. o 

 

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

 

As of May __, 2018, registrant had outstanding 34,574,706 shares 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. Unaudited Consolidated Financial Statements 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
   
Item 4. Controls and Procedures 8
   
PART II OTHER INFORMATION 9
   
Item 1. Legal Proceedings 9
   
Item 1A. Risk Factors 9
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
   
Item 3. Defaults Upon Senior Securities 9
   
Item 4. Mine Safety Disclosures 9
   
Item 5. Other Information 9
   
Item 6. Exhibits 10
   
Signatures 11

 

 

 

 

 2 
 

 

PART I FINANCIAL INFORMATION

 

References in this document to "us," "we," or "Company" refer to FOCUS UNIVERSAL INC.

 

ITEM 1. FINANCIAL STATEMENTS

 

 

FOCUS UNIVERSAL INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

 

Index to the Financial Statements

 

Contents Page
   
Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017 F-1
   
Consolidated Statements of Operations (Unaudited) for the Three Months Ended  March 31, 2018 and 2017 F-2
   
Consolidated Statements of Cash Flows (Unaudited) for the three Months Ended March 31, 2018 and 2017 F-3
   
Notes to the Unaudited Consolidated Financial Statements F-4

 

 

 

 

 

 

 3 
 

 

FOCUS UNIVERSAL INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   March 31,   December 31, 
   2018   2017 
   (unaudited)     
ASSETS          
CURRENT ASSETS          
Cash and cash equivalents  $252,526   $394,398 
Accounts receivable   44,721    26,311 
Accounts receivable - related party       564 
Inventories, net   66,309    47,432 
Prepaid expenses   4,167    8,280 
Total Current Assets   367,723    476,985 
           
Property and equipment, net   5,791    6,336 
           
Other assets:          
Deposits   7,210    7,210 
           
Total assets:  $380,724   $490,531 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current Liabilities:          
Accounts payable and accrued liabilities  $509,662   $449,256 
Customer deposit   23,687    31,734 
Income taxes payable   800    800 
Total Current Liabilities   534,149    481,790 
Non-current Liabilities          
Convertible promissory note, net   123,009    81,342 
           
Total Liabilities   657,158    563,132 
           
Stockholders' Deficit:          
Common stock, par value $0.001 per share, 75,000,000 shares authorized; 34,574,706 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively   34,575    34,575 
Additional paid-in capital   1,871,618    1,871,618 
Accumulated deficit   (2,182,627)   (1,978,794)
Total stockholders' deficit   (276,434)   (72,601)
           
Total Liabilities and Stockholders' Deficit  $380,724   $490,531 

 

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

 

 

 F-1 
 

 

FOCUS UNIVERSAL INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(unaudited)

 

   2018   2017 
       (Restated) 
         
Revenue  $61,177   $266,445 
Revenue - related party   7,375    3,008 
Total revenue   68,552    269,453 
           
Cost of Revenue   17,924    207,599 
           
Gross Profit   50,628    61,854 
           
Operation Expenses:          
Compensation - officers   30,000    30,000 
Research and development   51,018    54,476 
Professional fees   50,161    27,981 
General and administrative   69,163    62,909 
Total Operating Expenses   200,342    175,366 
           
Loss from Operations   (149,714)   (113,512)
           
Other Income (Expense)          
Interest expense, net   (54,119)   34 
Other income       4,763 
Total other expense   (54,119)   4,797 
           
Loss before income taxes   (203,833)   (108,715)
           
Income tax expense        
           
Net Loss  $(203,833)  $(108,715)
           
Weight Average Number of Common Shares Outstanding - Basic and Diluted   34,574,706    34,574,706 
           
Net Loss per common share          
Basic and diluted  $(0.01)  $ 

 

* Denotes a loss of less than $(0.01) per share

 

 

 

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

 

 F-2 
 

 

FOCUS UNIVERSAL INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(unaudited)

 

   2018   2017 
Cash flows from operating activities:          
Net Loss  $(203,833)  $(108,715)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   545    456 
Amortization of debt discount   41,667     
Changes in Operating Assets and Liabilities:          
Accounts receivable   (18,410)   (69,587)
Accounts receivable - related party   564     
Inventories   (18,877)   7,237 
Prepaid expenses   4,113    1,364 
Accounts payable and accrued liabilities   60,406    (43,815)
Customer deposit   (8,047)   90,104 
Deferred rent       (351)
Net cash flows used in operating activities   (141,872)   (123,307)
           
Net cash flows in investing activities        
           
Net cash flows in financing activities        
           
Net Change in Cash and Cash Equivalents   (141,872)   (123,307)
           
Cash and cash equivalents - Beginning of Period   394,398    340,073 
           
Cash and cash equivalents - End of Period  $252,526   $216,766 
           
Supplemental Disclosures for Statement of Cash Flows:          
Interest paid  $   $ 
Income tax paid  $   $ 

 

 

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

 

 F-3 
 

 

FOCUS UNIVERSAL INC. AND SUBSIDIARY

NOTES TO THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

Note 1 – Organization and Operations

 

Focus Universal Inc. (the “Company”) was incorporated under the laws of the State of Nevada on December 4, 2012 (“Inception”). We are a universal smart instrument developer and manufacturer, headquartered in the Los Angeles, California metropolitan area, specializing in the development and commercialization of the novel and proprietary universal smart technologies and instruments. Universal smart technology is an innovative, commercial, off-the-shelf technology with an innovative soft hardware integrated platform. Our platform provides a unique and universal wireless solution for embedded design, industrial control, test and measurement. Our smart technology software utilizes a smartphone, computer, or a mobile device as a platform and display that communicates and works in tandem with a group of external sensors and probes manufactured by different vendors in a manner that requires the user to have little or no knowledge of their unique characteristics. Our universal smart instrument (the “Ubiquitor”) consists of a reusable foundation component which includes a wireless gateway (which allows the instrument to connect to the smartphone via Bluetooth and wifi technology), a universal smart application software (our “Application”) which is installed on the user’s smartphone allowing the sensor readouts to be monitored on the smartphone screen. The Ubiquitor also connects to a variety of individual scientific sensors that collect unique data points, from moisture, light, and airflow to other things like electricity voltage meters and a wide variety of applications. These data points are then sent wirelessly to the smartphone and the data is organized on the smartphone screen. The smartphone, 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.

 

The Company and Perfecular were entities under common control; therefore, in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (“ASC”) 805-50-45, the acquisition of Perfecular was accounted for as a business combination between entities under common control and treated similar to a pooling of interest transaction.

 

Perfecular Inc. was founded in September 2009 and is headquartered in Walnut, 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.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of Focus Universal Inc. and its wholly-owned subsidiary, Perfecular Inc. All intercompany balances and transactions have been eliminated upon consolidation. The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain reclassifications have been made to the consolidated financial statements for prior years to the current year’s presentation. Such reclassifications have no effect on net income as previously reported. Please see Note 11, Reclassifications.

 

Segment Reporting

 

The Company currently has one operating segment. 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 that evaluated regularly by the Management in deciding how to allocate resources and in assessing performance. The Management reviews financial information presented on a consolidated basis for purposes of allocation resources and evaluating financial performance. Accordingly, the Company has determined that it has a single operating and reportable segment.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents. At times, such investments may be in excess of Federal Deposit Insurance Corporation (FDIC) insurance limit. There were no cash equivalents held by the Company at March 31, 2018 and December 31, 2017.

 

 

 

 

 F-4 
 

 

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.

 

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 observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

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. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

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. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amount of the Company’s financial assets and liabilities, such as cash and cash equivalent, prepaid expenses, accounts payable and accrued expenses, 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.

 

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

 

Inventory

 

Inventory is valued at the lower of the inventory’s cost (first in, first out basis) or the current market price of the inventory. Management compares the cost of inventory with its market value and an allowance is made to write down inventory to market value, if lower. Inventory allowances 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 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. As of March 31, 2018 and December 31, 2017, inventory reserve amounted to $27,067.

 

 

 

 

 F-5 
 

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed using the straight-line method. Estimated useful lives range from three to seven years on all categories of depreciable assets. 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.

 

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.

 

Revenue Recognition

 

The Company applies ASC 605-10-S99-1 for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

The Company derives its revenues from sales contracts with its customer with revenues being generated upon rendering of services. Persuasive evidence of an arrangement is demonstrated via invoice; service is considered provided when the service is delivered to the customers; and the sales price to the customer is fixed upon acceptance of the purchase order and there is no separate sales rebate, discount, or volume incentive.

 

Perfecular’s primary business functions are designing and marketing products. Tianjin Guanglee serves as an original equipment manufacturer (“OEM”). Perfecular determines the product specifications and the sales prices, and bears physical loss risks during shipping. Perfecular collects full amount of accounts receivable from customers through direct wire transfers or letters of credit. Tianjin Guanglee invoices Perfecular for the manufacturing costs and Perfecular pays these invoices.

 

Allowance for doubtful accounts

 

The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a 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. Management evaluated that there was no allowance for doubtful accounts at March 31, 2018 and December 31, 2017 based on collection history.

 

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.

 

 

 

 F-6 
 

 

The 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 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 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 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 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.

 

Stock Based Compensation

 

The Company accounts for employee and non-employee stock awards under ASC 718, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

 

There were no outstanding stock options as of March 31, 2018 and December 31, 2017.

 

Income Tax Provision

 

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 assets or liabilities as of March 31, 2018 and December 31, 2017.

 

As of March 31, 2018 and December 31, 2017, the Company did not identify any material uncertain tax positions.

 

Net Income (Loss) Per Common Share

 

Net income (loss) per common share is computed pursuant to ASC 260-10-45. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

 

Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common 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.

 

There were no potentially dilutive debt or equity instruments issued and outstanding at any time during the three months ended March 31, 2018 and 2017.

        

 

 

 

 F-7 
 

 

Cash Flows Reporting

 

The Company adopted ASC 230-10-45-24 for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by ASC 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to ASC 830-230-45-1.

 

Subsequent Events

 

The Company follows the guidance in ASC 855-10-50 for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Note 3 – Property and Equipment

 

At March 31, 2018 and December 31, 2017, property and equipment consisted of the following:

 

   March 31,
2018
   December 31,
2017
 
Computers  $1,029   $1,029 
Furniture and fixture   8,850    8,850 
Total cost   9,879    9,879 
Less accumulated depreciation   (4,088)   (3,543)
Property and equipment, net  $5,791   $6,336 

 

Depreciation expense for the three months ended March 31, 2018 and 2017 amounted to $545 and $456, respectively.

 

Note 4 – Convertible Promissory Notes

 

On June 30, 2017 and July 28, 2017, the Company received $420,000 and $80,000, respectively through a series of two unsecured convertible promissory notes from the same unrelated third party (the “2017 Notes”). The 2017 Notes bear interest at 10% per annum, are due on June 30, 2020 and July 28, 2020 respectively and are unsecured. The 2017 Notes contain a provision that allows the note holder to convert the outstanding balance into shares of the Company's common stock at $1.75 per share. The Company determined that the convertible promissory notes contain beneficial conversion features that are valued at $420,000 and $80,000 respectively; however, the amount recorded as the beneficial conversion feature is limited to the face amount of the convertible promissory note. This beneficial conversion feature of $420,000 and $80,000 has been recorded in the financial statements to additional paid-in capital and as a discount to the convertible promissory payable. The debt discounts are being amortized over the terms of the 2017 Notes. The Company recognized interest expense of $41,667 during the three months ended March 31, 2018 related to the amortization of the debt discounts.

  

Note 5 – Related Party Transactions

 

Revenue generated from Vitashower Corp., a company owned by the CEO, amounted to $7,375 and $3,008 for the three months ended March 31, 2018 and 2017.

 

Compensation for services provided by the President and Chief Executive Officer for the three months ended March 31, 2018 and 2017 amounted to $30,000 and $30,000, respectively.

 

 

 

 

 F-8 
 

 

Note 6 – Business Concentration and Risks

 

Major customers

 

One customer accounted for 100% of the total accounts receivable as of March 31, 2018 and December 31, 2017.

 

Major vendors

 

One vendor accounted for 94% and 92% of total accounts payable at March 31, 2018 and December 31, 2017, respectively.

 

Note 7 – Commitments and Contingencies

 

On April 24, 2017, we entered into a two-year industrial/commercial lease within a larger multi-tenant industrial complex with Walnut Park Business Center, LLC. We leased a 2,800-square foot warehouse with a 1,400-square foot office space inside which will allow us to assemble our products as well as efficiently run our administrative operations in the same building. The lease commenced on May 1, 2017 and will end on April 30, 2019. We will pay $3,500 per month until May 1, 2018 when the rent will increase to $3,605 per month. The warehouse is located at 820511 East Walnut Drive North, Walnut, California. Rent expense under this lease will be recognized over the life of the lease term on a straight-line basis. Straight-line monthly rent expense over the life of the lease will be $3,553.

 

Total rent expense was $10,500 and $15,000 for the three months ended March 31, 2018 and 2017, respectively.

 

Future minimum lease commitments are as follows:

 

December 31,  Rent Expense 
2018  $32,130 
2019   14,420 
Thereafter    

 

Note 8 – Stockholders’ Equity

 

Shares authorized

 

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

 

Common stock

 

As of March 31, 2018 the Company had 34,574,706 shares of common stock issued and outstanding.

 

Note 9 – Going Concern

 

In August 2014, the FASB issued ACU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to assess the company’s ability to continue as a going concern. Disclosures are required if there is substantial doubt as to the company’s continuation as a going concern within one year after the issue date of financial statements. The standard provides guidance for making the assessment, including consideration of management’s plans which may alleviate doubt regarding the Company’s ability to continue as a going concern. ASU 2014-15 is effective for years ending after December 15, 2016. The Company has adopted this standard for the year ending December 31, 2017 and three months ending March 31, 2018.

 

These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. 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. Recently, the Company has devoted a substantial amount of resources to research and development to bring the Ubiquitor and its mobile application to full production and distribution. For the three months ended March 31, 2018, the Company had net loss of $203,833 and negative cash flow from operating activities of $141,872. As of March 31, 2018 the Company also had an accumulated deficit of $2,182,627. These factors raise certain doubts regarding the Company’s ability to continue as a going concern. There are no assurances, however, that the Company will be successful in obtaining an adequate level of financing for the long-term development and commercialization of its Ubiquitor product.

 

 

 

 

 F-9 
 

 

Note 10 – Restatement

 

   Previously reported         Restated 
   3/31/2017   Adjustment     3/31/2017 
               
Revenue  $82,190    184,255  {a}  $266,445 
Revenue - related party       3,008  {b}   3,008 
Total revenue   82,190           269,453 
                  
Cost of Revenue   20,336    187,263  {a}   207,599 
                  
Gross Profit   61,854           61,854 
                  
Operation Expenses:                 
Compensation - officers   30,000           30,000 
Research and development   62,909           62,909 
Professional fees   27,981           27,981 
General and administrative   54,476           54,476 
Total Operating Expenses   175,366           175,366 
                  
Loss from Operations   (113,512)          (113,512)
                  
Other Income (Expense)                 
Interest expense, net   34           34 
Other income   4,763           4,763 
Total other expense   4,797           4,797 
                  
Loss before income taxes   (108,715)          (108,715)
                  
Income tax provision               
                  
Net Loss  $(108,715)         $(108,715)
                  
Weight Average Number of Common Shares Outstanding - Basic and Diluted   34,574,706           34,574,706 
                  
Net Loss per common share                 
Basic and diluted  $          $ 

 

{a} The Company previously recorded shipment of sales shipped directly from vendor to customer as net of cost of goods sold. The Company corrected the error by recording sales at gross amount and separately record cost of goods sold amount.

 

{b} Revenue generated from Vitashower Corp., a company owned by the CEO, amounted to $3,008 for the three months ended March 31, 2017 was reclassified to be separately disclosed.

 

Note 11 – Subsequent Events

 

The Company has evaluated all events that occurred after the consolidated balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported.

 

 

 

 F-10 
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

 

The following discussion of our financial condition and results of operations should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and notes thereto included in, Item 1 in this Quarterly Report on Form 10-Q. This item contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those indicated in such forward-looking statements.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain forward-looking. 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.

 

Narrative Description of the Business 

 

Focus Universal Inc. (“the Company”, “we”, “us” or “our”) currently conducts business as a handheld sensor systems and filters wholesaler to distribution platforms. We are working on developing a universal sensor node and gateway system that use the data processing capabilities of a smartphone to display readings of multiple probe modules. We are also researching the development of an anti-counterfeit authentication technology that we believe could address the problem of counterfeit production by attempting to authenticate consumer goods.

 

Through a merger with Perfecular Inc., we strategically expanded our business to the manufacture and marketing of high-tech electronic devices. We realized that Internet marketing would not be sufficient to generate sales of our products, particularly the Ubiquitor product. We are going to focus on all types of marketing, particularly marketing directly to established consumer distributions retailers. For this reason, in 2016 we decided to emphasize our sales of handheld sensors and air filters and discontinue our marketing and advertising business segment. Through the development and creation of our Ubiquitor device, we anticipate that sales and marketing involved with bringing this product to market will require us to hire a number of new employees in order to gain traction in the market as well as continue to expand such sales of our existing sensor and air filter products.

 

Our current services include:

 

Scientific Instrument Research and Development and Sales

 

Engineers and scientists use instrumentation to observe, understand, and manage real-world data and phenomena, events, and processes related to their industries or areas of expertise. Instrumentation systems that we are researching and developing measure and control electrical signals, such as voltage, current and power, as well as temperature, pressure, speed, flow, volume, torque, light sensing, and vibration for example. Common general-purpose instruments in our market segment include, for example, voltmeters, signal generators, oscilloscopes, data loggers, spectrum analyzers, cameras, and temperature and pressure monitors and controllers. Systems that perform measurement and control can be generally categorized as test, measurement, and embedded systems.

 

A New Approach to Measurement and Sensing

 

We offer a different approach than what is currently on the market because we are attempting to establish a demand for devices that link handheld devices and sensors with common smartphone computing power through an application on the smartphone in both IOS and Android devices. Tapping into the computing power of a smartphone enables a measurement device to increase its capabilities.

 

We also offer an array of traditional handheld measurement and control meters through our wholesale distribution platform.

 

 

 

 4 
 

 

Filter and Handheld Meter Wholesaler

 

We are a wholesaler of various filtration products and digital meters. We source our products from manufacturers in China and then sell to a major U.S. distributor who resells our products directly to consumers through retail distribution channels.

 

Specifically, we sell the following products:

 

Fan Speed Adjuster device. We provide a fan speed adjuster device to retailers and distributors. Designed specifically for centrifugal fans with brushless motors, our adjuster device helps ensure longer life by preventing damage to fan motors by adjusting the speed of centrifugal fans without causing the motor to hum. These devices are rated for 350 watts max, have 120VAC voltage capacity and feature an internal, electronic auto-resetting circuit breaker.

  

Carbon filter devices. We also sell two types of carbon filter devices to distributors. These Carbon filter devices are professional grade filters specifically designed and used to filter air in greenhouses that might be polluted by fermenting organics. One of these filters can be attached to a centrifugal fan to scrub the air in a constant circle or can be attached to an exhaust line as a single pass filter, which moves air out of the growing area and filters unwanted odors and removes pollens, dust, and other debris in the air. The other filter is designed to be used with fans from 0-6000 C.F.M.

 

HEPA filtration device. We provide an organic air high efficiency particulate arrestance (“HEPA”) filtration device at wholesale prices to distributors and retailers. Manufactured, tested, certified, and labeled in accordance with current HEPA filter standards, this device is targeted towards greenhouses and grow rooms and designed to keep insects, bacteria, and mold out of grow rooms. We sell these devices in various sizes.

 

Digital light meter. We provide a handheld digital light meter that is used to measure luminance in fc units, or foot-candles. The meter we sell is designed to be full cosine corrected for the angular incidence of light (meaning if you are not holding the sensor perpendicular to the light source, the sensor will still read the light correctly). The meter has a built-in low battery indicator and is designed to accurately measure to 40,000 FC.

 

Quantum par meter. We provide a handheld quantum par meter used to measure photosynthetically active radiation (“PAR”). This fully portable handheld PAR meter is designed to measure PAR flux in wavelengths ranging from 400 to 700 nm. It is designed to measure up to 10,000 umol.

 

Ubiquitor Wireless Universal Sensor Device

 

We have fully researched and developed a device we call the “Ubiquitor,” which is a handheld fully modular system with a universal sensor node and gateway system that uses a smartphone as the output display module that displays the readings of various probe modules. We have completed an initial production run of 1,000 devices and intend to develop this into full-scale production as soon as possible. The Ubiquitor is a wireless sensor device that combines measuring tools with smartphone technology to quickly deliver sensor node data on desktop and mobile phone screens. The Ubiquitor’s sensor analytics system will integrate event-monitoring, storage and analytics software in a cohesive package that we hope will provide a holistic view of sensor data it is reading.

 

After sending our circuit boards to China for soldering at an unaffiliated manufacturing facility, we assembled the initial production run at our facilities here in the City of Industry. This initial production run will allow us to show large distributors and consumers the capabilities of the Ubiquitor which we hope will generate demand.

 

The physical hardware consists of:

 

  1. The sensor probes, which come in hundreds of different varieties of sensor instruments in the form of a USB stick, with both male and female ports; and

 

  2. The main hardware gateway, a small cell phone size device with integrated circuits.

 

This device is intended to connect up to 2.5 kilometers of sensor instruments, and integrate data using embedded software to display the data and all analytics onto a digital screen (desktop or mobile displays) using multiple types of wireless connections (i.e., Wi-Fi, Bluetooth, 3G and 4G). Most types of probes can connect to the hardware. If the sensor size is bigger than the standard probe size, it is possible to simply use a USB cable to connect the probe and the hub. All data and analytics are displayed on a single screen, with tools that record and keep track of all measurements, and sort and display analytic information in easy to read charts. 

 

 

 

 

 5 
 

  

The Ubiquitor is a general platform that collects data in real time, up to 100hz per second, and thus is intended to be adapted to many industry uses.

 

The Ubiquitor is a multipurpose wireless intelligent sensor device that will be intended to achieve universal compatibility. Currently, the Ubiquitor device could simultaneously accommodate more than 256 different types of sensor heads. Users could use their smartphones to simultaneously operate and monitor over 256 kinds of sensor readings. With Perfecular’s technology, users only need to obtain the sensor heads, facilitating ease and convenience of use. Using a smartphone, users can collect and analyze data in real time. We have not yet started research and development of a second generation Ubiquitor device, but once we demonstrate the market for this product intend to begin such research and development.

 

Intellectual Property Protection

 

After the merger, on January 20, 2016 we filed provisional patent application number 62/281,104 with attorney docket number PER1.PAU.01.0 and Confirmation No. 2212. Prior to its expiration, on November 4, 2016, we filed a full utility patent application with the U.S. Patent and Trademark Office (number 15/344,041). On November 4, 2016 we filed a U.S. patent application number 15/344,041 with the U.S. Patent and Trademark Office. On March 5, 2018, Focus Universal Inc. (the "Company") issued a press release announcing that the U.S. Patent and Trademark Office has issued an Issue Notification for U.S. Patent Application No. 9924295 entitled “Universal Smart Device,” which covers a patent application regarding the Company’s Universal Smart Device. The USPTO had previously issued a Notice of Allowance for the same patent. Barring any unforeseen circumstances, this patent, when issued, will be valid until 2036. We filed the trademark “Ubiquitor” on July 10, 2016, under Serial No.:  87068020.

 

Competitors

 

There are several competitors we have identified in the wireless sensor node industry, including traditional instruments or devices manufacturers such as Hanna Instruments or Extech Instruments.

 

Hach developed and launched SC1000 Multi-parameter Universal Controller, a probe module for connecting up to 8 SC sensors and their products are not compatible with smart phones yet and we believe their price-point is still prohibitive to consumers.

 

Monnit Corporation offers a range of wireless or remote sensors. Many of Monnit’s products are web-based wireless sensors usually are not portable because of the power consumption. Also, the sensors real-time updates are slow and we believe security of the web-based sensor data acquisition also may be a concern. In addition to purchasing the device, consumers usually have to pay monthly fee for using web-based services.

 

We are not trying to compete with traditional instruments or device manufacturers because we utilize our Ubiquitor universal smart device in conjunction with our generic instruments smartphone application, which we believe will be a completely different product category.

 

Market Potential

 

We believe that wireless universal smart technology will play a critical role for traditional instrument manufacturers, as it is too expensive and difficult to develop for medium or smaller companies. The cost factor is the first consideration when deciding whether a company wants to develop smart wireless technologies and implement them in their products or use them in their field testing. We also hope to play a role in academic laboratories, particularly with smaller academic laboratories who are sensitive to price.

 

Results of operations for the three months ended March 31, 2018 compared to the three months ended March 31, 2017.

 

Revenue, cost of sales and gross profit

 

Our consolidated gross revenue for the three months ended March 31, 2018 and 2017, was $68,552 and $269,453, respectively, which included revenue form related party of $7,375 and $3,008, respectively. Our cost of consolidated cost of revenues for the three months ended March 31, 2018 and 2017, was $17,924 and $207,599, respectively, resulting in a gross profit of $50,628 and $61,854 for the three months ended March 31, 2018 and 2017, respectively.

 

 

 

 6 
 

 

Operating Costs and Expenses

 

The major components of our operating expenses for the three months ended March 31, 2018 and 2017 are outlined in the table below:

 

    For the
Three Months
Ended
March 31,
2018
    For the
Three Months
Ended
March 31,
2017
    Increase
(Decrease)
$
 
Officer compensation   $ 30,000     $ 30,000     $  
General and administrative     69,163       62,909       (6,254 )
Professional fees     50,161       27,981       22,180  
Research and development     51,018       54,476       3,458  )
Total operating expenses   $ 200,342     $ 175,366     $ 24,976  

  

General and administrative expenses of $69,163 incurred during the three months ended March 31, 2018 primarily consisted of office rent of $10,500 and salaries of $26,023.

 

General and administrative expenses of $62,909 incurred during the three months ended March 31, 2017 primarily consisted of office rent of $15,000 and office salaries of $27,688.

 

Professional fees increased from $27,981 during the three months ended March 31, 2017 to $50,161 during the three months ended March 31, 2018, an increase of $22,180.

 

Officer compensation was $30,000 for three months ended March 31, 2018 and 2017. Research and development was $51,018 and $54,476 for the three months ended March 31, 2018 and 2017.

 

Net Losses

 

During the three months ended March 31, 2018 and 2017, we incurred net losses of $203,833 and $108,715 respectively, due to the factors discussed above.

 

Liquidity and Capital Resources

 

Working Capital

 

   March 31, 
2018
   December 31,
2017
 
Current Assets  $367,723   $476,985 
Current Liabilities   (534,149)   (481,790)
Working Capital  $(166,426)  $(4,805)

 

Cash Flows

 

The table below, for the periods indicated, provides selected cash flow information:

 

   For the
Three Months
Ended
March 31,
2018
   For the
Three Months
Ended
March 31,
2017
 
Net cash used in operating activities  $(141,872)  $(123,307)
Net cash used in investing activities        
Net cash used in financing activities        
Net change in cash and cash equivalents  $(141,872)  $(123,307)

 

 

 

 

 7 
 

 

Cash Flows from Operating Activities

 

The net cash outflows from operating activities of $141,872 for the three months ended March 31, 2018 was primarily the result of our net loss of $132,536, and changes in our operating assets and liabilities. The net cash outflows from operating activities of $123,307 for the three months ended March 31, 2017, was primarily the result of our net loss of $108,715 and changes in our operating assets and liabilities.

 

We expect that cash flows from operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our net revenues and operating results, utilization of new revenue streams, collection of accounts receivable, and timing of billings and payments.

 

Off Balance Sheet Arrangements

 

As of March 31, 2017, we did not have any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a15(e) and 15d15(e) under the Securities and Exchange Act of 1934, at the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded as of the evaluation date that our disclosure controls and procedures were effective such that the material information required to be included in our Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to our company, particularly during the period when this report was being prepared.

 

Our management concluded we did not maintain effective controls over the Company’s financial reporting. The material weaknesses in our internal control over financial reporting, caused principally by inadequate staffing and technical expertise in key positions, resulted in overly relying on outside consultants to make numerous adjustments to our financial statements. Additionally, the significant deficiencies or material weaknesses could result in future material misstatement of the consolidated financial statements that would not be prevented or detected. Management has concluded that the identified control deficiencies constitutes a material weakness.

 

Changes in internal control over financial reporting.

 

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Internal Controls

 

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

 

 

 

 

 8 
 

 

PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We were not subject to any legal proceedings during the three months ended March 31, 2017 and there are currently no legal proceedings, to which we are a party, which could have a material adverse effect on our business, financial condition or operating results.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

No shares or common stock were sold during the three months ended March 31, 2017.

 

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

 

No senior securities were issued and outstanding during the three-month periods ended March 31, 2017 or 2016.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable to our Company.

 

ITEM 5.  OTHER INFORMATION

 

Our common stock has been quoted on the OTCQB and on the OTC Link since July 31, 2014 under the symbol “FCUV”. 

 

 

 

 9 
 

 

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

 

Exhibits

 

The following financial information is filed as part of this report:

 

(a)   (1) FINANCIAL STATEMENTS
   
  (2) SCHEDULES
   
  (3) EXHIBITS. The following exhibits required by Item 601 to be filed herewith are incorporated by reference to previously filed documents:

  

Exhibit

Number

Description
   
2.1 Agreement and Plan of Merger by and among Focus Universal Inc., FCUV Acquisition Corp. and Perfecular Inc. filed with the SEC on January 5, 2016.
   
3.1 Articles of Incorporation. Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on December 26, 2013.
   
3.2 Bylaws. Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on December 26, 2013.
   
4.2 Subscription Agreement. Incorporated by reference to the Company’s Registration Statement on Form S-1 filed with the SEC on December 26, 2013.
   
10.1 Stock Purchase Agreement dated December 29, 2014. Incorporated by reference to the Company’s 8-K filed with the SEC on January 5, 2015.
   
10.2 Unsecured Demand Promissory Note dated February 1, 2015 in the amount of $20,000 filed with the SEC on July 28, 2015
   
10.3 Unsecured Demand Promissory Note dated February 25, 2015 in the amount of $100,000 filed with the SEC on July 28, 2015
   
10.4 Master Revolving Note dated May 21, 2015 in the amount of $1,000,000 filed with the SEC on July 28, 2015
   
31.1 Certification of CEO pursuant to Sec. 302
   
31.2 Certification of CFO pursuant to Sec. 302
   
32.1 Certification of CEO pursuant to Sec. 906
   
32.2 Certification of CFO pursuant to Sec. 906
   
101.INS* XBRL Instances Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document

 

 

* To be filed by amendment

 

 

 10 
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  Focus Universal Inc.
       
Dated:  May 15, 2018 By:  

/s/ Desheng Wang

Desheng Wang

Chief Executive Officer

       
Dated: May 15, 2018 By:  

/s/ Duncan Lee

Duncan Lee

Chief Financial Officer

       

 

 

 

 

 

 

 11