References in this document to "us," "we,"
or "Company" refer to FOCUS UNIVERSAL INC.
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 a universal smart instrumentation platform developer and universal smart device manufacturer.
We are also a wholesaler of various air filtration systems.
We are currently in the
process of researching, developing, and manufacturing a universal smart instrument device and working on specializing in the development
and commercialization of such universal smart technologies and instruments. We define universal smart technology as commercial
technology with an integrated platform, which provides a unique and universal solution for test and measurement made up of off-the-shelf
parts.
We are working on developing a universal sensor node and gateway system that uses the data processing capabilities
of a smartphone to display readings of multiple probe modules.
Our universal smart instrumentation technology
features a Universal Smart Instrumentation Platform (“USIP”) which generalizes instruments into a reusable foundation
representing a majority part of the instruments, and architecture-specific components (sensor modules), which together replaces
the functions of traditional instruments at a fraction of their cost. The USIP has an open architecture incorporating a variety
of individual instrument functions, sensors and probes from different industries and vendors. The platform features the ability
to connect thousands of sensors or probes. This technology addresses major limitations present in traditional hardware and represents
a technological advancement in the Internet of Things marketplace. We call this device the “Ubiquitor” because it can
be used to wirelessly measure and test a variety of electrical and physical phenomena such as voltage, current, temperature, pressure,
sound, light, and humidity.
The Ubiquitor, which we have created and
have manufactured in limited quantities, utilizes a standard desktop computer with Mac OS, Windows OS, an Android-based or iOS-based
smartphone, or mobile tablet device as a platform that communicates with a group of sensors or probes manufactured by different
vendors in a manner that requires the user to have little or no knowledge of their unique characteristics. The data readout is
displayed on the computer, smartphone, or tablet display in a program or application we have created for Windows PC and are creating
for MacOS. We are designing the application software (the “App”) to have a graphical representation of control and
indicator elements common in real instruments such as knobs, buttons, dials, and graphs, etc. Our developers are designing and
implementing a soft control touch screen interface which supports real-time data monitoring and facilitates instrument control
and operation.
Until March 31, 2016, we offered a full
range of web services, including web marketing services, social and viral marketing campaigns, search engine optimization consulting,
custom web design, website usability consulting and web analytics implementation. We generate our revenue from providing these
services to small and medium sized businesses. We focused on providing one-off services, such as development of a fully functioning
website or creation of a marketing strategy plan, to small business clients.
Through a merger with Perfecular Inc, we
strategically expanded our services to the manufacture and marketing of high-tech electronic devices. We sell handheld sensor systems
and filters wholesale to distribution platforms and 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.
Our current services include:
Scientific Instrument Research and
Development and Sales
Through our acquisition of Perfecular Inc.,
we entered into the scientific instrument industry, specifically the instrument sensor industry. Instrument sensors are devices
specifically designed and constructed for sensing and measuring physical variables that are useful in: (i) industrial operations;
(ii) environmental, commercial and medical applications; (iii) research and development in a variety of industries; and (iv) the
daily lives of electronics consumers.
We believe that instrument sensors are
important in modern science, having applications in both the industrial and educational fields. In recent years, significant progress
has been made in instruments and instrumentation systems. The performance of measuring and monitoring instruments has improved
considerably in the computer age. Analog instruments are used to indicate the magnitude of the quantity in the form of pointer
movements. Digital instruments, on the other hand, specify the quantity in a digital readout format, they can be read easily, and
are more accurate than the analog multi-meters because the pointer movements can be easily misread and are often not permanently
stored, reducing interpolation and reading errors. Digital instruments offer significant advantages over analog devices. The auto-polarity
function of digital devices prevents various problems. Parallax error which occurs when the pointer of an analog instrument is
viewed from a different angle, which may cause users to see and read a different value are eliminated as well. Digital instruments
are free from wear and potential shock failures because they have no moving parts. With the advancements in technology of integrated
circuits, digital instruments are becoming increasingly compact and accurate. Key market players of analog and digital instruments
include Thermo Fisher Scientific, Danaher Corporation, Mettler Toledo, Metrohm USA, Hanna Instruments, Agilent Technologies, and
Perkin Elmer.
Most modern instruments are digital. They
are designed for measuring various physical quantities in objects; and consist of the following functional components:
|
·
|
Data acquisition. This is the process of sampling signals that measure real world physical conditions and converting the resulting samples into digital numeric values that can be manipulated by a microprocessor. The components of data acquisition systems include:
|
|
a.
|
Sensors, to convert physical parameters to electrical signals;
|
|
b.
|
Signal conditioning circuitry, to convert sensor signals into a form that can be converted to digital values;
|
|
c.
|
Analog-to-digital converters, to convert conditioned sensor signals to digital values. It normally operates on conditioned signals, that is, signals that have already been filtered and amplified by analog circuits.
|
|
·
|
Storage and communication components. Application-specific input/output (I/O) components. In digital instrumentation systems, the transmission of data between devices is realized relatively easily by using serial or parallel transmission techniques.
|
|
·
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Ancillaries such as displays and power supplies and application specific software.
|
Traditional hardware-centered instrumentation
systems are made up of multiple stand-alone instruments that are interconnected to carry out a determined measurement or control
an operation. They have fixed vendor-defined functionality, and the components that comprise the instruments are also fixed and
permanently associated with each other. All software and measurement circuitry, packaged onto the traditional instrument, are provided
with a finite list of fixed-functionality using the instrument’s front panel. They all tended to be box-shaped objects with
a control panel and a display. Stand-alone electronic instruments are very powerful and large, expensive, and cumbersome. They
also require a lot of power, and often have excessive amounts of features that are not user friendly. Users generally cannot extend
or customize them. The knobs and buttons on the instrument, the built-in circuitry, and the functions available to the user, are
specific to the nature of the instrument.
Virtual instruments represent a fundamental
shift from traditional hardware-centered instrumentation systems, to software-centered systems that exploit the computing power,
productivity, display, and connectivity capabilities of popular desktop computers and workstations. The functionality of these
stand-alone instruments can be implemented in a digital environment by using computers, plug-in data-acquisition boards, and support
software to implement the functions of the system. The plug-in data acquisition boards enable the interface of analog signals to
computer, and the software allows programming of the computer to look and function as an instrument. The major advantage of virtual
instrumentation is its flexibility. Changing function simply requires a modification of the supporting software. Whereas the same
change in a traditional system may require adding or substituting a stand-alone instrument, which is more difficult and also more
expensive. Virtual instruments also offer advantages in displaying and storing information. Computer display can show more colors
and allow users to quickly change the format of displaying the data that is received by the instrument.
Instrument inter-operability and connectivity
allow devices to communicate and work with other instruments manufactured by different vendors, in a manner that requires the user
to have little or no knowledge of the unique characteristics of those instruments. Traditional instruments, including traditional
hardware-centered instrumentations and software centered virtual instrumentations, are specifically designed, constructed and refined
to perform one or more specific tasks. When manufacturers develop these instruments they naturally seek ways to differentiate their
products from those of their competitors. Most of the instruments on the market come with a variety of connectivity technologies
and do not have the built-in firmware and software to support the connectivity and inter-operability of instruments. Even instruments
within in the same class, from different vendors, are not compatible. In 1998, National Instruments, along with other companies
including Agilent, Advantest, Anritsu, Ascor, BAE systems, Boeing, Ericsson, Genrad, Honeywell, IFR, Keithley, Lecroy, Nokia, Northrop
Grumman, Racal, Ratheon, Rohde & Schwarz, Smiths, Tektronix, Teradyne, and Wavetek formed the interchangeable virtual machine
foundation. Interchangeable Virtual Instruments (IVI) is a revolutionary standard for instrument driver software technology. It
attempts to standardize the commands to which specific kinds of instruments respond, and also makes it possible to interchange
instruments in a test system without drastically revising the application software and maximizing interchangeability across instrument
brands. Unfortunately, while the instrument driver did simplify software development and maintenance, it didn’t address hardware
obsolescence as each manufacturer had their own and none were compatible. Current applications are limited to large, expensive
test and measurement instruments.
A universal instrument is a versatile device
which combines many individual instrument functions, sensors and probes in a single unit. It has a primary purpose, but also incorporates
other instrument’s functionalities. One instrument could perform many different measurements and control and substitute many
other instruments. It utilizes a variety of probes to connect to the device for a wide variety of process measurement and control.
A universal instrument offers superior sensor or probe compatibility, versatility, inter-operability, connectivity and scalability.
Theoretically, it is feasible to design a universal instrument which is compatible with all sensors or probes on the market, and
capable of monitoring and controlling any combination of sensors or probes.
Despite the undoubted usefulness of the
universal instruments, one of the major obstacles that prevent the universal instruments from being adopted by end users is their
cost. The cost of a $10 traditional instrument, which incorporates the functions of a $1000 instrument, may have to increase its
cost to the order of $1000. The end user who just needs a $10 traditional instrument for his applications certainly does not have
the motivation to spend $1000 for functions he does not need. Functionality always needs to be balanced against cost. The knobs
and buttons on the instrument, the built-in circuitry, and the functions available to the user, are specific to the nature of the
instrument, making them very expensive and hard to adapt.
Smartphones and tablets have been considered
recreational devices for communicating, playing games and streaming videos, but they are also one of the most powerful tools engineers
use for designing, validating, and producing products. These ubiquitous smartphones perform better than most instrumentation in
many fields. Because of their network connectivity, smartphones and tablets are great tools for remotely viewing measurements.
In addition, the processing capabilities have exploded in recent years with processors and data capability rivaling that of very
recent laptop computers. Thus, their small size and processing power also makes them effective for portable measurements. The ubiquity
of wireless connectivity, unlimited data plans, and more powerful cellular networks combined with increasing functionality and
the speed of connected devices and mobile networks will further drive consumer demand for more cost effective wireless smartphone
based instruments. Building an application for a smartphone or tablet and turning a smartphone or tablet to an instrument is not
a trivial task. Many of the industrial instrument manufacturers have limited or no expertise programming for mobile platforms and
designing wireless hardware. To help industrial instrument manufacturers take advantage of these smart devices, Perfecular Inc.,
has dedicated many years of research and development efforts into designing, manufacturing, marketing and promoting wireless smart
technology and products for industrial measuring instruments.
Our universal smart development protocol
focuses not only on the design of the hardware and software modules, but also on the design of the overall universal smart instruments
system, guided by the structured, universal and modular principles. We make our development open to industrial instrument manufacturers,
software, and hardware developers.
Compatibility
: The compatibility
in universal smart instrument system refers not only to the compatibility between the same types of industrial sensor instruments
from different manufactures, but also to the compatibility between various industrial instrument types. The full inter-operability
and absolute instrument interchangeability is constantly addressed in our development protocol.
Universality
: It is our goal to
incorporate as many functionalities of the traditional industrial sensor instruments into a single unit, allowing different data
acquisition sensor modules to execute on the same mobile platform. Thus, the interoperability between various sensors or probes
can be achieved.
Upgradeability
: Most traditional
industrial instrument sensor interfaces are unidirectional applications, meaning the instrument performs its task and transmits
results to the interface device in one direction only. They only perform monitoring tasks and share a majority of functions of
the bi-directional controlling instruments, however, they cannot be upgraded to controllers. End users have to purchase a new controlling
instrument for their applications. Taking advantage of the secure bi-directional wireless communications and interface supported
by smartphones or mobile devices, universal smart instruments, which deliver data back-and-forth between the smartphones and industrial
sensors, can be readily modified or upgraded by adding the corresponding actuators for controlling applications. Sensors or probes
measure the output performance of the device being controlled and give feedback to the input actuators that can make corrections
towards the desired performance.
Expandability and Scalability
: Similar
to sensor network technology, universal smart instruments are more flexible than sensor networks. They can currently monitor and
control a few hundreds of sensors or probes, they automatically identify and configure the corresponding graphical user interfaces.
End users are free to add or removes sensors or probes. All communication protocols supported by smartphones are integrated in
the software design including WI-FI, blue tooth, cellular network technology and wired form through the audio port on the smartphone.
Security
: Universal smart instruments
have the sensor security built-in data acquisition module and help companies meet sensor security requirements, preventing unauthorized
users from accessing the sensor measurements and control. Unauthorized access of the universal smart instruments sensors is forbidden.
Modularity
: Increasing instrument
complexity is driving instruments to become more modular. The knobs and buttons on the instrument, the built-in circuitry, and
the functions available to the user used in traditional stand-alone instruments duplicate these components for each instrument,
adding cost and size. Universal smart instruments divide all instruments into three parts: smartphones including their application
software, wireless communication module (we called the universal smart device), which is not needed in the wired form, and task-specific
data acquisition module. The smartphone is used and purchased, no research and development is needed. Universal smart devices were
developed and manufactured by Perfecular Inc. Both hardware and software, including wired or wireless communication protocols,
were developed and well tested. The only work needed to be done are the design and manufacture of the task-specific data acquisition,
which is just a fraction of the traditional stand-alone instrument design. The high degree of modularity saves a lot of time in
development, maintenance, and support. Modular hardware and software limits the time needed to test products so developers can
spend more of their energy on innovation.
Universal smart instruments share many
similarities, in terms of functionalities and advantages, with virtual instruments. They are both soft-centered technologies. However,
developing the software for virtual instrumentation is not trivial, a programming language or special software can be used. Professional
software engineers with virtual instrument expertise are needed. A virtual instrument consists of an industry-standard computer
or workstation equipped with powerful application software, cost-effective hardware such as plug-in boards, and driver software,
which together perform the functions of traditional instruments. Its primary focus is on large, expensive, testing and measurement
instruments, not portable devices. Because of the unique nature of the smartphone operating systems such as IOS or Android, which
are significantly different from those used in industry-standard computers or workstations, the migration of virtual instrument
technology from industry-standard computers or workstations to mobile devices such as smartphones is not straight forward. Virtual
Instrument Software Architecture, commonly known as VISA is a comprehensive package for configuring, programming, and troubleshooting
instrumentation systems comprised of GPIB, Serial, VXI, PXI, Ethernet, and USB interfaces which are wired forms of communications
and widely used in traditional instruments. Universal smart instruments adopt ubiquitous wireless connectivity for communications
between a sensor and the smartphone. The wired form communications used in virtual instruments cannot be applied to wireless communications
supported by smartphone. Industry-standard computers or workstations have more powerful computational capability, memories and
storage to deal with demanding applications in modern industrial measurement systems than those found on smartphones. The software
architecture designed in universal smart instruments is significantly different from that of virtual instruments. There are many
applications running on smartphones. Universal smart instrument software should not interfere with other software. Mobile application
programming and wireless communication technologies are the major holdup for instrument engineers who do not have the mobile application
programming and wireless communication expertise. Focus Universal Inc. provided a comprehensive package including both universal
instrument application software for smartphones or mobile devices, and hardware for wireless communications between smartphones
and sensors, called universal smart device. These technologies, including instrument protocol, completely eliminate those holdups.
No smartphone programming and/or wireless communication knowledge are required, instrument engineers just use their traditional
embedded programming and spend a small fraction of their time to code the instrument specification into the data acquisition modules
including sensors or probes according to the universal smart protocol, and then enjoy the huge hardware reduction and more functionalities
provided or supported by the smartphone. The instrument design was simplified to the data acquisition design; all other functions
were achieved by the universal smart instrument software. Universal smart technology offers the potential to standardization of
the instrument design.
Universal smart technologies are designed
so that a single software package and hardware support all instrumentation applications, no new software and hardware is needed.
Traditional instrument manufacturers still migrate from their traditional instruments to the state-of-the-art universal wireless
smart instruments seamlessly. Instrumentation is a huge industry which covers a variety of industry fields including commercial,
industrial, military, medical, healthcare, scientific and daily life. It is very difficult to estimate its market value; McKinsey
Global Institute estimated that the impact of the Internet of Things on the global economy might be as high as $6.2 trillion
by 2025
1
. Cisco predicts the global Internet of Things market will be $14.4 trillion by 2022.
2
The Internet
of Things is just a fraction of the instrumentation market.
Our Approach to Measurement and Sensing
We offer a different approach that links
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
meters through our wholesale distribution platform.
Ubiquitor Wireless Universal Sensor
Device
Our “Ubiquitor,” device will
be a handheld fully modular system with a universal sensor node and gateway system that will use a smartphone as the output display
module that displays the readings of various probe modules. We have initial functioning prototype devices created and intend to
develop this into full-scale production. The Ubiquitor will be 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 provides a holistic view of sensor data
it is reading.
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 can 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 a Wi-Fi connection. 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.
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 industrial uses.
The Ubiquitor is a multipurpose wireless
intelligent sensor device. Its greatest advantage is 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 our 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.
By using the smartphone as a substitute
platform, we believe we will achieve the following efficiencies:
|
1.
|
Cut production costs.
Smartphone technology will advance and become more widely used than the vast majority products on the small sensor device market. By utilizing smartphone technology, the Ubiquitor will add superior functionality and performance, improve the product’s quality and cutting production costs.
|
|
2.
|
Reduce the effort required to develop a new sensor product.
With the Ubiquitor, we believe that there will be no need for device manufacturers to research and develop the new monitoring and operating components because they will just need to develop new sensor heads based on our software technology.
|
|
3.
|
Reduce clutter.
It is anticipated that the Ubiquitor dispenses with the hassle of hooking up cables, since it is based on wireless transmission of data.
|
Other Traditional Handheld Meters
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.
________________________
1
http://www.mckinsey.com/industries/high-tech/our-insights/the-internet-of-things-sizing-up-the-opportunity
.
2
http://www.forbes.com/sites/louiscolumbus/2015/12/27/roundup-of-internet-of-things-forecasts-and-market-estimates-2015/#2305058e48a0.
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.
Strategy
Strategy and Marketing Plan
We have designed, manufactured, marketed
and distributed our electronic measurement devices, such as temperature humidity meters, digital meters, quantum PAR meters, pH
meters, TDS meters and CO2 monitors, for many years and have many loyal customers. The universal smart technology has been applied
to our existing traditional devices and demonstrated functionality and hardware cost savings. We believe we have achieved hardware
cost savings in the range of 70% to 90%. Prototypes were sent to our customers for demonstrations and evaluation. Currently, we
are in the stage of producing a pilot manufacturing run. The first round of pilot production was completed in May 2016. The second
round of pilot production was completed in July 2016.
Smartphones are an integral part of our
wireless universal smart technology system. Both wireless and wired communication connectivity are used and targeted on different
applications. In wired connectivity, the data acquisition module is connected through the audio port in the smartphone. The smartphone
is used to replace a traditional instrument. Compared with the wireless solution, the wireless communication module or even the
power supply used for data acquisition module are eliminated in the design, as a consequence of this some hardware costs are saved.
End users are not able to access the sensors or probes remotely. We believe that the instruments based on wired universal smart
technology are not as convenient as their wireless counterparts. Currently, in the industry, however, wired instruments are cheaper.
We believe that being the first ones in
the market provides a significant and sustained market-share advantage over later competitors. We first focus on our existing instruments
and convert them to universal smart devices and market them to our existing customers.
We are putting together an internal sales
team with the proceeds of the offering in order to get established for the marketing efforts.
We believe that wireless universal smart
technology will play a critical role for traditional industrial instrument manufacturers, as it is too expensive and difficult
to develop industrial instrument sensors 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. There are hundreds of thousands
of instrument manufacturers and trillion-dollar revenues for this manufacturing industry in China. We plan to open a sales department
in China dedicate to promoting our technologies to local instrument manufacturers.
Smartphones have been seamlessly integrated
into our daily life. A large number of functions and services have become accessible to the masses through the use of smart phones.
The proliferation of the smartphone and its user-friendly interface, which allows access to digital information, will cause these
devices to become a crucial part of our wireless universal smart instruments.
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 September 30, 2018 compared to the three months ended September 30, 2017.
Revenue, cost of sales and gross profit
Our consolidated gross revenue for the
three months ended September 30, 2018 and 2017, was $139,102 and $265,718, respectively. There were no sales to related parties
for the three months ended September 31, 2018 and 2017. Our cost of consolidated cost of revenues for the three months ended September
30, 2018 and 2017, was $81,330 and $191,615, respectively, resulting in a gross profit of $57,772 and $74,103 for the three months
ended September 30, 2018 and 2017, respectively.
Operating Costs and Expenses
The major components of our operating expenses
for the three months ended September 30, 2018 and 2017 are outlined in the table below:
|
|
For the
Three Months
Ended
September 30,
2018
|
|
|
For the
Three Months
Ended
September 30,
2017
|
|
|
Increase
(Decrease)
$
|
|
Officer compensation
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
|
$
|
–
|
|
Research and development
|
|
|
58,930
|
|
|
|
54,708
|
|
|
|
4,222
|
|
Professional fees
|
|
|
157,013
|
|
|
|
32,385
|
|
|
|
124,628
|
|
General and administrative
|
|
|
155,676
|
|
|
|
58,522
|
|
|
|
97,154
|
|
Total operating expenses
|
|
$
|
401,619
|
|
|
$
|
175,615
|
|
|
$
|
226,004
|
|
Officer compensation was $30,000 for three
months ended September 30, 2017 and 2018.
Research and development was $58,930 and
$54,708 for the three months ended September 30, 2018 and 2017.
Professional fees increased from $32,385
during the three months ended September 30, 2017 to $157,013 during the three months ended September 30, 2018, an increase of $124,628.
General and administrative expenses of
$155,676 incurred during the three months ended September 30, 2018 primarily consisted of marketing fee of $45,625, salaries expense
of $39,298, insurance expense of $22,750, and show expenses of $18,425. General and administrative expenses of $58,522 incurred
during the three months ended September 30, 2017 primarily consisted of office rent of $10,500 and salaries of $34,371. The increase
was mainly due to increased marketing fee, insurance expense, and show expenses.
Net Losses
During the three months ended September
30, 2018 and 2017, we incurred net losses of $342,530 and $140,617 respectively, due to the factors discussed above.
Results of operations for the nine months
ended September 30, 2018 compared to the nine months ended September 30, 2017.
Revenue, cost of sales and gross profit
Our consolidated gross revenue for the
nine months ended September 30, 2018 and 2017, was $247,434 and $847,866, respectively, which included revenue form related party
of $10,575 and $6,571, respectively. Our cost of consolidated cost of revenues for the nine months ended September 30, 2018 and
2017, was $109,015 and $628,175, respectively, resulting in a gross profit of $138,419 and $219,691 for the nine months ended September
30, 2018 and 2017, respectively.
Operating Costs and Expenses
The major components of our operating expenses
for the three months ended September 30, 2018 and 2017 are outlined in the table below:
|
|
For the
Nine Months
Ended
September 30,
2018
|
|
|
For the
Nine Months
Ended
September 30,
2017
|
|
|
Increase
(Decrease)
$
|
|
Officer compensation
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
$
|
–
|
|
Research and development
|
|
|
166,719
|
|
|
|
177,791
|
|
|
|
(11,072
|
)
|
Professional fees
|
|
|
720,910
|
|
|
|
102,162
|
|
|
|
618,748
|
|
General and administrative
|
|
|
360,713
|
|
|
|
168,451
|
|
|
|
192,262
|
|
Total operating expenses
|
|
$
|
1,338,342
|
|
|
$
|
538,404
|
|
|
$
|
799,938
|
|
Officer compensation was $90,000 for nine
months ended September 30, 2017 and 2018.
Research and development was $166,719 and
$177,791 for the nine months ended September 30, 2018 and 2017.
Professional fees increased from $102,162
during the nine months ended September 30, 2018 to $720,910 during the nine months ended September 30, 2017, an increase of $618,748.
General and administrative expenses of
$360,713 incurred during the nine months ended September 30, 2018 primarily consisted of market fee of $113,625, office rent of
$26,025, salaries of $112,576, show expenses of $34,425, and insurance expenses of $22,956. General and administrative expenses
of $168,451 incurred during the nine months ended September 30, 2017 primarily consisted of office rent of $40,379 and salaries
of $109,732. The increase was mainly due to increased marketing fee, show expenses and insurance expenses.
Net Losses
During the nine months ended September
30, 2018 and 2017, we incurred net losses of $1,641,641 and $354,301 respectively, due to the factors discussed above.
Liquidity and Capital Resources
Working Capital
|
|
September 30,
2018
|
|
|
December 31,
2017
|
|
Current Assets
|
|
$
|
4,900,633
|
|
|
$
|
476,985
|
|
Current Liabilities
|
|
|
(229,949
|
)
|
|
|
(481,790
|
)
|
Working Capital
|
|
$
|
4,670,684
|
|
|
$
|
(4,805
|
)
|
Cash Flows
The table below, for the periods indicated, provides selected
cash flow information:
|
|
For the
Nine Months
Ended
September 30,
2018
|
|
|
For the
Nine Months
Ended
September 30,
2017
|
|
Net cash used in operating activities
|
|
$
|
(1,139,589
|
)
|
|
$
|
(262,477
|
)
|
Net cash used in investing activities
|
|
|
(4,524,944
|
)
|
|
|
–
|
|
Net cash provided by financing activities
|
|
|
9,911,592
|
|
|
|
500,000
|
|
Net change in cash and cash equivalents
|
|
$
|
4,247,059
|
|
|
$
|
237,523
|
|
Cash Flows from Operating Activities
Our net cash outflows from operating activities
of $1,139,589 for the nine months ended September 30, 2018 was primarily the result of our net loss of $1,641,641, and changes
in our operating assets and liabilities. Our net cash outflows from operating activities of $262,477 for the nine months ended
September 30, 2017, was primarily the result of our net loss of $354,301 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.
Cash Flows from Investing Activities
The Company purchased a warehouse in September,
resulting a cash outflow from investment activities of $4,524,944. The Company did not incur any cash flow from investing activities
for the nine months ended September 30, 2017.
Cash Flows from Financing Activities
Our net cash inflows from financing activities
of $9,911,592 for the nine months ended September 30, 2018 was primarily for the issuance of subscription receivable. Our net cash
inflows from financing activities of $500,000 for the nine months ended September 30, 2017 was primarily for the issuance of a
convertible promissory note.
Off Balance Sheet Arrangements
As of September 30, 2018, we did not have
any off-balance-sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation SK.