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.
On March 15, 2019, Focus Universal Inc.
entered into a stock purchase agreement with AVX Design & Integration, Inc. whereby the Company purchased 100% of the outstanding
stock of AVX Design & Integration, Inc.
AVX Design & Integration, Inc. was
incorporated on June 16, 2000 in the state of California. The Company is an internet of things installation and management company
that specializes in high performance, easy to use audio/video, home theater, lighting control, automation and integration. Services
include full integration of houses, apartment, commercial complex, office with audio, visual and control systems to fully integrate
devices in the low voltage field. The Company’s services also include partial equipment upgrade and installation.
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 subsidiaries, Perfecular Inc. and AVX Design &
Integration, 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”).
Segment Reporting
The Company currently has
two operating segments. In accordance with Accounting Standards Codification (“ASC”) 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 is 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 to determine resource allocation and evaluate financial performance. Accordingly, the Company has determined that it
has two operating and reportable segments.
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 as at March
31, 2019 and December 31, 2018.
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 ASC 825-10-50-10 for
disclosures about fair value of its financial instruments and ASC 820-10-35-37”) to measure the fair value of its financial
instruments. ASC 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, ASC 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 ASC 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 or net realizable value under the first-in-first-out method. 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 futu
re
usage.
As of March 31, 2019 and December 31, 2018, inventory reserve amounted to $64,966 and $40,974, respectively.
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 thirty-nine 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 currently expensed.
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.
Goodwill
Goodwill
represents the excess of purchase price over the underlying book value of the net assets of the businesses that were acquired.
Under accounting requirements, goodwill is not amortized, but is subject to annual impairment tests. The Company recorded goodwill
of $307,572 related to its acquisition of AVX Design & Integration, Inc. At March 31, 2019, the Company determined that the
goodwill associated with the acquisition of AVX Design & Integration, Inc. was not impaired.
Revenue Recognition
Effective January 1, 2018,
the Company adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method.
The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as
the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did
not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, and
therefore no adjustment to retained earnings was required upon adoption.
In general, the Company’s performance
obligation is to transfer its products to its distributors. Revenues from product sales are recognized when the customer obtains
control of the Company’s products, which occurs at a point in time, typically upon delivery to the customer.
The Company's revenue is generated mainly
from the sale of sensor products, and horticultural sensors and filters, such as light meters. The Company evaluated its product
sales contracts and determined that those contracts are generally capable of being distinct and accounted for as separate performance
obligations. A performance obligation is satisfied when the finished product is delivered to the customers.
Cost of Goods Sold
Cost of goods sold represents the cost
of the devices sold through wholesale channel for the three months ended March 31, 2018. For the three months ended March 31, 2019
cost of goods sold also included smart home devices and labor for the installation from the newly acquired AVX Design & Integration,
Inc.
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 determined that there was no allowance for doubtful accounts at March 31, 2019 and
December 31, 2018 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.
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 are 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 effect 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, 2019 and December 31, 2018.
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 asset or liabilities as of March 31, 2019 and December
31, 2018.
As of March 31, 2019 and December 31, 2018,
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, 2019 and 2018.
Cash Flows Reporting
The Company adopted ASC 230-10-45-24 for
cash flows reporting, which 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 during 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 Accounting Standard Update (“ASU”) ASU 2010-09, the Company as an SEC filer considers
its financial statements issued when they are widely distributed to users, such as through EDGAR filings.
Recent Accounting Pronouncements
Management has considered all recent accounting
pronouncements issued since the last audit of the Company’s financial statements. The Company’s management believes
that these recent pronouncements will not have a material effect on the Company’s financial statements.
Recently Adopted Standards
In 2016, the FASB issued ASU 2016-02, "Leases
(Topic 842)”. This ASU and subsequently issued amendments require leases with durations greater than 12 months to be recognized
on the balance sheet. The standard is effective for interim and annual reporting periods beginning after December 15, 2018, and
early adoption is permitted. The Company adopted the new standard in the first quarter of 2019.
Note 3 – Recent Accounting Pronouncement
In February 2016, the Financial Accounting
Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to
recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended
by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic
842, Leases; ASU 2018-11, Targeted Improvements; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use
model (“ROU”) that requires a lessee to recognize an ROU asset and lease liability on the balance sheet for all leases
with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and
classification of expense recognition in the statement of income.
The new standard was effective for the
Company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing
at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest
comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard
on January 1, 2019 and used the effective date as its date of initial application. Consequently, prior period financial information
has not been recast and the disclosures required under the new standard have not been provided for dates and periods before January
1, 2019.
The new standard provides a number of optional
practical expedients in transition. The Company elected the “package of practical expedients”, which permits it not
to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs.
The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable
to the Company. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected
the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, it has not recognized
ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases
of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components
for all of its leases.
The Company believes the most significant
effects of the adoption of this standard relate to (1) the recognition of new ROU assets and lease liabilities on its condensed
consolidated balance sheet for its office operating leases and (2) providing new disclosures about its leasing activities. There
was no change in the Company’s leasing activities as a result of the adoption.
Note 4 – Property and Equipment
At March 31, 2019 and December 31, 2018,
property and equipment consisted of the following:
|
|
March 31,
2019
|
|
|
December 31,
2018
|
|
Warehouse
|
|
$
|
3,789,773
|
|
|
$
|
3,765,481
|
|
Land
|
|
|
731,515
|
|
|
|
731,515
|
|
Building Improvement
|
|
|
197,056
|
|
|
|
32,745
|
|
Construction in progress
|
|
|
29,050
|
|
|
|
31,676
|
|
Furniture and fixture
|
|
|
28,811
|
|
|
|
16,677
|
|
Equipment
|
|
|
113,547
|
|
|
|
5,057
|
|
Total cost
|
|
|
4,889,752
|
|
|
|
4,609,671
|
|
Less accumulated depreciation
|
|
|
(153,041
|
)
|
|
|
(31,536
|
)
|
Property and equipment, net
|
|
$
|
4,736,711
|
|
|
$
|
4,578,135
|
|
Depreciation expense for the three months
ended March 31, 2019 and 2018 amounted to $32,925 and $545, respectively.
Note 5 – 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 unsecured 2017 Notes bear interest at 10% per annum, and are due on June
30, 2020 and July 28, 2020, respectively. 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 $443,144 for the year ended December 31, 2018 related to these two unsecured convertible promissory notes. On June 27, 2018,
the convertible holder elected the right to convert all of convertible notes to common stock at $1.75 per share.
Note 6 – Promissory Note
On March 15, 2019, when the Company purchased
AVX Design & Integration, Inc. the Company agreed to pay the predecessor owner with a promissory note as one of the forms of
consideration. The note was for $50,000 with a fixed interest rate of 6% per annum payable in 12 equal monthly payments commencing
on June 1
st
, 2019 with interest calculated from the initial payment date through the date in which all amount due under
the note is paid off. As of March 31, 2019 balance of the promissory note was $50,000 and no interest incurred for the three months
ended March 31, 2019.
Note 7 – Related Party Transactions
Revenue generated from Vitashower Corp.,
a company owned by the CEO, amounted to $3,000 and $7,375 for the three months ended March 31, 2019 and 2018, respectively. The
accounts receivable balance due from Vitashower Corp. amounted to $2,000 and $39,625 as of March 31, 2019 and December 31, 2018,
respectively.
Compensation for services provided by the
President and Chief Executive Officer for the three months ended March 31, 2019 and 2018 amounted to $30,000 and $30,000, respectively.
Note 8 – Business Concentration
and Risks
Major Customers
One customer accounted for 28% and 22%
of the total accounts receivable as of March 31, 2019 and December 31, 2018, respectively.
Major Vendors
One vendor accounted for 13% and 95% of
total accounts payable at March 31, 2019 and December 31, 2018, respectively.
Note 9 – 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 be able 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. The Company purchased a warehouse in Ontario, California
in September and subleased the Walnut location to a third party. The Company is no longer obligated to pay for Walnut’s lease.
The sublease tenant paid $7,210 as security deposit, shown as other payable in current liability.
The Company did not have operating loss
for the three months ended March 31, 2019. Total rent expense was $10,500 for the three months ended March 31, 2018.
Note 10 – Leases
During the current quarter, we adopted
ASU 2016-02, “Leases (Topic 842),” which requires leases with durations greater than twelve months to be recognized
on the balance sheet. Prior year financial statements were not recast under the new standard and, therefore, those amounts are
not presented below.
We lease property under finance and operating
leases. For leases with terms greater than 12 months, we record the related asset and obligation at the present value of lease
payments over the term.
When available, we use the rate implicit
in the lease to discount lease payments to present value. We estimate our incremental borrowing rate to discount the lease payments
based on information available at lease commencement.
As of March 31, 2019, right-of-use assets
amounted to $184,416 with lease liabilities amounting to $195,642.
Note 11 – 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 December 31, 2018 the Company had
40,959,741 shares of common stock issued and outstanding.
Note 12 – Acquisition
On March 15, 2019, the Company entered
into and closed an asset purchase agreement with AVX Design & Integration, Inc. (“AVX”) as stated in Note 1.
A summary of the purchase price and the
purchase price allocations at fair value is below. The purchase price allocation is a preliminary and subject to change. The Company
has not yet completed its analysis to determine the fair value of the assets acquired on the acquisition date. Once this analysis
is complete, the Company will adjust, if necessary, the provisional amounts assigned to the assets purchased in the accounting
period in which the analysis is completed.
Purchase price
|
|
|
|
|
Cash
|
|
$
|
550,000
|
|
29,286 shares of common stock (1)
|
|
|
290,716
|
|
Secured promissory note
|
|
|
50,000
|
|
Total purchase price
|
|
$
|
890,716
|
|
Allocation of purchase price
|
|
|
|
|
Cash
|
|
$
|
201,482
|
|
Accounts receivable
|
|
|
436,554
|
|
Inventories
|
|
|
11,282
|
|
Prepaid expenses
|
|
|
2,478
|
|
Property and equipment
|
|
|
10,381
|
|
Operating lease right-of-use assets
|
|
|
186,449
|
|
Deposits
|
|
|
5,968
|
|
Goodwill
|
|
|
307,572
|
|
Accounts payable and accrued liabilities
|
|
|
(73,787
|
)
|
Operating lease liability
|
|
|
(197,663
|
)
|
Purchase price
|
|
$
|
890,716
|
|
(1) the fair value of the common stock was calculated based
on the closing market price of the Company’s common stock at the date of acquisition.
The revenue from the acquisition of the
AVX Design & Integration, Inc. included in the results of operations from the date of acquisition on to March 31, 2019 was
$128,545.
The unaudited pro forma information below
present statement of operations data as if the acquisition of the AVX Design & Integration, Inc. took place on January 1, 2018.
|
|
Three months ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Sales
|
|
$
|
838,293
|
|
|
$
|
402,570
|
|
Cost of Revenue
|
|
|
260,413
|
|
|
|
165,666
|
|
Gross profit
|
|
|
577,880
|
|
|
|
236,904
|
|
Operating expenses
|
|
|
743,502
|
|
|
|
317,485
|
|
Loss from operations
|
|
|
(165,622
|
)
|
|
|
(80,581
|
)
|
Net loss
|
|
|
(165,738
|
)
|
|
|
(134,910
|
)
|
Loss per share
|
|
$
|
–
|
|
|
$
|
–
|
|
Note 13 – Shares Issued for Compensation
In June 2018, the Company entered into
agreements with third party consultants. For the three months ended March 31, 2019 services rendered by the consultant amounted
to $96,509, payable in 13,445 shares.
In addition, the Company has incurred
third party consultant services fees of $36,000 (4,866 shares) for the three months ended March 31, 2019, which the Company will
issue common stock as compensation for services rendered. The Company had issued 3,312 shares for these services in March 2019
and will issue the remaining 1,554 shares in June 2019.
Note 14 – Segment Reporting
The Company’s operation consists
of two separate types of operations. Focus Universal Inc. and Perfecular Inc. (“Focus”) business operations involve
wholesale, research and development of
universal smart instrument and farming devices. AVX
Design & Integration, Inc. (“AVX”)
is an IoT installation and management company specializes high performance,
easy to use audio/video, home theater, lighting control, automation and integration. The table below discloses income statements
segment reporting of the separate business models.
|
|
Focus
|
|
|
AVX
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
111,193
|
|
|
$
|
128,545
|
|
|
$
|
239,738
|
|
Revenue - related party
|
|
|
3,000
|
|
|
|
–
|
|
|
|
3,000
|
|
Total revenue
|
|
|
114,193
|
|
|
|
128,545
|
|
|
|
242,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
87,179
|
|
|
|
34,949
|
|
|
|
122,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
27,014
|
|
|
|
93,596
|
|
|
|
120,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operation Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
–
|
|
|
|
9,209
|
|
|
|
9,209
|
|
Compensation - officers
|
|
|
30,000
|
|
|
|
1,675
|
|
|
|
31,675
|
|
Research and development
|
|
|
62,004
|
|
|
|
–
|
|
|
|
62,004
|
|
Professional fees
|
|
|
353,845
|
|
|
|
1,429
|
|
|
|
355,274
|
|
General and administrative
|
|
|
98,920
|
|
|
|
11,536
|
|
|
|
110,456
|
|
Total Operating Expenses
|
|
|
544,769
|
|
|
|
23,849
|
|
|
|
568,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) from Operations
|
|
|
(517,755
|
)
|
|
|
69,747
|
|
|
|
(448,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
725
|
|
|
|
–
|
|
|
|
725
|
|
Total other expense
|
|
|
725
|
|
|
|
–
|
|
|
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(517,030
|
)
|
|
|
69,747
|
|
|
|
(447,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax expense
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(517,030
|
)
|
|
$
|
69,747
|
|
|
$
|
(447,283
|
)
|
Note 15 – 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 three months ended March 31, 2019 and 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, 2019, the Company had net loss of $447,283 and negative cash flow from operating activities of $369,117. As of March 31, 2019,
the Company also had an accumulated deficit of $4,450,741. 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.