Seeking Alpha

Focus Universal Tries For $10 Million U.S. IPO

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About: Focus Universal Inc. (FCUV), Includes: CSCO, GE, IBM, INTC, NXPI, QCOM, STM, SU, TEL, TXN
by: Donovan Jones
Donovan Jones
IPOs, tech, alternative investments, CEO VentureDeal.com
Summary

Focus Universal has filed to raise $10 million in a U.S. IPO.

The firm is developing an all-in-one electronic device for Internet of Things applications.

FCUV has little in the way of financial results and is still primarily in R&D stage of development, so I'll be passing on this IPO.

Quick Take

Focus Universal (OTCQB:FCUV) has filed to raise gross proceeds of $10 million from a U.S. IPO, according to an S-1/A registration statement.

The firm operates as a universal smart device developer and manufacturer.

FCUV is still in R&D phase for an all-in-one Internet of Things device, and has no meaningful financial results to-date, so I'll be watching this IPO from the sidelines.

Company & Technology

Los Angeles, California-based Focus Universal was founded in 2014 to develop the Ubiquitor universal smart device.

Management is headed by Founder, CEO, and Director Desheng Wang.

In March 2019, the firm acquired AVX Design and Integration, a LA, California-based company founded in 2000 to provide high-performance Audio/Video, Home Theater, Lighting Control, Automation and Integration services.

Focus Universal has developed the Ubiquitor universal smart device that “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 Ubiqitor is based on the company’s proprietary, in-development universal smart instrumentation technology that consists of a Universal Smart Instrumentation Platform [USIP], which management believes “will replace the functions of thousands of traditional wired and wireless measurement and sensing instruments at a fraction of their current market prices.”

Other company products include the Universal Smart Controller [USC] device that controls any device plugged into it using a mobile app, as well as other sensors for the measurement of temperature, humidity, and pH, among others.

The firm’s business consists of selling digital, analog, and quantum light meters and various filtration products, including fan speed adjusters, carbon filters and HEPA filtration systems as well as the AVX smart home design, integration and installation operations.

Customer Acquisition

The company will use the proceeds of this offering to put together an internal sales team to establish a marketing campaign for its sensor devices, including the Ubiquitor, and also intends to expand the sales team of its AVX business as management believes “that the Ubiquitor device will be integral to smart home installations.”

Sales and marketing expenses as a percentage of revenue have been highly variable, per the table below:

Selling

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended Sept. 30, 2019

10.7%

2018

38.9%

2017

13.4%

Source: Company registration statement

The sales & marketing efficiency rate, defined as how many dollars of additional new revenue generated by each dollar of sales & marketing spend, was 7.0x in the most recent nine-month period, as shown in the table below:

Selling

Efficiency Rate

Period

Multiple

Nine Mos. Ended Sept. 30, 2019

7.0

2018

-4.9

Source: Company registration statement

Market & Competition

According to a 2018 market research report by Markets and Markets, the consumer Internet of Things [IoT] market was valued at $46.8 billion in 2018 and is projected to reach $104.4 billion by 2023, as shown by the chart below:

This represents a CAGR of nearly 17.4% between 2018 and 2023.

The main factors driving forecast market growth are the increasing number of internet users and adoption of smart devices, growing awareness about fitness and rise in disposable incomes in developing economies, coupled with a consumer preference for increased convenience and better lifestyle.

The North America region dominates the market due to the increasing demand for and adoption of smart devices from consumer electronics, wearable, and home automation applications.

Major competitors that provide or are developing consumer IoT solutions include:

  • Qualcomm (QCOM)

  • Texas Instruments (TXN)

  • NXP Semiconductors (NXPI)

  • Intel (INTC)

  • STMicroelectronics (BIT:STM)

  • IBM (IBM)

  • General Electric (GE)

  • NortonLifeLock (SYMC)

  • TE Connectivity (TEL)

  • Schneider Electric (EPA:SU)

  • Cisco Systems (CSCO)

  • Amazon.com (AMZN)

Source: Sentieo

Financial Performance

FCUV’s recent financial results can be summarized as follows:

  • Uneven but growing topline revenue

  • Variable but increased gross profit

  • Increasing operating losses

  • A swing to positive cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 995,245

302.2%

2018

$ 308,129

-65.7%

2017

$ 898,084

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 242,794

75.4%

2018

$ 170,232

-0.9%

2017

$ 171,832

Gross Margin

Period

Gross Margin

Nine Mos. Ended Sept. 30, 2019

24.40%

2018

55.25%

2017

19.13%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended Sept. 30, 2019

$ (1,831,278)

-184.0%

2018

$ (1,583,721)

-514.0%

2017

$ (520,530)

-58.0%

Net Income (Loss)

Period

Net Income (Loss)

Nine Mos. Ended Sept. 30, 2019

$ (1,820,002)

2018

$ (2,024,664)

2017

$ (626,361)

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended Sept. 30, 2019

$ 1,077,666

2018

$ (1,411,703)

2017

$ (445,673)

Source: Company registration statement

As of September 30, 2019, the company had $2.8 million in cash and $444,222 in total liabilities. (Unaudited, interim)

Free cash flow during the twelve months ended September 30, 2019, was $726,187.

IPO Details

FCUV has filed to raise $10 million in gross proceeds from an IPO of 2 million shares of its common stock at a midpoint price of $5.00 per share, not including customary underwriter options.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $212 million.

Per the firm’s latest filing, the firm plans to use the net proceeds from the IPO as follows:

[1] to conduct research and development into the Ubiquitor device transmitting new types of data across existing power cables and power line communications; [2] to manufacture and assemble more high-tech Ubiquitor devices (including purchase of specialty assembly tooling); [3] for marketing and business development and [4] for other general working capital and corporate purposes.

Management’s presentation of the company roadshow is not available.

The sole listed underwriter of the IPO is The Benchmark Company.

Commentary

Focus is a tiny company seeking public investment primarily to fund R&D into the ‘Ubiquitor’ device, which appears to be an all-in-one thingy for Internet of Things applications.

The firm’s financials have been highly variable off of a very small base so there is really no way to determine a trend or meaningful conclusions from its financials.

The market opportunity for Internet of Things applications is large and growing rapidly.

As to valuation, management is asking investors to pay an enterprise valuation at IPO of $212 million for a firm that is still in R&D and has no meaningful history.

In my view, this is not a credible investment opportunity for public investors.

Expected IPO Pricing Date: To be announced.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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