Note 10 – Contingencies

In the normal course of business or otherwise, the Company may become involved in legal proceedings. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonable estimated. When only a range of possible loss can be established, the most probable amount in the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected to be incurred.

On or about April 13, 2020, the Chief Operating Officer (the “Former COO”) of our subsidiary AVX resigned from his position. On May 5, 2020, the Former COO filed an action in the Superior Court for the County of Los Angeles, State of California, against the company, et al. The complaint sought unspecified economic and non-economic losses, as well as attorneys’ fees. On August 29, 2025, the Company and Former COO entered into a confidential settlement agreement which concluded this matter and releases all claims against the Company. This settlement has been accounted for in these financial statements and is scheduled to be executed and concluded in early August.

Similarly, on or about April 14, 2020, we terminated our Sales and Marketing Director (the “Former Sales and Marketing Director”). On May 13, 2020, the Former Sales and Marketing Director filed an action in the Superior Court for the County of Los Angeles, State of California. The complaint sought unspecified economic and non-economic losses, as well as attorneys’ fees. On August 29, 2025, the Company and Former Sales and Marketing Director entered into a confidential settlement agreement which concluded this matter and releases all claims against the Company. This settlement has been accounted for in these financial statements and this is scheduled to be executed and concluded in early August as well. The conclusion on these two related matters would mark the conclusion of all legal matters with respect to Focus Universal Inc.

On August 26, 2024, a former software engineer filed an action against Perfecular Inc., a wholly owned subsidiary of the Company, in the Superior Court for the County of San Bernardino, State of California alleging wrongful termination and other violations of the California Labor Code. The complaint seeks unspecified economic and non-economic losses, as well as attorneys’ fees. This case was settled for $130,000 plus legal fees, and its impact recorded in the accompanying financial statements. The Company has EPLI insurance with a deductible amount of $100,000. During the quarter, Focus Universal settled and this matter was finally executed and concluded on April 25, 2025.