Item 9A. Controls and Procedures
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls
Our Chief Executive Officer and Principal Financial
Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation
Date”), concluded that as of the Evaluation Date, our disclosure controls and procedures were not effective to provide reasonable
assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
Changes in internal control over financial
reporting.
There were no changes in our internal control
over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect,
our internal control over financial reporting.
Limitations on the Effectiveness of Internal
Controls
Disclosure controls and procedures, no matter
how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood
of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human
judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors
or mistakes or intentional circumvention of the established process.
Management’s Report on Internal Control
over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule
13a-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO
Framework”). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. GAAP.
A material weakness is a deficiency or combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of our annual or interim financial statements will not be prevented or detected on a timely basis. An effective internal control system,
no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore
can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal
control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention
or overriding of controls or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation
and fair presentation of financial statements.
In connection with the audit of our financial
statements as of and for the years ended December 31, 2022 and 2021, we identified significant deficiencies in our internal control over
financial reporting and a general understanding of U.S. GAAP. As such, there is a reasonable possibility that a misstatement of our financial
statements will not be prevented or detected on a timely basis.
As we have thus far not needed to comply with
Section 404 of the Sarbanes-Oxley Act, neither we nor our independent registered public accounting firm has performed an evaluation of
our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. In light of this deficiency, we
believe that it is possible that certain control deficiencies and material weaknesses may have been identified if such an evaluation had
been performed.
56
We are working to remediate the deficiencies and
material weaknesses. Our remediation efforts are ongoing, and we will continue our initiatives to implement and document policies, procedures,
and internal controls. We have taken steps to enhance our internal control environment and plan to take additional steps to remediate
the deficiencies and address material weaknesses. Specifically:
·
We have hired our Vice
President of Finance. We have also hired additional outside consultants, and we will hire qualified personnel in our accounting
department, especially to add an experienced accountant in a controller capacity. We will continue to evaluate the structure of the
finance organization and add resources as needed;
·
We are engaging an external accounting firm to supplement our efforts to the implementation of the COSO Framework for internal controls;
·
We will design and implement internal controls related to revenue and expenses recognition accounting;
·
We are initiating a comprehensive program and development plan to provide ongoing company-wide trainings regarding internal controls, with particular emphasis on the training of our accounting staff;
·
We are implementing additional internal reporting procedures, including those designed to add depth to our review processes and improve our segregation of duties;
·
We are updating our systems so that we may collect the information necessary to enable us to more effectively monitor and comply with applicable filing requirements on a timely basis;
·
We will continue to enhance risk assessment procedures and conduct a comprehensive risk assessment to enhance overall compliance; and
·
We are redesigning and implementing common internal control activities; and we will continue to establish policies and procedures and enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility and accountability to enable remediating our material weaknesses.
In addition to the items noted above, as we continue
to evaluate, remediate and improve our internal control over financial reporting, executive management may elect to implement additional
measures to address control deficiencies or may determine that the remediation efforts described above require modification. Executive
management, in consultation with and at the direction of our Audit Committee, will continue to assess the control environment and the
above-mentioned efforts to remediate the underlying causes of the identified material weaknesses.
Although we plan to complete this remediation
process as quickly as possible, we are unable, at this time to estimate how long it will take; and our efforts may not be successful in
remediating the deficiencies or material weaknesses.
This annual report does not include an attestation
report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC
that permit the company to provide only management’s report on internal control in this annual report.
Item 9B. OTHER INFORMATION
None.
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT
INSPECTIONS
Not applicable.
57
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
The following table presents information with respect to our officers,
directors and significant employees as of the date of this report:
Name
Position
Age
Dr. Edward Lee*
Director and Chairman
59
Dr. Desheng Wang**
Chief Executive Officer, Secretary, and Director
58
Irving Kau******
Chief Financial Officer
48
Dr. Jennifer Gu*
Director
55
Michael Pope****
Director (1)
42
Sheri Lofgren****
Director (1)
66
Carine Clark****
Director (1)
59
Sean Warren*****
Director (1)
51
* Appointed director on October 21, 2015
** Appointed director on December 29, 2014
**** Appointed director on June 8, 2018
***** Appointed director on August 10, 2022
****** Appointed officer on November 18, 2022
(1) Independent director
Each director serves until our next annual meeting
of the stockholders or unless they resign earlier and serves until his or her successor is elected and qualified. At the present time,
members of the Board of Directors are not compensated with cash for their services to the board.
Each of our officers is elected by the Board of
Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is removed
from office.
Biographical Information Regarding Officers and Directors
Desheng Wang
Dr. Desheng Wang was appointed as Chief Executive
Officer, Secretary, and has been a director since December 29, 2014. Dr. Wang has over 20 years of professional experience in mobile technology.
Dr. Wang earned his bachelor’s degree from Hebei Normal University, Physics Department in 1985. In 1988, Dr. Wang earned his master’s
degree from Dalian Institute of Chemical Physics at the Chinese Academy of Science. Dr. Wang earned his Ph.D. in Chemistry at Emory University
in 1994. Dr. Wang served as a senior research fellow at California Institute of Technology from 1994-2011. Over the last five years, Dr.
Wang has served as president of Vitashower Corporation and formerly as President of Perfecular Inc.
Edward Lee
Dr. Edward Lee was appointed President and director
on October 21, 2015. On November 15, 2019, Dr. Lee resigned as President and was appointed as Chairman of the Board of Directors. Dr.
Lee received his bachelor’s degree in Mathematics at Lanzhou University in 1983, received his master’s degree at University
of Science and Technology of China in 1985 and earned his Ph.D. in Mathematics at University of Florida in 1991. Dr. Lee worked as an
assistant professor at Tsinghua University in 1986 and National University of Singapore in 1992. Since 1996, Dr. Lee has served as CEO
of AIDP, a leading supplier of dietary supplement ingredients, focusing on research and development and marketing and sales of proprietary
ingredients like Magtein, KoACT, Predtic X, and Actizin. Dr. Lee is also serving as the Vice Chairperson of the American Chinese CEO Association.
Dr. Lee is married to Jennifer Gu, a current director of Focus Universal.
58
Irving Kau
Irving Kau was appointed as Chief Financial Officer
on November 18, 2022, prior to that he served as Focus Universal’s Vice President of Finance and Head of Investor Relations since
November 10, 2021. Prior to joining the Company, Mr. Kau served as a Managing Partner of both Elementz Ventures and KW Capital Partners,
and during his tenure he successfully invested and grew companies across various geographies. The Company expects that as CFO, Mr. Kau
will assist with many matters in the near future, including building up the Company’s internal businesses, processes and controls,
the Company’s external outreach and growth measures, as well as strengthen the Company’s financial reporting and the investor
relations. Prior to his work at Elementz Ventures and KW Capital Partners, Mr. Kau served as the head of Asia at GHS (now known as Seaport
Global). Mr. Kau also previously served for approximately 10 years as Chief Financial Officer of an AgBiotech company Origin Agritech
Limited (Nasdaq: SEED). During his tenure, shareholders included Wellington Management, Fidelity Investments, Citadel Investments, Heartland
Fund, Mitsubishi UFJ, amongst others. Mr. Kau received undergraduate degrees from Johns Hopkins University and a graduate degree from
Rice University and pursued a PhD degree in Business Strategy (economics) at USC.
Jennifer Gu
Dr. Jennifer Gu was appointed as a director on
October 21, 2015. Dr. Gu earned her bachelor’s degree in Biology from University of Florida in 1990 and earned her Ph.D. in Experimental
Pathology at University of California, Los Angeles in 1997. She also completed post-doctoral research at the California Institute of Technology
in 2004. Since 2005, Dr. Gu served, and is still currently serving, as the Vice President of Research & Development at AIDP. Dr. Gu
is married to Edward Lee, the current Chairman of the Board of Directors of Focus Universal.
Michael Pope
Michael Pope was appointed as a director of the
Company on June 8, 2018. Mr. Pope serves as the CEO and Chairman at Boxlight Corporation (Nasdaq: BOXL), a global provider of interactive
technology solutions, where he has been an executive since July 2015 and director since September 2014. Mr. Pope has led Boxlight through
nine acquisitions from 2016 to 2020, a Nasdaq IPO in November 2017, and over $100 million in debt and equity fundraising. He previously
served as Managing Director at Vert Capital, a private equity and advisory firm from October 2011 to October 2016, managing portfolio
holdings in the education, consumer products, technology and digital media sectors. Prior to joining Vert Capital, from May 2008 to October
2011, Mr. Pope was Chief Financial Officer and Chief Operating Officer for the Taylor Family in Salt Lake City, managing family investment
holdings in consumer products, professional services, real estate and education. Mr. Pope also held positions including senior SEC reporting
at Omniture (previously listed on Nasdaq and acquired by Adobe (Nasdaq: ADBE) in 2009) and Assurance Associate at Grant Thornton. Since
January 2021, Mr. Pope has served as a member of the board of directors of Novo Integrated Sciences, Inc. (OTCQB: NVOS), a provider of
multi-dimensional primary healthcare products and services. He holds an active CPA license and earned his undergraduate and graduate degrees
in accounting from Brigham Young University.
Sheri Lofgren
Sheri Lofgren was appointed as an independent
director of the Company on June 8, 2018. Ms. Lofgren has served as a financial consultant since March 2018. She served as Chief Financial
Officer for Boxlight Corporation (Nasdaq: BOXL), a global education technology provider, from September 2014 to March 2018. She was Chief
Financial Officer at Logical Choice Technologies, Inc., a distributor of interactive technologies to the education market, from 2005 to
2013. Ms. Lofgren is a Certified Public Accountant with extensive experience in financial accounting and management, operational improvement,
budgeting and cost control, cash management and treasury, along with broad audit experience, internal control knowledge and internal and
external reporting. She started her career with KPMG and then joined Tarica and Whittemore, an Atlanta based CPA firm, as an audit manager.
Ms. Lofgren is a graduate of Georgia State University where she earned a B.A. in Business Administration – Accounting.
59
Sean Warren
Sean Warren is a seasoned executive with over
25 years of experience in technology and enterprise technology systems. He brings a wealth of expertise with strengths in areas such as
software development, cloud management, enterprise infrastructure development and full spectrum of IT compliance. Sean has been the CIO
of Mountain Medical, Veyo Medical and VP of IT at Larry Miller. He has worked for technology companies as Omniture, Adobe and served as
the director of cloud operations at Domo from 2016 to 2018. From 2019-2021, Mr. Warren served as the VP of OPSA Change Advisory at Wells
Fargo, and since 2021 to the present works as the VP of Global Platform Services at Cotiviti where he manages over 1,000 employees globally
in four countries. Sean is fluent in Spanish and graduated from Florida State University in accounting. Mr. Warren previously served on
our board of directors from June 2018 to November 28, 2018.
Carine Clark
Carine Clark was appointed as an independent director
of the Company on June 8, 2018. Ms. Clark has served as president and CEO of four high-growth tech companies. In March 2019, Ms. Clark
was appointed to the board of directors of Domo, Inc. (NASDAQGM: DOMO) and is currently serving as a member of Domo’s compensation
committee. Since 2017 she has served as an Executive Board Member of the Utah Governor’s Office of Economic Development and Silicon
Slopes, a non-profit helping Utah’s tech community thrive. Prior to that, Ms. Clark served from January 2015 to December 2016 as
the President and CEO of MartizCX. From December 2012 to December 2016, Ms. Clark served as the President and CEO of Allegiance, Inc.
Her reputation as a data-driven marketing executive at Novell for 14 years, Altiris for five years, and Symantec for more than 10 years.
She has received numerous awards including the EY Entrepreneur of The Year® Award in the Utah Region and Utah Business Magazine’s
CEO of the Year. Ms. Clark earned a bachelor’s degree in organizational communications and an MBA from Brigham Young University.
Corporate Governance
Our Board of Directors currently consists of seven
members. Our Chairperson of the Board of Directors is Dr. Edward Lee. Dr. Edward Lee, Dr. Desheng Wang and Dr. Jennifer Gu are the three
members of our Board of Directors who are not independent directors. Michael Pope, Sheri Lofgren, Sean Warren, and Carine Clark are four
members of our Board of Directors who are independent directors.
Director Attendance at Meetings
Our Board of Directors conducts its business through
meetings, both in person and telephonic, and by actions taken by written consent in lieu of meetings. During the year ended December 31,
2022, our Board of Directors held four meetings. All directors attended at least 75% of the meetings of our Board of Directors and of
the committees of our Board of Directors on which they served during 2022.
Our Board of Directors encourages all directors
to attend our annual meetings of stockholders unless it is not reasonably practicable for a director to do so.
Committees of our Board of Directors
Our Board of Directors has established and delegated
certain responsibilities to its standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.
60
Audit Committee
We have a separately designated standing Audit
Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee’s primary duties and responsibilities
include monitoring the integrity of our financial statements, monitoring the independence and performance of our external auditors, and
monitoring our compliance with applicable legal and regulatory requirements. The functions of the Audit Committee also include reviewing
periodically with our independent registered public accounting firm the performance of the services for which they are engaged, including
reviewing the scope of the annual audit and its results, reviewing with management and the auditors the adequacy of our internal accounting
controls, reviewing with management and the auditors the financial results prior to the filing of quarterly and annual reports, reviewing
fees charged by our independent registered public accounting firm and reviewing any transactions between our Company and related parties.
Our independent registered public accounting firm reports directly and is accountable solely to the Audit Committee. The Audit Committee
has the sole authority to hire and fire the independent registered public accounting firm and is responsible for the oversight of the
performance of their duties, including ensuring the independence of the independent registered public accounting firm. The Audit Committee
also approves in advance the retention of, and all fees to be paid to, the independent registered public accounting firm. The rendering
of any auditing services and all non-auditing services by the independent registered public accounting firm is subject to prior approval
of the Audit Committee.
The Audit Committee operates under a written charter.
The Audit Committee is required to be composed of directors who are independent under the rules of the SEC and the listing standards of
The NASDAQ Stock Market LLC (“NASDAQ”).
The current members of the Audit Committee are
directors Ms. Sheri Lofgren, the Chairperson of the Audit Committee, Mr. Michael Pope and Mr. Sean Warren, all of whom have been determined
by the Board of Directors to be independent under the NASDAQ listing standards and rules adopted by the SEC applicable to audit committee
members. The Board of Directors has determined that Mr. Sheri Lofgren qualifies as an “audit committee financial expert”
under the rules adopted by the SEC and the Sarbanes-Oxley Act. The Audit Committee met four times during 2021.
Compensation Committee
The primary duties and responsibilities of our
standing Compensation Committee are to review, modify and approve the overall compensation policies for the Company, including the compensation
of the Company’s Chief Executive Officer and other senior management; establish and assess the adequacy of director compensation;
and approve the adoption, amendment and termination of the Company’s stock option plans, pension and profit-sharing plans, bonus
plans and similar programs. The Compensation Committee may delegate to one or more officers the authority to make grants of options and
restricted stock to eligible individuals other than officers and directors, subject to certain limitations. Additionally, the Compensation
Committee has the authority to form subcommittees and to delegate authority to any such subcommittee. The Compensation Committee also
has the authority, in its sole discretion, to select, retain and obtain, at the expense of the Company, advice and assistance from internal
or external legal, accounting or other advisors and consultants. Moreover, the Compensation Committee has sole authority to retain and
terminate any compensation consultant to assist in the evaluation of director, Chief Executive Officer or senior executive compensation,
including sole authority to approve such consultant’s reasonable fees and other retention terms, all at the Company’s expense.
The Compensation Committee operates under a written
charter. All members of the Compensation Committee must satisfy the independence requirements of NASDAQ applicable to compensation committee
members.
The Compensation Committee currently consists
of directors Ms. Carine Clark, Mr. Sean Warren, and Mr. Sheri Lofgren. Ms. Carine Clark is the Chairperson of the Compensation Committee.
Each of the Compensation Committee members has been determined by the Board of Directors to be independent under NASDAQ listing standards
applicable to compensation committee members. The Compensation Committee met four times during 2021.
61
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee
identifies, reviews, and evaluates candidates to serve on the Board; reviews and assesses the performance of the Board of Directors and
the committees of the Board; and assesses the independence of our directors. The Nominating and Corporate Governance Committee is also
responsible for reviewing the composition of the Board’s committees and making recommendations to the entire Board of Directors
regarding the chairpersonship and membership of each committee. In addition, the Nominating and Corporate Governance Committee is responsible
for developing corporate governance principles and periodically reviewing and assessing such principles, as well as periodically reviewing
the Company’s policy statements to determine their adherence to the Company’s Code of Business Conduct and Ethics.
The Nominating and Corporate Governance Committee
has adopted a charter that identifies the procedures whereby Board of Director candidates are identified primarily through suggestions
made by directors, management, and stockholders of the Company. We have implemented no material changes in the past year to the procedures
by which stockholders may recommend nominees for the Board. The Nominating and Corporate Governance Committee will consider director nominees
recommended by stockholders that are submitted in writing to the Company’s Corporate Secretary in a timely manner and which provide
necessary biographical and business experience information regarding the nominee. The Nominating and Corporate Governance Committee does
not intend to alter the manner in which it evaluates candidates, including the criteria considered by the Nominating Committee, based
on whether or not the candidate was recommended by a stockholder. The Board of Directors does not prescribe any minimum qualifications
for director candidates, and all candidates for director will be evaluated based on their qualifications, diversity, age, skill and such
other factors as deemed appropriate by the Nominating and Corporate Governance Committee given the current needs of the Board of Directors,
the committees of the Board of Directors and the Company. Although the Nominating and Corporate Governance Committee does not have a specific
policy on diversity, it considers the criteria noted above in selecting nominees for directors, including members from diverse backgrounds
who combine a broad spectrum of experience and expertise. Absent other factors which may be material to its evaluation of a candidate,
the Nominating and Corporate Governance Committee expects to recommend to the Board of Directors for selection incumbent directors who
express an interest in continuing to serve on the Board. Following its evaluation of a proposed director’s candidacy, the Nominating
and Corporate Governance Committee will make a recommendation as to whether the Board of Directors should nominate the proposed director
candidate for election by the stockholders of the Company.
The Nominating and Corporate Governance Committee
operates under a written charter. No member of the Nominating and Corporate Governance Committee may be an employee of the Company, and
each member must satisfy the independence requirements of NASDAQ and the SEC.
The Nominating and Corporate Governance Committee
currently consists of directors Mr. Sean Warren, who is the Chairperson of the committee, Mr. Michael Pope and Ms. Carine Clark. Each
of the members of the Nominating and Corporate Governance Committee has been determined by the Board of Directors to be independent under
NASDAQ listing standards. The Nominating and Corporate Governance Committee met four times in 2021.
Oversight of Risk Management
Risk is inherent with every business, and how
well a business manages risk can ultimately determine its success. We face a number of risks, including economic risks, financial risks,
legal and regulatory risks and others, such as the impact of competition. Management is responsible for the day-to-day management of the
risks that we face, while our Board, as a whole and through its committees, has responsibility for the oversight of risk management. In
its risk oversight role, our Board of Directors is responsible for satisfying itself that the risk management processes designed and implemented
by management are adequate and functioning as designed. Our Board of Directors assesses major risks facing our Company and options for
their mitigation to promote our stockholders’ interests in the long-term health of our Company and our overall success and financial
strength. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking
to manage those risks, but also understanding what level of risk is appropriate for us. The involvement of our full Board of Directors
in the risk oversight process allows our Board of Directors to assess management’s appetite for risk and also determine what constitutes
an appropriate level of risk for our Company. Our Board of Directors regularly includes agenda items at its meetings relating to its risk
oversight role and meets with various members of management on a range of topics, including corporate governance and regulatory obligations,
operations and significant transactions, risk management, insurance, pending and threatened litigation and significant commercial disputes.
62
While our Board of Directors is ultimately responsible
for risk oversight, various committees of our Board of Directors oversee risk management in their respective areas and regularly report
on their activities to our entire Board of Directors. In particular, the Audit Committee has the primary responsibility for the oversight
of financial risks facing our Company. The Audit Committee’s charter provides that it will discuss our major financial risk exposures
and the steps we have taken to monitor and control such exposures. Our Board of Directors has also delegated primary responsibility for
the oversight of all executive compensation and our employee benefit programs to the Compensation Committee. The Compensation Committee
strives to create incentives that encourage a level of risk-taking behavior consistent with our business strategy.
We believe the division of risk management responsibilities
described above is an effective approach for addressing the risks facing our Company and that our Board’s leadership structure provides
appropriate checks and balances against undue risk taking.
Code of Business Conduct and Ethics
Our Board of Directors has adopted a code of ethical
conduct that applies to our principal executive officer, principal financial officer and senior financial management. This code of ethical
conduct is embodied within our Code of Business Conduct and Ethics, which applies to all persons associated with our Company, including
our directors, officers, and employees (including our principal executive officer, principal financial officer, principal accounting officer
and controller). To satisfy our disclosure requirements under Item 5.05 of Form 8-K, we will disclose amendments to, or waivers of, certain
provisions of our Code of Business Conduct and Ethics relating to our chief executive officer, chief financial officer, chief accounting
officer, controller or persons performing similar functions on our website promptly following the adoption of any such amendment or waiver.
The Code of Business Conduct and Ethics provides that any waivers of, or changes to, the code that apply to the Company’s executive
officers or directors may be made only by the Audit Committee. In addition, the Code of Business Conduct and Ethics includes updated procedures
for non-executive officer employees to seek waivers of the code.
Director Independence
Our Company is governed by our Board. Currently,
each member of our Board, other than Dr. Edward Lee, Dr. Desheng Wang, and Dr. Jennifer Gu, is an independent director; and all standing
committees of our Board of Directors are composed entirely of independent directors, in each case under NASDAQ’s independence definition
applicable to boards of directors. For a director to be considered independent, our Board of Directors must determine that the director
has no relationship which, in the opinion of our Board, would interfere with the exercise of independent judgment in carrying out the
responsibilities of a director. Members of the Audit Committee also must satisfy a separate SEC independence requirement, which provides
that they may not accept directly or indirectly any consulting, advisory or other compensatory fee from us or any of our subsidiaries
other than their directors’ compensation. In addition, under SEC rules, an Audit Committee member who is an affiliate of the issuer
(other than through service as a director) cannot be deemed to be independent. In determining the independence of members of the Compensation
Committee, NASDAQ listing standards require our Board of Directors to consider certain factors, including, but not limited to: (1) the
source of compensation of the director, including any consulting, advisory or other compensatory fee paid by us to the director, and (2)
whether the director is affiliated with us, one of our subsidiaries or an affiliate of one of our subsidiaries. Under our Compensation
Committee Charter, members of the Compensation Committee also must qualify as “outside directors” for purposes of Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and as “non-employee directors” for purposes
of Rule 16b-3 under the Exchange Act. The independent members of the Board of Directors are Michael Pope, Sheri Lofgren, Greg Butterfield,
and Carine Clark.
63
Item 11: EXECUTIVE COMPENSATION
Compensation of Officers
The following summary compensation table sets
forth information concerning compensation for services rendered in all capacities during 2020 and 2021 awarded to, earned by or paid to
our executive officers.
Summary Compensation
Table
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name and Principal
Salary
Bonus
Stock Awards
Option Awards
Non-Equity Incentive
Plan Compensation
Change in Pension
Value & Non-qualified Deferred Compensation Earnings
All Other
Compensation
Totals
Position
Year
($)*
($)
($)
($)
(S)
($)
($)
($)
Desheng Wang
2022
120,000
0
0
0
21,020
0
0
141,020
CEO, Secretary and Director
2021
124,615
0
0
0
0
0
0
124,615
Irving Kau
2022
150,000
0
0
0
10,000
0
0
160,000
Chief Financial Officer
2021
15,962
0
0
0
0
0
0
21,700
Narrative Disclosure Requirement for Summary Compensation Table
Compensation
Dr. Desheng Wang entered into an employment agreement
with the Company whereby the Company agreed to pay Dr. Wang a salary of $120,000 per year, payable monthly, for his services as Chief
Executive Officer, effective as of November 1, 2018. We have not provided our other named executive officers with perquisites or other
personal benefits. Irving Kau was appointed as the Company’s Chief Financial Officer on November 18, 2022. Mr. Kau has executed
and employment agreement with the Company, dated November 3, 2021, for the provision of services as VP of Finance. Mr. Kau’s employment
agreement included a salary and certain equity incentive. Mr. Kau would receive up to 10,000 shares of the Company’s common stock
per year, vesting in 4 installments of 2,500 shares at the end of each calendar quarter, provided that certain metrics are achieved. No
other officer or director has formally entered into any compensation arrangement for services provided under consulting agreements or
employment agreements.
64
Retirement, Resignation or Termination Plans
We sponsor no plan, whether written or verbal,
that would provide compensation or benefits of any type to an executive upon retirement, or any plan that would provide payment for retirement,
resignation, or termination as a result of a change in control of our company or as a result of a change in the responsibilities of an
executive following a change in control of our company.
Directors’ Compensation
The persons who served as affiliated members of
our Board of Directors, including executive officers, did not receive any compensation for services as directors in 2021 or 2022. As of
the date of this report, no director has formally entered into any compensation arrangement for services provided under consulting agreements
or employment agreements.
As of the date of this annual report, all directors
have been issued 15,000 options per person pursuant to our 2018 Stock Option Plan and such options will vest over a period of one year.
In 2021, all independent directors were paid $20,000 cash, except for Sheri Lofgren, who received $25,000 for serving as the chair of
the audit committee. In 2022, all independent directors were paid $30,000 cash, except for Sheri Lofgren, Gregory Butterfield, and Sean
Warren. Sheri Lofgren received $32,500 for serving as the chair of the audit committee. Gregory Butterfield and Sean Warren received $10,000
and $15,699, respectively, for serving independent board director. Additionally, a company affiliated with Mr. Pope received $120,000
for advisory services in 2021, which included $72,000 in cash and $48,000 in stock and $20,000 for advisory services in 2022, which included
$12,000 in cash and $8,000 in stock.
Option Exercises and Stock Vested
On December 17, 2018, the Company adopted the
2018 Stock Option Plan (the “2018 Stock Option Plan”) whereby the Company reserved for issuance 1,000,000 shares of common
stock and agreed that such shares shall, when issued and paid for in accordance with the provisions of the 2018 Stock Option Plan, constitute
validly issued, fully paid and non-assessable shares of common stock.
Pension Benefits and Nonqualified Deferred Compensation
The Company does not maintain any qualified retirement
plans or non-nonqualified deferred compensation plans for its employees or directors.
65
Executive Officer Outstanding Equity Awards at Fiscal Year-End
The following table provides certain information
concerning any common share purchase options, stock awards or equity incentive plan awards held by each of our named executive officers
that were outstanding as of December 31, 2022.
Option
Awards
Stock
Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Number of
Securities
Underlying
Unexercised
Options (#)
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Option
Exercise Price
Option
Expiration
Number of
Shares or
Units of
Stock That
Have Not
Vested
Market
Value of
Shares or
Units of
Stock That
Have Not
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Equity
Incentive Plan
Awards:
Market or
Payout Value
of
Unearned
Shares, Units
or
Other Rights
That Have Not
Name
Exercisable
Unexercisable
Options
(#)
($)
Date
(#)
Vested
Vested
Vested
Edward Lee - Chairman
30,000
–
–
$
5.70
August
6, 2029
–
–
–
–
15,000
–
–
$
3.00
December
10, 2030
–
–
–
–
15,000
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Desheng Wang - CEO, Secretary
30,000
–
–
$
5.70
August
6, 2029
–
–
–
–
15,000
–
–
$
3.00
December
10, 2030
–
–
–
–
15,000
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Irving Kau - CFO
–
–
–
–
10,000
–
–
–
Jennifer Gu
30,000
–
–
$
5.70
August
6, 2029
–
–
–
–
15,000
–
–
$
3.00
December
10, 2030
–
–
–
–
15,000
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Michael Pope
6,250
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Carine Clark
30,000
–
–
$
5.70
August
6, 2029
–
–
–
–
15,000
–
–
$
3.00
December
10, 2030
–
–
–
–
15,000
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Sheri Lofgren
6,250
–
–
$
8.86
December
30, 2031
–
–
–
–
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
Greg Butterfield
30,000
–
–
$
5.70
August
6, 2029
–
–
–
–
15,000
–
–
$
3.00
December
10, 2030
–
–
–
–
7,541
–
–
$
8.86
December
30, 2031
–
–
–
–
Sean Warren
–
15,000
–
$
6.41
December
30, 2032
–
–
–
–
66
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information
regarding beneficial ownership of our common stock as of December 31, 2022: (i) by each of our directors, (ii) by each of the Named Executive
Officers, (iii) by all of our executive officers and directors as a group, and (iv) by each person or entity known by us to beneficially
own more than five percent (5%) of any class of our outstanding shares. As of December 31, 2022, there were 43,530,915 shares of our common
stock outstanding:
Title of Class
Name of Beneficial Owner
Amount and
Nature
of Beneficial
Ownership
(1)
Percentage of
Beneficial
Ownership
%
Common
Desheng Wang, CEO, and Director
14,395,700
33.277%
Common
Edward Lee, Chairman and Director jointly with Jennifer Gu, Director
8,185,000
18.921%
Common
Yan Chen
2,983,561
6.897%
Common
Michael Pope
1,546
*
Common
Sheri Lofgren
1,546
*
Common
Irving Kau
10,000
*
(1) Applicable percentage of ownership is based
on 43,530,915 shares of common stock outstanding on December 31, 2022.
Percentage ownership is determined based on shares
owned together with securities exercisable or convertible into shares of common stock within 60 days of December 31, 2022, for each stockholder.
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect
to securities. Shares of common stock subject to securities exercisable or convertible into shares of common stock that are currently
exercisable or exercisable within 60 days of December 31, 2022, are deemed to be beneficially owned by the person holding such securities
for the purpose of computing the percentage of ownership of such person but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person. Our common stock is our only issued and outstanding class of securities eligible to vote.
As of December 31, 2022, there were 25,585,646
shares of common stock outstanding owned by our officers and directors.
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Consulting services provided by the President,
Chief Executive Officer, Secretary, Treasurer and Chief Financial Officer for the years ended December 31, 2022 and 2021 were as follows:
For the
Year Ended
December 31,
2022
For the
Year Ended
December 31,
2021
President
$ 0
$ 0
Chief Executive Officer, Secretary and Treasurer
141,020
124,615
Chief Financial Officer
37,020
21,700
$ 178,040
$ 146,315
67
Related party Transactions
Revenue generated from Vitashower Corp., a company
owned by the Chief Executive Officer’s wife, amounted to $41,536 and $29,084 for the year ended December 31, 2022 and 2021, respectively.
Account receivable balance due from Vitashower Corp. amounted to $34,507 and $15,176 as of December 31, 2022 and 2021, respectively.
Service revenue generated from the installation of
home security equipment by AVX for one of the Company’s directors, amounted to $8,246 and $0 for the year ended December 31, 2022
and 2021, respectively.
Compensation for services provided by the President
and Chief Executive Officer for the year ended December 31, 2022 and 2021 amounted to $141,020 and $124,615, respectively. Of subsequent
note, Tianjin Guanglee was once owned by the Chief Executive Officer Desheng Wang, as fully disclosed in the annual report in 2017. Since
then, during 2018, the entity was transferred to another individual and was not considered a related party transaction per guidelines.
Director Independence
A director is not considered to be independent
if he or she is also an executive officer or employee of the corporation. Our director Edward Lee is also our Chairman; our director Desheng
Wang is also our Chief Executive Officer. The rest of our directors, excluding Jennifer Gu, are independent directors.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
During the year ended March 31, 2015, 2014, and the
period from December 4, 2012 (Inception) to March 31, 2013, we engaged Cutler & Co, LLC, as our independent auditor. On October 20,
2015, we changed our independent auditor to DYH & Company. On April 16, 2017, we changed our independent auditor to BF Borgers CPA
PC (the “Former Auditor”).
On January 19, 2023, the Company notified the Former
Auditor that the Company is dismissing it as the independent registered public accounting firm of the Company due to partner and personnel
movement from the Former Auditor to the Company’s New Auditor. On the same day, the Company engaged Reliant CPA PC (the “New
Auditor”) as its independent PCAOB registered public accounting firm for the Company’s fiscal year ended December 31, 2022.
For the years ended December 31, 2022 and 2021, we
incurred fees as discussed below:
Year ended
December 31,
2022
Year ended
December 31,
2021
Audit fees
$
94,000
$
128,000
Audit – related fees
$
Nil
$
Nil
Tax fees
$
Nil
$
Nil
All other fees
$
Nil
$
Nil
Audit fees consist of fees related to professional
services rendered in connection with the audit of our annual financial statements and review of our quarterly financial statements. Tax
fees represent fees related to preparation of our corporation income tax returns. Our policy is to pre-approve all audit and permissible
non-audit services performed by the independent accountants. These services may include audit services, audit-related services, tax services
and other services.
68
PART IV
Item 15. EXHIBITS
EXHIBIT NUMBER
DESCRIPTION
3.1
Articles of Incorporation , as filed with the SEC on
December 26, 2013.
3.2
Amended and Restated Bylaws, as filed with the SEC on October 22, 2019.
10.1
2018 Equity Incentive Plan, as filed with the SEC on December 28, 2018.
10.2
Promissory
Note with Chase Bank, dated March 10, 2021 for $108,750 SBA Loan , as filed with the SEC on March 23, 2021.
10.3
Secured Promissory Note with East West Bank, dated January 8, 2021 for $1,500,000 ,
as filed with the SEC on March 23, 2021.
10.4
Loan Agreement with Golden Sunrise Investment LLC, dated March 15, 2021
for $1,500,000 , as filed with the SEC on March 23, 2021.
10.5
Company Guarantee Agreement with Golden Sunrise Investment LLC, dated March
15, 2021 , as filed with the SEC on March 23, 2021.
10.6
Secured Promissory Note with Golden Sunrise Investment LLC, dated March 15, 2021 for $1,500,000 ,
as filed with the SEC on March 23, 2021.
10.7
Employment Agreement by and between the Company and Irving Kau, dated November 3, 2021. *
10.8
Amendment to I. Kau Employment Agreement, dated November 21, 2022. *
10.9
At the Market Sales Agreement, dated December 9, 2022, with Sutter Securities, as filed with the SEC on December 12, 2022.
10.10
Asset Purchase Agreement, dated December 19, 2022 with AT Tech Systems. *
10.11
Articles of Organization of Lusher Bioscientific, LLC. *
10.12
Bylaws of Lusher Bioscientific *
10.13
Articles of Organization of AT Tech Systems, LLC. *
10.14
Operating Agreement of AT Tech Systems, LLC. *
31.1
Certification of the Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of the Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .*
32.1
Certification of the Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .*
32.2
Certification of the Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 .*
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)**
101.SCH
Inline XBRL Taxonomy Extension Schema Document**
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document**
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document**
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
* Filed herewith.
** XBRL (Extensible Business Reporting Language) information is furnished
and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as
amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject
to liability under these sections.
Item 16. FORM 10-K SUMMARY
None.
69
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 31, 2023
FOCUS UNIVERSAL INC.
By:
/s/ Desheng Wang
Desheng Wang
Chief Executive Officer, Secretary, and Director
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
SIGNATURES
TITLE
DATE
/s/ Desheng Wang
Chief Executive Officer, Secretary and Director
March 31, 2023
Desheng Wang
Focus Universal Inc., a Nevada corporation
/s/ Desheng Wang
By Desheng Wang,
its CEO
70