Item 1. BUSINESS
Company Background.
Focus Universal Inc.
(the “Company”,
“we”, “us” or “our”) is a Nevada corporation involved in two separate industries: (1) a provider
of handheld sensor devices and wholesaler of various air filters; and (2) a universal smart instrument platform developer.
We are based in the city of Walnut, California,
and were incorporated in Nevada in 2012. In December 2013, we filed an S-1 registration statement that went effective on March
14, 2014.
Our website is www.focusuniversal.com.
Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report
on Form 10-K.
Focus
Universal Inc.
is a universal smart instrumentation platform developer and universal smart device manufacturer. We are also
a wholesaler of various air filtration systems.
We are also researching, developing, and
manufacturing a universal smart instrument device and working on specializing in the development and commercialization of such
universal smart technologies and instruments. We define universal smart technology as commercial technology with an integrated
platform, which provides a unique and universal solution for test and measurement made up of off-the-shelf parts.
We are
working on developing a universal sensor node and gateway system that use the data processing capabilities of a smartphone to display
readings of multiple probe modules.
Our universal smart instrumentation technology
features a Universal Smart Instrumentation Platform (“USIP”) generalizes instruments into a reusable foundation representing
a majority part of the instruments, and architecture-specific components (sensor modules), which together replaces the functions
of traditional instruments at a fraction of their cost. The USIP has an open architecture incorporating a variety of individual
instrument functions, sensors and probes from different industries and vendors. The platform features the ability to connect thousands
of sensors or probes. This technology addresses major limitations with traditional hardware and represents another technological
advancement in the Internet of Things marketplace. We call this device the “Ubiquitor” because it can be used to wirelessly
measure and test a variety of electrical and physical phenomena such as voltage, current, temperature, pressure, sound, light,
and humidity.
The
Ubiquitor, which we have created and have manufactured in limited quantities,
utilizes a standard desktop computer with
Mac OS, Windows OS, an Android-based or iOS-based smartphone, or mobile tablet device as a platform that communicates with a group
of sensors or probes manufactured by different vendors in a manner that requires the user to have little or no knowledge of their
unique characteristics. The data readout is displayed on the computer, smartphone, or tablet display in a program or application
we have created for Windows PC and are creating for MacOS. We are designing the application software (the “App”) to
have a graphical representation of control and indicator elements common in real instruments such as knobs, buttons, dials, and
graphs, etc. Our developers are designing and implementing a soft control touch screen interface which supports real-time data
monitoring and facilitates instrument control and operation.
Until March 31, 2016, we offered a full
range of web services, including web marketing services, social and viral marketing campaigns, search engine optimization consulting,
and web analytics implementation. We generated our revenue from providing these services to small and medium sized businesses.
We focused on providing one-off services, such as development of a fully functioning website or creation of a marketing strategy
plan, to small business clients.
Through a merger with Perfecular Inc.,
we strategically expanded our services to the manufacture and marketing of high-tech electronic devices. We sell handheld sensor
systems and filters wholesaler to distribution platforms and are working on developing the App and the Ubiquitor. We are also researching
the development of an anti-counterfeit authentication technology that we believe could address the problem of counterfeit production
by attempting to authenticate consumer goods.
On December 29, 2014, Xu Tang and Desheng
Wang, two non-affiliates, acquired over 90% equity of the Company. That same date, the current officers and directors, Ms. Tatyana
Popova resigned as Chief Executive Officer and President of the Company and Ms. Elena Ignatenko resigned as Treasurer, Secretary,
Chief Financial Officer, principal accounting officer, and principal financial officer of the Company. Upon such resignations,
Desheng Wang was appointed as the Chief Executive Officer and Secretary of the Company, Xu Tang was appointed as the President
of the Company, Yan Chen was appointed as the Senior Vice President, and Messrs. Wang, Tang, and Chen accepted such appointments.
On October 21, 2015 Xu Tang entered into
a stock purchase agreement whereby Mr. Tang collectively sold 3,260,000 shares of the Company’s Common Stock to eight unrelated
persons using private funds to purchase the shares. This represented at the time 49.5% of the Company’s outstanding common
stock and represented a material change in control of the Company’s ownership.
To the Company’s knowledge, there
were no arrangements or understandings among members of both the former and new control groups and their associates with respect
to election of directors or other matters.
Effective as of October 21, 2015, Xu Tang
and Yan Chen resigned from their positions as President and Senior Vice President, respectively, of the Company. There were no
disagreements between the Company and Messrs. Tang and Chen. On that same date, Dr. Edward Lee was been appointed to serve as President
of the Company and still serves in that capacity.
Also effective as of October 21, 2015,
Dr. Jennifer Gu and Dr. Edward Lee were appointed as directors of the Company, and Dr. Gu and Dr. Lee accepted such appointments.
Thereupon, each of Xu Tang and Yan Chen resigned as directors of the Company.Both Dr. Jennifer Gu and Dr. Edward Lee became members
of the Company’s Board of Directors, and the entire Board of Directors now consists of Dr. Desheng Wang, Dr. Jennifer Gu,
and Dr. Edward Lee.
In 2015, we leased a warehouse in Los Angeles
County, California. We have relocated our headquarters to the Los Angeles area to expand our existing operations. On April 24,
2017 we leased 2,800 square feet at 201511 East Walnut Drive North, Walnut, California. This lease will extend through April 30,
2019 and we pay $3,500 per month.
Scientific Instrument Research, Development and Sales
Industry Background and Overview
Through our acquisition of Perfecular Inc.,
we entered into the scientific instrument industry, specifically the instrument sensor industry. Instrument sensors are devices
specifically designed and constructed for sensing and measuring physical variables that are useful in: (i) industrial operations;
(ii) environmental, commercial and medical applications; (iii) research and development in a variety of industries; and (iv) the
daily lives of electronics consumers.
We believe that instrument sensors are
important in modern science, having applications in both the industrial and educational fields. In recent years, significant progress
has been made in instruments and instrumentation systems. The performance of measuring and monitoring instruments has improved
considerably in the computer age. Analog instruments are used to indicate the magnitude of the quantity in the form of pointer
movements. Digital instruments, on the other hand, specify the quantity in a digital readout format, they can be read easily, and
are more accurate than the analog multi-meters because the pointer movements can be easily misread and are often not permanently
stored, reducing interpolation and reading errors. Digital instruments offer significant advantages over analog devices. The auto-polarity
function of digital devices prevents various problems. Parallax error which occurs when the pointer of an analog instrument is
viewed from a different angle, which may cause users to see and read a different value are eliminated as well. Digital instruments
are free from wear and potential shock failures because they have no moving parts. With the advancements in technology of integrated
circuits, digital instruments are becoming increasingly compact and accurate. Key market players of analog and digital instruments
include Thermo Fisher Scientific, Danaher Corporation, Mettler Toledo, Metrohm USA, Hanna Instruments, Agilent Technologies,
and Perkin Elmer.
Most modern instruments are digital. They
are designed for measuring various physical quantities in objects; and consist of the following functional components:
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Data acquisition. This is the process of sampling signals that measure real world physical conditions and converting the resulting samples into digital numeric values that can be manipulated by a microprocessor. The components of data acquisition systems include:
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Sensors, to convert physical parameters to electrical signals;
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Signal conditioning circuitry, to convert sensor signals into a form that can be converted to digital values;
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Analog-to-digital converters, to convert conditioned sensor signals to digital values. It normally operates on conditioned signals, that is, signals that have already been filtered and amplified by analog circuits.
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Storage and communication components. Application-specific input/output (I/O) components. In digital instrumentation systems, the transmission of data between devices is realized relatively easily by using serial or parallel transmission techniques.
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Ancillaries such as displays and power supplies and application specific software.
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Traditional hardware-centered instrumentation
systems are made up of multiple stand-alone instruments that are interconnected to carry out a determined measurement or control
an operation. They have fixed vendor-defined functionality, are very powerful and large, expensive, and cumbersome. They also require
a lot of power, and often have excessive amounts of features that are not user friendly. Users generally cannot extend or customize
them easily. The knobs and buttons on the instrument, the built-in circuitry, and the functions available to the user, are specific
to the nature of the instrument.
Instrument inter-operability and connectivity
allow the Ubiquitor to communicate and work with other instruments manufactured by different vendors, in a manner that requires
the user to have little or no knowledge of the unique characteristics of those instruments. Traditional instruments, including
traditional hardware-centered instrumentations and software centered virtual instrumentations, are specifically designed, constructed
and refined to perform one or more specific tasks. Most of the instruments on the market come with a variety of connectivity technologies
and do not have the built-in firmware or software to support the connectivity and inter-operability of instruments without drastically
revising the application software across instrument brands. Unfortunately, while the instrument drivers simplify software development
and maintenance, they did not address hardware obsolescence since each manufacturer has their own drivers and application and none
are compatible, current applications are limited only to large, expensive test and measurement instruments.
A universal instrument is a versatile device
which combines many individual instrument functions, sensors and probes in a single unit. It has a primary purpose, but also incorporates
other instrument’s functionalities. One instrument could perform many different measurements and control and substitute many
other instruments. It utilizes a variety of probes to connect to the device for a wide variety of process measurement and control.
A universal instrument offers superior sensor or probe compatibility, versatility, inter-operability, connectivity and scalability.
Theoretically, it is feasible to design a universal instrument which is compatible with all sensors or probes on the market, and
capable of monitoring and controlling any combination of sensors or probes.
Despite the undoubted usefulness of the
universal instruments, one of the major obstacles that prevent the universal instruments from being adopted by end users is their
cost.. The end user who just needs a $10 traditional instrument for his applications certainly does not have the motivation to
spend $1000 for functions he does not need. Functionality always needs to be balanced against cost. The knobs and buttons on analog
instruments, the built-in circuitry, and the functions available to the user, are specific to the nature of the instrument, making
them very expensive and hard to adapt.
Smartphones and tablets have been considered
recreational devices for communicating, playing games and streaming videos, but they are also one of the most powerful tools engineers
use for designing, validating, and producing products. These ubiquitous smartphones perform better than most instrumentation in
many fields. Because of their network connectivity, smartphones and tablets are great tools for remotely viewing measurements.
In addition, the processing capabilities have exploded in recent years with processors and data capability rivaling that of very
recent laptop computers. Thus,, their small size and processing power also makes them effective for portable measurements. The
ubiquity of wireless connectivity, unlimited data plans, and more powerful cellular networks combined with increasing functionality
and the speed of connected devices and mobile networks will further drive consumer demand for more cost effective wireless smartphone
based instruments. Building an application for a smartphone or tablet and turning a smartphone or tablet to an instrument is not
a trivial task. Many of the industrial instrument manufacturers have limited or no expertise programming for mobile platforms and
designing wireless hardware. To help industrial instrument manufacturers take advantage of these smart devices, Perfecular Inc.,
has dedicated many years of research and development efforts into designing, manufacturing, marketing and promoting wireless smart
technology and products for industrial measuring instruments.
Our universal smart development protocol
focuses not only on the design of the hardware and software modules, but also on the design of the overall universal smart instruments
system, guided by the structured, universal and modular principles. We make our development open to industrial instrument manufacturers,
software, and hardware developers.
Compatibility: The compatibility in universal
smart instrument system refers not only to the compatibility between the same types of industrial sensor instruments from different
manufactures, but also to the compatibility between various industrial instrument types. The full inter-operability and absolute
instrument interchangeability is constantly addressed in our development protocol.
Universality: It is our goal to incorporate
as many functionalities of the traditional industrial sensor instruments into a single unit, allowing different data acquisition
sensor modules to execute on the same mobile platform. Thus, the interoperability between various sensors or probes can be achieved.
Upgradeability: Most traditional industrial
instrument sensor interfaces are unidirectional applications, meaning the instrument performs its task and transmits results to
the interface device in one direction only. They only perform monitoring tasks and share a majority of functions of the bi-directional
controlling instruments, however, they cannot be upgraded to controllers. End users have to purchase a new controlling instrument
for their applications. Taking advantage of the secure bi-directional wireless communications and interface supported by smartphones
or mobile devices, universal smart instruments, which deliver data back-and-forth between the smartphones and industrial sensors,
can be readily modified or upgraded by adding the corresponding actuators for controlling applications. Sensors or probes measure
the output performance of the device being controlled and give feedback to the input actuators that can make corrections towards
the desired performance.
Expandability and Scalability: Similar
to existing sensor network technology, our universal smart instruments are more flexible than sensor networks. They can currently
monitor and control hundreds of different sensors or probes. They automatically identify and configure the corresponding graphical
user interfaces that are connected to the Universal Smart Instruments. End users are free to add or removes sensors or probes from
the universal smart instruments. All communication protocols supported by smartphones are integrated in the software design including
WI-FI, blue tooth, cellular network technology and wired form through the audio port on the smartphone.
Security: Universal smart instruments have
the sensor security built-in data acquisition module and help companies meet sensor security requirements, preventing unauthorized
users from accessing the sensor measurements and control. Unauthorized access of the universal smart instruments sensors is forbidden.
Ubiquitor Wireless Universal Sensor Device
Our “Ubiquitor,” device will
be a handheld fully modular system with a universal sensor node and gateway system that will use a smartphone as the output display
module that displays the readings of various probe modules. We have initial functioning prototype devices created and intend to
develop this into full-scale production. The Ubiquitor will be a wireless sensor device that combines measuring tools with smartphone
technology to quickly deliver sensor node data on desktop and mobile phone screens. The Ubiquitor’s sensor analytics system
will integrate event-monitoring, storage and analytics software in a cohesive package that provides a holistic view of sensor data
it is reading.
The physical hardware consists of:
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The sensor probes, which come in hundreds of different varieties of sensor instruments in the form of a USB stick, with both male and female ports; and
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The main hardware gateway, a small cell phone size device with integrated circuits.
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This device can connect up to 2.5 kilometers
of sensor instruments, and integrate data using embedded software to display the data and all analytics onto a digital screen (desktop
or mobile displays) using a Wi-Fi connection. Most types of probes can connect to the hardware. If the sensor size is bigger than
the standard probe size, it is possible to simply use a USB cable to connect the probe and the hub. All data and analytics are
displayed on a single screen, with tools that record and keep track of all measurements, and sort and display analytic information
in easy to read charts.
The Ubiquitor is a general platform that
collects data in real time, up to 100hz per second, and thus is intended to be adapted to many industry uses.
The Ubiquitor is a multipurpose wireless
intelligent sensor device. Its greatest advantage is universal compatibility. Currently, the Ubiquitor device could simultaneously
accommodate more than 256 different types of sensor heads. Therefore, users could use their smartphones to simultaneously operate
and monitor over 256 kinds of sensor readings. With Perfecular’s technology, users only need to obtain the sensor heads,
facilitating ease and convenience of use. Using a smartphone, users can collect and analyze data in real time.
By using the smartphone as a substitute
platform, we believe we will achieve the following efficiencies:
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Cut production costs.
Smartphone technology will advance and become more widely used than the vast majority products on the small sensor device market. By utilizing smartphone technology, the Ubiquitor will add superior functionality and performance, improve the product’s quality and cutting production costs
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Reduce the effort required to develop a new sensor product.
With the Ubiquitor, we believe that there will be no need for device manufacturers to research and develop the new monitoring and operating components because they will just need to develop new sensor heads based on our software technology.
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Reduce clutter.
It is anticipated that the Ubiquitor dispenses with the hassle of hooking up cables, since it is based on wireless transmission of data.
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Other Traditional Handheld Meters
We also offer an array of traditional handheld meters through
our wholesale distribution platform.
Filter and Handheld Meter Wholesaler
In addition to developing Universal Smart
Instrument sensors, we are a wholesaler of various filtration products and digital handheld sensors. We source our products from
manufacturers in China and then sell to a major U.S. distributor who resell our products directly to consumers through retail distribution
channels. Specifically, we sell the following products:
Fan Speed Adjuster device
. We provide
a fan speed adjuster device to retailers and distributors. Designed specifically for centrifugal fans with brushless motors, our
adjuster device helps ensure longer life by preventing damage to fan motors by adjusting the speed of centrifugal fans without
causing the motor to hum. These devices are rated for 350 watts max, have 120VAC voltage capacity and feature an internal, electronic
auto-resetting circuit breaker.
Carbon filter devices.
We also sell
two types of carbon filter devices to distributors. These Carbon filter devices are professional grade filters specifically designed
and used to filter air in greenhouses that might be polluted by fermenting organics. One of these filters can be attached to a
centrifugal fan to scrub the air in a constant circle or can be attached to an exhaust line as a single pass filter, which moves
air out of the growing area and filters unwanted odors and removes pollens, dust, and other debris in the air. The other filter
is designed to be used with fans from 0-6000 C.F.M.
HEPA filtration device.
We provide
an organic air high efficiency particulate arrestance (“HEPA”) filtration device at wholesale prices to distributors
and retailers. Manufactured, tested, certified, and labeled in accordance with current HEPA filter standards, this device is targeted
towards greenhouses and grow rooms and designed to keep insects, bacteria, and mold out of grow rooms. We sell these devices in
various sizes.
Digital light meter.
We provide
a handheld digital light meter that is used to measure luminance in fc units, or foot-candles. The meter we sell is designed to
be full cosine corrected for the angular incidence of light (meaning if you are not holding the sensor perpendicular to the light
source, the sensor will still read the light correctly). The meter has a built-in low battery indicator and is designed to accurately
measure to 40,000 FC.
Quantum par meter.
We provide a
handheld quantum par meter used to measure photosynthetically active radiation (“PAR”). This fully portable handheld
PAR meter is designed to measure PAR flux in wavelengths ranging from 400 to 700 nm. It is designed to measure up to 10,000 umol.
Strategy
Strategy and Marketing Plan
We have designed, manufactured, marketed
and distributed our electronic measurement devices, such as temperature humidity meters, digital meters, quantum PAR meters, pH
meters, TDS meters and CO2 monitors, for many years and have many loyal customers. The universal smart technology has been applied
to our existing traditional devices and demonstrated functionality and hardware cost savings. We believe we have achieved hardware
cost savings in the range of 70% to 90%. Prototypes were sent to our customers for demonstrations and evaluation. Currently, we
are in the stage of producing a pilot manufacturing run. The first round of pilot production was completed in May, 2016. The second
round of pilot production was completed in July 2016.
Smartphones are an integral part of our
wireless universal smart technology system. Both wireless and wired communication connectivity are used and targeted on different
applications. In wired connectivity, the data acquisition module is connected through the audio port in the smartphone. The smartphone
is used to replace a traditional instrument. Compared with the wireless solution, the wireless communication module or even the
power supply used for data acquisition module are eliminated in the design, as a consequence of this some hardware costs are saved.
End users are not able to access the sensors or probes remotely. We believe that the instruments based on wired universal smart
technology are not as convenient as their wireless counterparts. Currently, in the industry, however, wired instruments are cheaper.
We believe that being the first ones in
the market provides a significant and sustained market-share advantage over later competitors. We first focus on our existing instruments
and convert them to universal smart devices and market them to our existing customers.
We are putting together an internal sales
team with the proceeds of the offering in order to get established for the marketing efforts.
We believe that wireless universal smart
technology will play a critical role for traditional industrial instrument manufacturers, as it is too expensive and difficult
to develop industrial instrument sensors for medium or smaller companies. The cost factor is the first consideration when deciding
whether a company wants to develop smart wireless technologies and implement them in their products. There are hundreds of thousands
of instrument manufacturers and trillion-dollar revenues for this manufacturing industry in China. We plan to open a sales department
in China dedicate to promoting our technologies to local instrument manufacturers.
Smartphones have been seamlessly integrated
into our daily life. A large number of functions and services have become accessible to the masses through the use of smart phones.
The proliferation of the smartphone and its user-friendly interface, which allows access to digital information, will cause these
devices to become a crucial part of our wireless universal smart instruments.
Our goals over the next three years include:
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Raise capital to move to full manufacturing and production for our Ubiquitor device;
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Partner with manufacturers and promote the adoption of our Ubiquitor platform;
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Acquire a stable market share of the handheld wireless sensor device market;
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Continue to develop market share in our wholesale distribution of sensors and filters; and
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Utilize our internet marketing strategies to market our handheld sensors and filters.
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In order to achieve these goals, we intend to focus on the following
initiatives:
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Position the Ubiquitor product as the industry standard in universal wireless sensor reading technology;
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Establish strategic supply chain channels to facilitate efficient production operations; and
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Communicate the product and service differentiation through direct networking and effective marketing.
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Distribution Method
We intend to continue to engage in relationships
with Chinese manufacturers and then distribute our products to distributors and retailers directly from the Chinese manufacturers
and then we intend to distribute the Ubiquitor by selling directly to traditional instrument manufacturers. We believe that traditional
instrument manufacturers will adopt this technology since the Ubiquitor device is intended to consolidate various other sensors.
We intend to manufacture and market the
Ubiquitor and sell it directly to consumers or distributors using internet marketing and also using channels such as Amazon.com
and to launch the product through crowdfunding sites like indiegogo and kickstarter.com. We also intend to establish a marketing
department overseas in China.
Raw Materials
The electronic components used in the Ubiquitor
are common and can be easily purchased. Production and assembly lines are also available worldwide.
Manufacturing and Production
We have a limited production facility in
California where small and medium sized circuit board production can take place until we have enough sales to convert manufacturing
to a large-scale manufacturing facility in China, where we have key strategic relationships with manufacturing facilities.
Competitors
There are several competitors we have identified
in the wireless sensor node industry, including traditional instruments or devices manufacturers such as Hanna Instruments or Extech
Instruments.
Hach developed and launched SC1000 Multi-parameter
Universal Controller, a probe module for connecting up to 8 SC sensors and their products are not compatible with smart phones
yet and we believe their price-point is still prohibitive to consumers.
Monnit Corporation offers a range of wireless
or remote sensors. Many of Monnit’s products are web-based wireless sensors usually are not portable because of the power
consumption. Also, the sensors real-time updates are slow and we believe security of the web-based sensor data acquisition also
may be a concern. In addition to purchasing the device, consumers usually have to pay monthly fee for using web-based services.
We are not trying to compete with traditional
instruments or device manufacturers because we utilize our Ubiquitor universal smart device in conjunction with our generic instruments
smartphone application, which we believe will be a completely different product category.
Patent, Trademark, License and Franchise
Restrictions and Contractual Obligations and Concessions
On November 4, 2016 we filed a U.S. patent
application number 15/344,041 with the U.S. Patent and Trademark Office. On March 5, 2018, we issued a press release announcing
that the U.S. Patent and Trademark Office had issued an Issue Notification for U.S. Patent Application No. 9924295 entitled “Universal
Smart Device,” which covers a patent application regarding the Company’s Universal Smart Device. We hope this full
patent application protects the Ubiquitor universal sensor device. It is anticipated that the publication will occur on July 20,
2018. The USPTO had previously issued a Notice of Allowance for the same patent. Barring any unforeseen circumstances, this patent,
when issued, will be valid until 2036. We do not own, either legally or beneficially, any trademarks.
Research and Development Activities
Other than time spent researching our proposed
business we have not spent any funds on research and development activities to date. We do not currently plan to spend any funds
on research and development activities in the future.
Compliance with Environmental Laws
We are not aware of any environmental laws
that have been enacted, nor are we aware of any such laws being contemplated for the future, that impact issues specific to our
business.
Employees
As of the date of this Annual Report we
have seven full-time and two part-time employees, the Company’s officers, our President Dr. Edward Lee, our Chief Executive
Officer and Secretary Desheng Wang. Our officers and directors are responsible for planning, developing and operational duties,
and will continue to do so throughout the early stages of our growth. Our seven full-time employees are working in the warehouse
orchestrating the development and distribution of our handheld sensor devices as well as our filters.
Reports to Securities Holders
We provide an Annual Report that includes
audited financial information to our shareholders. We will make our financial information equally available to any interested parties
or investors through compliance with the disclosure rules for a small business issuer under the Securities Exchange Act of 1934.
We are subject to disclosure filing requirements including filing Form 10-K annually and Form 10-Q quarterly. In addition, we will
file Form 8-K and other proxy and information statements from time to time as required. We do not intend to voluntarily file the
above reports in the event that our obligation to file such reports is suspended under the Exchange Act. The public may read and
copy any materials that we file with the Securities and Exchange Commission, ("SEC"), at the SEC's Public Reference Room
at 100 F Street NE, Washington, DC 20549.
The public may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov)
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with
the SEC.
Item 1A. RISK FACTORS
There is no assurance our future
operations will result in profitable revenues. If we cannot generate sufficient revenues to operate profitably, our business will
fail.
We have a limited operating history upon
which an evaluation of our future success or failure can be made. Based upon current plans, we expect to continue generating revenues.
However, our revenues may not be sufficient to cover our operating costs. We cannot guarantee that we will be successful in generating
significant revenues in the future. Failure to achieve a sustainable sales level will cause us to go out of business.
We require significant funding to manufacture and market
our Ubiquitor wireless sensor.
We may ultimately require up to $20 million
to fund the manufacturing and marketing strategy for our product. Once we achieve this fund raising goal, we intend to position
ourselves in the small device market, establishing the price at below a few hundred dollars. Due to superior functionality and
low price, we expect to capture this section of the market fairly easily, while our product and service matures, and the Company
becomes better known, we will seize the high-end market. None of this will be possible if we fail to obtain the funding we require.
We depend on key personnel.
Our future success will depend in part
on the continued service of key personnel, particularly, Desheng Wang our Chief Executive Officer and our President Edward Lee.
If any of our directors and officers will
choose to leave the company, we will face significant difficulties in attracting potential candidates for replacement of our key
personnel due to our limited financial resources and operating history. In addition, the loss of any key employees or the inability
to attract or retain qualified personnel could delay our plan of operations and harm our ability to provide services to our current
customers and harm the market’s perception of us.
We outsourced our product manufacturing
and procurement, decreasing quality and reliability and protectability
We have fully outsourced all manufacturing
and have no direct control over the manufacturing processes of our products. This lack of control may increase quality or reliability
risks and could limit our ability to quickly increase or decrease production rates. It also creates liability in that we could
lose control of our intellectual property that is not properly protected.
Demand for our products is uncertain
and depends on our currently unproven ability to create and maintain superior performance
Our future operating results will depend
upon our ability to provide our products or services and to operate profitably in an industry characterized by intense competition,
rapid technological advances and low margins. This, in turn, will depend on a number of factors, including:
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Our ability to generate significant sales and profit margin from the Ubiquitor device;
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Worldwide market conditions and demand for web services, sensor devices and other products we may continue to add as we move forward;
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Our success in meeting targeted availability dates for our products and services;
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Our ability to develop and commercialize new intellectual property and to protect existing intellectual property;
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Our ability to maintain profitable relationships with our distributors, retailers and other resellers;
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Our ability to maintain an appropriate cost structure;
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Our ability to attract and retain competent, motivated employees;
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Our ability to comply with applicable legal requirements throughout the world; and
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Our ability to successfully manage litigation, including enforcing our rights, protecting our interests and defending claims made against us.
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These factors are difficult to manage,
satisfy and influence and we cannot provide any assurance that we will be able to sustain profits in the future.
Our Ubiquitor
Product could fail to gain traction in the marketplace for a number of reasons that would adversely impact our financial results
and cause our investors to lose money.
Future successful sales of our Ubiquitor
entail numerous risks such as:
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Any lack of market acceptance of the Ubiquitor;
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Failure to maintain acceptable arrangements with product suppliers, particularly in light of lower than anticipated volumes;
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Manufacturing, technical, supplier, or quality-related delays, issues or concerns, including the loss of any key supplier or failure of any key supplier to deliver high quality products on time;
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Competition;
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Potential declines in demand for sensor devices; and
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Risks that third parties may assert intellectual property claims against our products.
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In order to compete
successfully, we must accurately forecast demand, closely monitor inventory levels, secure quality products, continuously drive
down costs, meet aggressive product price and performance targets, create market demand for our brand and hold sufficient, but
not excess, inventory.
There is a risk that the market will not adapt to using
the smartphone as a substitute platform for sensor devices, causing our products to fail in the marketplace.
There is a risk that the market will not
receive the smartphone technology, which we will be using as our platform. The vast majority of products on the small sensor device
market do not currently use smartphones to collect and analyze sensor data. There is no guarantee that using smartphone technology
will cut production costs and be well received. If our platform using smartphone technology is not well received, there is a risk
that device manufacturers will develop new monitoring and operating components that are incompatible with our current platform
instead of developing the traditional sensors that are compatible with our technology. Updating our platform to stay compatible
with new components could increase our costs unexpectedly.
Using wireless transmission technologies such as WI-FI
and Bluetooth may create security risks.
There is also a risk of failure based on
the wireless transmission of data used by our smartphone platform. If there is instability in a wireless network, Bluetooth sensor,
or other network problems that are out of our control, our new platform may not be well received. Our smartphone platform relies
on the wireless transmission of data through WIFI networks and Bluetooth sensors. These networks are often deemed less secure than
a hard-wired network. The security of a wireless network is often out of our control. However, any breach of security could result
in the market and sensor device manufacturers to fail to embrace our platform.
Our business involves the use, transmission
and storage of confidential information, and the failure to properly safeguard such information could result in significant reputational
harm.
We may at times collect, store and transmit
information of, or on behalf of, our clients that may include certain types of confidential information that may be considered
personal or sensitive, and that are subject to laws that apply to data breaches. We believe that we take reasonable steps to protect
the security, integrity and confidentiality of the information we collect and store, but there is no guarantee that inadvertent
or unauthorized disclosure will not occur or that third parties will not gain unauthorized access to this information despite our
efforts to protect this information, including through a cyber-attack that circumvents existing security measures and compromises
the data that we store. If such unauthorized disclosure or access does occur, we may be required to notify persons whose information
was disclosed or accessed. Most states have enacted data breach notification laws and, in addition to federal laws that apply to
certain types of information, such as financial information, federal legislation has been proposed that would establish broader
federal obligations with respect to data breaches. We may also be subject to claims of breach of contract for such unauthorized
disclosure or access, investigation and penalties by regulatory authorities and potential claims by persons whose information was
disclosed. The unauthorized disclosure of information, or a cyber-security incident involving data that we store, may result in
the termination of one or more of our commercial relationships or a reduction in client confidence and usage of our services. We
may also be subject to litigation alleging the improper use, transmission or storage of confidential information, which could damage
our reputation among our current and potential clients and cause us to lose business and revenue.
Our business depends on our ability
to keep manufacturing costs low and we may lack the expertise necessary to negotiate and maintain favorable pricing, supply, business
and credit terms with our potential vendors.
It may be difficult
to negotiate or maintain favorable pricing, supply, business or credit terms with our potential vendors, suppliers and service
providers. In addition, product manufacturing costs may increase if we fail to achieve anticipated volumes. There can be no assurance
that we will be able to successfully manage these risks. In summary, we can offer no assurance that we will be able to obtain a
sufficient (but not excess) supply of products on a timely and cost effective basis. Our failure to do so would lead to a material
adverse impact on our business.
The lack of public company experience
of our management team could adversely impact our ability to comply with the reporting requirements of U.S. securities laws.
Dr. Wang lacks public company experience,
which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of
2002. Our CEO and CFO have never been responsible for managing a publicly traded company. Such responsibilities include complying
with federal securities laws and making required disclosures on a timely basis. Any such deficiencies, weaknesses or lack of compliance
could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act
of 1934, as amended, which is necessary to maintain our public company status. If we were to fail to fulfill those obligations,
our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our
company.
Our officers, directors, consultants
and advisors are involved in other businesses and not obligated to commit their time and attention exclusively to our business
and therefore they may encounter conflicts of interest with respect to the allocation of time and business opportunities between
our operations and those of other businesses.
If the execution of our business plan demands
more time than is currently committed by our President, Dr. Desheng Wang, he will be under no obligation to commit such additional
time, and his failure to do so may adversely affect our ability to carry on our business and successfully execute our business
plan.
If, as a result of before mentioned conflicts,
we are deprived of business opportunities or information, the execution of our business plan and our ability to effectively compete
in the marketplace may be adversely affected. If we become aware of such conflict of interests we will take an immediate action
to resolve it. Each conflict of interest will be handled by the company based on the nature of the conflict and the individual
involved in it.
We do not have any actual or potential conflict of interests
with our consultants or advisors.
We do not have a majority of independent
directors on our Board and the Company has not voluntarily implemented various corporate governance measures, in the absence of
which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar
matters.
Federal legislation, including the Sarbanes-Oxley
Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate
management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have
been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock
Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national
securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption
of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not
yet listed on a national securities exchange, we are not required to do so. Our Board of Directors is comprised of one individual.
As a result, we do not have independent directors on our Board of Directors.
We have not adopted corporate governance
measures such as an audit or other independent committee of our Board of Directors, as we presently do not have independent directors
on our board. If we expand our board membership in future periods to include additional independent directors, we may seek to establish
an audit and other committee of our board of directors. It is possible that if our Board of Directors included independent directors
and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurance
that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible
conduct. For example, at present in the absence of audit, nominating and compensation committees comprised of at least a majority
of independent directors, decisions concerning matters such as compensation packages or employment contracts to our officers are
made by a director who has an interest in the outcome of the matters being decided.
However, as a general rule, the Board of
Directors, in making its decisions, determines first that the terms of such transaction are no less favorable to us that those
that would be available to us with respect to such a transaction from unaffiliated third parties. The Company executes the transaction
between executive officers once approved by the Board of Directors.
Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their investment decisions.
We have
concluded that we have not maintained effective internal control over financial reporting through the year ended December 31, 2017.
Significant deficiencies and material weaknesses in our internal control could have material adverse effects on us.
It is important
for us to maintain effective internal control over financial reporting, which is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
For a discussion
of our internal control over financial reporting and a description of the identified material weakness, see “Management’s
Report on Internal Control Over Financial Reporting” included in Item 9A of this Report. 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 the Company’s annual or interim financial statements will not be prevented or detected on a timely
basis.
A material weakness
in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information.
We plan to implement a number of remediation steps to address the material weakness as described in Item 9A of this Report. If
we are unsuccessful in implementing or following our remediation plan, we may not be able to timely or accurately report our financial
condition, results of operations or cash flows or maintain effective disclosure controls and procedures. If we are unable to report
financial information timely and accurately or to maintain effective disclosure controls and procedures, we could be subject to,
among other things, regulatory or enforcement actions by the SEC, any one of which could adversely affect our business prospects.
We currently have identified significant
deficiencies in our internal control over financial reporting that, if not corrected, could result in material misstatements of
our financial statements.
In connection
with the audit of our financial statements as of and for the year ended December 31, 2017, we identified significant deficiencies
in our internal control over financial reporting and a general understanding of accounting principles generally accepted in the
United States of America (“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 the deficiency, we believe that it is possible that certain control deficiencies may have been identified if such
an evaluation had been performed.
We are working
to remediate the deficiencies or material weaknesses. We have taken steps to enhance our internal control environment and plan
to take additional steps to remediate the material weaknesses. Specifically:
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We have hired additional outside consultants and will fire unqualified 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;
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We are implementing additional internal reporting procedures, including those designed to add depth to our review processes and improve our segregation of duties;
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We are updating our systems so that we may collect the necessary information to enable us to more effectively monitor and comply with applicable filing requirements on a timely basis; and
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We are in the process of documenting, assessing and testing our internal control over financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act.
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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.
We do not have a majority of independent
directors on our Board and the Company has not voluntarily implemented various corporate governance measures, in the absence of
which stockholders may have more limited protections against interested director transactions, conflicts of interest and similar
matters.
Federal legislation, including the Sarbanes-Oxley
Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate
management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others have
been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or the NASDAQ Stock
Market, on which their securities are listed. Among the corporate governance measures that are required under the rules of national
securities exchanges are those that address board of directors’ independence, audit committee oversight, and the adoption
of a code of ethics. We have not yet adopted any of these other corporate governance measures and since our securities are not
yet listed on a national securities exchange, we are not required to do so. Our Board of Directors is comprised of three individuals,
all of whom are also our executive officers. As a result, we do not have independent directors on our Board of Directors.
We have not adopted corporate governance
measures such as an audit or other independent committee of our Board of Directors, as we presently do not have independent directors
on our board. If we expand our board membership in future periods to include additional independent directors, we may seek to establish
an audit and other committee of our Board of Directors. It is possible that if our Board of Directors included independent directors
and if we were to adopt some or all of these corporate governance measures, stockholders would benefit from somewhat greater assurance
that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible
conduct. For example, at present in the absence of audit, nominating and compensation committees comprised of at least a majority
of independent directors, decisions concerning matters such as compensation packages or employment contracts to our senior officers
are made by a majority of directors who have an interest in the outcome of the matters being decided.
However, as a general rule, the Board of
Directors, in making its decisions, determines first that the terms of such transaction are no less favorable to us that those
that would be available to us with respect to such a transaction from unaffiliated third parties.
Prospective investors should bear in mind
our current lack of corporate governance measures in formulating their investment decisions.
Because one of our Directors, who
is also our sole promoter, owns over 49% of our outstanding common stock he could make and control corporate decisions that may
be disadvantageous to other minority shareholders.
One of our Directors owns over 49% of the
outstanding shares of our common stock as of the date of this reporting. Accordingly, Directors have a significant influence in
determining the outcome of all corporate transactions or other matters, including mergers, consolidations and the sale of all or
substantially all of our assets. They also have the power to prevent or cause a change in control. The interests of our Directors
may differ from the interests of the other stockholders and thus result in corporate decisions that are disadvantageous to other
shareholders.
Our executive officers and Directors
collectively have the power to control our management and operations, and have a significant majority in voting power on all matters
submitted to the stockholders of the company.
Management currently beneficially owns
a majority of our outstanding common stock. Consequently, management has the ability to influence control of the operations of
the Company and, acting together, will have the ability to influence or control substantially all matters submitted to stockholders
for approval, including:
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Election of our Board of Directors;
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Removal of directors;
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Amendment to the Company’s Articles of Incorporation or Bylaws; and
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Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination.
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These stockholders have complete control
over our affairs. Accordingly, this concentration of ownership by itself may have the effect of impeding a merger, consolidation,
takeover or other business consolidation, or discouraging a potential acquirer from making a tender offer for the common stock.
You could be diluted from our future
issuance of capital stock and derivative securities.
As of March 28, 2017, we had 34,574,706
shares of common stock outstanding and no shares of preferred stock outstanding. We are authorized to issue up to 75,000,000 shares
of common stock and no shares of preferred stock. To the extent of such authorization, our Board of Directors will have the ability,
without seeking stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration
as the Board of Directors may consider sufficient. The issuance of additional common stock or preferred stock in the future may
reduce your proportionate ownership and voting power.
None of the members of our Board
of Directors are considered audit committee financial experts. If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our financial results. As a result, current and potential shareholders
could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
Members of our Board of Directors are inexperienced
with U.S. GAAP and the related internal control procedures required of U.S. public companies. Management has determined that our
internal audit function is also significantly deficient due to insufficient qualified resources to perform internal audit functions.
Finally, we have not established an Audit Committee of our Board of Directors.
We are a smaller reporting company with
limited resources. Therefore, we cannot assure investors that we will be able to maintain effective internal controls over financial
reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim
financial statements will not be prevented or detected on a timely basis. For these reasons, we are considering the costs and benefits
associated with improving and documenting our disclosure controls and procedures and internal controls and procedures, which includes
(i) hiring additional personnel with sufficient U.S. GAAP experience and (ii) implementing ongoing training in U.S. GAAP requirements
for our CFO and accounting and other finance personnel. If the result of these efforts are not successful, or if material weaknesses
are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness
of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further
implement expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness
of our financial reports which could have an adverse effect on our stock price and potentially subject us to litigation.
The requirements of being a public
company may strain our resources and distract our management.
We are required to comply with various
regulatory and reporting requirements, including those required by the Securities and Exchange Commission. Complying with these
reporting and other regulatory requirements is time-consuming and may result in increased costs to us and could have a negative
effect on our business, results of operations and financial condition.
As a public company, we are subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and requirements of the Sarbanes-Oxley
Act of 2002, as amended, or SOX. These requirements may place a strain on our systems and resources. The Exchange Act requires
that we file annual, quarterly and current reports with respect to our business and financial condition. The SOX requires that
we maintain effective disclosure controls and procedures and internal controls over financial reporting. Compliance with these
rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming
or costly and increase demand on our systems and resources.
These activities may divert management’s
attention from other business concerns, which could have a material adverse effect on our business and results of operations.
In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend
to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and
our business may be harmed.
We also expect that being a public company
and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and
we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also
make it more difficult for us to attract and retain qualified members of our Board of Directors, particularly to serve on our audit
committee and compensation committee, and qualified executive officers.
We will not be required to evaluate
our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act until the end of the second fiscal year
reported upon in our second annual report on Form 10-K.
The Sarbanes-Oxley Act of 2002 and the
new rules subsequently implemented by the Securities and Exchange Commissions, the Financial Industry Regulatory Authority (“FINRA”)
and the Public Company Accounting Oversight Board have imposed various new requirements on public companies, including requiring
changes in corporate governance practices.
We expect these rules and regulations to
increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These costs could
affect profitability and our results of operations.
We are in the process of determining whether
our existing internal controls over financial reporting systems are compliant with Section 404. We will not be required to conduct
the evaluation of effectiveness of our internal controls until the end of the fiscal year reported upon in our second annual report
on Form 10-K. In addition, because we are a smaller reporting company, we are not required to obtain the auditor attestation of
management’s evaluation of internal controls over financial reporting. If we obtain and disclose such reports we could continue
doing so at our discretion so long as we remain a smaller reporting company.
This process of internal control evaluation
and attestation may divert internal resources and will take a significant amount of time, effort and expense to complete. If it
is determined that we are not in compliance with Section 404, we may be required to implement new internal control procedures and
re-evaluate our financial reporting. If we are unable to implement these changes effectively or efficiently, it could harm our
operations, financial reporting or financial results, which could adversely affect our ability to comply with our periodic reporting
obligations under the Exchange Act.
There is a very limited public (trading)
market for our common stock and; therefore, our investors may not be able to sell their shares.
Our common stock is listed on the over-the-counter
exchange, and is thinly traded. As a result, stockholders may be unable to liquidate their investments, or may encounter considerable
delay in selling shares of our common stock. If an active trading market does develop, the market price of our common stock is
likely to be highly volatile due to, among other things, the nature of our business and because we are a new public company with
a limited operating history. Further, a few individual stockholders dominate our shares. The limited trading volume subjects the
price of our common stock to manipulation by one or more stockholders and will significantly limit the number of shares that one
can purchase or sell in a short period of time. The market price of our common stock may also fluctuate significantly in response
to the following factors, most of which are beyond our control:
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variations in our quarterly and annual operating results;
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changes in general economic conditions;
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changes in technologies favored by consumers;
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price competition or pricing changes by us or our competitors; and
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the addition or loss of key managerial and collaborative personnel.
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The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices for many companies' securities and that have often
been unrelated to the operating performance of these companies. Any such fluctuations may adversely affect the market price of
our common stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their shares,
or may be forced to sell them at a loss.
Our common stock has not been widely
traded, and the price of our common stock may fluctuate substantially.
To date, there has been a limited public
market for shares of our common stock, with limited trading. An active public trading market may not develop or, if developed,
may not be sustained. The current market price of our common stock and any possible subsequent listing on another larger securities
exchange, if and when we are successful in doing so, will be affected by a number of factors, including those discussed above.
Future sales of our common stock
by existing stockholders could cause our stock price to decline.
If our existing stockholders sell substantial
amounts of our common stock in the public market, then the market price of our common stock could decrease significantly. The perception
in the public market that our stockholders might sell shares of common stock also could depress the market price of our common
stock. There are approximately 34,574,706 shares of our common stock outstanding, of which approximately 3,670,000 shares are currently
freely tradable. We may in the future issue and register additional shares of our common stock that might be freely transferable
at the time of such transaction.
A decline in the price of shares of our
common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity
securities.
We do not intend to pay dividends and there will be less
ways in which you can make a gain on any investment in Focus Universal Inc.
We have never paid any cash dividends and
currently do not intend to pay any dividends for the foreseeable future. To the extent that we require additional funding currently
not provided for in our financing plan, our funding sources may likely prohibit the payment of a dividend. Because we do not intend
to declare dividends, any gain on an investment in Focus Universal Inc. will need to come through appreciation of the stock’s
price.
You may face significant restrictions on the resale of
your shares due to state “blue sky” laws.
Each state has its own securities laws,
often called “blue sky” laws, which (1) limit sales of securities to a state’s residents unless the securities
are registered in that state or qualify for an exemption from registration, and (2) govern the reporting requirements for broker-dealers
doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place
to cover the transaction, or it must be exempt from registration. The applicable broker-dealer must also be registered in that
state.
We do not know whether our securities will
be registered or exempt from registration under the laws of any state. A determination regarding registration will be made by those
broker-dealers, if any, who agree to serve as market makers for our common stock. There may be significant state blue sky law restrictions
on the ability of investors to sell, and on purchasers to buy, our securities. You should therefore consider the resale market
for our common stock to be limited, as you may be unable to resell your shares without the significant expense of state registration
or qualification.
Focus Universal is an “emerging
growth company” under the Jumpstart Our Business Startups Act. We cannot be certain if the reduced reporting requirements
applicable to emerging growth companies will make our shares of common stock less attractive to investors.
Focus Universal is and will remain an "emerging
growth company" until the earliest to occur of (a) the last day of the fiscal year during which its total annual revenues
equal or exceed $1 billion (subject to adjustment for inflation), (b) the last day of the fiscal year following the fifth anniversary
of its initial public offering (i.e., December 31, 2019), (c) the date on which Focus Universal has, during the previous three-year
period, issued more than $1 billion in non-convertible debt securities, or (d) the date on which Focus Universal is deemed a "large
accelerated filer" (with at least $700 million in public float) under the Securities and Exchange Act of 1934 (the "Exchange
Act”).
For so long as Focus Universal remains
an "emerging growth company" as defined in the JOBS Act, it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not "emerging growth companies" as described in further
detail in the risk factors below. Focus Universal cannot predict if investors will find its shares of common stock less attractive
because Focus Universal will rely on some or all of these exemptions. If some investors find Focus Universal's shares of common
stock less attractive as a result, there may be a less active trading market for its shares of common stock and its stock price
may be more volatile.
If Focus Universal avails itself of certain
exemptions from various reporting requirements, its reduced disclosure may make it more difficult for investors and securities
analysts to evaluate Focus Universal and may result in less investor confidence.
The recently enacted JOBS Act is intended
to reduce the regulatory burden on "emerging growth companies". Focus Universal meets the definition of an "emerging
growth company" and so long as it qualifies as an "emerging growth company," it will not be required to:
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have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
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disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
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In addition, Section 107 of the JOBS Act
also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth
company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
However, Focus Universal is choosing to "opt out" of such extended transition period, and as a result, Focus Universal
will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for
non-emerging growth companies. Section 107 of the JOBS Act provides that its decision to opt out of the extended transition period
for complying with new or revised accounting standards is irrevocable.
Notwithstanding the above, we are also
currently a “smaller reporting company”, meaning that we are not an investment company, an asset-backed issuer, or
a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public float of less than $75
million and annual revenues of less than $50 million during the most recently completed fiscal year.
In the event that we are still considered
a “smaller reporting company”, at such time are we cease being an “emerging growth company”, we will be
required to provide additional disclosure in our SEC filings. However, similar to “emerging growth companies”, “smaller
reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide
an attestation report on the effectiveness of internal control over financial reporting; are not required to conduct say-on-pay
and frequency votes until annual meetings occurring on or after January 21, 2013; and have certain other decreased disclosure obligations
in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in
annual reports. Decreased disclosures in our SEC filings due to our status as an “emerging growth company” or “smaller
reporting company” may make it harder for investors to analyze the Company’s results of operations and financial prospects.