Organization
and Business Background
EvoAir
Holdings Inc., (formerly Unex Holdings Inc.) (the “Company”, “EVOH”, “we”, “us”, or “our”)
is a corporation established under the corporation laws in the State of Nevada on February 17, 2017. The Company has adopted an August
31 fiscal year end.
On
December 20, 2021, the Company and Low Wai Koon (“Dr. Low”) entered into a share transfer agreement, (the “EvoAir International
Share Transfer Agreement”), pursuant to which Dr. Low agreed to sell all of his ordinary shares of EvoAir International Limited
(“EvoAir International”) to the Company for the consideration of US$100 (“EvoAir Transaction”). EvoAir International,
through its subsidiaries upon completion of the Transactions (defined hereunder), is engaged in the sale of heating, ventilation and
air conditioning (“HVAC”) products in Asia.
Pursuant
to the terms of a share transfer agreement dated December 20, 2021, Dr. Low, the then sole executive officer and director of the
Company and the owner of 2,000,000 restricted shares of the Company’s ordinary shares representing approximately 67.34% of the
Company’s then issued and outstanding shares, sold his entire shareholding of the Company to WKL Global Limited (“WKL
Global”) for an aggregate consideration of $100 (the “Change of Control Transaction”). Upon completion of the Change of Control Transaction, WKL Global owned
2,000,000 shares, or approximately 67.34% of the then issued and outstanding ordinary shares of the Company, which resulted in a
change of control of the Company.
On
December 20, 2021, several transactions took place (together, the “Allotment Transactions”) whereby the Company issued and
allotted in aggregate 98,809,323 ordinary shares of common stock to certain parties. On completion of the Allotment Transactions, the
total number of issued and outstanding shares of common stock of the Company were 101,779,323 (“Enlarged Share Capital”):
(A) |
On
December 20, 2021, Dr. Low and Chan Kok Wei entered into a share exchange agreement with WKL Eco Earth Holdings Pte Ltd (“WKL
Eco Earth Holdings”), pursuant to which Dr. Low and Chan Kok Wei agreed to sell all their ordinary shares of WKL Green Energy
Sdn Bhd (“WKL Green Energy”) to WKL Eco Earth Holdings in consideration for the allotment and issuance to WKL Global
Limited and Allegro Investment (BVI) Limited of 24,000 shares and 6,000 shares of common stock, respectively, or approximately 0.02%
and 0.01% of the Enlarged Share Capital, respectively. |
|
|
(B) |
On
December 20, 2021, Dr. Low, Chan Kok Wei, Ong Bee Chen and certain sellers (“WKLEE Sellers”) entered into a share
exchange agreement with WKL Eco Earth Holdings, pursuant to which Dr. Low, Chan Kok Wei, Ong Bee Chen and WKLEE Sellers agreed to
sell all their ordinary shares of WKL Eco Earth Sdn Bhd (“WKL Eco Earth”) to WKL Eco Earth Holdings in consideration for
the allotment and issuance to WKL Global Limited, Allegro Investment (BVI) Limited and WKLEE Sellers of 49,320 shares, 8,280 shares
and in aggregate 14,400 shares, respectively, of the common stock of the Company, or approximately 0.05%, 0.009% and in aggregate
0.014%, respectively, of the Enlarged Share Capital. |
|
|
(C) |
On December 20, 2021, Tan
Soon Hock, Ivan Oh Joon Wern and certain relevant interest holders (“Relevant Interest Holders”) entered into an investment
exchange agreement with WKL Eco Earth Holdings, pursuant to which the Tan Soon Hock, Ivan Oh Joon Wern and the Relevant Interest
Holders agreed to sell all relevant interests in the EvoAir and its subsidiaries (“EvoAir Group” or the “Group”) to WKL Eco Earth Holdings in consideration for the allotment and
issuance of 7,037,762 shares, 2,520,000 shares and in aggregate 6,001,794 shares, respectively, of the common stock of the Company,
or approximately 6.91%, 2.48% and in aggregate 5.90%, respectively, of the Enlarged Share Capital. The board of directors and majority
shareholders of the Company have approved the transaction. |
(D) |
On December 20, 2021, Dr.
Low entered into two deeds of assignment of intellectual properties with WKL Eco Earth Holdings, in respect of Dr. Low’s patents
relating to eco-friendly air-conditioner condenser (external unit), evoairTM and the trademarks described in the deed
of assignment thereunder, and in respect of Dr. Low’s patents relating to the portable air-conditioner, e-Cond EVOTM
and the trademarks as described in the deed of assignments thereunder (together, the “IP Assignments”). Pursuant to the
IP Assignments, WKL Global, Allegro Investment (BVI) Limited and certain nominees shall be allotted and issued 63,362,756
shares, 14,297,259 shares and in aggregate 5,487,752 shares, respectively of the Company’s common stock or approximately 62.25%,
14.05% and in aggregate 5.39%, respectively of the Enlarged Share Capital in consideration for the IP Assignments. |
EvoAir
Transaction, Change of Control Transaction and Allotment Transactions are collectively to be referred to as the “Transactions”.
The closing of the Transactions (the “Closing”) occurred on December 20, 2021 (the “Closing Date”).
From
and after the Closing Date, at which time EvoAir International transferred its HVAC business to the Company, the Company’s primary
operations will consist of the prior operations of EvoAir International.
EvoAir
International is a company incorporated in the British Virgin Islands on November 17, 2021. Effective from the December 20, 2021, it
wholly owns WKL Eco Earth Holdings, a company incorporated in Singapore on July 12, 2018, which in turn wholly owns a) WKL Eco
Earth, a Malaysian company incorporated on May 17, 2017, and b) WKL Green Energy a Malaysian company incorporated on October 24,
2017. WKL Eco Earth Holdings acquired (c) EvoAir Manufacturing Sdn Bhd (“EvoAir Manufacturing”) on April 19, 2021, a
Malaysian company incorporated on March 22, 2019, as well as acquiring (d) WKL EcoEarth Indochina Co. Ltd. (“WKL Eco Earth Indochina”), a Cambodia company incorporated
on February 4, 2021 (e) WKL Guanzhe Green Technology Guangzhou Co Ltd (“WKL Guanzhe Green Technology Guangzhou”), a Chinese company incorporated in April 6, 2021 and (f) Evo Air
Marketing, a Malaysian company incorporated in February 2, 2021, is a wholly owned subsidiary of EvoAir Manufacturing.
On
June 15, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Articles of Incorporation with Nevada’s
Secretary of State to change the name of the Company from Unex Holdings Inc. to EvoAir Holdings Inc. (the “Name Change”),
and the Name Change became market effective on November 4, 2022. Effective on November 11, 2022, the Company’s shares began trading
under the new ticker symbol “EVOH”.
Details
of the Company’s subsidiaries:
|
|
|
Subsidiary
company name |
|
Place
and date of incorporation |
|
Particulars
of issued capital
$ |
|
Principal
activities |
|
Proportion
of ownership interest and voting power held |
1. |
|
|
Evoair
International Limited |
|
British
Virgin Islands, November 17, 2021 |
|
100 |
|
Investment holding. |
|
100% |
Subsidiary
of EvoAir International Limited |
2. |
|
|
WKL
Eco Earth Holdings Pte. Ltd. |
|
Singapore,
July 12, 2018 |
|
1 |
|
Marketing and sale of eco-friendly HVAC products and related services. |
|
100% |
Subsidiaries
of WKL Eco Earth Holdings Pte Ltd |
3. |
|
|
WKL
Eco Earth Sdn. Bhd. |
|
Malaysia,
May 17, 2017 |
|
74,206 |
|
Research and development, manufacturing, marketing and sale of eco-friendly
HVAC products and related services. |
|
100% |
4. |
|
|
WKL
Green Energy Sdn. Bhd. |
|
Malaysia,
October 24, 2017 |
|
27,955 |
|
Dormant. |
|
100% |
5. |
|
|
EvoAir
Manufacturing (M) Sdn. Bhd. |
|
Malaysia,
March 22, 2019 |
|
585,374 |
|
Research and development, manufacturing, marketing and sale of eco-friendly
HVAC products and related services. |
|
67.5% |
6. |
|
|
WKL
EcoEarth Indochina Co. Ltd |
|
Cambodia,
February 4, 2021 |
|
125,480 |
|
Marketing and sale of eco-friendly HVAC products and related services. |
|
55% |
7. |
|
|
WKL
Guanzhe Green Technology Guangzhou Co. Ltd. |
|
People’s
Republic of China, April 6, 2021 |
|
573,609 |
|
Manufacturing, marketing and sale of eco-friendly HVAC products and related
services. |
|
55% |
Subsidiary
of EvoAir Manufacturing (M) Sdn Bhd |
8. |
|
|
Evo
Air Marketing (M) Sdn. Bhd. |
|
Malaysia,
February 2, 2021 |
|
223 |
|
Marketing and sale of eco-friendly HVAC products and related services. |
|
100% |
On
June 15, 2022, the Company filed a Certificate of Amendment (the “Amendment”) to the Articles of Incorporation with Nevada’s
Secretary of State to change the name of the Company from Unex Holdings Inc. to EvoAir Holdings Inc. (the “Name Change”),
and the Name Change became market effective on November 4, 2022. Effective on November 11, 2022, the Company’s shares began trading
under the new ticker symbol “EVOH”.
Future
development
EvoAir Group intends to continue development of its hybrid
air-conditioning products to further increase its product offerings, as well as to expand its client base, especially with
commercial and industrial clients. The Group plans to expand its distribution into other South East Asia markets, China and Asia
markets, which has high potential demand for air-conditioning as their population gross domestic product (“GDP”)
increases. Taking advantage of the global awareness and push to reduce harmful factors leading to global warming, the Group
continues to market its EvoAirTM brand and e-Cond EvoTM as a truly eco-friendly product aiming to reduce
emission of waste heat from the condensing unit and at the same time improving energy efficiency. The Group aims to continue its
innovation through investment into research and development, to further improve on its product line, reduce its carbon emissions as
it strives to become a leader in green Heating, ventilation, and air
conditioning HVAC technology.
The
Group also continues to improve on its production of air purifier and air-sanitizing systems in order to capitalize on increased market
demand for air sanitizing products in the wake of the global coronavirus pandemic. The Group is expanding usage and application of its
Ionic Nano Copper Solution (“INCU”) technology, which acts as an effective disinfectant solution into more sectors and markets as the Group foresees growth in demand
for air-sanitizing products as a must-have product in general consumer households in the near future. Besides household consumers, the
Group also aims to expand its commercial and industrial customer base, as well as partake in public sanitation projects. In terms of
sanitation products, the company aims to expand into personal healthcare products such as formulated toiletries cleansers incorporating
the INCU ionic nano copper solution as an active ingredient.
Product
Lines
Hybrid
Air Conditioners
e-Cond
EVOTM
The
Group first invented its line of eco-friendly portable air-conditioners under its e-Cond EVOTM brand in 2017.
The
unit is an eco-friendly air-conditioning system with patent pending heat emission control system (“HECS”) technology, which regulates the temperature and volume of heat
transferred from the air-conditioning system into the environment. This product employs an innovative hydro-refrigeration system (“HRS”)
integrating evaporative cooling process with refrigeration cycle, reducing temperature of the output air by approximately 30% while achieving
an optimal cooling performance of approximately 25 degree Celsius. The patent pending technology in the unit allows it to utilize up
to 60% less energy than its traditional portable air-conditioning units. The portable air-conditioning systems also incorporate ionizer
technology producing high concentrations of negative ions to purify the surrounding air of mold spores, pollen, pet dander, odors, cigarette
smoke, bacteria, viruses, dust and other hazardous airborne particles.
The
Company markets two models of the e-Cond EVOTM units: the Super King and the Outdoor King.
EvoAirTM
The
Group continued to research on incorporating its patent pending heat emission control system (“HECS”) Technology as well as various other patent pending technologies
into its product line, subsequently launching its EvoAirTM hybrid air-conditioners in 2021.
The
Group’s EvoAirTM hybrid air-conditioners produced less heat emission through its patent pending HECS technology, as
well as increased humidity and moisture of the expelled air to allow for a comfortable environment surrounding the external condenser
unit during operation. EvoAirTM hybrid air-conditioners replaced traditional outdoor condenser units cooling coils with a
Coolpressor Unit that incorporates various patent pending technologies. The Group’s patent pending HECS technology contributes
to a reduction in waste heat produced by the Coolpressor unit by up to 25 degrees Celsius as well as reducing energy consumption by up
to 20% compared to conventional air-conditioning units that utilizes long copper coils for cooling. The Coolpressor Unit increase the
humidity of the expelled air by 20%, producing comfortable humidity levels in the surrounding environment around the Coolpressor Unit.
This allows the unit to become a supplementary external-use cooling system by releasing moisturized air at approximately 28 degrees Celsius
with a humidity of approximately 58% while operating under outdoor conditions. The significant decrease in waste heat and reduction in
energy consumption play an important role in reducing harmful effects to the environment, in line with the Group’s philosophy of
producing eco-friendly products.
Air-conditioning
refrigerant is harmful to the environment. The EvoAirTM system utilizes the R32 refrigerant in its operation, which is 9%
lower in density than the traditionally used R410A refrigerant found in various conventional air-conditioning systems, while maintaining
approximately 43-50% higher latent heat vaporization and approximately 41% higher thermal conductivity when combined with the Group’s
other patent-pending technologies. EvoAirTM’s system design also allows for a further reduction in refrigerant use of
at least 30% compared to conventional air-conditioning systems with traditional long copper coils by increasing the efficiency of the
heat transfer in the R32 refrigerant, in doing so, further increasing refrigerant efficiency.
The
EvoAirTM hybrid air-conditioning system was awarded SGS International Certification in 2021.
Manufacturing
The
Group produces its Coolpressor under its EvoAirTM brand. Meanwhile, the Group partners with original equipment manufacturers (“OEM”) to produce an air-conditioner
indoor unit (blower) to complement its EvoAirTM Coolpressor as well as its eco-friendly portable air-conditioner systems under
its e-Cond EVOTM brand. The Group has managed to situate its manufacturing plants in both Malaysia and China through its operating
subsidiaries, EvoAir Manufacturing and WKL Guanzhe Green Technology Guangzhou, respectively. The Group operates manufacturing plants
and assembly lines in China and Malaysia approximately 60,000 square feet of manufacturing space. By distributing its manufacturing capacity
geographically, the Group is able to maintain a flexible supply chain concentrating production of products according to demand from different
regions.
Licensing,
Supply and Maintenance Service
The
Group licenses its various proprietary and patent pending technologies to OEMs and other brands to be incorporated in various HVAC products.
The Group has also catered to industrial clients including supplying products to factory settings or real estate developments spread
out across different geographical locations including Malaysia, Cambodia, Singapore as well as Thailand as well as providing
maintenance and installation services of its EvoAirTM products to various commercial customers.
Air
Purifier
E-CondLife
To
address the spread of the Covid-19 pandemic which arose during the end of 2019, the EvoAir Group launched a new series of air-sanitizing
products during the middle of 2020.
Partnering
with its supplier, the Group became an exclusive authorized distributor of Ionic Nano Copper Solution (“INCU”) technology, which involves the use of an ionic nano copper
solution. The active ingredients of the solutions, Copper Sulphate Pentha-Hydrate, has a proven track record as well as having been certified
and reported to inhibit larvidie, germicide, bactericide, fungicide, algaecide and virucide, while being non-toxic and safe for human
and animal use. INCU has been recognized as being vital to health, as well as having proven to be effective against
influenzas, bacteria such as E. Coli, bacteria groups such as MRSA as well as inhibiting against Covid-19.
The
Group partnered with various OEMs to produce air-purifier products under its e-CondLife brand, in accordance to the Group’s
specifications in terms of modifications to the micro-chips, magnetic control valves and systems flows to work with INCU technology.
By disinfecting water in a water tank reserve through hydro-curtain technology, followed by purifying the output air in the form of water
vapour or mist, E-CondLife products act as environmental disinfecting solutions for air sanitization.
The
e-CondLife sanitizer system has been certified under the IECEE CB Scheme, while the INCU solution used by
the system has been certified by NSF International (USA) to be compliant with NSF / ANSI60 standards for all applicable requirements.
The EvoAir Group has also obtained safety test reports from TUV SUD in Singapore and ICAS Shanghai for Cytotoxicity Testing.
QCOVTM
To
supplement the e-CondLife line of air purifier products, the Group partnered with various OEMs to produce small air purifier
systems under its QCOVTM brand in 2021, which incorporates a diffuser to distribute the INCU ionic nano copper solution in
order to sanitize the environment.
Distribution
As
an exclusive authorized distributor of the INCU solution, the Group has partnered with various distributors to distribute
the technology to other brands and markets. Through these various partnerships, the Group’s air purifier systems
and INCU are produced and distributed to 11 countries by various distribution channels, including through several well established marketing
companies with their own respective online platforms. The Group markets its brand to target customers that are attracted to the Group’s
eco-friendly image, the product’s ability to inhibit bacteria and viruses, as well as to provide a clean and safe environment.
Customers
Hybrid
Air-Conditioner
Building
on Dr. Low’s research into green technology, the Group first invented its eco-friendly portable air-conditioning system under the
e-Cond EVOTM brand in 2017, aimed at a market that is conscious of the effects of global warming and wish to pursue eco-friendly
solutions.
The
Group has since developed its hybrid air-conditioner systems in 2021 under the EvoAirTM in two configurations: (i) an indoor
unit together with an outdoor Coolpressor unit; and (ii) an individual Coolpressor unit compatible with the customer’s pre-existing
indoor unit. The Group aims to market its EvoAirTM products through 3 main channels: 1) traditional distributor and
dealership point of sales model which will increase the Group’s market presence throughout the Malaysia and into other Asian markets;
2) Entry into project based contracts with housing developers, office building management, schools, government offices as well as industrial
factories; and 3) E-Commerce online sales and deliveries. The Group currently focuses on the Malaysian and Singapore market as its primary
markets, as it continues to expand into the China market as well as other ASEAN countries.
The
Group also licenses its patent pending technology to partners in its current market, and aims to expand its licensing to partners from
potential markets.
INCU
Technology
As
an exclusive authorized distributor of the INCU solution, the Group has partnered with various distributors to distribute
the technology to other brands and markets. The Group has distributed the INCU technology across the South East Asia region, from locations
including Singapore, Malaysia, China and Cambodia, Brunei, Philippines, Indonesia, South Korea, Hong Kong, Thailand and Africa. The Group
focuses on marketing its brand to customers that are attracted to the Group’s eco-friendly image, the technology’s ability
to inhibit bacteria and viruses, as well as its ability to provide a clean and safe environment.
The
Air Conditioner Industry
Growing
demand for cooling
Based
on the latest report by the International Energy Agency 2018, in 2016 there were approximately 1.6 billion units of air conditioners
in use globally, and China and the United States accounted for 36% and 23% of the total consumption, respectively. In addition, total
air conditioner sales in the five year period ending December 31, 2020 have averaged approximately 111 million units each year.
Air-conditioners
vary in energy efficiency and their usage lead to a global consumption of approximately 2,000 terawatt hours of electricity annually.
In addition, almost 20% of all the electricity used in buildings is for cooling, accounting for 14% of average peak residential electricity
demand globally.
The
emerging economies are expected to use more air-conditioners as income levels rise. Of the 2.8 billion people living in the hottest parts
of the world, only 8% currently own air-conditioning units compared to approximately 90% ownership in the United States and Japan. By
2050, India, China and Indonesia may account for 50% of the projected growth in energy use for space cooling.
Global
Emissions from the use of Air Conditioners
The
efficiency of air conditioners vary widely, in all major markets today, consumers are typically buying air conditioners whose average
efficiencies are less than half of what is available. Carbon dioxide emissions from cooling systems have tripled since 1990 to 1,130
million tons in 2016, and local air pollutants caused by cooling systems have also increased. Greenhouse Gases produced include Carbon
Dioxide and Climate Change:
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● |
Carbon
dioxide is called a greenhouse gas because it absorbs infrared energy and remits this energy back in all directions. About half of
that energy goes out into space and about half of it returns to Earth as heat, contributing to the greenhouse effect and climate
change |
|
● |
The
four main greenhouse gases are carbon dioxide, methane, nitrous oxide and fluorinated gases. Carbon dioxide accounts for about 75%
of global greenhouse gas emissions. |
|
● |
About
30% of greenhouse gas emissions come from transportation, 25% come from the production of electricity, 23% comes from industrial
production, 12% comes from commercial and residential sources and 10% comes from agriculture. |
|
● |
Climate
change could increase the occurrence and severity of weather events, such as heat waves, droughts and floods. These changes are likely
to increase losses to property and crops and affect economic activity. |
|
● |
The
usage of air conditioners has a significant impact on the environment. Air-conditioners use chemical refrigerants, usually hydrofluorocarbons
in their heat exchange systems. The hydrofluorocarbons contributes significantly to global warming if leaked to the atmosphere. |
|
● |
The
generation of the electricity to power the air conditioners also contribute to significant emissions, especially when fossil fuels
are burnt to produce electricity. |
Urbanized
areas have higher temperatures than less urbanized areas, contributing to heat islands. This is because urban areas usually have less
greenery. Roads and buildings absorb and re-emit daytime heat more than forests and water bodies. As a result, urban daytime temperatures
can reach approximately 1 to 7 degrees higher in Fahrenheit than the outlying areas and night-time temperatures can reach approximately
2 to 5 degrees higher in Fahrenheit. The use of air conditioners extract hot air to the outside of buildings. On high temperature days,
the hot air emitted by air-conditioner units increases the outdoor temperature. This in turn increases the need for more cooling and
creates a feedback loop. The use of air conditioners can increase outdoor urban temperatures by more than approximately 1 degree Celsius
in some cities
Global
Efforts to combat Climate Change and Global Warming
If
the current rate of growth of energy use by air conditioners continues, the U.S. Energy Information Administration (“EIA”)
predicts that by 2050, global energy usage for space cooling would triple to 6,200 terra watts. This would triple the amount of carbon
dioxide emissions and heavy investments in electricity infrastructure to meet peak electricity demand. This could cause severe financial
strain on emerging economies.
Over
the years, countries around the world have come together to support policies to combat climate change. However, obtaining consensus has
been challenging because of political and national circumstances. The Kigali Amendment to the Montreal Protocol, which entered into force
on 1 January 2019, help protect the climate by phasing down high global warming potential hydrofluorocarbons (HFCs), which are commonly
used as refrigerants. Promoting the energy efficiency of cooling technology can also significantly increase climate benefits.
● |
From
October 31 to November 12, 2021, the 26th annual UN Climate Change Conference (COP26) was held in Glasgow, Scotland. The objectives
of COP26 were: |
i.
Countries were called out to reach net-zero carbon emissions by 2050 and to cap the increase in global temperatures below 1.5°C from
current levels;
ii.
To protect and restore ecosystems and habitats and build resilient infrastructures to withstand climate change;
iii.
Developed nations to mobilize $100bn in climate finance per year for poorer nations; and
iv.
Parties of COP26 to finalize the agreement and rules for action and monitoring.
The
Role of Air conditioners Efficiency in combating Climate Change
Intuitively,
the more energy efficient air-conditioners are, the less electricity they would consume, and less fossil fuels would be burnt to produce
electricity. This would lead to less carbon dioxide emissions which could reduce global warming.
The
EIA highlighted one area where policy action could deliver substantial energy savings quickly — by making air conditioners equipment
more efficient. Through stricter minimum energy performance standards and other measure such as labelling, the average energy efficiency
of the stock of air conditioners globally could more than double in efficiency between now and 2050. This could reduce cooling-related
energy demand to 3,400 terawatts in 2050 compared to 6,200 terawatts if efficiency remained at current levels. The 45% reduction in energy
usage or 2,800 terawatts could reduce carbon dioxide emissions by 1,582 megatons annually. This scenario was called the Efficient Cooling
Scenario by EIA.
In
addition, the use of less electricity because of more efficient air conditioners greatly reduces the need to build new generation capacity
to meet peak electricity demand. In the Efficient Cooling Scenario, there would not be a need to build additional capacity deliver the
1,300 gigawatts of power with more efficient air conditioners. This is equivalent to all the coal-fired power generation in China and
India today. In addition, the cumulative infrastructure, fuel and operating costs savings amounted to $2.9 trillion from 2017 to 2050.
This means 45% lower electricity costs for everyone as well, compared to if there were no efficiency improvements in air conditioners
In
2018, approximately 111 million units of air conditioners were sold globally of which approximately 87% were residential units and approximately
13% were commercial units. The CAGR from 2012 to 2018 was approximately 2.2%. China was the largest consumer of air conditioners globally
and it accounted for approximately 40% of all air conditioners sales. Asia (ex-Japan and China) had the highest CAGR of approximately
5.3% from 2012 to 2018 followed by Africa at approximately 3.9% CAGR. The global air conditioners systems market was valued at approximately
$106.6 billion in 2020 and was expected to grow at a CAGR of approximately 6.3% from 2021 to 2028. The market size for that of China
was approximately $37.0 billion in 2020 and was expected to grow at a CAGR of approximately 7.4%. The major air conditioners manufacturers
globally come from Japan, South Korea, China and the USA. Daikin was the leading player globally with approximately $20.3 billion of
revenues from the heating, ventilation and air conditioners segment in Financial Year ended 2020.
Competition
The
air-conditioning and air purifying industry in Asia is highly competitive. Key market players in HVAC products includes several multinational,
regional and local companies, the largest of which include Daikin Industries Ltd, Midea Group Co, Trane Technologies PLC, Carrier Global
Corp, LG Electronics, Inc, Panasonic Corp and Mitsubishi Electric Corp. Sales depend on price, product availability, delivery schedule,
product performance, product line breadth, brand reputation, design, technical expertise and service.
The
Group’s competitiveness arise from its focus on eco-friendly and highly efficient product offerings.
Intellectual
Property
The
Group’s success and future revenue growth depend, in part, on our ability to protect our intellectual property. The Group relies
primarily on patent and trademark laws, as well as confidentiality procedures, to protect our proprietary technologies and processes.
The
Group believes that the core of its business is comprised of our proprietary technologies, including its patent pending HECS technology.
As a result, the Group will strive to maintain a robust intellectual property portfolio. The Group’s success and future revenue
growth may depend, in part, on its ability to protect its intellectual property as products and services that are material to its operating
results incorporate patented technology.
The
Group believes its rights to patents and trademark rights serve to distinguish and protect its products from infringement and contribute
to our competitive advantages. The Group had patents and trademarks in various stages of the registration application process in Malaysia, China, Thailand, Philippines, Vietnam, Taiwan, Japan as well as Patent
Cooperation Treaty
and trademarks in various stages of the registration application process in Malaysia and China.
We
cannot assure you that any patents or copyrights will be issued from any of our pending applications. In addition, any rights granted
under any of our existing or future patents, copyrights or trademarks may not provide meaningful protection or any commercial advantage
to us. With respect to our other proprietary rights, it may be possible for third parties to copy or otherwise obtain and use proprietary
technology without authorization or to develop similar technology independently. We may in the future initiate claims or litigation against
third parties to determine the validity and scope of proprietary rights of others. In addition, we may in the future initiate litigation
to enforce our intellectual property rights or to protect our trade secrets. Additional information about the risks relating to our intellectual
property is provided under “Risk Factors—Risks Related to Intellectual Property.”
Government
Approval And Regulation
Our
business operations involve the development and sale of HVAC products, which are regulated by the Malaysia Energy Commission. The Group
endeavours to ensure the safe and lawful operation of its facilities and distribution of its products and believes it is in compliance
in all material respects with applicable laws and regulations.
Employees
As
of December 8, 2022, the Group has approximately 30 employees, all of whom were full-time employees located in Malaysia, Singapore,
China and Cambodia. None of the Group’s employees are represented by a labor union. We have never experienced any employment related
work stoppages, and we consider our relations with our employees to be good.
Risks
Related to Our Business and Industry
If
we are unable to continue to innovate, meet evolving market trends, adapt to changing customer demands and maintain our culture of innovation,
our ability to sustain and grow our business may suffer.
The
ongoing success of our business depends on our ability to continue to introduce innovative eco-friendly HVAC products to meet evolving
market trends and satisfy changing customer demands. We must continue to adapt by innovating, improving our products and modifying our
strategies, which could cause us to incur substantial costs. We may not be able to continue to innovate or adapt to changing market and
customer needs in a timely and cost-effective manner, if at all. This could adversely impact our ability to expand our ecosystem and
grow our business. Failure to develop new products to meet evolving market demands through innovation could cause us to lose current
and potential customers and harm our operating results and financial condition.
In
addition, we may not be able to maintain our culture of innovation, which has been critical to our success and has helped us create value
for our shareholders, succeed as a leader in eco-friendly HVAC products, attract, retain and motivate employees and other ecosystem participants.
Among other challenges, we may not be able to identify and promote people into leadership positions who share our culture and also focus
on technology and innovation. Competitive pressure may also cause us to move in directions that may divert us from our mission, vision
and values. If we cannot maintain our culture of innovation, our long-term business prospect could be materially and adversely affected.
We
are exposed to concentration risk of heavy reliance on our largest nano copper supplier for the supply of nano copper solution for our
INCU technology, and any shortage of, or delay in, the supply may significantly impact on
our business and results of operation.
We source INCU nano copper solution for incorporation of our INCU technology into our air purifier products for sale to our customers
from our largest nano copper supplier. As such, we rely on the ability and efficiency of our largest supplier to supply products.
Our purchase from our largest nano copper supplier amounted to approximately $279,067 and $170,305 for FYE2022 and FYE 2021, respectively, representing approximately 63.24% and 29.07% of our total purchases,
respectively. Our purchases from our top largest supplier accounted for a significant portion of our total purchases for FYE2022 and FYE2021.
As
we do not engage in manufacturing of INCU solution, our business, financial condition and operating results for our air purifier
system depends on the continuous supply of products from our largest suppliers and our continuous supplier-customer relationship with
them. Our heavy reliance on our largest supplier for the supply of INCU solution will have significant impact on our air purifier
business and results of operation in the event of any shortage of, or delay in the supply. Our product supply may also be disrupted by
potential labor disputes, strike action or natural disasters or other accidents affecting our largest supplier. If our largest suppliers
do not supply products to us in a timely manner or in sufficient quantities, our business, financial condition and operating results
may be materially and adversely affected. Any shortage of, disruption, or delay in the supply, or our inability to obtain supplies from
alternative sources will have significant impact on our business and results of operation.
We
entered into a long term original design manufacturer supply agreement (the “ODM Supply Agreement”) with our largest nano
copper solution supplier in September, 2020. As is customary in the supply or sales arrangements, the agreements with our largest supplier
are terminable by either party by giving notice. We cannot guarantee that our largest suppliers will not terminate the agreements before
the expiry of the agreements. In the event that our largest suppliers terminate the agreements, we will have to source products from
other suppliers and we may not be able to secure a similar supply of products with quantity and quality required to support our business
or at all. Such termination may therefore have a material adverse impact on our business, financial condition and operating results if
we fail to engage any other suppliers with similar standards before the termination.
There
is no assurance that our major nano copper supplier and supplier of raw materials for our other products will continue to supply their
products in the quantities and timeframes required by us to meet the demand of our customers or comply with their supply agreements with
us. If our major supplier do not supply products to us in a timely manner or in sufficient quantities, our business, financial condition
and operating results may be materially and adversely affected. Furthermore, in the event of any delay in delivery of the products to
us, our cash flow or working capital may be materially and adversely affected as a result of the corresponding delay in delivery of our
products to our customers, and hence the delay in our receipt of payment from our customers.
Furthermore,
our largest nano copper supplier may change their existing sales or marketing strategy in respect of the products supplied to us by changing
its export strategy, reducing its sales or production volume or changing its selling prices. As a result, there is no assurance that
our largest supplier will not appoint other agents, dealers or distributors which may compete with us in the market where we operate.
Furthermore, any significant increase in the selling prices of the products which we source from our largest suppliers will increase
our costs and may materially and adversely affect our profit margin if we are not able to pass the increased costs on to our customers.
There
is no assurance that there will be no deterioration in our relationship with our largest supplier which could affect our ability to secure
sufficient supply of products for our business. In the event that our largest supplier change their sales or marketing strategy or otherwise
appoint other dealers or distributors who may compete with us, our business, financial condition and operating results may be materially
and adversely affected.
We
operate in a competitive industry, and if we fail to compete effectively, our business could suffer.
The
air-conditioning and air purifying industry in Asia is highly competitive. Competition in our HVAC products includes several multinational,
regional and local companies, the largest players of which include Daikin Industries, Gree Electric, Trane Technologies, Johnson
Controls, Lennox International, Midea Group and Mitsubishi Electric. Sales depend on price, product availability, delivery schedule,
product performance, product line breadth, brand reputation, design, technical expertise and service. In addition to established players,
we face competition from new market entrants. Increased competition may lead to a loss of market share, increased difficulty in launching
new service offerings, reduction in revenue or increase in loss, any one of which could harm our business, financial condition and results
of operations.
In
certain of our businesses, our contracts are typically awarded on a competitive basis. Our bids are based upon, among other factors,
the cost to timely provide the products and services. To generate an acceptable return, we must accurately estimate our costs and schedule.
If we fail to do so, the profitability of contracts may be materially and adversely affected – including because some of our contracts
provide for liquidated damages if we do not perform on time – which could have a material adverse effect on our competitive position,
results of operations, cash flows or financial condition.
If
we are unable to create brand influence, we may not be able to maintain current or attract new users and customers for our products.
Our
operational and financial performance is highly dependent on the strength of our brand. We believe brand familiarity and preference will
continue to have a significant role in winning over customers. In order to further expand our customer base, we may need to substantially
increase our marketing expenditures to enhance brand awareness through various online and offline means. Moreover, negative coverage
in the media of our company could threaten the perception of our brand, and we cannot assure you that we will be able to defuse negative
press coverage about our company to the satisfaction of our investors, customers and suppliers. If we are unable to defuse negative press
coverage about our company, our brand may suffer in the marketplace, our operational and financial performance may be negatively impacted.
Currently,
we sell our products, under our various product line brands, to domestic customers in Malaysia and to overseas customers. However, if
our competitors initiate a lawsuit against us for infringing their trademarks, we may be forced to adopt a new brand name for our products.
As a result, we may incur additional marketing cost to raise awareness of such new brand name. We may also be ordered to pay a significant
amount of damages, and our business, results of operations and financial condition could be materially and adversely affected. We operate
in a competitive environment and our profitability and competitive position depend on our ability to accurately estimate the costs and
timing of providing our products and services.
We
may be unable to protect our intellectual property rights.
We
rely on intellectual property laws in Malaysia and other jurisdictions to protect our patents trademarks. We are in the process of
registering patents in Malaysia, China, Thailand, Philippines, Vietnam, Taiwan, Japan
as well as Patent Cooperation Treaty and trademarks in Malaysia and China. We cannot assure you that counterfeiting or imitation of our products will
not occur in the future or, if it does occur, that we will be able to address the problem in a timely and effective manner. Any
occurrence of counterfeiting or imitation of our products or other infringement of our intellectual property rights could negatively
affect our brand and our reputation, which in turn adversely affects the results of our operations.
Litigation
to prosecute infringement of our intellectual property rights could be costly and lengthy and will divert our managerial and financial
resources. We will have to bear costs of the intellectual property litigation and may be unable to recover such costs from our opposite
parties. Protracted litigation could also result in our customers deferring or limiting their purchase or use of our products until such
litigation is resolved. The occurrence of any of the foregoing will have a material adverse effect on our business, financial condition
and results of operations.
Climate
change and regulations associated with climate change could adversely affect our business.
The
effects of climate change, including extreme weather conditions, create financial risks to our business. The effects of climate change
could disrupt our operations by impacting the availability and cost of materials and by increasing insurance and other operating costs.
The effects of climate change also may impact our decisions to construct new facilities or maintain existing facilities in the areas
most prone to physical risks, which could similarly increase our operating and material costs. We could also face indirect financial
risks passed through the supply chain that could result in higher prices for our products and the resources needed to produce them.
There
is a general consensus that greenhouse gas emissions are linked to climate change, and that these emissions must be reduced dramatically
to avert its worst effects. As a result, increased public awareness and concern about climate change will likely continue to (1) generate
more international, regional and/or national requirements to curtail the use of high global warming potential refrigerants (which are
essential to many of our products); (2) increase building energy efficiency; and (3) cause a shift away from the use of fossil fuels
as an energy source. While our products are focused to be eco-friendly, nonetheless, these requirements may render some of the existing
technology, particularly some of our products that require refrigerant use, non-compliant or obsolete. While we continue to be committed
to developing eco-friendly sustainable solutions for our products, there can be no assurance that our development efforts will be successful,
that our products will be accepted by the market, that proposed regulations or deregulation will not have an adverse effect on our competitive
position, or that economic returns will reflect our investments in new product development.
The
inconsistent international, regional and/or national requirements associated with climate change regulations also create economic and
regulatory uncertainty. There is also regulatory and budgetary uncertainty associated with government incentives, which, if discontinued,
could adversely impact the demand for energy-efficient buildings and could increase costs of compliance.
Our
business and financial performance depend on continued and substantial investments in our information technology infrastructure, which
may not yield anticipated benefits and which may be vulnerable to cyber-attacks.
The
efficient operation of our business requires continued and substantial investments in information technology (“IT”) infrastructure
systems. The failure to design, develop and implement new IT technology infrastructure systems in an effective and timely manner or to
maintain existing systems could divert management’s attention and resources. Our information systems may also become obsolete because
of inadequate investments, requiring an unplanned transition to a new platform that could be time consuming, costly, and damaging to
our competitive position and could require additional management attention. Repeated or prolonged interruptions of service because of
poor execution, inadequate investments or obsolescence could have a significant adverse impact on our reputation and our ability to sell
products and services.
In
addition, our business may be impacted by disruptions to our or third-party IT infrastructure, which could result from (among other causes)
cyber-attacks, infrastructure failures or compromises to our physical security. Cyber-based risks are evolving and include attacks: (i)
on our IT infrastructure (ii) targeting the security, integrity and/or availability of hardware and software; (iii) on information installed,
stored or transmitted in our products (including after the purchase of those products and when they are installed into third-party products);
and (iv) on facilities or similar infrastructure. Such attacks could disrupt our systems (or those of third parties) and business operations,
impact the ability of our products to work as intended or result in the unauthorized access, use, disclosure, modification, or destruction
of information in violation of applicable law and/or contractual obligations. We have experienced cyber-based attacks and, due to the
evolving threat landscape, may continue to experience them going forward, potentially with more frequency or severity. We continue to
make investments and adopt measures to enhance our protection, detection, response and recovery capabilities, and to mitigate potential
risks to our technology, products, services, operations and confidential data. However, depending on the nature, sophistication and scope
of cyber-attacks, it is possible that potential vulnerabilities could go undetected for an extended period. As a result, we could potentially
experience: (i) production downtimes; (ii) operational delays or other detrimental impacts on our operations; (iii) destruction or corruption
of data; (iv) security breaches; (v) manipulation or improper use of our or third-party systems, networks or products; and (vi) financial
losses from remedial actions, loss of business, liability, penalties, fines and/or damage to our reputation—any of which could
have a material adverse effect on our competitive position, results of operations, cash flows or financial condition. Due to the evolving
nature of such risks, the impact of any potential incident cannot be predicted. In addition, because of the global nature of our business,
our internal systems and products must comply with applicable laws, regulations and standards in a number of jurisdictions, and government
enforcement actions and violations of data privacy and cybersecurity laws could be costly or interrupt our business operations. Any disruption
to our business arising from such issues, or an increase in our costs to cover these issues that is greater than what we have anticipated,
could have an adverse effect on our competitive position, reputation, results of operations, cash flows or financial condition.
We
depend on our intellectual property and have access to certain intellectual property and information of our customers and suppliers.
Infringement of or the failure to protect that intellectual property could adversely affect our future growth and success.
The
Company’s intellectual property rights are important to our business and include numerous patents, trademarks, proprietary technology,
technical data, business processes and other confidential information. Although we consider our intellectual property rights in the aggregate
to be valuable, we do not believe that our business is materially dependent on a single intellectual property right or any group of them.
We nonetheless rely on a combination of patents, trademarks, nondisclosure agreements, customer and supplier agreements, license agreements,
information technology security systems, internal controls and compliance systems and other measures to protect our intellectual property.
We also rely on nondisclosure agreements, information technology security systems and other measures to protect certain customer and
supplier information and intellectual property that we have in our possession or to which we have access. Our efforts to protect such
intellectual property and proprietary information may not be sufficient, however.
We
cannot be sure that our pending patent applications will result in the issuance of patents, that patents issued to or licensed by us
in the past or in the future will not be challenged or circumvented by competitors, or that these patents will found to be valid or sufficiently
broad to preclude our competitors from introducing technologies similar to those covered by our patents and patent applications.
In
addition, we may be the target of competitor or other third-party patent enforcement actions seeking substantial monetary damages or
seeking to prevent the sale and marketing of certain of our products. Our competitive position also may be adversely impacted by limitations
on our ability to obtain possession, ownership or necessary licenses concerning data important to the development or sale of our products
or service offerings, or by limitations on our ability to restrict the use by others of data related to our products or services. Any
of these events or factors could subject us to judgments, penalties and significant litigation costs or temporarily or permanently disrupt
our sales and marketing of the affected products or services and could have a material adverse effect on our competitive position, results
of operations, cash flows or financial condition.
We
use a variety of raw materials and supplier-provided parts in our business. Significant shortages, supplier capacity constraints or production
disruptions, price increases, or tariffs could increase our operating costs and adversely impact the competitive positions of our products.
Our
reliance on suppliers and commodity markets to secure components and raw materials (such as copper and steel as well as INCU ionic copper
solution), and on service providers to deliver our products, exposes us to volatility in the prices and availability of these materials
and services. That potential volatility is particularly acute in certain instances where we depend upon a single source. Issues with
suppliers (such as delivery or production disruptions, capacity constraints, quality issues, consolidations, closings or bankruptcies),
price increases, raw material shortages, or the decreased availability of trucks and other delivery services could have a material adverse
effect on our ability to meet our commitments to customers or increase our operating costs.
We
use various strategies to lock in prices of expected purchases of certain raw materials; however, these efforts could cause us to pay
higher prices for a commodity when compared with the market price at the time the commodity is actually purchased or delivered. Tariffs
can also increase our costs, the impact of which is difficult to predict. However, we believe that our supply management and production
practices appropriately balance the foreseeable risks and the costs of alternative practices. Nonetheless, these risks may have a material
adverse effect on our competitive position, results of operations, cash flows or financial condition.
We
design, manufacture and service products that incorporate advanced technologies. The introduction of new products and technologies involves
risks, and we may not realize the degree or timing of benefits initially anticipated.
Our
future success depends on designing, developing, producing, selling and supporting innovative products that incorporate advanced technologies.
The regulations applicable to our products, as well as our customers’ product and service needs, change from time to time. Moreover,
regulatory changes may render our products and technologies non-compliant. Our ability to realize the anticipated benefits of our technological
advancements or product improvements – including those associated with regulatory changes – depends on a variety of factors,
including: meeting development, production, and regulatory approval schedules; meeting performance plans and expectations; the availability
of raw materials and parts; our suppliers’ performance; the hiring, training and deployment of qualified personnel; achieving efficiencies;
identifying emerging regulatory and technological trends; validating innovative technologies; the level of customer interest in new technologies
and products; and the costs and customer acceptance of our new or improved products.
Failure
to achieve and maintain a high level of product and service quality could damage our reputation with customers and negatively impact
our results.
Product
and service quality issues could harm customer confidence in our company and our brands. If certain of our product offerings do not meet
applicable safety standards or our customers’ expectations regarding safety or quality, we can experience lost sales and increased
costs and we can and have been exposed to legal, financial and reputational risks. Actual, potential or perceived product safety concerns
could expose us to litigation as well as government enforcement actions, which has also occurred in certain instances. In addition, when
our products fail to perform as expected, we are exposed to warranty, product liability claims, personal injury and other claims.
We
maintain strict quality controls and procedures. However, we cannot be certain that these controls and procedures will reveal defects
in our products or their raw materials, which may not become apparent until after the products have been placed in use in the market.
Accordingly, there is a risk that products will have defects, which could require a product recall. Product recalls can be expensive
to implement, and may damage our reputation, customer relationships and market share.
In
many jurisdictions, product liability claims are not limited to any specified amount of recovery. If any such claims or contribution
requests or requirements exceed our available insurance or if there is a product recall, there could be an adverse impact on our results
of operations. In addition, a recall or claim could require us to review our entire product portfolio to assess whether similar issues
are present in other products, which could result in a significant disruption to our business and which could have a further adverse
impact on our business, financial condition, results of operations and cash flows. There can be no assurance that we will not experience
any material warranty or product liability claim losses in the future, that we will not incur significant costs to defend such claims
or that we will have adequate reserves to cover any recalls, repair and replacement costs.
We
are subject to litigation, environmental, and other legal and compliance risks.
We
are subject to a variety of litigation, legal and compliance risks. These risks relate to, among other things, personal injuries, intellectual
property rights, contract-related claims, taxes, environmental matters, employee health and safety, competition laws and laws governing
improper business practices. If found responsible in connection with such matters, we could be subject to significant fines, penalties,
repayments and other damages (in certain cases, treble damages), and experience reputational harm.
As
a global business, we are subject to complex laws and regulations in the U.S. and other countries in which we operate. Those laws and
regulations may be interpreted in different ways. They may also change from time to time, as may related interpretations and other guidance.
Changes in laws or regulations could result in higher expenses. Uncertainty relating to laws or regulations may also affect how we operate,
structure our investments and enforce our rights.
Changes
in environmental and climate change related-laws could require additional investments in product designs, which may be more expensive
or difficult to manufacture, qualify and sell and/or may involve additional product safety risks and could increase environmental compliance
expenditures.
At
times we are involved in disputes with private parties over environmental issues, including litigation over the allocation of cleanup
costs, alleged personal injuries and property damage. Existing and future asbestos-related claims could adversely affect our financial
condition, results of operations and cash flows. Personal injury lawsuits may involve individual and purported class actions alleging
that contaminants originating from our current or former products or operating facilities caused or contributed to medical conditions.
Property damage lawsuits may involve claims relating to environmental damage or diminution of real estate values. Even in litigation
where we believe our liability is remote, there is a risk that a negative finding or decision could have a material adverse effect on
our competitive position, results of operations, cash flows or financial condition, in particular with respect to environmental claims
in regions where we have, or previously had, significant operations or where certain of our products have been manufactured and used.
Our
failure to comply with anti-corruption laws and regulations, or effectively manage our employees, customers and business partners, could
severely damage our reputation, and materially and adversely affect our business, financial condition, results of operations and prospects.
We
are subject to risks in relation to actions taken by us, our employees, third-party customers or third-party suppliers that constitute
violations of the anti-corruption laws and regulations. While we adopt strict internal procedures and work closely with relevant government
agencies to ensure compliance of our business operations with relevant laws and regulations, our efforts may not be sufficient to ensure
that we comply with relevant laws and regulations at all times. If we, our employees, third-party customers or third-party suppliers
violate these laws, rules or regulations, we could be subject to fines and/or other penalties. Actions by Malaysia regulatory authorities
or the courts to provide an alternative interpretation of the laws and regulations or to adopt additional anti-bribery or anti-corruption
related regulations could also require us to make changes to our operations. Our reputation, corporate image, and business operations
may be materially and adversely affected if we fail to comply with these measures or become the target of any negative publicity as a
result of actions taken by us, our employees, third-party customers or third-party suppliers.
Our
business depends on the continued contributions made by Low Wai Koon (“Dr. Low”), as our founder, chief executive officer, and chairman of the board, the loss of who may result in a severe impediment to our business, results of operation
and financial condition.
Our
success is dependent upon the continued contributions made by founder, chief executive officer, and chairman
of the board, Dr. Low. We rely on his expertise in business operations when we are developing our business. We have no “Key Man”
insurance to cover the resulting losses in the event that any of our officer or directors should die or resign. In order to mitigate
this risk, the Group has continued to invest in its personnel training as well as investment into its research and development department.
However,
if Dr. Low cannot serve the Company or is no longer willing to do so, the Company may not be able to find alternatives in a timely manner
or at all. This would likely result in a severe damage to our business operations and would have an adverse material impact on our financial
position and operating results. To sustain our operations, the Company may have to recruit and train replacement personnel at a higher
cost. In addition, if Dr. Low joins our competitors or develops similar businesses that are in competition with our Company, our business,
results of operation and financial conditions may also be negatively impacted.
Our
business, financial condition and results of operations have been and may continue to be adversely affected by COVID-19.
The global outbreak of COVID-19 has severely constrained
economic activity and, as a result, has caused a significant contraction in the global economy. In response to this outbreak, governments
have taken preventive or protective actions, including imposing restrictions on business operations and travel. Governments have also
implemented economic stabilization efforts and other measures to mitigate the economic effects of the outbreak; however, the effectiveness
and continuation of those measures remains uncertain. Specifically, in response to the COVID-19 pandemic and its spread, the Malaysian
government has implemented intermittent lockdowns in various stages such as (i) imposing full movement control orders (“MCO”),
under which, quarantines, travel restrictions, and the temporary closure of stores and facilities in Malaysia were made mandatory; (ii)
easing MCO to a Conditional Movement Control Order (“CMCO”) under which most business sectors were allowed to operate under
strict rules and Standard Operating Procedures mandated by the government of Malaysia; and (iii) further easing CMCO to Recovery Movement
Control Order. On January 12, 2021, due to a resurgence of COVID-19 cases, the Malaysian government declared a state of emergency nationwide
to combat COVID-19. On February 16, 2021, the government announced that a National COVID-19 Immunization Plan will be implemented for
one year after February 2021, in which 80% of the Malaysian population will be vaccinated to achieve herd immunity. On March 5, 2021,
lockdowns in most parts of the country were eased to a CMCO, however, COVID-19 cases in the country continued to rise. On May 12, 2021,
the Malaysian government re-imposed a full lockdown order nationwide, until the earlier of when (i) daily COVID-19 infection cases in
the country fall below 4,000; (ii) intensive care unit wards start operating at a moderate level; or (iii) 10% of the Malaysian population
is fully vaccinated. The total number of COVID-19 cases in the country surpassed three million on February 13, 2022, and the number of
daily cases hit a record high of 33,406 on March 5, 2022.
The COVID-19 pandemic
has had an adverse effect on our business, financial condition and results of operations. Since we lease offices in Malaysia, Cambodia
and China for our business operations, the COVID-19 outbreak caused temporary office and factory closures from late March to May 2020,
resulting in lower work efficiency and productivity. The nature and extent of the continuing impact of COVID-19 on our business, financial
condition and results of operations is uncertain and will depend on future developments, including the recent and pending approvals of
vaccines, the wide-spread distribution of vaccines and the effectiveness of such vaccines in preventing COVID-19, and the time it takes
to vaccinate global populations.
The
COVID-19 pandemic has created unique global and industry-wide challenges, including challenges to our business. Nonetheless, further
prolonged closures and restrictions throughout the world or the rollback of reopening measures due to a resurgence of COVID-19 cases
and continued decreases in the general level of economic activity may again disrupt our operations and the operations of our suppliers,
distributors and customers.
As
a result of the foregoing, the pandemic and its impact have also affected and could continue to affect the ability of our customers to
pay for our products and services and to obtain financing for significant purchases and operations, which has resulted in, and could
further result in, a decrease and/or cancellation of orders and/or payment delays or defaults. Such conditions may also adversely affect
our supply base and increase the potential for one or more of our suppliers to experience financial distress or bankruptcy, which could
impact our ability to fulfil orders on time or at the anticipated cost. We also may be required to raise additional capital in the future
and our access to and cost of financing will depend on, among other things, global economic conditions, conditions in the global financing
markets, the availability of sufficient amounts of financing, our results of operations and our credit ratings. There is no guarantee
that financing will be available in the future to fund our obligations, or that it will be available on terms consistent with our expectations.
Any of these factors could have a material adverse effect on our business, results of operations, cash flows and financial condition.
The
war between Russia and Ukraine could adversely affect our business, financial condition and results of operations.
On
February 24, 2022, Russian military forces launched a military action in Ukraine, and sustained conflict and disruption in the region
is likely. The length, impact, and outcome of this ongoing military conflict is highly unpredictable and could lead to significant market
and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial
markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser
preferences, as well as an increase in cyberattacks and espionage.
The
war has led to significant sanctions programs imposed by the U.S., the European Union, the UK, Canada, Switzerland, Japan, and other
countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk
People’s Republic, including, among others:
●
blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from
the Society for Worldwide Interbank Financial Telecommunication payment system) and certain Russian businesses, some of which have significant
financial and trade ties to the European Union;
●
blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians, and those with
government connections or involved in Russian military activities;
●
blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions,
limitations on investments and access to capital markets, and bans on various Russian imports; and
●
enhanced export controls and trade sanctions targeting Russia’s imports of technological goods as a whole, including tighter
controls on exports and reexports of dual-use items, stricter licensing policy with respect to issuing export licenses, and/or
increased use of “end-use” controls to block or impose licensing requirements on exports, as well as higher import
tariffs and a prohibition on exporting luxury goods to Russia and Belarus.
In
retaliation against new international sanctions and as part of measures to stabilize and support the volatile Russian financial and currency
markets, the Russian authorities also imposed significant currency control measures aimed at restricting the outflow of foreign currency
and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products, and
imposed other economic and financial restrictions. The situation is rapidly evolving, and additional sanctions by Russia on the one hand,
and by the other countries on the other hand, could adversely affect the global economy, financial markets, energy supply and prices,
certain critical materials and metals, supply chains, and global logistics and could adversely affect our business, financial condition,
and results of operations.
Our
business must be conducted in compliance with applicable economic and trade sanctions laws and regulations, including those administered
and enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, the U.S. Department
of Commerce, the United Nations Security Council, and other relevant governmental authorities. If we are found to be in violation of
U.S. sanctions or export control laws, it could result in substantial fines and penalties for us and for individuals working for us.
We are actively monitoring the situation in Ukraine and Russia and assessing its impact on our business, including our business partners,
employees and customers. To date, we have not experienced any material interruptions in our infrastructure, supplies, technology systems,
or networks needed to support our operations. The conflict has caused us to modify our operations in Russia and could lead to additional
modifications in Russia. We cannot predict the progress or outcome of the war or its impacts in the territories where we operate. The
extent and duration of the military action, sanctions, other consequences, such as Russia imposing restrictions on transactions or banning
the export of energy products, including natural gas, and the resulting market disruptions could be significant and could potentially
have substantial impact on the global economy and our business for an unknown period of time. Any such disruption may also magnify the
impact of other risks described in this section.
Risks
Related to Doing Business in Malaysia
Developments
in the social, political, regulatory and economic environment in Malaysia may have a material adverse impact on us.
Our
business, prospects, financial condition and results of operations may be adversely affected by social, political, regulatory and economic
developments in Malaysia. Such political and economic uncertainties include, but are not limited to, the risks of war, terrorism, nationalism,
nullification of contract, changes in interest rates, imposition of capital controls and methods of taxation.
Negative developments
in Malaysia’s socio-political environment may adversely affect our business, financial condition, results of operations and prospects.
The Malaysian economy registered GDP growth of approximately 14.2% year on year growth for Q3 2022, according to the Department of Statistics
Malaysia. Although the overall Malaysian economic environment (in which we predominantly operate) appears to be positive, there can be
no assurance that this will continue to prevail in the future. Economic growth is determined by countless factors, and it is extremely
difficult to predict with any level of absolute certainty. On March 11, 2020, the World Health Organization or WHO declared the coronavirus
or COVID-19 a pandemic. Governments have also implemented economic stabilization efforts and other measures to mitigate the economic
effects of the outbreak; however, the effectiveness and continuation of those measures remains uncertain. Specifically, in response to
the COVID-19 pandemic and its spread, the Malaysian government has implemented intermittent lockdowns in various stages such as (i) imposing
full movement control orders (“MCO”), under which, quarantines, travel restrictions, and the temporary closure of stores
and facilities in Malaysia were made mandatory; (ii) easing MCO to a Conditional Movement Control Order (“CMCO”) under which
most business sectors were allowed to operate under strict rules and Standard Operating Procedures mandated by the government of Malaysia;
and (iii) further easing CMCO to Recovery Movement Control Order. On January 12, 2021, due to a resurgence of COVID-19 cases, the Malaysian
government declared a state of emergency nationwide to combat COVID-19. On February 16, 2021, the government announced that a National
COVID-19 Immunization Plan will be implemented for one year after February 2021, in which 80% of the Malaysian population will be vaccinated
to achieve herd immunity. On March 5, 2021, lockdowns in most parts of the country were eased to a CMCO, however, COVID-19 cases in the
country continued to rise. On May 12, 2021, the Malaysian government re-imposed a full lockdown order nationwide, until the earlier of
when (i) daily COVID-19 infection cases in the country fall below 4,000; (ii) intensive care unit wards start operating at a moderate
level; or (iii) 10% of the Malaysian population is fully vaccinated. The total number of COVID-19 cases in the country surpassed three
million on February 13, 2022, and the number of daily cases hit a record high of 33,406 on March 5, 2022. As such, the extent to which
the coronavirus may continue to adversely impact the Malaysian economy is uncertain. In the event that the Malaysia economy suffers,
demand for our products may diminish, which would in turn result in our profitability. This could in turn result in a substantial need
for restructuring of our business objectives and could result in a partial or entire loss of an investment in our Company.
We
are subject to foreign exchange control policies in Malaysia.
The
ability of our subsidiaries to pay dividends or make other payments to us may be restricted by the foreign exchange control policies
in the countries where we operate. For example, there are foreign exchange policies in Malaysia which support the monitoring of capital
flows into and out of the country in order to preserve its financial and economic stability. The foreign exchange policies are administered
by the Foreign Exchange Administration, an arm of Bank Negara Malaysia (“BNM”), the central bank of Malaysia. The foreign
exchange policies monitor and regulate both residents and non-residents. Under the current Foreign Exchange Administration rules issued
by BNM, non-residents are free to repatriate any amount of funds from Malaysia in foreign currency other than the currency of Israel
at any time (subject to limited exceptions), including capital, divestment proceeds, profits, dividends, rental, fees and interest arising
from investment in Malaysia, subject to any withholding tax. In the event BNM or any other country where we operate introduces any restrictions
in the future, we may be affected in our ability to repatriate dividends or other payments from our subsidiaries in Malaysia or in such
other countries. Since we are a holding company and rely principally on dividends and other payments from our subsidiaries for our cash
requirements, any restrictions on such dividends or other payments could materially and adversely affect our liquidity, financial condition
and results of operation.
Economic,
market and political developments in the countries where we operate could have a material and adverse effect on our business.
As
with all organizations that seek to reduce business risks via geographical expansion, the economic, market and political conditions in
other countries, particularly emerging market conditions in Southeast Asia, could have an influence on our business. Any widespread global
financial instability or a significant loss of investor confidence in emerging market economies may materially and adversely affect our
business, financial condition, results of operations, prospects or reputation.
Examples
of such external factors or conditions that are outside our control include, but are not limited to the following:
●
general economic, political and social conditions in Southeast Asian markets;
●
consumer spending patterns in our key markets;
●
currency and interest rate fluctuations;
●
international events and circumstances such as wars, terrorist attacks, natural disasters and political instability; and
●
changes in legal regimes and governmental regulations, such as licensing and approvals, taxation, duties and tariffs, in key markets
and abroad.
For
example, the global financial markets experienced significant disruptions in 2008 and the United States, Europe and other economies went
into recession. The recovery from the lows of 2008 and 2009 was uneven and the global economy has continued to face new challenges. There
is considerable uncertainty over the long-term effects of the expansionary monetary and fiscal policies that have been adopted by the
central banks and financial authorities of some of the world’s leading economies, including the United States. For example, in
2013, the Federal Reserve Bank in the United States announced the tapering of its bond-buying program which led to a high degree of volatility
in equity markets and substantial devaluations in the currencies of many emerging economies, including markets where we operate. Economic
conditions in the countries where we operate might be sensitive to global economic conditions, as well as changes in domestic economic
and political policies and the expected or perceived overall economic growth rate in emerging markets. Furthermore, the outbreak of coronavirus
disease 2019 was first reported in December 2019 in Wuhan, China. As at November 30, 2021, the coronavirus continues to impact the global
economy.
Risks
Related to Intellectual Property
If
we are not able to adequately protect our proprietary intellectual property and information, and protect against third party claims that
we are infringing on their intellectual property rights, our results of operations could be adversely affected.
The
value of our business depends in part on our ability to protect our intellectual property including our patents applications and trademarks,
as well as our customer, employee, and customer data. Third parties may try to challenge our ownership of our intellectual property in
Asia and around the world. In addition, intellectual property rights and protections in Malaysia may be insufficient to protect material
intellectual property rights. Further, our business is subject to the risk of third parties counterfeiting our products or infringing
on our intellectual property rights. The steps we have taken may not prevent unauthorized use of our intellectual property. We may need
to resort to litigation to protect our intellectual property rights, which could result in substantial costs and diversion of resources.
If we fail to protect our proprietary intellectual property and information, including with respect to any successful challenge to our
ownership of intellectual property or material infringements of our intellectual property, this failure could have a significant adverse
effect on our business, financial condition, and results of operations.
If
we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the intellectual property
rights of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend
our rights.
Our
commercial success will depend in part on our success in obtaining and maintaining patents, copyrights, trademarks, trade secrets and
other intellectual property rights in Malaysia and elsewhere and protecting our proprietary technology. If we do not adequately protect
our intellectual property and proprietary technology, competitors may be able to use our technologies or the goodwill we have acquired
in the marketplace and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.
We
cannot provide any assurances that any of our pending patent applications that mature into issued patents will include a scope sufficient
to protect our products, any additional features we develop for our products or any new products. Other parties may have developed technologies
that may be related or competitive to our system, may have filed or may file patent applications and may have received or may receive
patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject
matter that could dominate our patent position. Our patent position may involve complex legal and factual questions, and, therefore,
the scope, validity and enforceability of any patent claims that we may obtain cannot be predicted with certainty. Patents, if issued,
may be challenged, deemed unenforceable, invalidated or circumvented. Proceedings challenging our patents could result in either loss
of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent
application. In addition, such proceedings may be costly. Thus, any patents that we may own may not provide any protection against competitors.
Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which
in turn could affect our ability to commercialize our products.
Though
an issued patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may
not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Competitors
could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts,
willfully infringe our intellectual property rights, design around our patents, or develop and obtain patent protection for more effective
technologies, designs or methods.
We
may be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, suppliers, vendors,
former employees and current employees.
Our
ability to enforce our patent rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not
advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement
in a competitor’s or potential competitor’s product. We may not prevail in any lawsuits that we initiate and the damages
or other remedies awarded if we were to prevail may not be commercially meaningful.
In
addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable or interpreted
narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in
one or more of our patents are invalid or otherwise unenforceable. If any of our patents covering our products are invalidated or found
unenforceable, or if a court found that valid, enforceable patents held by third parties covered one or more of our products, our competitive
position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
The
degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
●
any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products;
●
any of our pending patent applications will be issued as patents;
●
we were the first to file patent applications for these inventions;
●
others will not develop similar or alternative technologies that do not infringe our patents; any of our patents will be found to ultimately
be valid and enforceable;
●
any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any
competitive advantages or will not be challenged by third parties;
●
we will develop additional proprietary technologies or products that are separately patentable; or
●
our commercial activities or products will not infringe upon the patents of others.
We
rely, in part, upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position. Further,
our trade secrets could otherwise become known or be independently discovered by our competitors.
Risks
Relating to Our Securities
There
may not be sufficient liquidity in the market for our securities in order for investors to sell their securities.
There
is currently only a limited public market for our ordinary share, which is listed on the Over-the-Counter Pink Sheets, and there can
be no assurance that a trading market will develop further or be maintained in the future.
The
market price of our ordinary share may be volatile.
The
market price of our ordinary share has been and will likely continue to be highly volatile, as is the stock market in general, and the
market for OTC Pink Sheet quoted stocks in particular. Some of the factors that may materially affect the market price of our ordinary
share are beyond our control, such as changes in financial estimates by industry and securities analysts, conditions or trends in the
industry in which we operate or sales of our ordinary share. These factors may materially adversely affect the market price of our ordinary
share, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility.
This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the
operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our ordinary
share.
Our
ordinary share may be considered a “penny stock” and may be difficult to sell.
The
SEC has adopted regulations which generally define a “penny stock” to be an equity security that has a market price of less
than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our ordinary
share is less than $5.00 per share and, therefore, it may be designated as a “penny stock” according to SEC rules. This designation
requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement
from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability
of brokers or dealers to sell our ordinary share and may affect the ability of investors to sell their shares.
The
market for penny stocks has experienced numerous frauds and abuses, which could adversely impact investors in our stock.
OTC
Pink Sheet securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTC
Pink Sheet reporting requirements are less stringent than those of the stock exchanges or NASDAQ.
Patterns
of fraud and abuse include:
●
Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
●
Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
●
“Boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales
persons;
●
Excessive and undisclosed bid-ask differentials and mark-ups by selling broker-dealers; and
●
Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level,
along with the inevitable collapse of those prices with consequent investor losses.
●
Our management is aware of the abuses that have occurred historically in the penny stock market.
We
have not paid dividends in the past and do not expect to pay dividends in the foreseeable future and any return on investment may be
limited to the value of our stock.
We
have never paid any cash dividends on our ordinary share and do not anticipate paying any cash dividends on our ordinary share in the
foreseeable future and any return on investment may be limited to the value of our stock. We plan to retain any future earnings to finance
growth.
General
Risks
Natural
disasters, epidemics or other unexpected events may disrupt our operations, adversely affect our results of operations, financial condition
and may not be fully covered by insurance.
The
occurrence of one or more natural disasters, power outages or other unexpected events, including hurricanes, fires, earthquakes, volcanic
eruptions, tsunamis, floods and other forms of severe weather, health epidemics, pandemics (including COVID-19) or other contagious outbreaks,
conflicts, wars or terrorist acts, in the U.S. or in other countries in which we or our suppliers or customers operate could adversely
affect our operations and financial performance. Natural disasters, power outages or other unexpected events could damage or close one
or more of our facilities or disrupt our operations temporarily or long-term, such as by causing business interruptions or by affecting
the availability and/or cost of materials needed for manufacturing. We have only one factory and another assembly line that can manufacture a specific
product or product line. As a result, damage to or the closure of that factory may disrupt or prevent us from manufacturing certain products.
Existing insurance arrangements may not cover all of the costs or lost cash flows that may arise from such events. The occurrence of
any of these events could also increase our insurance and other operating costs or harm our sales.
We
may be affected by global economic, capital market and political conditions, and conditions in the construction, transportation and infrastructure
industries in particular.
Our
business, financial condition, operating results and cash flows may be adversely affected by changes in global economic conditions and
geopolitical risks and conditions, including credit market conditions, levels of consumer and business confidence, fluctuations in residential,
commercial and industrial construction activity, pandemic health issues (including COVID-19 and its effects), natural disasters, commodity
prices, energy costs, interest rates, foreign exchange rates, levels of government spending and deficits, trade policies (including tariffs,
boycotts and sanctions), regulatory changes, actual or anticipated default on sovereign debt and other challenges that could affect the
global economy.
These
economic and political conditions affect our business in a number of ways. At this point, the extent to which COVID-19 will continue
to impact the global economy remains uncertain, but pandemics or other significant public health events, or the perception that such
events may occur, could have a material adverse effect on our business, results of operations and financial condition. Additionally,
the tightening of credit in the capital markets could adversely affect the ability of our customers, including individual end-customers
and businesses, to obtain financing for significant purchases and operations, which could result in a decrease in or cancellation of
orders for our products and services. Similarly, tightening credit may adversely affect our supply base and increase the potential for
one or more of our suppliers to experience financial distress or bankruptcy. Additionally, because we have a number of factories and
suppliers in foreign countries, the imposition of tariffs or sanctions or unusually restrictive border crossing rules could adversely
affect our supply chain, operations and overall business.
Our
business and financial performance is also adversely affected by decreases in the general level of economic activity, such as decreases
in business and consumer spending and construction (both residential and commercial as well as remodelling).
Our
business success depends on attracting and retaining qualified personnel.
Our
ability to sustain and grow our business requires us to hire, retain and develop a highly skilled and diverse management team and workforce.
Failure to ensure that we have leadership with the necessary skill sets and experience could impede our ability to deliver our growth
objectives, execute our strategic plan and effectively transition our leadership.