Risk Factors

NOTWITHSTANDING THE PROSPECTS OF THE GROUP AS OUTLINED IN THIS PROSPECTUS, APPLICANTS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS (WHICH MAY NOT BE EXHAUSTIVE) THAT MAY HAVE A SIGNIFICANT IMPACT ON THE FUTURE PREFORMANCE OF THE GROUP, IN ADDITION TO OTHER INFORMATION CONTAINED ELSEWHERE HEREIN, BEFORE PARTICIPATING IN THE NEW ISSUE. 4.1 Operating Risks IFCA which carries out the core revenue-generating business processes of the Group, has been profitable for the last five (5) financial years. The Group’s revenue and operating results are difficult to forecast and could be adversely affected by many factors. These include, amongst others, reliance on perfonnance of other industries, competition, market acceptance of new products or services, and other business risks common to going concerns. However, there is no assurance that IFCA will continue to be profitable in future years, or that it will achieve increasing or consistent levels of profitability. Barring any unforeseen circmnstances, the directors of IFCA believe that the Group should be able to maintain its record of profitability as the Group has been diversifying its product range by offering software solutions to five (5) main industries and venturing into overseas markets. Hence, the Group is not overly reliant on anyone industry or market.
4.2 Competition IFCA’s future success will depend, to a large extent, on its ability to increase its market share in its target markets. The ICT industry is comprised of a large number of participants and is subject to rapid change and intense competition. IFCA currently competes for client assignments and experienced personnel with a munber of finns. IFCA has to compete with its competitors’ pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. IFCA does not own any proprietary technologies that preclude or inhibit potential competitors from entering its industry. Competition is expected to intensify in the future and IFCA will face additional competition from new entrants into its markets. There is no assurance that IFCA will be able to compete successfully against current or future competitors. Increased competition may result in loss of market share, reduced revenue, margins and price reductions, anyone of which could materially and adversely affect the Group’s business, operating results and fmancial condition. The Company focuses on R&D activities to develop new products and services and upgrade its existing products to stay ahead of their competitors. Furthermore, the directors of IFCA believe that the Group will remain competitive in the future due to its sixteen (16) years of experience in the software application market which has enabled it to understand the clients’ needs and the changing market demand.
4.3 Brand Awareness An important element of IFCA’s business strategy is to develop and maintain widespread awareness of its brandname in overseas markets. To promote its brandname “IFCA”, IFCA plans to increase its marketing expenses, which may cause its operating margin to decline. If its initial efforts are not successful, it may not experience any increase in revenue to offset the increase in marketing expenses. If it fails to successfully promote and maintain its brandname or incur significant related expenses, its operating margins and growth may decline. To mitigate this risk, the Company intends to cany on with continuous marketing efforts and promotion activities. 4. RISK FACTORS (conl’d) 4.4 Rapid Tec:hnologicallProduct Change in Ibe SoftwarellCT Services Market The market for business application software is characterised by rapid technological advancements, changes in customer requirements, frequent new product introductions and enhancements and changing industry standards. IFCA has derived, and it expects to continue to derive. a substantial portion of its revenue from creating software solutions that are based upon today’s leading technologies. As a result, its success will depend in part on its ability to offer conunercially viable software solutions and services that keep pace with continuing changes in technology, evolving industry standards and changing client preferences. Failure to respond successfully to these technological developments. or to respond in a timely or cost­effective way, will result in serious damage to its business and operating results. The software and ICT services industry is characterised by rapid technological changes, the fTequent development and enhancement of services and products and new emerging industry standards. The life cycle of lFCA’s software solutions is difficult to estimate and its current market position may be undennined by rapid technological changes and the introduction of new products and enhancements by new or existing competitors. The introduction of services or products embodying new t~hnologies and the emergence of new industry standards and practices could also render its existing software solutions obsolete and unmarketable. Its future success will depend. in part, on its ability to: (;) enha”ce;ts “””ing softwa” solutions and se”,;ces; (ii) develop new software solutions and enhance its services to address the increasingly sophisticated and varied needs of prospective customers; and (iii) respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. If it is unable to develop and introduce new or enhanced software solutions in a timely manner in response to changing market conditions or customer requitements, or if new software solutions do not achieve market acceptance. its business will be adversely affected. The enhancement of existing and the development of new software solutions entail significant technological risks and utilisation of resources. It cannot assure investors that it will be successful in effectively using new teclUlologies, adapting its services and products to emerging industry standards, developing, introducing and markering service and product enhancements, or new products and services, or that it will not experience difficulties that could delay or prevent the successful development or marketing of these services and products. or that any such new service and product enhancements will adequately meet the requirements ofthe market place aod achieve market acceptance. The Group with its experienced and skilled personnel, will constantly strive to develop new products and upgrade applications using the latest technology to ensure that it delivers marketable enterprise software solutions to its customers and to meet the changing market demand. 4.5 Product Risks It is not uncorrrnoo for software products to contain undetected errors when fma introduced or as new versions are released. This could result in:­• Delayed or lost customer revenue;
• Adverse reaction from customers;
• Negative publicity about lFCA and its software solutions, which could adversely affect its ability to attract new customers or retain maintenance contracts with existing customers;
• Additional expenditures to correct the problem; and
• Claims for substantial damages against IFCA regardless of its responsibility for such failure, which rrwy not be limited by the contractual terms of its licenses.

4. RISK FACTORS (collt’d) In order to mitigate the above risks, IFCA’s sales order and sales and purchase agreement seek to limit its damages and other potential liabilities (including liabilities for consequential damages). However, these contractual provisions may be subject to challenge depending on the circumstances.
4.6 Dependence on Directors and Key Personnel IFCAts success depends in large part on its ability to hire, train, motivate and retain qualified professionals with creative, IT, strategic and customer service skills. There is currently significant competition for professionals with the skills necessary to perform the services that IFCA Group offers to its customers. This competition has caused wages for such professionals to increase, which increases operating costs to ICf fmns like IFCA. The need in the business to blend traditional IT skills with creative skills further exemplifies this challenge. Its ability to develop new software solutions and enhance its existing ones depend largely on its ability to hire, train and retain personnel with the required skills so as to keep pace with continuing changes in IT, evolving industry standards and changing client preferences. IFCA Group cannot be sure that it will be successful in attracting and retaining such professionals. In addition, it generally incurs substantial costs in recruiting, hiring and training these professionals before they become productive. For example, it needs to train newly hired professionals into its R&D teams. If it is llllable to hire a sufficient number of qualified professionals or to successfully train, integrate and retain these professionals, its business, fmancial condition and results of operations could be affected. Its continued success depends on the continued employment of its senior management team and key technical personnel. If one or more members of its senior management team or key technical personnel were unable or llllwilling to continue their present positions, such persotl5 may be very costly to replace. Accordingly, the loss of a few members of its senior management team could have a direct adverse impact on its future sales and performance. Furthermore, clients or other companies may hire away some of its key employees. This practice may result in the loss not only of key employees, but also adversely affects client relationships and new business opportunities. The Company must continue to hire management personnel on a timely basis and in such a manner as is necessary to acconnnodate any increase in the number and size of client projects and any increase in the size of its operations. Its failure to hire and retain appropriate personnel to manage its operations would affect its business, operating results and fmancial condition. The Group will be implementing an ESOS in conjllllction with its listing on the MESDAQ Market to allow the employees of the Group to participate directly in the equity of the Company and upon becoming shareholders, to participate in the Group’s prospects and future growth. The Company also strives to offer its employees competitive salary/remlllleration and benefit packages.
4.7 Reliance on Other Industries It relies and expects to continue to rely on sales to companies in the property, hospitality and finance and leasing industries for most of its revenue. It derives substantially all of its revenue from companies in the property, hospitality and fmance and leasing industries. In FYE 2002, turnover from the property and hospitality divisions accounted for approximately forty five (45%) and fifteen (15%) per cent respectively of the Group’s total turnover. As such, its short-tenn growth is dependent on the growth of these industries as well as the continued demand for enterprise software solutions by the finance and leasing industry. As a large part of its turnover is derived from software and services sold to property based company in Malaysia, it is dependent, to a large extent, on the property sector in Malaysia, which is in tum dependent on the general health ofthe Malaysian economy. 4. RISK FACTORS (co”t’d) In order to mitigate the risk of over.dependence 00 the property sector in Malaysia, IFCA is actively diversifying its business geographically as well as promoting oilier IFCA software which calers for different industries, for example, its ERP products. 4.8 Protection of Group and Third Party Proprietary Technologyllolell«tual Property Rights Its intellectual property rights may be inadequately protected and there is a risk that it is unable to enforce such rights. This may adversely affect its business. A substantial portion of its revenue is derived from its own proprietary software which takes time and resources to develop. In order to protect its intellectual property rights, it relies on a combination of trademark. copyright and trade secret protection. It has also executed confidentiality agreements with its employees and issued other contractual licenses to its custo~rs, clients and strategic partners, so as to secure protection for its existing as well as new business solutions. These, however, only afford it with limited protection and there is no assurance iliat it is able to protect its proprietary rights against unauthorised third party copying or use of its software. The protective steps wruch it has taken may however be insufficient to establish effective o1M’lership of intelleclUal property rights in respect of all original and new creations in ils software solutions. For exa~le. it is possible thai it may have previously inadvertently misplaced or omitted 10 eXe(;ute certain assignments of intellectual property from co-autbors, co-inventors and other collaborators in its favour. In such event, the llOn–execution of such agreements may put parties against its claim to intellectual property ownership. Third panies, including fOllTlCr employees, may attef11l1 to claim iliat it does not 01M’l the intellectual property rights for substantial parts of its products. If it is Wlable to protect its intcllecNaI property rights adequately. its reputation could be damaged and its competitive position could be harmed. It would experience a substantial (oss of revenue if its software products were to be copied and sold by third parties in violation of its copyright. IFCA has asserted copyright ownership, and has applied to register its trademarks in Malaysia. In the evcnt it is unable to detect ilie unauthorised use of, or take appropriate steps to enforce such rights, its future business operations may be adversely affected. Effective trademark, copyright and trade secret protection may not be available in every COMtI)’ in which it offers or intend to offer its services. Effective protection for intellectual property also varies between countries, as do the procedures for enforcement of intellectual property rights. Such risks also hinder its chances at competing effectively, and hinder the marketing of its software solutions. Defending against intellectual property infringement claims could be expensive and disruptive to IFCA’s business. Whilst it is unaware ofany claim that its software infringes the intellectual property rights of others, other parties may assert infringement claims against it or claim that it has violated a patent or infringed a trademark, copyright. or other proprietary (whether statutory or otherwise) right belonging to them Even if such claims are without merit, they result in the expenditure of significant managerial and fllUlDcial resources by IFCA in defending against such claims. lbis in tum could materially and adversely affect its business, as well as its operational and financial performance. Any fmal judicial determination against lFCA in respect of infringement of third party rights could result In its inability to continue to market some of its software so(utions, adversely affecting its business operations and fmancial performance. fFCA’s employees may misappropriate its proprietary information and the proprietary information of its clients. IFCA enters into confidentiality agreements with its erl1’loyees and attempts to limit access to and distribution of its proprietary infom13tion and the proprietaIy information of its clients. The steps it has taken in rhis regard may not be adequate to deter misappropriation of proprietary information and it may not be able to detect unauthorised use or take appropriate steps to enforce intellectual property rights. 4. RISK FACTORS (conl’d) IFCA’s contracts provide that it will indemnitY its diems for intellectual property infringement claims brought by third parties against its clients related to tbe proj~ts that it undenakes for them. Although 00 third party has ever threatened litigation of a claim of iofringement by one of its clients based on the work it bas perfonned, it cannot be sure Ihat claims will not be brought in tne future. If an action were brouglu against IFCA, it would diven management attention and increase expenses, and may have an adverse effect on its business, operating results and financial position. 4.9 Delays In R&D A strong R&D capability is important for the continued development of lIew products that meet the demands of its customers. However, there are inherent risks involved, given that R&D efforts may require long lead-times. Such risks include the uncenainties with regards to the outcome of its R&D efforts, delays in development of potential products and general uncert3inties due to the rapid changes in technology know·how. The delay in the completion of the development of its softW:lre solutions and the consequent delay in the launch of these products in the market place may :ldversely affect its competitive position. The introduction of a new competitive product may also affect its product’s appeal to its prospective clients. In addition, the lIT indusU)’ is faced with intense competition in the following areas:­.. developing software products for existing and new markets: .. obtaining and sustaining proprtetary rights 10 technology; and .. marketing, selling and distributing thest: software products. The enterprise software solutions rnarket is characterised by rapid changes in technology and ensuing clients’ expectations, new product and service introductions and evolving industry standards. If it is unable to innovate, develop aod introduce new software products in a timely manner to meet these technological changes, it will not be in a position to compete effectively and successfully and this will have an adverse impact on its revenue growth. The key management closely monitors its R&D activities. In addition, the R&D team also reports to the key management on its R&D progress on a regular basis.
4.10 Future Capital Injections It is the management’s opinion that the net proceeds of the Public Issue, together with cash flow from operations and other existing sources of funds will be sufficient to meet its projected working capital and other cash requirements. However, there is no assurance that future events may not cause the Group to seek additional capital sooner. If additional capital is required, there can be no assuraoce that it will bt’ available or, if available, that it will be on terms satisfactory to the Group. The sale of additional equity or other convertible securities to non­shareholders will result in further dilution in the shareholdings held by the Company’s existing shareholders.
4.11 No Prior Market for IFCA Shares and Possible Volalility of Share Prke There has been no prior public market for the Company’s Shares. The Issue Price was detennined through negotiation between the Group and the Underwriter based upon several factors and may not be an indication of the market price of the Shares after the Issue. See section 3.6 on “Undenvriting” for a discussion of the factors considered in determining the Issue Price. 4. RJSK FACTORS (cont’d) There can ~ no assurance thai an active public market in the Shares will be developed or be sustained after this Issue or that the market price ofthe Shares will not decline below the Issue Price. The Group believes that a variety of factors could cause the price of the Shares to fluctuate, including sales of substantial amounts of Shares in the public market in the future; announcements of developments relating to Ihe Group’s business; fluctuations in the Group’s operating results and sales levels; general industry conditions or the world·wide economy: announcements ofnew products or product enhancements by the Group or its competitors; and developments in patent, copyright or other intellectual property rights. In addition, in recem ytars, the stock market in general, and the market for the shares of many high technology companies in particular. has experienced extreme price fluctuations which have often been unrelllled to the operating performance of such companies. Such OuctuatioDs may adversely affect the market prtee ofthe Company’s Shares.
4.12 New Geographical Market If lFCA is not successful in penetrating new geographical markets, it may suffer revenue shortfalls and an incTease in operating costs. Substantial management resources will be devoted 10 launch its products and grow its operations in these new markets. II caMot guarantee that these new sales and marketing efforts will be successful or generate significant revenue. Any such failure could affect its business, financial condition and operating results. It will be subject to additional risks when it operates in foreign cOWltries that could affect its financial condition and operating results. These risks include the following: • Local regulatory requirements
• Costs and risks in locaJising software solutions for foreign markets
• Fluctuations in currency exchange rates
• Any imposition of CWTenCy exchange controls
• Unexpected changes in regulatory requirements
• Difficulties and costs of staffing and managing overseas operations
• Restrictions 011 the import and export of certain sensitive technologies, including data security and encryption technologies that it may use

In addition to the risks as highlighted above, the specific risks associated with IFCA”s investment in PRC are as follows:­• Software piracy
• Collection ofdebts
• Acceptance of IFCA products

IFCA’s software can only be used with a unique activation code generated by lFCA and provided to the clients on a yearly basis. This helps to mitigate the risks of software piracy and collection of debts. However, this code is not hacker-proof and hence there is no assurance that if this code is hacked in the future, mere will not be any negative iJl1)lications to IFCA’s software security and installations, leading to revenue and collection shortfall. rFCA has set up a subsidiary in Shanghai and locals are hired as they have bener business contacts and business relations with local companies. This will assist IFCA to penetrate into the local market and encourage the acceptance oflFCA’s products in PRC.
4.13 Inlroduction of New Produds and Market Reception IFCA is cognizant that it is imperative for all software solutions to support new web and distributcd~computing paradigms. The browser-based teetmology is used for connecting infom13tion, people, systems, and devices through the web. The web technology allows users to have remote access to currenT information. However, this in itself gives rise to risks as the web nelwork is vulnerable to various factors_ Security is a major conctrn, as the loss of confidential and sensitive information can adversely affect businesses. 4. RISK FACTORS (cont’d) In an enterprise-wide environment, the volume of data that needs to be shared across various entities, departments as well as personnel can become massive. There is also a concern as to whether the present infrastructure can support the volume of transactions needed to run an efficient business. In order to mitigate this risk, the Group strives to monitor the market demand for browser­based solutions through feedback from its customers and market research to ensure the acceptance of these products.

4.14 Continued Control by Existing Shareholders Upon completion of this Issue, the directors, executive officers and substantial shareholders of the Company will, in the aggregate, beneficially own approximately 70.1% of the issued and paid-up share capital of the Company. As a result, these shareholders, acting together, will possess voting control over the Company, giving them the ability to, amongst others, elect at least a majority of the Company’s Board of Directors and to control the vote on significant corporate transactions. Nonetheless, the Company has appointed two (2) independent directors as a step towards good corporate governance to ensure that any future transactions involving related parties, if any, are entered into on anns-length teons.
4.15 Foreign E:rchange Risks IFCA’s sales revenue is denominated in RM and USD while its costs are denominated mainly inRM. The Group is currently expanding overseas. As such, the Group is exposed to foreign exchange risk. The revenue from overseas (mainly royalty income) is denominated in USD and this provides a natural hedge against currency fluctuations. However, there can be no assurance that any future significant fluctuations in exchange rates and financial crises will not have any impact on the revenue and earnings ofthe Group.
4.16 Litigation Risks The Group’s sales orders typically contain provisions designed to limit the Group’s exposure to potential product liability claims. The Group has not experienced any material product liability claims. It is possible, however, that the provisions relating to limitation of liability contained in the Group’s sales orders may not be effective as a result of existing or future laws or unfavourable judicial decisions on such laws or the construction of such provisions. Furthermore, some of the Group’s agreements with its customers may be governed by foreign laws, and there is no assurance that the provisions relating to limitation of liability as contained in the sales orders would be enforced under such foreign laws or in foreign jurisdictions. The Group seeks legal advice from its solicitor in relation to any product liability provisions in its sales order foons and purchase agreement and will continue to do so in the future to mitigate the above risk.
4.17 Regulatory Risks Currently, save for general company and contract laws, the business activities of the Group in Malaysia are not subject to any specific legislation or regulations. However, there can be no assurance that future legislative or regulatory policy changes will not affect the operations of the Group. 4. RJSK FACTORS (cont’d) 4.J8 Change in MSC Status IFCA was granted MSC status on 22 January 1998 by MDC. Presently, all MSC slatus companies are grallled financial and non-fmancial incentives. Financial incentives include:­• a five (5) year exemption from Malaysian income lax (only on income derived from MSC related activities) conunencing from the dale when the company starts generating income, renewable to ten (lO) years, the renewal of which, will depend on the Group’s performance in transferring technology or knowledge to Malaysia, or a 100% investment tax allowance on new investments made in MSC cybercities, commencing from lhe date on which the first qualifying capital expellditure is incurred MDC had vide its lener dated 23 April 2003 informed lFCA that the extension of the tax exemption Slarus has been approved for a further five (5) years. to 31 January 2008;
• duty-free import3tion of multimedia equipment, provided that the equipmtnl is used by the company in the operation of its business, and not for direct sale and trading or use as companenls in manufactured items; and
• R&D grants for MSC small aDd medium enterprises that are al leaSl 51% Malaysian owned.

Non-f103ncial incentives inc1ude:­• unrestricted employment of foreign knowledge workers;
• fr~edom ofownership; and
• freedom to source capital for MSC infrastrucrure globally, and the right to borTOw funds globally. All MSC status companies will be given exemptions by the Controller of Foreign Exchange from exchange control requirements which will allow Ihem to execute transactions in any currency in Malaysia or elsewhere, borrow any amount from f111ancial institutions, associate companies or noo-residents, hedge foreign exchange exposure, remit funds globally and open foreign currency accoW1ts in Malaysia or abroad with no limits on balances.

Th~ MDC is the body responsible for monitoring all MSC designated companies. MDC has the right to withdraw any cofJ1)any’s MSC status at any time. Although IFCA believes that it has aDd will continue to be able to fulfill the conditions for MSC status and to ensure that it remains in the same line of business. there can be no assurance Ihat IFCA will continue to retain its MSC status or tbat it will continue to enjoy or not ex~rience delays in enjoying the MSC incentives outlined above, all of which could materially and adversely affeci the Group’s business, operating results and financial condition. 4_19 Uncertainty of Proposed 5-year Business Development Plan The success of the Group’s business development plan will be largely dependent upon market acceptance of its new producls, successful penetralion into the PRe market, as well as the Group’s ability to successfully market its products and to further develop and commercialise further applications of its proprietary technology. [n addition, the Group’s proposed future plan and prospects will be dependent upon, among other things. the Group’s ability to enter into strategic marketing and licensing or other arrangemenlS on a timely basis and on favourable terms, establish satisfactory arrangements with sales representlltives and marketing consultants, hire and retain skilled management as well as fmanci3-l, tec!mical, marketing and othtr personnel. successfully manage growth (including monitoring operations, controlling costs and maintaining effective quality, inventory and servic~ controls) and obtain adequate fmancing as and when needed. As a mitigating factor, the Group has been in operations since 1997 and the management learn of IFCA is experienced in the industry. However, there can be no assurance that the Company will be successful in implementing its plans and strategies or that unanticipated expenses or tec!mi(‘al difficulties or problems will not occur which would affect the implememalion or even deviation from its original plan. 4. RISK FACTORS (COIII’d)
4.20 Forward-Looking Statements This Prospecrus includes forward-looking statements, which are statements other than statements of historical facts. Although the Group believes Ihat, barring unforeseen circumstances, the expectations reflected in such forward-looking statements are reasonable at this lime, there can be no assurance tbal such expectations will prove to have been correct. Their inclusion in Ihis Prospectus should not be regarded as a n:prestntation or warranty by the Company. the Adviser or any olner advisers lhat the plans and objectives oflhe Group will be achieved. The remainder ofthispagehas been intentionallyleft blank

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