4. RISK FACTORS 4. RISK FACTORS If you are unsure about any of the Information contained In thIs section on “Risk Factors”, you should consult your stockbroker, bank manager, solJcfror, accountant or other professional adviser. In addition to the other information in this Prospectus, the following factors should be considered carefully in evaluating an Inv6Stmenl in the Shares offered by this Prospectus. The discussion in this Prospectus contains ceriain forward·lOOking statements that involve risks and uncertainties. Prospective investors are cautioned that such statements are only predictions and that actual results or evsnts may differ materially from those disclosed in this Prospectus. Factors that could cause or contribure to such differences include, but are not limited to. those discussed in “Risk Factors·, “Management’s DiscussIons and Analysis of Financial Condition ana Results of Operations· and “Business Overview’ as well as those discussed elsewhere in this Prospectus. 4.1. Operating Ri$ks There is no assurance that WG Spore and WG Msia, which carry oul the core revenue-generating business processes of the Group, will be profitable in lhe lutura, or that they will achieve increaSing or consistent levels 01 profilability. The Group’s revenue and operating results are difficult to forecast and could be adversely affected by many factors. These include, amongst others, lengthy sales cycle of between 2 to 18 months, debtors’ collection problems, customer order deferrals, changes in the Group’s operating expenses, the ability or the Group to develop and market new products and services and to control cosls, markel acceptance of new products or services, and other business risks common 10 going concerns. Barring unforeseen circumstances, 1he directors bolieve that the Group should be able to maintain its record of profilability. As at 11 March 2002, the Group had 33 projects in Singapore wi1h a lolal contract value of approximately 5$27.6 million, and 5 projects in Malaysia with a tolal contracl value of approximately RMB.2 million. Most of these projects are expected to be completed between 2002 and 2005. Moreover, the Group, through i1s prudent cash flow management, has steered its business through the peak 01 the economic crisis. The Group’s cash flow management includes regular monitoring of its debtors position, having long term relationships with its customers, close moniloring 01 operating expenditure, and careful consideration of any proposed capital expendilure or borrowing and Its effects on the Group. 4.2. Competition The SCADA market is a niche market within the larger market for process conlrol syslems. Nevertheless, it Is competitive and rapidly changing. The Group has experienced and expects to continue to experience Intense competition from current and future competitors. The Group believes that its ability to compete depends upon many factors within and outside its contrOl, InclUding lhe timing and market acceptance of new products and services and enhancements developed by the Group and Its competitors, product functionality, ease 01 use, perlormance, price, value lor money, reliability, customer service and support, sales and markeling efforts, product distribution channels and the disposable resources of competitors. As a mitigating factor, the Group has been in operation since 1987 and has vast experience with regards to the Malaysian and Singaporean markets. The Group focuses on technology which is highly reliable and has a competitive advantage in being the only integrated SCADA supplier in Malaysia and Singapore that offers realtime video capabilities. The systems which the Group supplies are also customised, thus prOViding a degree of differenlialion which helps to secure funher business from the customers. 19 The Group’s technological platforms lor ils SCADA systems are on par with the global technological advances in the SCADA and information lechnology industries. This is evident in Ihe SysLink /I system whose sophistication and flexibillty enable its deployment in diverse industrial applications. The Group’s progressive R&D efforts should result in third generation SCADA products which are on par with, if not ahead of, other leading edge SCAOA products being developed around the world. However, competitive pressures mayor may not materially and adversely affect the Group’s business, operating results and financial condition.
4.3. Future Growth The Group’s potential expansion may significantly strain the Group’s management, financial, customer support, operational and other resources. In the last few years, the management has pursued a conservative policy in sales and business development partly because 01 the economic downtum and has been ~ive in undertaking projects. However, In order 10 achieve the Group’s growth largels as sel ou1 in its Five-Year Business Devolopment Plan. management would need to adopt a more aggressive slance. There can be no assurance that management would be successful in making Ihis change or that the change would not give rise to other problems. The Group’s proposed future plan and prospects will be dependent upon, among other things, the Group’s ability to enter into strategic marketing or other arrangements on a timely basis and on favorable terms; hire and retain skilled management as well as financIal. technical, marketing and other personnel; successfully manage growth (inclUding monitoring operations, controlling costs and maintaining effective quality, Inventory and service controls); and obtain adequate financing as and when needed. There can be no assurance that the Group will be able to successfUlly implement its business plan or that unanticipated expenses or problems or technical dIfficulties will not occur which would result In material delays in its implementation or even deviation from its original plans. In addition, the actual results may deviate from the business plan due 10 rapid technological changes. and market as well as competilive pressures. 4.4. Rapid Technological’ Product Change In the SCADA Market The market for the Group’s products is characterised by rapid technological developments. evolving Industry standards. swift changes in customer requirements, computer operating environments and software and hardware applications, and frequent new product introductions and enhancements. The Group’s future depends substantially upon its ability to address the Increasingly sophisticated needs of its customers. To the extent that one or more of the Group’s competitors Introduce products and services that beller address customer needs or for any reason gain market share. the Group’s business, operating resulls and financial condition could be mater~lIy adversely affected. The Group mayor may not be successful in developing and marketing new products or enhancements to its existing products 10 adequately address the changing needs of the marketplace. In recognition of thts. the Group constantly endeavours to develop andior enhance its produCls expeditiously. The Group is also susceptible 10 various security risks in the fann 01 computer viruses, industrial espionage, hacking and lraud. As a mitigating factor, the Group believes that it has a high-end security system in place which is able to safeguard the assets and systems of the Group. 4.5. Product Risks The Group’s future resul1s will substantially depend on markel acceptance of the products developed. A reduction in demand or an increase In competition in the market for Ihese products, Ol’ the Group’s other existing or future products, will have a material adverse effect on the Group’s business, results and financial condition. There is also no assurance that the Group will be able to develop and Introduce new products and services or enhancements in a timely manner In response to changing market conditions or customer requirements or that the process will not encounter unforeseen problems. To date, the Group’s products have been well-received by its customers and the Group expects that enhancements and Improvements of features, quick time to markel and good technical service should ensure conlinuous acceplance of products. 4.6. Dependence on Directors Bnd Kev Personnel The Group’s future performance depends to a significant extent upon the continued efforts and abilities as well as the networking of its directors, key technical, sales and marketing, and senior management personnel. The loss of the services of any of these individuals may have a material adverse effect on the Group. The Group’s future success also depends on ils ability to attract suffk:ient skilled employees. As a mitigating factor, the Group currently enjoys a cordial relationship with its employees and they do not belong to any trade union. The employees are also frequently sent to various courses 10 upgrade their knowledge. In addition, the Group is looking to put in place a sullable employment package which includes an employees’ share option scheme. 4.7. Reliance on Major Relationship. The Group has in the past been substantially dependent on revenue from contracts with the Housing Development Board of Singapore, which is its largest customer. The Group’s relationship with this customer has spanned over 15 years. during which the Group has built up goodwill through the customer’s repeat orders. In the Group’s present circumstances, any material reduction in revenue from this customer will materially adversely affect the Group’s operating results. However, the Group is making progress in its efforts to widen its customer base so as to reduce its dependence on any single customer. The Group has a number of business alliances with third parties and affiliates to provide marketing and support activities for the Group’s products and services. The Group relies to a certain extent upon some of its business partners and alliances to provide marketing and sales opportunities for the Group’s products and services. The Group’s strategy in entering into these relationships is to present a best of breed approach where the Group and its partners present a solutions approach to their customers, leverage the marketing and sales efforts of its partners and alliances, and gain additional exposure and market visibility for its products. These relationships also assist the Group in keeping pace with technological and marketing developments, and in certain instances, provide the Group wHh lechnical assistance for the Group’s product developmenl efforts. The Group’s business parlners are Golesco Construction and Development Corporation in the Philippines, Data Video Intemational Co. lid. in Taiwan, P.T. tnti Jatam Pura in Indonesia, MTE Ltd. in Thailand, and Lee Dickens Ltd. in the United Kingdom. The Group’s appointment 01 these partners supplements its marketing efforts and as such is not expected to have any adverse effect on its sales growth. However, there can be no assurance that these companies will not develop or market prOducts which compete with the Group’s products in the future or will not othelWlse discontinue their relationships with or support of the Group. The failure of the Group to maintain its existing relationships, or to establish new relationships in the future for any reason, could have a material adverse effect on the Group’s business, operating results and financial condition. 4.8. Protection of Group and Third Party Proprietary Technology/Intellectual Property Rights The Group’s success Is also dependent upon its ability to use industry standard third party proprietary technology, and to protect its proprietary technology. However, existing patent. copyright, trademark and trade secret laws afford only limited protection, Accordingly, there can be no assurance that the Group will be able to protect its proprietary rights against unauthorised third party copying, use or exploitation. any of which could have a material adverse effect on tM Group’s business, operating results and financial condition. However, the directors believe that risks are relatively low due to the nature of the Group’s products, as a SCADA system involves innumerable aspects which are complex and reqUire time to develop and integrate. Moreover, both SysUnk I and II have a key lock protection system to protect the products from unauthorised copying, and SysLink III wilt use a similar system. The Group will also procure its employees to sign an agreement which will effectively 11m” the possibility of the direct copying of its produc1s by employees who resign. 4.9. Acquisitions and Joinl Ventures If appropriate opportunities present themselves, the Group Intends to acquire businesses. products or technOlogies or enter into synergistic joint ventures that tho Group believes win be in the interest of its shareholders. There can be no assurance that the Group will be able to successfully Identify, negotiate or finance such acqUisitions and joint ventures, or to Integrate such acquisitions and Joint ventures with its current buslness, or to benefit from such acquisitions and Joint ventures. Acquisitions and joint ventures may cause the Group to seek additional capital which mayor may not be available on satisfactory terms. 4.10. Future Capital Injection. It is the management’s opinion that the net proceeds of the Issue, together with cash flow from operations and other existing sources of liqUidity will be sufficient to meet the Group’s prOjected working capital and other cash requirements. However, there Is no assurance fhat future events may not cause the Group to seek additional capital sooner. if additional capital is required, there can be no assurance that it will be available or, if available. that It will be on terms satisfactory to the Group. The sale of additional eqUity or other convertible securities to non-shareholders will resuit in further dilution 01 the Group’s sharehOlders. 4.11. No Prior Market for WMSC Shares and Possible Volatility of Share Price There has been no priOr public market lor the Company’s Shares. The Issue PriCe was detennined through negotiation between the Group and the Underwriters based upon several factors and may not be an indication of the market price of the Shares alter the Issue. See the seclion on “Underwriting” lor a discussion of the lactors considered in determining the Issue Price. There can be no assurance that an active public market in the Shares will be developed or be sustained after this Issue or thai the market price of the 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 01 Shares in the public market in the immediate future; announcements of developmenls relating to the Group’s business; fluctuations in the Group’s operating results and sales levels; general industry conditions or the world-wide economy; announcements of new products or prodUCl enhancements by lhe Group or its competitors; and developments in palent, copyrighl Of other intellectual property rights. In addition, in recenl years 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 unrelated to the operating performance of such companies. Such fluctuations may adversely affect the market price of the Shares. 4.12. Continued Control by EXisting Shareholders Upon completion of this ISsue, the directors, execulive ollicers and substantial shareholders of the Group will, in lhe aggregate, beneficially own approximately 71.06% of the issued and paid-up share capital 01 the Group. As a result, these shareholders, acting together, will possess voting control over the Group, giving thom the ability, amongst others, to elect at least a majority of the Group’s Board of Directors and to control the vote on significant corporate transactions. Nonetheless, the Group has appointed two (2) independent directors as a s1ep towards good corporate governance to ensure that any future transactions involving related parties, if any, are entered into on arms·renglh lerms.
4.13. Foreign Exchange Risk The Group’s current revenue is mainly generated from export markets, in particular Singapore. The Group is in the process of expanding its reach regionally as well as intemationally. As such, there is a potential that the Group will be’exposed to foreign exchange risk In the future due to its expansion plans. The Group will, as a mitiga1ing factor, use various hedging teChniques to mitigate this risk. However, there can be no assurance that any future significant fluctuations In exchange rates and financial crisis will not Impact on the revenue and earnings of lhe Group. 4.14. litigation Risks The Group’s agreements with its customers typically contain provisions designed 10 limit the Group’s exposure 10 potential product liability claims. The Group has not experienced any material product liability claims. It is possible, however, thai the limitation of liability provisions contained In the Group’s customer agreements may nol be effective as a result of existing or future laws or unfavourable judicial decisions. Furthermore, some of 1he Group’s agreements with its cuslomers are governed by foreign laws, and there is no assurance lhat purported limilation on liability clauses in those agreements would be enforced.
4.15. Regulatory Risks Currently, save for general company and contract laws, the business activities of the Group in Malaysia and Singapore are not subject to any specific legislation or regulations. However, there can be no assurance that future legislative or regula10ry policy changes will nol affec11he operations of 1he Group. 4.16. Change In MSC Status WM$C was granted MSC status on 31 March 1998 by MDC. Presently, all MSC status companies are granted financial and non-financial incentives, FInancial Incentives include:• A five (5) year exemption 1rom Malaysian income lax (only on Income derived from MSC related activities) commencing from the date when the company stans generating income, renewable to 10 years -renewal will depend on the Group’s porlormance in transferring technology or knowledge to Malaysia, or a 100’% investment tax allowance on new investments made In MSC cyberclties, commencing from the date on which the first qualifying capital expenditure is incurred;
• DUly·free importation of multimedia equipment, provided that the equipment Is used by the company in the operation of its business, and not for direct sale and trading or use as components in manufactured items; and
• R&D grants for MSC small and medium enterprises that are alleasl 5t% Malaysian owned.
Non-1inanclal incentives include:· • Unrestricted employment of foreign knowledge workers;
• FreedOm 01 ownership; and
• FreedOm to source capital for MSC infrastructure globally, and the right to borrow funds globally. All MSC status companies will be given exemptions by the Controller 01 Foreign Exchange from exchange control requirements which will allow them to execute transactions in any currency in Malaysia or elsewhere, borrow any amount from financial institutions, associate companies or non-residents, hedge foreign exchange exposure, remIt funds globally and open foreign currency accounts in Malaysia Of abroad with no limils on balances.
The MDC is the body responsible for monitoring all MSC designated companies. MDC has the right to taKe back any company’s MSC status at any time. There can be no assurance thaI WMSC will continue to retain its MSC status or that it will continue to enjoy or not experience delays in enjoying the MSC incentives outlined above, all of which could materially and adversely affect lhe Group’s business, operating results and financial condition. 4,17. Disclosure Regarding Forward~looklngStatements This Prospectus includes forward-looking statements, which are statements other than statements of historical facls. Although the Group believes that, barring unforeseen circumstances, the expectations reflected In such forward-looking statements are reasonable at this tlme, there can be no assurance that such expecta1ions will prove to have been correct.