Item 1a. Risk
Factors.
Investing in our common stock is highly speculative
and involves a significant degree of risk. Before you invest in our securities, you should give careful consideration to the following
risk factors, in addition to the other information included in this Annual Report on Form 10-K, including our financial statements
and related notes, before deciding whether to invest in our securities. The occurrence of any of the adverse developments described in
the following risk factors could materially and adversely harm our business, financial condition, results of operations or prospects.
In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business
There is substantial doubt about our ability
to continue as a going concern.
We have incurred substantial operating losses since our inception. For
the year ended June 30, 2024, we had approximately $200,013 cash on hand, an accumulated deficit of approximately $38.0 million
at June 30, 2024, a net loss of approximately $6.59 million for the year ended June 30, 2024, and approximately $4.7 million
net cash used by operating activities for the year ended June 30, 2024. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of
business. We anticipate incurring additional losses until such time, if ever, that we will be able to effectively market our products.
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Also, we will seek to obtain additional capital
through the sale of debt or equity financing or other arrangements to fund operations; however, there can be no assurance that we will
be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and
newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities
may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such
additional financing, future operations would need to be scaled back or discontinued. Due to these factors, management believes that there
is substantial doubt in our ability to continue as a going concern for twelve months from the issuance of these consolidated financial
statements.
If we have insufficient capital to operate our
business under our current business plan, we have contingency plans for our business that include, among other things, the delay of the
introduction of new products and a reduction in headcount which is expected to substantially reduce revenue growth and delay our profitability.
There can be no assurance that our implementation of these contingency plans will not have a material adverse effect on our business.
We have a limited operating history in an
evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We have a limited operating history on which to
base an evaluation of our business and prospects. We are subject to all the risks inherent in a small company seeking to develop, market
and distribute new services, particularly companies in evolving markets such as the internet, technology and payment systems. The likelihood
of our success must be considered, in light of the problems, expenses, difficulties, complications and delays frequently encountered in
connection with the development, introduction, marketing and distribution of new products and services in a competitive environment.
Such risks for us include, but are not limited
to, dependence on the success and acceptance of our services, the ability to attract and retain a suitable client base and the management
of growth. To address these risks, we must, among other things, generate increased demand, attract a sufficient clientele base, respond
to competitive developments, increase the “ZCITY” brand names’ visibility, successfully introduce new services, attract,
retain and motivate qualified personnel and upgrade and enhance our technologies to accommodate expanded service offerings. In view of
the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our operating
results are not necessarily meaningful and should not be relied upon as an indication of future performance.
We are therefore subject to many of the risks
common to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial and
other resources and lack of revenues.
If we fail to raise capital when needed
it will have a material adverse effect on our business, financial condition and results of operations.
We have limited revenue-producing operations and
will require the proceeds from our recently concluded offering to execute our full business plan. We believe the proceeds from our previous
offering will be sufficient to cover our funding needs until part way through the first calendar quarter of 2025. Further, no assurance
can be given if additional capital is needed as to how much additional capital will be required or that additional financing can be obtained,
or if obtainable, that the terms will be satisfactory to us, or that such financing would not result in a substantial dilution of shareholder
interest. A failure to raise capital when needed would have a material adverse effect on our business, financial condition and results
of operations. In addition, debt and other equity financing may involve a pledge of assets and may be senior to interests of equity holders.
Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial
and operational matters, which may make it more difficult for us to obtain additional capital or to pursue business opportunities, including
potential acquisitions. If adequate funds are not obtained, we may be required to reduce, curtail or discontinue operations.
None of our material contracts are long
term and if not renewed could have a material adverse effect on our business.
We have entered into material contracts with a
number of companies that directly or indirectly provide the goods and services that appear on our ZCITY App. The majority of these contracts
can be terminated by any party with 30 days’ notice. The contract with iPay88 (the “iPay88 Agreement”), which provides
the payment gateway for many of the brands that can be accessed through the ZCITY App, has no termination clause which means that iPay88
could terminate the iPay88 Agreement without any notice. If one or more of these contracts were not renewed or were terminated and we were not able to enter into
agreements with others that could replace these services, the ZCITY App could lose material features and in turn we could find it harder
to maintain and grow our user base, which would have a material adverse effect on our business. For a description of these material contracts
See “Business — About ZCITY App.”
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We rely on email, internet search engines
and application marketplaces to drive traffic to our ZCITY App, certain providers of which offer products and services that compete directly
with our products. If links to our applications and website are not displayed prominently, traffic to our ZCITY App could decline and
our business would be adversely affected.
Email continues to be a verification source of
organic traffic for us. If email providers or internet service providers implement new or more restrictive email or content delivery or
accessibility policies, including with respect to net neutrality, it may become more difficult to deliver emails to our users or for user
verification process. For example, certain email providers, including Google, categorize our emails as “promotional,” and
these emails are directed to an alternate, and less readily accessible, section of a users’ inbox. If email providers materially
limit or halt the delivery of our emails, or if we fail to deliver emails to users in a manner compatible with email providers’
email handling or authentication technologies, our ability to contact users through email could be significantly restricted. In addition,
if we are placed on “spam” lists or lists of entities that have been involved in sending unwanted, unsolicited emails, marketing
campaigns and business updates could be substantially harmed.
We rely heavily on Internet search engines, such
as Google, to drive traffic to our ZCITY App through their unpaid search results and on application marketplaces to drive downloads of
our applications. Although search results and application marketplaces have allowed us to attract a large audience with low organic traffic
acquisition costs to date, if they fail to drive sufficient traffic to our ZCITY App, we may need to increase our marketing spend to acquire
additional traffic. We cannot assure you that the value we ultimately derive from any such additional traffic would exceed the cost of
acquisition, and any increase in marketing expense may in turn harm our operating results.
The amount of traffic we attract from search engines
is due in large part to how and where information from and links to our website are displayed on search engine result pages. The display,
including rankings, of unpaid search results can be affected by a number of factors, many of which are not in our direct control, and
may change frequently. Search engines have made changes in the past to their ranking algorithms, methodologies and design layouts that
may have reduced the prominence of links to our ZCITY App and negatively impacted our traffic, and we expect they will continue to make
such changes from time to time in the future. Similarly, marketplace operators may make changes to their marketplaces that make access
to our products more difficult. For example, our applications may receive unfavorable treatment compared to the promotion and placement
of competing applications, such as the order in which they appear within marketplaces.
We may not know how or otherwise be in a position
to influence search results or our treatment in application marketplaces. With respect to search results in particular, even when search
engines announce the details of their methodologies, their parameters may change from time to time, be poorly defined or be inconsistently
interpreted. For example, Google previously announced that the rankings of sites showing certain types of app install interstitials could
be penalized on its mobile search results pages. While we believe the type of interstitial we currently use is not being penalized, we
cannot guarantee that Google will not unexpectedly penalize our app install interstitials, causing links to our mobile website to be featured
less prominently in Google’s mobile search results and harming traffic to our ZCITY App as a result.
In some instances, search engine companies and
application marketplaces may change their displays or rankings in order to promote their own competing products or services or the products
or services of one or more of our competitors. For example, Google has integrated its local product offering with certain of its products,
including search and maps. The resulting promotion of Google’s own competing products in its web search results has negatively impacted
the search ranking of our website. Because Google in particular is the most significant source of traffic to our website, accounting for
a substantial portion of the visits to our website, our success depends on our ability to maintain a prominent presence in search results
for queries regarding local businesses on Google. As a result, Google’s promotion of its own competing products, or similar actions
by Google in the future that have the effect of reducing our prominence or ranking on its search results, could have a substantial negative
effect on our business and results of operations.
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The ecommerce market is highly competitive
and if we do not have sufficient resources to maintain research and development, marketing, sales and client support efforts on a competitive
basis our business could be adversely affected.
The internet-based ecommerce business is highly
competitive and we compete with several different types of companies that offer some form of user-vendor connection experience, as well
as marketing data companies. Certain of these competitors may have greater industry experience or financial and other resources than us.
To become and remain competitive, we will require
research and development, marketing, sales and client support. We may not have sufficient resources to maintain research and development,
marketing, sales and client support efforts on a competitive basis which could materially and adversely affect our business, financial
condition and results of operations. We intend to differentiate ourselves from competitors by developing a payments platform that allows
consumers and merchants to accept and use bonus points.
The market for consumer’s lifestyle is rapidly
evolving and intensely competitive, and we expect competition to intensify further in the future. There is no guarantee that any factors
that differentiate us from our competitors will give us a market advantage or continue to be a differentiating factor for us in the foreseeable
future. Competitive pressures created by our direct or indirect competitors could have a material adverse effect on our business, results
of operations and financial condition.
The market for our ZCITY App is new and
unproven.
We were founded in 2020 and ZCITY was founded
in 2017 and since our inception have been creating products for the developing and rapidly evolving market for API-based software platforms,
a market that is largely unproven and is subject to a number of inherent risks and uncertainties. We believe that our future success will
depend in large part on the growth, if any, in the market for software platforms that provide features and functionality to create the
entire lifestyle ecosystem. It is difficult to predict customer adoption and renewal rates, customer demand for our solutions, the size
and growth rate of the overall market that our ZCITY App addresses, the entry of competitive products or the success of existing competitive
products. Any expansion of the market our ZCITY App addresses depends upon a number of factors, including the cost, performance and perceived
value associated with such solutions. If the market our ZCITY App addresses does not achieve significant additional growth or there is
a reduction in demand for such solutions caused by a lack of customer acceptance, technological challenges, competing technologies and
products or decreases in corporate spending, it could have a material adverse effect on our business, results of operations and financial
condition.
If we are unable to expand our systems or
develop or acquire technologies to accommodate increased volume or an increased variety of operating systems, networks and devices broadly
used in the marketplace our ZCITY App could be impaired.
We seek to generate a high volume of traffic and
transactions through our technologies. Accordingly, the satisfactory performance, reliability and availability of our website and platform,
processing systems and network infrastructure are critical to our reputation and our ability to attract and retain large numbers of users
who transact sales on our platform through a variety of operating systems, networks and devices while maintaining adequate customer service
levels. Our revenues depend, in substantial way, on the volume of user transactions that are successfully completed. Any system interruptions
that result in the unavailability of our service or reduced customer activity would ultimately reduce the volume of transactions completed.
Interruptions of service may also diminish the attractiveness of our company and our services. Any substantial increase in the volume
of traffic on our ZCITY App, the number of transactions being conducted by customers or substantial increase in the variety of operating
systems, networks or devices that are broadly used in the market will require us to expand and upgrade our technology, transaction processing
systems and network infrastructure. There can be no assurance that we will be able to accurately project the rate or timing of increases,
if any, in the use of the ZCITY App or timely expand and upgrade our systems and infrastructure to accommodate such increases or increases
in the variety of operating systems, networks or devices in a timely manner. Any failure to expand or upgrade our systems could have a
material adverse effect on our business, results of operations and financial condition.
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We use internally developed systems to
operate our service and for transaction processing. We must continually enhance and improve these systems in order to accommodate
the level of use of our products and services and increase our security. Furthermore, in the future, we may add new features and
functionality to our services that would result in the need to develop or license additional technologies. Our inability to add new
software and hardware to develop and further upgrade our existing technology, transaction processing systems or network
infrastructure to accommodate increased traffic on our platforms or increased transaction volume through our processing systems or
to accommodate new operating systems, networks or devices broadly used in the marketplace or to provide new features or
functionality may cause unanticipated system disruptions, slower response times, degradation in levels of customer service, impaired
quality of the user’s experience on our service, and delays in reporting accurate financial information. There can be no
assurance that we will be able in a timely manner to effectively upgrade and expand our systems or to integrate smoothly any newly
developed or purchased technologies with our existing systems. Any inability to do so would have a material adverse effect on our
business, results of operations and financial condition.
As we increase our reliance on cloud-based
applications and platforms to operate and deliver our products and services, any disruption or interference with these platforms could
adversely affect our financial condition and results of operations.
We rely on cloud-based applications and platforms
for critical business functions. We also are migrating a significant portion of our computing infrastructure to third party hosted cloud-based
computing platforms. If we are not able to complete this migration on our expected timeline, we could incur additional costs. Further,
these migrations can be risky and may cause disruptions to the availability of our products due to service outages, downtime or other
unforeseen issues that could increase our costs. We also may be subject to additional risk of cybersecurity breaches or other improper
access to our data or confidential information during or following migrations to cloud-based computing platforms. In addition, cloud computing
services may operate differently than anticipated when introduced or when new versions or enhancements are released. As we increase our
reliance on cloud-based computing services, our exposure to damage from service interruptions may increase. In the event any such issues
arise; it may be difficult for us to switch our operations from our primary cloud-based providers to alternative providers. Further, any
such transition could involve significant time and expense and could negatively impact our ability to deliver our products and services,
which could harm our financial condition and results of operations.
Our failure to successfully market our ZCITY
App could result in adverse financial consequences.
We believe that continuing to strengthen our ZCITY
App is critical to achieving our widespread acceptance, particularly in light of the competitive nature of our market. Promoting and positioning
our ZCITY App will depend largely on the success of our marketing efforts and our ability to provide high quality services. In order to
promote our ZCITY App, we will need to increase our marketing budget and otherwise increase our financial commitment to creating and maintaining
brand loyalty among users. There can be no assurance that ZCITY App promotion activities will yield increased revenues or that any such
revenues would offset the expenses incurred by us in building our ZCITY App. Further, there can be no assurance that any new users attracted
to us will conduct transactions over the ZCITY App on a regular basis. If we fail to promote and maintain our brand or incur substantial
expenses in an attempt to promote and maintain our brand or if our existing or future strategic relationships fail to promote the ZCITY
App or increase awareness, our business, results of operations and financial condition would be materially adversely affected.
We may not be able to successfully develop
and promote new products or services which could result in adverse financial consequences.
We plan to expand our operations by developing
and promoting new or complementary services, products or transaction formats or expanding the breadth and depth of services. There can
be no assurance that we will be able to expand our operations in a cost-effective or timely manner or that any such efforts will maintain
or increase overall market acceptance. Furthermore, any new business or service launched by us that is not favorably received by consumers
could damage our reputation and diminish the value of our brand. Expansion of our operations in this manner would also require significant
additional expenses and development, operations and other resources and would strain our management, financial and operational resources.
The lack of market acceptance of such services or our inability to generate satisfactory revenues from such expanded services to offset
their cost could have a material adverse effect on our business, results of operations and financial condition.
In addition, if we are unable to keep up with
changes in technology and new hardware, software and services offerings, for example, by providing the appropriate training to out account
managers, sales technology specialists, engineers and consultants to enable them to effectively sell and deliver such new offerings to
customers, our business, results of operations or financial condition could be adversely affected.
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A decline in the demand for goods and services
of the merchants included in the ZCITY App could result in adverse financial consequences.
We expect to derive most of our revenues from
fees from successfully completed transactions on our consumer facing platforms. Our future revenues will depend upon continued demand
for the types of goods and services that are offered by the merchants that are included on such platforms. Any decline in demand for the
goods offered through our services as a result of changes in consumer trends could have a material adverse effect on our business, results
of operations and financial condition.
The effective operation of our platform
is dependent on technical infrastructure and certain third-party service providers.
Our ability to attract, retain and serve customers
is dependent upon the reliable performance of our ZCITY App and the underlying technical infrastructure. We may fail to effectively scale
and grow our technical infrastructure to accommodate these increased demands. In addition, our business will be reliant upon third party
partners such as financial service providers and cash-out providers, payment terminals and equipment providers. Any disruption or failure
in the services from third party partners used to facilitate our business could harm our business. Any financial or other difficulties
these partners face may adversely affect our business, and we exercise little control over these partners, which increases vulnerability
to problems with the services they provide.
There is no assurance that we will be profitable.
There is no assurance that we will earn profits
in the future or that profitability will be sustained. There is no assurance that future revenues will be sufficient to generate the funds
required to continue our business development and marketing activities. If we do not have sufficient capital to fund our operations, we
may be required to reduce our sales and marketing efforts or forego certain business opportunities.
We could lose the right to the use of our
domain names.
We have registered domain names for our website
that we use in our business. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable
registration, or any other cause, we may be forced to market our products under a new domain name, which could cause us substantial harm,
or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could
attempt to capitalize on our brand recognition by using domain names similar to ours, especially in light of our expected expansion in
SEA countries and East Asia. Domain names similar to ours may be registered in the United States and elsewhere. We may be unable
to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our
brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could
result in substantial costs and diversion of management’s attention.
We may be required to expend resources to
protect ZCITY App information or we may be unable to launch our services.
From time to time, other companies may copy information
from our ZCITY App, through website scraping, robots or other means, and publish or aggregate it with other information for their own
benefit. We have no assurance other companies will not copy, publish or aggregate content from our ZCITY App in the future. When third
parties copy, publish or aggregate content from our ZCITY App, it makes them more competitive, and decreases the likelihood that consumers
will visit our website or use our mobile app to find the information they seek, which could negatively affect our business, results of
operations and financial condition. We may not be able to detect such third-party conduct in a timely manner and, even if we could, we
may not be able to prevent it. In some cases, particularly in the case of websites operating outside of the United States, our available
remedies may be inadequate to protect us against such practices. In addition, we may be required to expend significant financial or other
resources to successfully enforce our rights.
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Breaches of our online commerce security
could occur and could have an adverse effect on our reputation.
A significant barrier to online commerce and communications
is the secure transmission of confidential information over public networks. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography and cybersecurity or other events or developments will not result in a compromise or breach
of the technology used by us to protect customer transaction data. If any such compromise of our security were to occur, it could have
a material adverse effect on our reputation and, therefore, on our business, results of operations and financial condition. Furthermore,
a party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations.
We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of transactions conducted on the Internet and other online services and the privacy
of users may also inhibit the growth of the Internet and other online services generally, and the Web in particular, especially as a means
of conducting commercial transactions. To the extent that our activities involve the storage and transmission of proprietary information,
security breaches could damage our reputation and expose us to a risk of loss or litigation and possible liability. There can be no assurance
that our security measures will prevent security breaches or that failure to prevent such security breaches will not have a material adverse
effect on our business, results of operations and financial condition.
We may not have the ability to manage our
growth.
We anticipate that significant expansion will
be required to address potential growth in our customer base and market opportunities. Our anticipated expansion is expected to place
a significant strain on our management, operational and financial resources. To manage any material growth of our operations and personnel,
we may be required to improve existing operational and financial systems, procedures and controls and to expand, train and manage our
employee base. There can be no assurance that our planned personnel, systems, procedures and controls will be adequate to support our
future operations, that management will be able to hire, train, retain, motivate and manage required personnel or that our management
will be able to successfully identify, manage and exploit existing and potential market opportunities. If we are unable to manage growth
effectively, our business, prospects, financial condition and results of operations may be materially adversely affected.
We rely on the performance of highly skilled
personnel, and if we are unable to attract, retain and motivate well-qualified employees, our business could be harmed.
We are, and will be, heavily dependent on the
skill, acumen and services of our management and other employees. Our future success depends on our continuing ability to attract, develop,
motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs
to attract them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability
to execute our business plan, and we may not be able to find adequate replacements. All of our officers and employees are at-will employees,
which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would
be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management
or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our
business could be harmed.
Illegal use of our ZCITY App could result
in adverse consequences to us.
Despite measures we will implement to detect and
prevent identify theft or other fraud, our ZCITY App remains susceptible to potentially illegal or improper uses. Despite measures we
will take to detect and lessen the risk of this kind of conduct, we cannot assure that these measures will succeed. Our business could
suffer if customers use the ZCITY App for illegal or improper purposes.
If merchants on our ZCITY App are operating illegally,
we could be subject to civil and criminal lawsuits, administrative action and prosecution for, among other things, money laundering or
for aiding and abetting violations of law. We would lose the revenues associated with these accounts and could be subject to material
penalties and fines, both of which would seriously harm our business.
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We are subject to certain risks by virtue
of our international operations.
We operate and expand internationally. We expect
to expand our international operations significantly by accessing new markets abroad and expanding our offerings in new languages: not
less than all languages in SEA countries and Japan. Our platform is now available in English and several other languages. However, we
may have difficulty modifying our technology and content for use in non-English-speaking markets or fostering new communities in non-English-speaking
markets. Our ability to manage our business and conduct our operations internationally requires considerable management attention and
resources, and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages,
cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Furthermore, in most
international markets, we would not be the first entrant, and our competitors may be better positioned than we are to succeed. Expanding
internationally may subject us to risks that we have either not faced before or increase our exposure to risks that we currently face,
including risks associated with:
● the enforceability of our intellectual property rights;
● credit risk and higher levels of payment fraud;
● compliance with anti-bribery laws;
● currency exchange rate fluctuations;
● political and economic instability in some countries;
● higher costs of doing business internationally.
We do not have liability business interruption,
litigation or natural disaster insurance.
We do not have any business liability, disruption
insurance or any other forms of insurance coverage for our operations in Malaysia because our business is still in planning and early
stage. Any potential liability, business interruption, litigation or natural disaster may result in our business incurring substantial
costs and the diversion of resources.
The economy of Malaysia in general might
not grow as quickly as expected, which could adversely affect our revenues and business prospects.
Our business and prospects depend on the continuing
development of the economy in Malaysia. We cannot assure you that the Malaysian economy will continue to grow at the same pace as in the
past. Economic growth is determined by countless factors, and it is extremely difficult to predict with any level of absolute certainty.
In the event that the Malaysian economy suffers, demand for the services and/or products of our wholly owned subsidiaries may diminish,
which would in turn result in decreased likelihood of 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.
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We face the risk that changes in the policies
of the Malaysian government could have a significant impact upon the business we may be able to conduct in Malaysia and the profitability
of such business.
Policies of the Malaysian government can have
significant effects on the economic conditions of Malaysia. A change in policies by the Malaysian government could adversely affect our
interests by, among other factors: changes in laws, regulations or the interpretation thereof, confiscatory taxation, restrictions on
currency conversion, imports or sources of supplies or the expropriation or nationalization of private enterprises. We cannot assure you
that the government will continue to pursue current policies or that such policies may not be significantly altered, especially in the
event of a change in leadership, social or political disruption, or other circumstances affecting Malaysia’s political, economic
and social environment.
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 operations.
Malaysia is experiencing substantial inflationary
pressures which may prompt the governments to take action to control the growth of the economy and inflation that could lead to a significant
decrease in our profitability.
While the Malaysian economy has experienced rapid
growth over the last two decades, they have also experienced inflationary pressures. As governments take steps to address inflationary
pressures, there may be significant changes in the availability of bank credits, interest rates, limitations on loans, restrictions on
currency conversions and foreign investment. There also may be imposition of price controls. If our revenues rise at a rate that is insufficient
to compensate for the rise in our costs, it may have an adverse effect on our profitability. If these or other similar restrictions are
imposed by a government to influence the economy, it may lead to a slowing of economic growth, which may harm our business, financial
condition and results of operations.
If inflation increases significantly in
SEA countries, our business, results of operations, financial condition and prospects could be materially and adversely affected.
Should inflation in SEA countries, including Malaysia,
increase significantly, our costs, including our staff costs are expected to increase. Furthermore, high inflation rates could have an
adverse effect on the countries’ economic growth, business climate and dampen consumer purchasing power. As a result, a high inflation
rate in SEA countries, including Malaysia, could materially and adversely affect our business, results of operations, financial condition
and prospects.
Any potential disruption in and other risks
relating to our merchants’ supply chain could increase the costs of their products or services to consumers, potentially causing
consumers to limit their spending or seek products or services from alternative businesses that may not be registered as a merchant with
us, which may ultimately affect the total number of users using our platform and harm our business, financial condition and results of
operations.
Our offline and online merchants obtain
their products, or the raw materials comprised of their products or used in their services, from manufacturers and distributors
located around the world, and may have entered into long-term contracts or exclusive agreements that would ensure their ability to
acquire the types and quantities of products or raw materials they desire at acceptable prices and in a timely manner. Any potential
disruption in and other risks relating to the offline or online merchants’ supply chain as a result of the COVID-19 pandemic
or Russia’s invasion of Ukraine, could increase the costs of their products or services to consumers, potentially causing
consumers to limit their spending or seek products or services from alternative businesses that may not be registered as a merchant
with us, which may ultimately affect the total number of users using our platform and harm our business, financial condition and
results of operations.
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Our business will be exposed to foreign
exchange risk.
We derive most of our revenue from the operations
of our ZCITY App in Malaysia and expect to derive our revenue from Malaysia, other SEA countries and Japan in the future. Our functional
currencies will by necessity be the currencies of the countries of SEA and Japan. Our reporting currency is the U.S. dollar. We translate
our results of operations using the average exchange rate for the period, unless the average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the
dates of the transactions, and we translate our financial position at the period-end exchange rate. Accordingly, any significant fluctuation
between the currencies of countries of SEA and Japan on the one hand and the U.S. dollar on the other could expose us to foreign
exchange risk.
Some of the currencies of the countries of SEA
are not freely convertible. The foreign exchange management regime of many SEA countries has transitioned from a system of fixed multiple
exchange rates controlled by the state banks to a system of flexible exchange rates regulated largely by market forces, though transfers
of currency is regulated and controlled in some countries. A significant depreciation in many of the currencies of countries of SEA against
major foreign currencies may have a material adverse impact on our results of operations and financial condition because our reporting
currency is the U.S. dollar. There can be no assurance, that the governments will continue to relax their foreign exchange regulations,
that they will maintain the same foreign exchange policy or that there will be sufficient foreign currency available in the market for
currency conversions. If, in the future, the regulations restrict our ability to convert local currencies or there is insufficient foreign
currency available in the market, we may be unable to meet any foreign currency payment obligations.
Fluctuations in exchange rates in the Malaysian
Ringgit (“RM”) could adversely affect our business and the value of our securities.
The value of the RM against the U.S. dollar
and other currencies may fluctuate and is affected by, among other things, changes in Malaysia’s political and economic conditions.
The value of our common stock will be indirectly affected by the foreign exchange rate between U.S. dollars and RM and between those
currencies and other currencies in which our revenue may be denominated. Appreciation or depreciation in the value of the RM relative
to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying
change in our business or results of operations. As we rely entirely on revenues earned in Malaysia, any significant revaluation of RM
may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert
U.S. dollars we receive from an offering of our securities into RM for our operations, appreciation of the RM against the U.S. dollar
could cause the RM equivalent of U.S. dollars to be reduced and therefore could have a material adverse effect on our business, financial
condition and results of operations. Conversely, if we decide to convert our RM into U.S. dollars for the purpose of making dividend
payments on our common stock or for other business purposes and the U.S. dollar appreciates against the RM, the U.S. dollar
equivalent of the RM we convert would be reduced. In addition, the depreciation of significant U.S. dollar denominated assets could
result in a change to our operations and a reduction in the value of these assets.
We may not be able to maintain the listing
of our common stock on Nasdaq, which could adversely affect our liquidity and the trading volume and market price of our common stock
and decrease or eliminate your investment.
On August 17, 2023, we received a
letter from Nasdaq notifying us that we were no longer in compliance with the $1.00 minimum bid price requirement for continued
listing on Nasdaq under Nasdaq Listing Rule 5550(a)(2). Although Nasdaq has granted us 180 calendar days, or until
February 13, 2024, to regain compliance with the Bid Price Rule. On February 27, 2024, the Company effected a 1:70 reverse stock split of
its shares of common stock. On March 20, 2024, the Company received a letter from the Panel informing the Company that since the common
stock of the Company had traded at $1.00 per share or greater for a 10 consecutive business day period between February 27, 2024 and March
20, 2024. Accordingly, the Company has regained compliance with the Bid Price Rule and this matter is closed. However, there can be no
assurance that we will continue to be in compliance and Nasdaq could make a determination to issue another notice regarding such incompliance.
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Any delisting determination by Nasdaq could
seriously decrease or eliminate the value of an investment in our common stock and other securities linked to our common stock.
While a listing on an over-the-counter exchange could maintain some degree of a market in our common stock, we could face
substantial material adverse consequences, including, but not limited to, the following: limited availability for market quotations
for our common stock; reduced liquidity with respect to and decreased trading prices of our common stock; a determination that
shares of our common stock are “penny stock” under the SEC rules, subjecting brokers trading our common stock to more
stringent rules on disclosure and the class of investors to which the broker may sell the common stock; limited news and analyst
coverage for our Company, in part due to the “penny stock” rules; decreased ability to issue additional securities or
obtain additional financing in the future; and potential breaches under or terminations of our agreements with current or
prospective large stockholders, strategic investors and banks. The perception among investors that we are at heightened risk of
delisting could also negatively affect the market price of our securities and trading volume of our common stock.
Geopolitical conditions, including acts
of war or terrorism or unrest in the regions in which we operate could adversely affect our business.
Most of our operations and business activities
are conducted in Malaysia, whose economy and legal system remain susceptible to risks associated with an emerging economy and which is
subject to higher geopolitical risks than developed countries. Social and political unrest could give rise to various risks, such as loss
of employment and safety and security risks to persons and property. Additionally, our operations could be disrupted by acts of war, terrorist
activity or other similar events, including the current or anticipated impact of military conflict and related sanctions imposed on Russia,
Belarus and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations by the
United States and other countries due to Russia’s invasion of Ukraine in February 2022. It is not possible to predict
the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the
U.S. and other countries in respect thereof as well as any counter measures or retaliatory actions by Russia or Belarus in response,
including, for example, potential cyberattacks or the disruption of energy exports, is likely to cause regional instability, geopolitical
shifts, and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. Any such
event may in turn have a material and adverse effect on our business, results of operations and financial position.
Because our principal assets are located
outside of the United States and all of our directors and all our officers reside outside of the United States, it may be difficult
for you to enforce your rights based on U.S. Federal Securities Laws against us and our officers and directors or to enforce a judgment
of a United States court against us or our officers and directors.
All of our directors and officers reside outside
of the United States. In addition, substantially all of our assets are located outside of the United States. It may therefore
be difficult for investors in the United States to enforce their legal rights based on the civil liability provisions of the U.S. federal
securities laws against us in the courts of either the U.S. or Malaysia and, even if civil judgments are obtained in U.S. courts,
to enforce such judgments in Malaysian courts.
Our failure to maintain effective internal
controls over financial reporting could have an adverse impact on us.
We are required to establish and maintain appropriate
internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could
adversely impact our public disclosures regarding our business, financial condition or results of operations. In addition, management’s
assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal
controls over financial reporting or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions
that need to be addressed in our internal control over financial reporting, disclosure of management’s assessment of our internal
controls over financial reporting or disclosure of our public accounting firm’s attestation to or report on management’s assessment
of our internal controls over financial reporting may have an adverse impact on the price of our common stock.
In preparing our consolidated financial statements as of and for the
year ended June 30, 2024, we and our independent registered public accounting firms identified 2 material weaknesses and other
control deficiencies including significant deficiencies in our internal control over financial reporting, as defined in the standards
established by the Public Company Accounting Oversight Board. A “material weakness” is a deficiency, or a combination of deficiencies,
in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s
annual or interim financial statements will not be prevented or detected on a timely basis.
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The material weaknesses identified included the
following: (1) Inadequate U.S. GAAP expertise. The current accounting staff is inexperienced in applying U.S. GAAP standard
as they are primarily engaged in ensuring compliance with International Financial Reporting Standards (“IFRS”) accounting
and reporting requirement for our consolidated operating entities, and thus require substantial training. The current staff’s accounting
skills and understanding as to how to fulfill the requirements of U.S. GAAP-based reporting, including subsidiary financial statements
consolidation, are inadequate; and (2) Inadequate internal audit function. We lack of a functional internal audit department or personnel
that monitors the consistencies of the preventive internal control procedures and lack of adequate policies and procedures in internal
audit function to ensure that our policies and procedures have been carried out as planned.
Following the identification of the material weaknesses
and control deficiencies, we plan to take remedial measures including (i) hiring more qualified accounting personnel with relevant
U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial
and system control framework; (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training
programs for our accounting and financial reporting personnel; (iii) establishing internal audit function by engaging an external
consulting firm to assist us with assessment of Sarbanes-Oxley Act compliance requirements and improvement of overall internal control;
and (iv) strengthening corporate governance. However, the implementation of these measures may not fully address the material weaknesses
in our internal control over financial reporting. Our failure to correct the material weaknesses or our failure to discover and address
any other material weaknesses or control deficiencies could result in inaccuracies in our consolidated financial statements and could
also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As
a result, our business, financial condition, results of operations and prospects, as well as the trading price of our common stocks, may
be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability
to prevent fraud.
A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the
design of a control system must reflect the fact that there are resource constraints, and the benefit of controls must be relative to
their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Further, controls can
be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The
design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may
become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of
inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
If we fail to have effective controls and procedures
for financial reporting in place, we could be unable to provide timely and accurate financial information which could result in an investigation
by the SEC and civil or criminal sanctions; investors losing confidence in the accuracy of our periodic reports filed under the Exchange Act;
and a decline in our stock price.
We are an “emerging growth company”
under the JOBS Act and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our
common stock less attractive to investors.
We are an “emerging growth company,”
as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are not applicable
to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote
on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors
will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive
as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
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In addition, Section 107 of the JOBS Act
also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act of 1933 (the “Securities Act”) for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We have chosen to take advantage of the extended transition period for complying with new or revised accounting
standards.
We will remain an “emerging growth company”
until the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant
to an effective registration statement under the Securities Act, although we will lose that status sooner if our revenues exceed $1.235 billion,
if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock that
is held by non-affiliates exceeds $700 million as of the last day of our most recently completed second fiscal quarter.
The elimination of personal liability against
our directors and officers under Delaware law and the existence of indemnification rights held by our directors, officers and employees
may result in substantial expenses.
Our certificate of incorporation, as amended (“Certificate
of Incorporation”) eliminates the personal liability of our directors and officers to us and our stockholders for damages for breach
of fiduciary duty as a director or officer to the extent permissible under Delaware law. Further, our bylaws (“Bylaws”) provide
that we are obligated to indemnify each of our directors or officers to the fullest extent authorized by the Delaware law and, subject
to certain conditions, advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its
final disposition. Those indemnification obligations could expose us to substantial expenditures to cover the cost of settlement or damage
awards against our directors or officers, which we may be unable to afford. Further, those provisions and resulting costs may discourage
us or our stockholders from bringing a lawsuit against any of our current or former directors or officers for breaches of their fiduciary
duties, even if such actions might otherwise benefit our stockholders.
We have not paid dividends in the past and
do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.
We have never paid cash dividends on our common
stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. We currently intend to retain any future
earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment
of any future dividends will be at the discretion of our Board after taking into account various factors, including, but not limited to,
our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to
at the time. In addition, our ability to pay dividends on our common stock may be limited by Delaware state law. Accordingly, investors
must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their
investment. Investors seeking cash dividends should not purchase our common stock.
Regulatory Risks
Failure to comply with laws and regulations
applicable to our business could subject us to fines and penalties and could also cause us to lose customers or otherwise harm our business.
Our business is subject to regulation by various
governmental agencies in Malaysia, including agencies responsible for monitoring and enforcing compliance with various legal obligations,
such as privacy and data protection-related laws and regulations, intellectual property laws, employment and labor laws, workplace safety,
governmental trade laws, import and export controls, anti-corruption and anti-bribery laws, and tax laws and regulations. These laws and
regulations impose added costs on our business. Noncompliance with applicable regulations or requirements could subject us to:
● investigations, enforcement actions, and sanctions;
● mandatory changes to our network and products;
● disgorgement of profits, fines, and damages;
● civil and criminal penalties or injunctions;
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● claims for damages by our customers or channel partners;
● termination of contracts;
● temporary or permanent debarment from sales to public service organizations.
If any governmental sanctions are imposed, or
if we do not prevail in any possible civil or criminal litigation, our business, results of operations and financial condition could be
adversely affected. In addition, responding to any action will likely result in a significant diversion of our management’s attention
and resources and an increase in professional fees. Enforcement actions and sanctions could materially harm our business, results of operations
and financial condition.
Any reviews by regulatory agencies or legislatures
may result in substantial regulatory fines, changes to our business practices and other penalties, which could negatively affect our business
and results of operations. Changes in social, political and regulatory conditions or in laws and policies governing a wide range of topics
may cause us to change our business practices. Further, our expansion into a variety of new fields also could raise a number of new regulatory
issues. These factors could negatively affect our business and results of operations in material ways.
Moreover, we are exposed to the risk of misconduct,
errors and failure to functions by our management, employees and parties that we collaborate with, who may from time to time be subject
to litigation and regulatory investigations and proceedings or otherwise face potential liability and penalties in relation to noncompliance
with applicable laws and regulations, which could harm our reputation and business.