SHM Controls June 2018 Confidential – Keiretsu Forum / SHM Controls Due Diligence Report Page 1 ODED MALKY, CEO MOBILE: (604) 802-9742 EMAIL: ODED@SHMCONTROLS.COM DUE DILIGENCE REPORT DECEMBER 2016 REVISED: JUNE 2018
SHM Controls June 2018
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ODED MALKY, CEO
MOBILE: (604) 802-9742
EMAIL: [email protected]
DUE DILIGENCE REPORT
DECEMBER 2016
REVISED: JUNE 2018
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Contents
COMPANY OVERVIEW & MANAGEMENT TEAM 3
EXECUTIVE SUMMARY OF DUE DILIGENCE FINDINGS AND DEAL TERMS 12
DUE DILIGENCE TEAM BIOGRAPHIES 19
A. STRATEGY AND VISION REPORT 26
B. TECHNOLOGY AND SOFTWARE REPORT 41
C. FINANCE REPORT 65
D. MARKET REPORT 80
E. LEGAL AND IP REPORT 100
F. PRODUCTS AND OPERATIONS REPORT 107
G. MARKETING AND SALES REPORT 122
H. SITE VISIT REPORT 134
I. EXISTING INVESTOR REPORT 144
J. COMPETITIVE ANALYSIS AND EXITS REPORT 153
K. TERM SHEET 182
L. FREQUENTLY ASKED QUESTIONS 185
M. PITCH DECK 190
Keiretsu Forum Disclaimer:
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limitation, any implied warranties of merchantability, fitness for a particular purpose or non-infringement. The
accompanying Report is provided on an “as is” basis. Each recipient of the Report is encouraged to work with their own
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Company Overview
June 2018 update by SHM
SHM Controls has developed a patented, low-cost, smart wireless HVAC controller for buildings and offices that
reduces average energy consumption by up to 30%. It also offers full remote access, control and automated
predictive email/text alerts in the events of mechanical equipment failure.
The new Wireless Retrofit Thermostat Control (WRTC) transforms a building’s existing set of independent
thermostats into a networked array of IoT sensors and smart temperature control units that can operate based
on a system wide energy saving algorithm. Dozens of building installations located in the Pacific Northwest and
the US Eastern Seaboard have demonstrated unprecedented energy savings over the 5 year data collection
period.
The technology is now able to actively control all HVAC equipment including A/C units (central or individual per
unit) as well as thermostats and other electrical equipment. Until last year, active control was possible only for
central gas boilers .
Over the past 4 years, SHM Controls has developed and tested a low-cost, smart boiler controller for multi-unit
residential buildings, industrial/commercial buildings and large single-family homes, that reduces natural gas
consumption for heating by 30% on average. It also offers full remote control using smartphones, laptops and
tablets as well as automatic email/text alerts in emergencies.
Most buildings waste a third of the energy they use. Even in the current low price environment, natural gas is
one of the largest recurring expenses. Very few companies make 'smart' boiler controllers, all of which cost
$20K-$50K making them completely unaffordable to most small/medium size buildings.
The SHM Controller™ is a low-cost “smart” boiler controller for buildings that reduces natural gas consumption
for heating by 30% on average. It employs a brand new method for controlling boilers, hot water tanks, pumps
and valves in multi-unit residential buildings, industrial/commercial buildings large single-family homes,
provides complete remote control (smartphones, laptops & tablets) over the building's heating system and
sends email/text alerts on emergencies - all at a very affordable cost.
At a very low installation fee, combined with a monthly monitoring fee (SaaS/HaaS model) the SHM Controller
is affordable to all buildings - customers pay out of their savings.
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Management Team Biographies
Author: Sean Melrose
Oded Malky, B.Sc, CEO / CTO at SHM Controls Inc.
Mr. Malky was born and raised in the technology start-up environment of
Israel. Between the years 1984-1988 Mr. Malky served in the Israeli Army,
primarily in the Air-Force starting at the pilot academy, special field-tech
operations, Commander at the Air Force Academy, special assignments with
Unit 8200, and eventually as an army reserve expert technology consultant for
the Main Forensic Lab at the Israeli Police headquarters in Jerusalem.
In 1992 Mr. Malky received his B.Sc in Computer Engineering from the
Technion, Israeli Institute of Technology, while taking concurrently additional
curriculum of Business Administration, Corporate Law, Contracts and Patents &
Trademarks law.
In 1992, two months after graduating from university, Mr. Malky founded his first startup - M.O.Tek Ltd. and
hired his teaching assistant as his first employee. After a tedious negotiation process, Mr. Malky managed to
received the largest investment possible from the Israeli government's Science Ministry - US $500,000. The
company grew within 2 years to 10 employees, mostly computer and electrical engineers, and developed a
unique technology for voice-verification and voice-identification, used primarily in access control applications.
In 1996 the technology was delivered to the Main Forensic Lab in the Israeli Police Headquarters, Jerusalem.
Further to that transaction, Mr. Malky was nominated as a special reserve forces technology consultant to the
Main Forensic Lab at the Israeli Police Headquarters in Jerusalem. Mr. Malky was also invited to appear as a
guest in a popular technology TV show to talk about his voice verification technology, and few articles were
written about it in professional magazines as well as “Maariv” - one of the largest evening newspapers in Israel.
In 1992 the High Tech College, Herzliya, Israel started to invite Mr. Malky to provide 5 day seminars and
lectures to computer engineers and scientists, teaching unique software/hardware methodologies.
In 1993 the Israeli Aerospace Industries (the largest security corporation in Israel with 40,000 employees)
started to invite Mr. Malky on a regular basis to provide 5 days seminars and lectures, given to computer
software and hardware engineers. The Israeli Aerospace Industries continued to contracted Mr. Malkys'
services for 14 years thereafter especially after his move to Canada, each year for 3-4 visits providing 15 days of
seminars and lectures in each visit.
In 1995 Mr. Malky wrote and published his first book on the subject of the Internet. As it happened, this book
was the first original book published on the subject of the Internet in Israel, and as such it was prefaced by a
high profile member of Israeli parliament (Hon. Michael Eitan) as well as the Chief Editor of “PC World” (Israel),
Mr. Uri Alony.
In 1996 following a family visit to Canada, the Canadian government offered Mr. Malky a special immigration
visa and in the process he was contracted as a technology expert consultant by the Canadian Embassy in Tel-
Aviv and by the Canadian Department of Foreign Affairs and International Trade (DFAIT).
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In 1997, following his move to Canada, Mr. Malky founded Netspell Internet Services Inc. - a Canadian software
and security consulting firm. Netspell Inc. was the first non-Israeli company to be awarded a security project by
the Procurement Department of the Israeli Aerospace Industries (IAI) – a Unix based distributed software
infrastructure that creates a secure sub-network channel between all procurement delegations of the IAI
worldwide.
In 1999 Mr. Malky Co-Founded Now International Inc to develop a new eLearning delivery technology and
produce course content for corporate clients. Within 1 year Now International grew to have 24 employees in 3
offices in 2 continents (Vancouver, Calgary, Barbados) and 42 shareholders, among them from Vancouver,
Calgary and Israel.
In January 2003 Now International was awarded the BC eLearning Award of Excellence in the category of Best
Product. Mr. Malky received the award in a ceremony in Victoria, BC from the minister in charge, Hon. Kevin
Falcon.
In 2004 Mr. Malky started a new venture, using his holding company MO Investments Inc: Acquiring and
operating apartment buildings and furnished rental suites. The first 20-unit apartment and commercial building
was acquired in 2004, the second 25-unit apartment building in 2006 and the third building was acquired in
2008. The first furnished rental suite was acquired in 2007, the second in 2008 and third in 2009. All furnished
rental suites were located in trendy Yaletown neighborhood downtown Vancouver and operating under the
trade name 'Yaletown Suites'.
In 2009 Mr. Malky co-created a one-time multi-million dollar property project called “2010 Home Rentals“,
which targeted the 2010 Winter Olympics in Vancouver. With a team of 15 employees “2010 Home Rentals”
constructed and accumulated a stock of over 1,000 furnished rental condos in downtown Vancouver, to be
leased from their owners and later on rented out with a mark up to the US Department of State. The State
Department used the furnished condos to accommodate all their security personnel attending the 2010
Olympic games in Vancouver.
In 2011 Mr. Malky started to develop and conduct initial field tests with a new gas-saving controller project,
which at the time was called “Smart Heat Management”. By 2014 the gas saving results were so impressive
that the decision was made to make it a business and “Smart Heat Management” was spawned into the new
company under the name: “SHM Controls Inc”.
In January 2015 SHM Controls Inc was founded by Mr Malky and Mr. Ainscough (SHM Control's VP Business
Development) and the first round of financing was announced. The first presentation to potential investors was
done in February 2015 and by May 2015 the first financial round closed successfully being oversubscribed,
receiving 20% more in investment than the company initially asked for.
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Chris Ainscough, VP Business Development, SHM Controls Inc.
Chris is co-founder of SHM Controls with Oded Malky. They have known each
other for 17 years and worked on 2 previous startups together, including Now
International, an e learning company.
A Diploma of Technology from BCIT paved the way for Chris to gain
considerable experience in broadcasting, including private and public with 2
years at the CBC and then on to
Post Modern Sound, where he was Head Editor and supervising sound post for
hundreds of hours of film and TV for 19 years. As well, Chris created and
designed many Worlds Fair Expo pavilion
shows and installations. In 2010 Chris also created the main screen show documentary for the Vancouver
Pavilion for Shanghai World Expo, through his company Predator Communications.
Predator works with many clients on PR campaigns and documentaries including Doctors of BC, Canadian Bar
Association and the BC and Victoria Chambers of Commerce.
Chris also worked with Vancouver Fire Rescue on their strategic planning and development for recruitment and
community outreach by creating various targeted multimedia tools.
His work has garnered many accolades including a Leo Awards win and multiple nominations, as well as Genie,
Clio and Golden Reel nominations.
Social media experience includes extensive use of all media platforms and technologies.
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June 2018 update
Sean Melrose joined the company as a VP of Finance and later on as a member of the Board of Directors.
Sean Melrose, BA, CIM, VP Finance, SHM Controls Inc. SHM Controls, Board of Directors Member
Sean Melrose is a community builder and an innovator in social finance with a
diverse career in investment analysis, advice and finance.
He began his career in wealth management as an investment advisor and branch
compliance officer with Dundee Securities, where he earned the Certified
Financial Planning professional (CFP) and the Fellowship of the Canadian
Securities Institute (FCSI) designations. Sean was an early practitioner and
champion of an integrated and mission-driven approach to wealth management,
building a practice around the precept that financial plans were most successful
when anchored to a sense of meaning and purpose. An aspect of this practice
led to him pioneer the shift from a transactional and product-driven business
model to a fee-based approach that created more alignment with his clients and anticipated the global shift
towards fee transparency and disclosure in financial services.
Beyond his mandate to serve his clients, Sean seized the opportunity to serve his community as well, further
diversifying his financial and governance skills as Vice-Chair of Edmonton’s Assessment Review Board, Vice-
Chair of one of Canada’s most influential Better Business Bureaus, and as a member of the finance policy
committee for Canada’s second largest Chamber of Commerce.
A mid-career move to a remote rural area with a faltering economy presented an exciting opportunity to apply
his skill set to a substantially different problem set. Over the better part of a decade, Sean took volunteer
leadership roles on the boards of numerous local not-for-profits and worked with their executive and finance
teams to address the issue of financial sustainability, such as the Powell River Employment Program Society,
the Powell River Community Foundation, the Powell River & District United Way, the Powell River Chamber of
Commerce and Inclusion Powell River. It was as Inclusion Powell River’s long standing Treasurer that he
spearheaded the launching of PRISE (Powell River Innovation and Social Enterprise Ltd), a for-profit social
venture HoldCo and subsidiary of Powell River’s largest charity ($10MM annual budget) and third largest
employer. Additionally, he conceived of and launched BC’s first Community Investment Corporation (Powell
River Community Investment Corp) with a mandate to catalyze local capital and invest it exclusively in the
equity of community businesses based in rural regions.
This work of community-based investment has since grown in scope, leading Sean to co-found Rhiza Capital
(with Sunshine Coast Credit Union and Community Futures of the Sunshine Coast). Rhiza continues to develop
an ecosystem of community-based and venture impact investment vehicles, democratizing the opportunity to
invest locally, and invest for good.
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Sean’s work as an impact investment fund manager has presented him with ample opportunity to survey the
burgeoning impact space, reviewing scores of business plans and models positioned all along the impact-first vs
finance-first spectrum. Along the way, he has executed twenty one investments (both personally and as
portfolio manager) in eighteen companies across three investment mandates (community-based, impact,tech),
taking active board roles in eight cases (Ethelo Decisions, Cognilab Technologies, Wearable Therapeutics,
Barter Holdings, Hangar Climbing Lounge, Popul8 Analytics, Dynamic Energy Solutions, Craft Technology
Services), five advisory roles(Vidigami Media, ViewsIQ, ChatterHigh Media, Cotyledon Consulting, TRSTBL). and
assumed the mantle of CFO for one portfolio company (SHM Controls).
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Melissa Coombe, BBA, Director of Operations, SHM Controls Inc.
Ms. Coombe's career in business management has provided over 8 years of
concurrent experience in multiple industries.
Beginning her career in hospitality, Ms. Coombe gained 5 years of experience
managing a team of fifteen employees for both the independently owned
Festival Cinemas, and later Cineplex Entertainment.
Over the past 8 years Ms. Coombe also held a business operations role with
Oded Malky’s (CEO/CTO at SHM Controls) previous start-up, MO Investments
Inc, handling customer relations and property logistics in all the properties
operated by the company.
In 2009-2010 Ms. Coombe worked with Oded Malky's “2010 Home Rentals” project. “2010 Home Rentals” was
a one-time multi-million dollar property project, which targeted the 2010 Winter Olympics in Vancouver. With
a team of 15 employees “2010 Home Rentals” constructed and accumulated a stock of over 1,000 furnished
rental condos in downtown Vancouver, to be leased from their owners and rented out with a mark up to the
US Department of State. The State Department used the furnished condos to accommodate all their security
personnel attending the 2010 Olympic games in Vancouver.
Ms. Coombe was directly involved with all the initial build-up the rental condo stock and the logistic and
management of a 7 person team, operating inside all the leased properties before, during and after the
Olympic games.
Ms. Coombe has a Bachelor in Business Administration degree from Langara College, Vancouver.
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Edward M. Lewin, Attorney, Edward M. Lewin Law Corporation
SHM Controls, Board of Directors Member
● Corporate, commercial lawyer; sole practitioner; law practice is focused on
owner/managers
● Called to the BC Bar in 1984
● Former chair of the business law section of the BC Branch of the Canadian Bar
Association
● Served on several non profit society Boards of directors, including as President
● Former varsity basketball player (UBC Thunderbirds)
● Married to Debbie for 35 years, 2 grown children
Lance T. Clarke, HVAC Engineer, CEO, Allied Plumbing, Heating and Air-Conditioning
SHM Controls, Board of Directors Member
Mr. Clarke started his way as a plumbing apprentice, and made his way up the
corporate ladder, until eventually was able to join as the managing partner at
Allied Plumbing, Heating and Air-Conditioning.
Mr. Clarke continues regularly to upgrade his professional education and
federal/provincial certification in order to be able to utilize the latest in
technologies and industry standards.
Mr. Clarke has over 20 years of experience, with over 500 boiler installations in
Greater Vancouver area, Whistler & Vancouver Island.
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June 2018 update by SHM
Two additional advisory board members joined SHM Controls in August 2017:
Richard Wilson, CEO, the Family Office Club & a Single Family Office (Miami)
SHM Controls, Advisory Board Member
Richard is the CEO of The Miami Family Office, a $500M AUM single family office.
Richard is also the founder of Wilson Holding Company with $10M a year in
revenue. Businesses include Billionaire Family Office and The Family Office Club,
the largest membership-based family office association and associated investment
conferences. The Family Office club has over 1,500 registered family offices
managing $1 trillion in assets. The average assets under management per family
office is US $800M. The Family Office database currently has 2,274 unique family
offices with 48% from United States, 34% from Europe and 2.4% from Canada.
The estimated average AUM is $800M, minimum AUM of clients is $20M and
estimated total AUM is over $1T.
Richard brings to the table his many connections within the family office industry and has already made several
initial contacts on our behalf.
Marcus Shapiro, Investment Banking
SHM Controls, Advisory Board Member
Marcus has been an investment banker with HSBC, Credit Commercial de France
and Charterhouse Bank in London and New York and also a corporate Lawyer with
CMS Cameron McKenna. Marcus was also an Advisory Board member and investor
in Bit Stew Systems (Vancouver) until the company was acquired by GE in Nov
2016 for $200M. Marcus is currently an advisory board member at Finn.ai,
chairman at Katipult - a Fintech company and consulting as SVP, Strategic Growth
at Sikeleli Africa Safaris.
Marcus brings to the table his connections to municipalities, large HVAC companies and investors and also still
maintains connections with GE (one of our potential future M&A partners). Marcus has already introduced a
new investor to SHM Controls and made several initial contacts on our behalf.
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Executive Summary of Due Diligence Findings and Deal Terms December 2016 | Compiled by Robert Jaeger
Contact Oded Malky, CEO (604) 802-9742 ([email protected]) or Robert Jaeger ([email protected]) to request access.
June 2018 update by Robert Jaeger
This document has been revised in June 2018 by SHM Controls, rather than by the original DD team. The original 2016 text stands in this document as it was originally written, and has only been changed where specifically indicated. The additions to the original document are contained in bordered boxes, as exemplified by this one. The authors of the new material are listed at the end of this section. SHM has been very active in the intervening 1 and 1/2 years since the original report was produced, having successes both in the marketplace, as well as in obtaining investment. Many of these developments are noted in the new sections of this report. I encourage you, as a potential new investor, to consider the old as well as the new sections of this report in some detail. Especially, I encourage you to consider what the existence of this report means. As we know, statistically few companies survive the progression from startup into ‘early phase’, and fewer yet progress into some degree of market success, on the path toward significant scale-up and an eventual exit. Surviving this progression is always the best indicator of the viability of not only the value proposition of the company business model, but much more importantly of the viability of the core team who make the strategic decisions and run the business. In this context, it appears that our original assessment and optimism about the SHM team was well founded. Most other teams never survive the initial ‘company building’ phase, to get to the point of returning to the well with a success-based plan to ask for more investment. SHM is clearly one of these few. In the last year and a half, as you will read in this report, SHM has acquired many customers, made many presentations, and arranged multiple strategic partnership opportunities. All of these actions clearly document the capability of the core team to execute the plan in an increasingly successful way. I will not attempt to recite the details of these accomplishments in this summary; you may read them in the appropriate, following sections of the report. I will indicate, below, a few specific points which may be concluded from this recent history. I will reiterate to you, dear potential investor, that myself and all of the DD team are here at your service in this project. Please do your part in performing your own research, and talk with any of us. We all would be pleased to tell you, personally, why we volunteered our time and wrote what we did. We look forward to talking with you.
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Executive Summary: The SHM Controls company is a perfect example of a modern, entrepreneurial approach to identifying a huge
business opportunity in plain sight, yet almost completely unaddressed by existing firms, and then offering a
mutually-beneficial ‘Internet of Things’ solution with tremendous scalability and future opportunity.
The specific opportunity, that of vastly improving the overall operating efficiency of the entire heating system
(having a boiler as it’s main heat source) in a certain class of multi-tenant building, is a growing market, world
wide. As this opportunity is one of saving money for a customer rather than marketing a completely new
product, the sales path may be easier, despite the required ‘customer education’. Existing results are extremely
promising. Additional products and services in the same overall business space are planned, thus capitalizing
on existing market success and also on existing acquired customers.
Absolutely no ‘fatal problems’ or ‘serious concerns’ regarding current or planned business practices have been
found. The CEO and company staff have been a model of responsive and engaged professionals, and have
accommodated every request from the Due Diligence Team with speed and understanding. The Team has
engaged in weekly conference calls for this Report for over 2 months, and have not voiced a single serious or
deep concern regarding the potential for future profitability of this company. The CEO was fully engaged during
this entire process and led most of the conference calls. In itself, this makes this Due Diligence project and
entrepreneurial firm both remarkable.
Please review the details in the included chapters, and please feel invited to speak personally with any or all of
the chapter authors about any questions you may have. This Due-Diligence team is exceptional in depth and
breadth of talent, as you will see from the biographic statements as well as the chapter content. All were
impressed with this company and would be willing to share their enthusiasm with all fellow investors and
Keiretsu Forum members.
Reasons to Consider an Investment
● SMH is perfectly positioned to capture an existing large market with existing IOT technology, thus not requiring any additional technical ‘inventions’ for success. They have currently installed systems, and are only seeking to scale an existing success into a much larger one.
● The Due Diligence process with SMH was wholly positive, showing a company ready to expand
operations and dollar volume.
● The SMH management team is comprised of seasoned mid-career professionals, led by a serial entrepreneur. They absolutely seem to have the right mix of experience, energy, different capabilities, domain knowledge and desire to succeed.
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Positives:
● SHM is in a strong financial position, with existing liquidity to last over 6 months at current burn rates. This allows the next set of decisions to be very thoughtfully and carefully made, rather than rushed. The fiscal plan is for this raise to carry them an additional 18 months, until planned Series A financing. Thus, in classically conservative banking style, they ‘don’t really need the money’, but it sure would help to speed things up and secure the advantage they currently enjoy.
● The existing Vision and Strategy is very richly and thoughtfully planned to accommodate the existing
core staff plus the planned business environment over the span of the offering. Please review the similarly elegant report chapter for these data.
● This financial raise is all about supporting the execution of a business plan, which is heavy on sales and
customer support. These are specifically the components of a business, which may reliably be rapidly acquired, given sufficient funding.
June 2018 update by Robert Jaeger
● As most of us agree that the past is the best indicator of the future, the increasing business success of SHM is the strongest possible data which could be offered to validate both the model, as well as the execution ability of the core team. This opportunity is with a company with demonstrable success; a rare statement in the Angel world.
● The very recent discussions with family offices have yielded the imminent potential for partnership covering hundreds of buildings, internationally. This is a strategic breakthrough, in negotiation at this time. Please check with the core team for current status.
Challenges/Risk Factors:
● This is a business scale-up opportunity based on existing hardware and custom software, dependent on continually increasing sales to new customers. This means that continuing new sales and continuing customer service execution are the critical components required for company success. Investor success will depend upon these, plus success at achieving an appropriate strategic exit. Both of these sets of business processes are solely dependent upon the right core staff, company employees, and external partners being involved all the time.
● The ‘first mover advantage’ of a nimble, young company such as SHM may be overcome by a larger,
existing company with sufficient resources, should that strategic decision be made by a potential competitor. This is not fully predictable and could only be mitigated to some degree by a rapid scale-up and increase in number of installations.
● Retaining the existing business space advantage, should any competitor enter this market, will partially
depend upon the design and offering of new versions and models of existing products in their product structure. This periodic but continuing need to ‘invent’ or ‘innovate’ is not an easily acquired resource set. Thus, distraction of the core team from innovation by the needs of rapidly growing a new business is a risk to future plan execution. Finding, selecting and retaining exceptional, new staff is even more critical for this type of business than is normally the case.
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Due Diligence Process:
Due diligence has been performed by Keiretsu Forum Northwest members and other participating angel
investors. The conclusion of the due diligence process resulted in commitments to SHM Controls. Keiretsu
Pacific Northwest has made their due diligence available for review by the Keiretsu Forum due diligence team
and interested investors via ProSeeder.
Company presented to six chapters of Keiretsu Forum Northwest region in September 2016 resulting in 34 total
interested sign-ups. Subsequently, a due diligence team led by Robert Jaeger was formed with members which
prepared an initial draft of a due diligence report in December and this final report. The company has already
raised a total of $150,000 and an additional $275,000 in commitments for this round from Keiretsu Forum
members and related parties.
A site visit was conducted on 25 October 2016 in Vancouver, BC and additional site visits were conducted by
several of the due diligence team members and investors in the company over the past couple months. Final
due diligence reports where prepared covering technology and marketing, finance and corporate/deal
documents and reference checks.
Key Due Diligence Team Participants (the “Team”):
Robert Jaeger – Coordinator/Lead
Irina Gera – Finance
John Kaminski – Strategy and Vision
Sean Melrose – Management and References
Colin Prior – Market
Raj Bharti – Marketing and Sales
Sherry Zins Calvert – Site Visit
Nathan Nifco – Technology and Software
Hafi Barry – Competitive Analysis
Hafi Barry – Exit Opportunities
Mike Volker – Existing Investor References
Bryan Santarelli – Legal, Deal Docs and IP Position
Colin Prior – Products and Operations
June 2018 update by SHM
Team revising the original due diligence report include:
Robert Jaeger
Nathan Nifco
Sean Melrose
Chris Ainscough
Daniel Vogts
Melissa Coombe
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Documentation Checklist: A review of the primary corporate documents and contracts and deal documents was also conducted by Bryan Santarelli and is detailed in his report entitled “Legal and IP.” The documents reviewed are listed in the report. Summary of Selected Due Diligence Reports: Strategy and Vision – John Kaminski
I believe the long-term potential for SHM is significant. The challenge will be to scale sales fast enough to reach
critical mass, whereby the IoT and the aggregate usage data the company amasses becomes extremely
valuable. This is a marketing and sales challenge that can be overcome, but will require time and investment to
do so effectively. The company’s margins and recurring revenue model project nice profits even if growth does
not materialize at the projected rate.
While energy efficiency is a hot topic, industry consensus is that there is little that can be done to improve
boiler efficiency and thus there is no clamor for an improvement, and in fact initial reactions of HVAC
professionals I spoke with were skeptical as to the SHM claims. It was however very exciting to note that after
very minimal exposure to the SHM product information, those same HVAC professionals recognized the
uniqueness to the SHM solution and became excited as to its potential.
Technology and Software – Nathan Nifco
SHM’s hardware and software solution is designed to help small and medium size buildings in their gas heating
savings and efficient management of energy consumption and to analyze and pointing out any domestic hot
water malfunction by analyzing the heat temperature curve. Sophisticated and advanced technology of this
kind is often exclusive to large buildings with very large budget costing hundreds of thousands of dollars. By
developing a customer network with ‘IoT’ (Internet of Things) controls and sensors, the leveraging of such
infrastructure can lead to multiple dimensions of growth and expansion and position SHM to lead a data
exchange standard interface to aggregate, broker, consolidate and supply usage and data consumption.
Finance – Irina Gera and Sean Melrose
SHM Controls was incorporated on January 29, 2015 under the laws of the Province of British Columbia and
commenced active operations in June, 2015. The Company provided financial statements compiled by their
accounting firm, Steele & Company, at the required “Notice to Reader” review level for the period from
January 29, 2015 to August 31, 2016. Other presented financial documents include projected and actual budget
for the period August 1 through May 31, 2016, capitalization table, and central securities register. These
documents serve as a foundation for SHM financial history in this report. The company is currently in pre-
revenue stage. To date, SHM Controls has raised $260,000 in a seed round plus $75,000 invested by the
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owners. The post money valuation for the seed round was $1.06M. SHM Controls also provided the financial
forecast for the period 2016 - 2021. The forecast includes cash flow and income statements, including
underlying assumptions for the revenue forecast, and key hires up to 2021. All documents present numbers in
Canadian dollars.
Management and References – Sean Melrose Positive reference checks on senior management team were performed and can be reviewed in the comprehensive due diligence report. Market – Colin Prior Current and predicted market conditions are examined in detail in the report chapter. Legal, Deal Docs and IP Position – Bryan Santarelli Multiple documents were reviewed in varying depth, and details are documented in the following report
chapter. A basic patent review was performed, however a comprehensive review of the companies IP assets
was not completed.
Products and Operations – Colin Prior
Detailed information is included in the report chapter.
Marketing and Sales – Raj Bharti
SHM Controls has developed an excellent product, including hardware and software components, but the
company has not been able to scale the sales & marketing efforts due to its limited amount of resources. One
of the major goals of fundraising is to beef up the marketing activities, increase product awareness, acquire
new customers, and establish a solid sales channel.
Site Visit – Sherry Zins Calvert
A site visit was performed and staff were interviewed. Photos from this event are included in the following
report chapter.
Existing Investor Data – Mike Volker
A capitalization table and biographic data on existing investors are included in the report chapter.
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Competitive Analysis and Exit Opportunities – Hafi Barry
Many details of potential competitors are presented in the report chapter.
The main two exit opportunities the SHM Controls is aiming at are M&A (merger & acquisition) by a large
player in the market or going public via IPO or RTO. This is not necessarily an either/or option, but could
potentially be also achieved via an IPO/RTO following by a later M&A.
In order to assess the possibilities for either exit opportunities, we review here the implication of each option
starting with M&A and following with IPO/RTO.
DEAL TERMS OVERVIEW
CLOSING: September 30, 2018
● Equity shares:
USD $0.325 per share to a max of 6,153,846 preferred shares
(11,064,912 common shares, 1,273,665 preferred shares - issued and outstanding)
USE OF PROCEEDS
Sales, marketing, orders fulfillment (parts), working capital
Due Diligence Team Statement of Findings:
This Report was written by volunteers and is based on the Team’s individual, personal effort. It is offered to
Keiretsu Forum Members without a quid pro quo of any kind and with the understanding that the Team nor its
individual members are not acting as anyone’s lawyer, agent, financial investment advisor or service provider.
This Report may not be a complete or thorough legal due diligence review of all aspects of the company. You
rely on any information in this Report at your own risk. If you have additional questions or concerns, you
should answer them before you make an investment.
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Due Diligence Team Biographies
Robert Jaeger, Coordinator
Robert Jaeger, PE, is a licensed professional engineer in the State of Washington,
with over 30 years of experience in a wide variety of roles, technologies and
organizations. Specific to the scope of this review, Mr. Jaeger has experience as
a founder and officer of a cryptographic hardware firm, as a University
researcher in basic medical science, as an elected Director and President of a
501c corporation, as a civil engineer, as an aerospace engineer, as a consulting
engineer in multiple fields ranging from WMD and IED threat mitigation policy to
photography, as a founder or partner in multiple start-ups, and has an academic
background including electrical engineering, astrophysics, business management
and Central Asian studies. He may be reached for questions through
www.jaegerdesigns.com.
Irina Gera – Finance
MBA Finance Candidate 2017, Atkinson Graduate School of Management
Willamette University
Irina Gera is a Fulbright Scholar and MBA Candidate with a focus on
finance and entrepreneurship at Willamette University Atkinson Business
School. Previous education is in Economic Science at Goethe University
Frankfurt in Germany and Saint-Petersburg State University in Russia. Irina’s
areas of expertise include structured finance and financial modeling as a Capital
Markets Analyst at Santander Consumer USA, financial and macroeconomic
analysis as a Junior Economist with international consultancy company NIRAS,
project management support as a Project Manager with Oil Gaz Engineering,
and start-up pre-investment due diligence investigation as a member of
Keiretsu Forum.
Currently, Irina works in the role of Graduate Research Assistant for the Global Project Management studies
and is engaged in independent studies in the area of time-series analysis of stock market returns. Irina is
interested in stock market and venture investing. She speaks Russian, English, Turkmen and German languages.
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John Kaminski – Strategy and Vision
John Kaminski began his sales career with Xerox and went on to work in the
medical device industry prior to starting his own business. Since 2007 John has
been a Partner in OneAccord, working with businesses guiding them in crafting
and implementing growth strategies. John excels at business-to-business sales
and marketing strategy and successfully executing the strategy, including
bringing structure to the sales process, and selling into the executive suite. He is
passionate about helping businesses establish a winning culture and growing
exponentially.
John co-founded DocuMedX, a successful medical services business that
contracted with large hospital groups and HMOs. In three years time, he guided
DocuMedX to be the largest independent transcription service in the northwest. DocuMedX was twice
recognized as one of the “Best Companies to Work For in Washington,” by Washington CEO magazine. John
negotiated the sale of DocuMedX to a publicly traded company that was conducting a roll-up in the industry.
DocuMedX served as the model, and John led the reengineering efforts to assimilate several acquisitions into a
single company.
After selling DocuMedX, John worked with startups in the dot com, videoconferencing, and healthcare benefits
industries prior to joining Vistage where he pioneered a regional role for the world’s largest CEO membership
organization.
John has a Bachelor of Arts degree from Whitman College in Walla Walla Washington (the city so nice they
named it twice). He is active in his community where he has served as chair for Young Life, little league baseball
coach and board President, and donates his skills as an auctioneer to several schools and non-profit
organizations.
Sean Melrose, BA – Management and References
Chief Investment Officer, Rhiza Capital
Mr. Melrose is an active angel investor with over 20 years of experience. He is
an advisor and a director in numerous start-up companies and has been active
in both public and private markets.
Mr. Melrose's focus is identifying and executing sustainable financial solutions
for private clients and non-profit organizations. Applying a community impact
lens, he develops, finances and mentors social enterprises, community-based
businesses and impact-driven start-ups.
Specialities: Investment Management, Financial Analysis, Innovation and Design
of Impact Investments, Business Strategy
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Colin Prior – Market, Products and Operations
Mr. Prior is a serial entrepreneur, started, lead and advised early stage
companies since the mid 80’s, experienced in angel and VC financing, mergers
and acquisitions, debt negotiation and settlement, and shareholder conflict
resolutions. He is the founder & president of UNIX Packages, a virtual spin out of
the Sun/OracleMr. Prior's passion for technology and the environment has taken
him from Sun Microsystems in its pre IPO days to executive leadership roles in
three successful Seattle start-ups: NetReflector, a three year winner of the
Deloitte and Touche Fast 50 award before being acquired, Reaxion, which
merged under his leadership with Mobliss Corp a high-growth company,
publisher and developer of games for mobile, and acquired by Real Networks.
Raj Bharti, BA, MS, MBA – Marketing and Operations
Mr. Bharti is a seasoned marketing & strategic alliances leader with deep
experience in leading traditional & digital marketing, demand generation,
product management, and Omni-channel development. Raj led multiple global
partner-facing programs for Microsoft by collaborating with leading OEMs, chip-
makers, and retailers, such as, HP, Dell, Intel, AMD, and Carrefour across the
United States, United Arab Emirates, Egypt, and Turkey.
Prior to Microsoft, Raj worked with Wall Street’s top banking & brokerage firms,
including Citibank, Prudential Securities, and American Express to lead their
strategic technology and business programs. He also co-founded Urban Spoils,
an aggregator of daily deals from Groupon, Living Social, Tippr, and 20 other
flash-buying vendors.
Mr. Bharti earned his MBA from the Wharton School at the University of Pennsylvania with a double-major in
Marketing and Operations, an MS in Computer Science, and a BA in Mathematics and Economics. He can be
reached via Email (mailto:[email protected]), LinkedIn (https://www.linkedin.com/in/rajbharti),
or Twitter (https://twitter.com/Raj_Bharti).
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Sherry Calvert – Site Visit Report
President, Keiretsu Forum Northwest Region
In 2005, Sherry Zins Calvert played an integral role in founding the
Seattle chapter of Keiretsu Forum, an organization that provides
funding for companies and excellent investment opportunities for its
members. She rejoined the organization in 2010 and now serves as
President of the Northwest Region, focusing on the development of
the membership, new chapters, committees, and the internal Keiretsu team.
Under Sherry’s leadership, Keiretsu Forum Northwest has expanded to 320
Hafi Barry - Competitive Analysis, Exit Opportunities
GA Angel Resource Institute, Willamette University MBA Candidate 2017
Fulbright MBA Student at Willamette and Business Development Manager at
Sustainable Harvest Coffee import, Hafi is an entrepreneur at heart. He started
and managed three companies and an NGO in West Africa. Hafi’s expertise is in
sales, strategy and fundraising. For 8 years, he honed his skills selling marketing
plans to airlines and the United Nations, selling tracking and monitoring devices
to oil majors, banks and telecommunication companies or obtaining fundraising
from the World Bank to help rural farmers fight the effects of climate change.
Hafi has lived in France, Guinea, Senegal and the UK and travelled extensively
around Europe, Africa and Asia. Hafi fluently speaks French.
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Dr. Nathan Nifco, PhD, M.A., M.Sc - Technology & Software
With over 30 years of computer science and software engineering and high-
tech entrepreneurial experience, Nathan’s career spans across numerous
authored AI software systems, applications and founded software enterprises.
A former senior high-tech consultant to the government in Ottawa and Mexico
City, the Royal College of Surgeons and Physicians of Canada and numerous
organizations and appointments to various Blue Ribbon and National panels.
Currently Nathan is a certified financial derivatives specialist and has applied
advanced machine learning and AI to find innovative solutions to complex
problems for in managing risk when trading the financial markets.
With a strong computer science background, Dr. Nifco holds a Ph.D. in Human
& Organizational Systems, a Master of Arts in Human and Organizational
Systems and a M.Sc. in Artificial Intelligence.
Nathan is a member of Keiretsu and a lifetime trustee for the YEO organizations. As a high-tech entrepreneur
Nathan was awarded the 1996 top 40 under 40 distinctions. As a former founder and CEO of several high-tech
software enterprises among them a NASDAQ public company managed over 10 successful years, Nathan
continues to be active with entrepreneurial high-tech start-ups.
Nathan’s current passions are in the area of machine learning, complex adaptive systems, predictive analytics
and 3D visualization rendition applied to the financial markets. He is currently launching a new enterprise with
innovative proprietary AI technology for risk management and risk visualization when trading and investing in
financial market derivatives.
Dr. Nifco speaks fluently Spanish, English and Hebrew and has traveled around the world on speaking
engagements and professional consultations.
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Mike Volker, BASc, MASc - Existing investor reference
President, Keiretsu Forum, Vancouver Chapter
Mike Volker, who is also the president of the Keiretsu Chapter in
Vancouver, BC, is an entrepreneur active in the development of new
high technology ventures and is presently the Director of the Simon
Fraser University Innovation Office. Mike is actively involved with his
two latest projects: Greenangel Energy Corp (GAE.V) – a public
company that invests in green technologies and WUTIF, the Western
Universities Technology Innovation Fund – an angel fund for start-ups. To
further encourage tech entrepreneurship, Mike runs the Vancouver Angel
Network, VANTEC and the Vancouver Chapter of the Keiretsu Forum. He is also
on the Board of New Ventures BC – an annual business competition.A University
of Waterloo Engineering graduate, BASc and MASc, Mr. Volker started his own
company (Volker-Craig Ltd) in 1973.
Mr. Volker sold this company in 1981 and decided to work with entrepreneurs in building new companies.
Since then he has been active in various early stage businesses as a founder, investor, director, and officer.
Mike served two terms as a Governor of the University of Waterloo, was the first Chairman of the Shad Valley
Program, and led the BC Advanced Systems Institute as Executive Director and later as Chairman. Furthermore,
Mike was Chairman of the Vancouver Enterprise Forum for several years.
Mr. Volker is past and present director in numerous public and private corporations, founder and member of
several angel forums (Vantec, Keiretsu, WUTIF, the Vancouver Angel Network and the BC Angel Forum). In
2009, Mr. Volker was named Canadian Angel Investor of the Year by the National Angel Capital Organization
(NACO) as well as B.C. Angel of the Year by the B.C. Angel Forum.
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Bryan Santarelli - Legal Corporate & Deal Docs, IP Position
Registered patent attorney and Of Counsel with Fogg & Powers LLC
Bryan Santarelli is an AV® rated registered patent attorney and Of Counsel with
Fogg & Powers LLC. Bryan has an active intellectual property practice focusing
on domestic and foreign representation in computer, electrical, electronic,
semiconductor, software, medical devices, and mechanical patent matters, and
in trademark and licensing matters. His patent work includes analog and digital
circuits, 3D printers, analog-to-digital (ADC) and digital-to-analog (DAC)
converters, antennas, audio electronics, defibrillators, disk drives, FPGAs,
implantable medical devices, microprocessors, memories (e.g., DRAM, EPROM,
EEPROM, ferro-magnetic, RAM, and SRAM), power management (e.g., battery
management), semiconductor processing, system simulators, video compression
and decompression (e.g., MPEG), and wireless communications (e.g., OFDM,
MIMO-OFDM).
Prior to joining Fogg & Powers, Bryan was Counsel to the Firm at Lane Powell PC (Seattle), Partner at Graybeal
Jackson PLLC (Bellevue, WA), Associate at Seed & Berry (now Seed IP) (Seattle), Associate at Baker & Botts
(Dallas), and a Law Clerk in the patent department of Raytheon Company.
Prior to beginning his legal career, Bryan designed analog and digital circuits for the industrial products group
of Polaroid Corporation, where he co-invented and patented a high-speed laser driver for medical printer
applications (U.S. Patent No. 5,123,023 Laser Driver With Plural Feedback Loops).
Bryan earned his undergraduate degree in electrical engineering from the University of New Hampshire, magna
cum laude, and his law degree from Suffolk University Law School, cum laude (2nd in class). He is admitted to
practice law in Washington, Massachusetts (inactive), Texas (inactive), the U.S. District Court for the Northern
District of Texas, as well as before the U.S. patent and Trademark Office.
As an attorney, Bryan has performed patent and other IP work for many small, emerging, and large companies,
including Agilent Technologies, BAE Systems, Boeing, Coffee Equipment Company (acquired by Starbucks),
Echodyne, Equator Technologies, Fairchild Semiconductor, Hewlett-Packard, Intellectual Ventures, Intersil,
Lockheed-Martin, Micron Technologies, Microscan, Microsoft, Microvision, Philips, Real Networks,
STMicroelectronics, and Texas Instruments.
Bryan is also involved with many professional organizations, including IEEE, Keiretsu Forum, Washington State Patent Law Association (past president), and Grow50.
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APPENDIX A
Business Strategy and Vision Report Prepared by: John Kaminski
Business Strategy
June 2018 update by SHM
In the past 5 months of scale-up, focus has been directed toward two main channels that represent multiple
owners of multi-residential apartment buildings and office buildings:
- Distribution deals with regional HVAC companies and regional HVAC equipment dealers
- Forming strategic partnership with family offices that own real estate portfolios
- Partnership with companies with complementing products/service that with a similar target market
Active negotiation is in process at the highest executive levels with Modern Niagara (the largest nationwide
HVAC company in Canada) for an exclusive distribution agreement in eastern Canadian provinces. Basic details
discussed: Modern Niagara will do all marketing, sales and installations while SHM will assemble systems and
provide tech support. Customers will not pay for installation; instead, the cost of installation will be paid by the
utility company directly to SHM/MN via rebates. Monthly monitoring fee will be included in the customer’s
monthly utility bill.
Distribution agreement finalized and in place with SABD Corp of Santiago, Chile, which will be a single contact
point for SHM. The distributor will buy, market, install, and provide local support for SHMs systems, while SHM
will assemble, provide overall technical support and training to the distributor’s technical team.
Initial contacts made at the highest executive levels for a possible partnership with BuildingLink. BuildingLink
supplies software and hardware to help building managers of residential, commercial and hotels etc, run more
efficiently. They currently service 4448 buildings in 34 US states and 30 countries worldwide.
Partnership with Rogers Communication: Rogers Communications (the largest national cellular carrier in
Canada) initiated a partnership deal with SHM Controls when it noted that SHM is rapidly growing the number
of data lines it has subscribed to, using over 50 data lines with obvious plans to increase capacity to 100-200.
Rogers provided SHM with a special customized solution for Internet connection (an industrial miniature
cellular modem) to be placed inside each SHM Controller in the field, increasing considerably the reliability and
quality of the remote Internet connection to the controller.
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Partnership negotiation with mCloud. mCloud is an IoT Solution provider that improves the health and
performance of industrial energy assets, and as such they provide monthly subscription monitoring and energy
efficiency services to thousands of commercial properties in the USA and Canada. mCloud is looking for an
HVAC control company that can provide their system with bi-directional information (remote-
control/reporting-alerting) from HVAC equipment in small residential/commercial properties. The initial step
now is to set up a few test cases at the University of Toronto.
New Installations: Additional Market Segment - Offices: The company installed an SHM Controls system in a
small industrial office in Vancouver. This installation will also be used to field test our new added feature, the
Wireless Retrofit Thermostat Control (WRTC - see more details in the R&D section below).
New Installations: Additional Market Segment - Schools: The company installed an SHM Controls system in a
public school for the West Vancouver School Board. This installation will also be used to test the procedures
and bureaucracy in securing “approved vendor status” with local and regional school boards.
Executive Summary
Pros
● Huge untapped market, with unrecognized need
● Disruptive technology
● Unique, easy, effective solution
● Strong, <1 year ROI
● Recurring revenue stream
● Long-term data and IoT play
● Provides remote managing and alerts to service providers; proactive vs. reactive
● Proof of concept complete; investment funds scalability
Challenges
● Unrecognized market need
● Identifying and reaching target customer
● Few large sale opportunities
● No existing sales channel to tap
● Requires HVAC professional installation
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I believe the long-term potential for SHM is significant. The challenge will be to scale sales fast enough to reach
critical mass, whereby the IoT and the aggregate usage data the company amasses becomes extremely
valuable. This is a marketing and sales challenge that can be overcome, but will require time and investment to
do so effectively. The company’s margins and recurring revenue model project nice profits even if growth does
not materialize at the projected rate.
While energy efficiency is a hot topic, industry consensus is that there is little that can be done to improve
boiler efficiency and thus there is no clamor for an improvement, and in fact initial reactions of HVAC
professionals I spoke with were skeptical as to the SHM claims. It was however very exciting to note that after
very minimal exposure to the SHM product information, those same HVAC professionals recognized the
uniqueness to the SHM solution and became excited as to its potential.
The improvements are not to the boiler per se, rather simply a more accurate understanding and automatic
management of when the boiler needs to be firing; it’s the equivalent of automatically turning on and off the
lights to conserve electricity.
SHM is focused on an untapped market, multi tenant buildings that have a boiler and have 50 units or less.
There are several competitors who have solutions for larger buildings that have given virtually no attention to
this smaller building market. Competitive products are designed and priced for larger buildings making them
10x the initial cost of the SHM solution and therefore not a consideration for the SHM target customer.
The untapped market presents great opportunity, but also significant challenge. The opportunity is vast due to
the number of buildings that fit the target. The challenge is reaching those building owners in a scalable and
effective manner. Owners of buildings this size tend to be individuals and families that own a small real estate
portfolio of one to a few buildings; these are not large REITs or companies that own thousands of doors of
rental property. As such, they may be physicians, lawyers, business owners and the like who have a primary
source of income beyond collected rents. And while the ROI of the SHM solution may be thousands of dollars
per year, SHM is selling a solution for something their target buyers are not actively seeking.
As with any new product the key to successfully generating significant sales volume is in the company’s ability
to employ the right marketing and sales channels to identify, engage, and motivate their target buyer to
purchase and install the SHM product.
There are several potential sales channels the company has identified including HVAC contractors, property
management firms, and energy consultants, each of which are likely viable channels. However, all of these
types of companies are also largely small local companies, meaning SHM needs to still identify, recruit and train
a diverse network of sales agents, who traditionally operate as service providers rather than sales reps. In other
words there is not an obvious network of manufacturer’s reps looking for products like this to add to their bag.
Furthermore, this is not a do-it-yourself user installable product; a trained professional is required for
installation. A licensed boiler technician can install the product very easily following the enclosed installation
instructions.
Existing customers have purchased units for additional buildings once they have found the product works as
advertised, thus proof of the product and revenue model. The ROI message for the building owner consumer
and the margins and recurring revenue for the company are strong enough to warrant in-house telephonic
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direct to consumer sales supported by a significant marketing campaign, in addition to building a network of
sales agents.
SHM has reported to date a very high (65%+) close ratio with building owners suggesting that their sales
message resonates with building owners.
The company has outlined a marketing plan to market directly to building owners by purchasing readily
available lists with a message of reducing heating expense in multi-unit buildings by 25-40% with minimal
upfront cost or risk. As building owners order product, SHM will work with their customer to identify a local
HVAC company to perform the installation and will pay the HVAC company directly, resulting in no out of
pocket expense for the building owner. This will provide SHM the opportunity to recruit the HVAC company as
a sales agent representing SHM to their other local customers after they have learned of the product from a
building owner and SHM has hired them to do the installation.
For HVAC companies, the SHM product provides remote monitoring and control that allows them to provide
better service and proactively notify customers and deal with boiler issues before they become emergency
repairs, and establish a recurring revenue model and relationship for the HVAC company and their customers.
SHM also has a long-term data and IoT play. SHM will be collecting vast amounts of energy usage data at a
granular level that can eventually be used and monetized in many ways.
Market
SHM's best niche market is the small-medium size apartment buildings, which is historically largely untapped
by competitors.
Risk
Competing service providers entering the small/medium apartment building market. Even if competitors'
technology is different or inferior to SHM's, in a B2B market like that customers do not change service
providers often. So it is very likely that the first service provider to start servicing a building, would be there for
a while.
Mitigation
Define a critical mass of installations and reach that critical mass as soon as possible
Reason for reaching a critical mass of installations as fast as possible
● SHM would have positive cash flow, break even financially and become self sustainable
● SHM value proposition could not be dismissed by large customers
Customers with dozens/hundreds buildings may want to deal only with a service providers that have
already an established active business with a reasonable customer base
● SHM would have a considerable higher valuation for VCs contemplating investment in SHM
● Show SHM's ability to scale up and sustain its operations – important for further scale up operations
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Methods for reaching a critical mass of installations as fast as possible:
● Focus only the “low hanging fruit” segment of SHM's primary target market
Apartment buildings - is the market segment where SHM has today all its installations, it is the market
segment in which SHM has its channel partners and it is the market segment which requires the least
amount of additional work to add more installations to SHM's installation base.
● Increase number of potential installations resulting from a single sales interaction
Approach owners/managers that each represents a group of multifamily apartment buildings. This will
also reduce SHM's Customer Acquisition Cost. Examples of such owners: Individual owners with a
portfolio of more than 3-30 buildings, property management companies, Energy management
companies, REITs (Real Estate Investment Trust), HVAC Companies.
● Reduce customer's financial barrier to entry
SHM is in negotiations to secure at least $400,000 in venture debt financing to allow immediate
purchase of all hardware parts in order to be able to offer “free” installations to customers, in return
for a small increase in their monthly service fee.
● Reduce any legal/administration requirements and procedures to a minimum
A simple carefully crafted single-page service agreement, which could be signed online.
● Europe Expansion by super-large property manager & energy management company
SHM has been approached by Aareon France (https://www.aareon.fr) a subsidiary of Aareal Bank AG,
Germany (http://www.aareal-bank.com/en), both are entities that own/manage thousands of
apartment buildings (with over 1 million tenant units, according to Aareon France's CTO) in UK,
Germany and France. Aareon France is running the energy management software and solutions in all
the buildings and they are looking for a boiler controller solution like the one offered by SHM Controls,
which could integrate and interface with their existing energy management systems. In October-
November 2016 Aareon France and SHM Controls conducted several technical and high level video
conference meetings which included also top officials and decision makers on their side. Reminder -
SHM Controls was introduced to Aaeron France by Bosch Ventures, Germany
(http://www.rbvc.com/en/rbvc/home/home.html) after Oded Malky met with Bosch Venture's
managing director and their Stuttgart office staff several times.
Aareon France asked SHM Controls to start 'as soon as possible' a prototype market test, having the
SHM Controller installed in 5 buildings located in Paris France, and running for 6-9 months. If gas saving
results are consistent with the results SHM received so far in Canada, the Aareal group of companies
would be interested not only in an investment but more exciting - interested in an integration of the
SHM System into their existing energy management software, for fast deployment throughout their
thousands of apartment buildings in France, Germany and the UK.
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Critical mass of installations - Definition
Based on SHM's revenue forecast, the critical mass of installations would be around
200 installations.
At that level SHM would become self sufficient, have positive cash flow and break even financially. At 200
active installations SHM would become a very serious contender to any potential large deal with a large
property owner.
Sales and Channel Partners
SHM Controls will be using the following 5 marketing channels and channel partners:
1. Direct Sales
Using industry contact list: SHM Controls is a member by association of Landlord BC, an organization
for building owners and managers in the province of British Columbia, Canada. There are over 3,300
members in that organization representing about 6,000 prime candidate buildings in the Greater
Vancouver area. SHM Controls has direct access to all those building owners and managers, and as
described in the its revenue forecast plan, would hire full time sales personnel and employ a direct to
consumer marketing plan to approach those owners directly.
2. HVAC Companies
HVAC (Heat, Ventilation and Air-Conditioning) companies are those that install and maintain boilers in
building. As such they typically have dozens or hundreds of building customers of which they maintain
their boiler rooms. HVAC Companies benefit directly from using and recommending SHM Controllers in
several ways:
a. SHM Controls offers a financial incentive to the HVAC company for installation, and will provide a
sales incentive for additional installations and sales.
b. The HVAC company can receives automated alerts from the boiler room, in cases of mechanical
equipment failure or emergencies
c. The HVAC company can use SHM's multi-property web app to see all their maintained buildings on
a single map, with immediate status view on each one
d. The HVAC company is equipped with the ability to remote control the entire heat and hot-water
system in their maintained buildings
e. The above features allows the HVAC company the cut down on technician's visits to a building and
better schedule and prioritize repairs during emergencies
3. Property Management Companies
Property managers do not stand to and typically are prevented from benefiting financially from the
level of service to their managed properties. Meaning, if a building is more gas efficient, it would be
only the building owner that would benefit from lower gas bills. However, during 2016 installations
SHM Controls found that property managers see a great benefit to their reputation and management
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skills when a building is showing gas savings. Property management costs rise every year with the
increase of property taxes, utilities and tradesmen services, so when a property manager is providing
his building owner with gas savings instead of higher bills – it is a novelty that reflects very well on that
property manager.
Since September 2016 SHM Controls had seen a regular and growing attention and unsolicited
installation requests from property managers. They placed orders for new/additional installations in
more of their managed buildings.
Property managers benefit from ordering SHM Controller installations in their buildings:
a. A gas saving building has been proven to add to the PM's reputation and management skills
b. The property manager can use SHM's multi-property web app to see all their managed buildings on
a single map, with immediate status view on each one. Having the SHM web tool allows the PM
accurate info when communicating with tenants
c. The property manager and the resident manager can receive automated alerts from the boiler
room, in cases of mechanical equipment failure or emergencies. So issues could be addressed well
ahead of receiving complaint calls from tenants.
4. ESCOs – Energy Savings Consultants
Energy Service Consultant companies are small and medium size firms that provide reports and
recommendations to building owners and managers on how to reduce energy waste in their
properties. ESCOs charge property owners/managers for their services, and at times also charge a
commission based on the cost of equipment installation.
Since September 2016 SHM Controls has been contacted by 3 ESCOs wishing to work with SHM
Controls. All companies received presentation on sites and wish to include SHM Controls in their future
recommendation to building owners and managers.
5. Energy Management Companies
Energy Management Companies are firms that typically use different types of energy management
software to control (at time even remote control) their client's properties. Those firms control between
dozens of properties to even hundreds or even thousands of properties. Typically those services are
provided only to large buildings, using expensive control equipment.
SHM Controls added value to the energy management companies with its ability allow their software
to interface directly with the SHM Controller inside the boiler room, providing data and full control of
over the systems.
The special benefit is by opening the untapped small/medium building market to the energy
management companies. Currently only expensive boiler controllers in large buildings have the ability
to interface with energy management software. With the SHM Controller this can now be done also in
small/medium size buildings.
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RECENT UPDATES FROM SHM CONTROLS
Update 1: Reducing the customers financial barrier to entry
SHM reached an agreement in principal with Runway Finance to receive $400,000 in additional non-dilutive
funding as venture debt to fund up front the entire purchase of hardware parts to build SHM Controller units in
the fist 1-2 years of operation. This way SHM would be able to offer the controller installation at no cost to the
customer (waive the $3,000) and instead increase the monthly subscription fee – in perpetuity. Currently that
increase could be around $25/month. This will reduce even further the customer's barrier to entry.
Additionally, SHM will contract with the HVAC company and pay for installation directly reducing risk for the
building owner and providing SHM with another HVAC to potentially act as a sales agent for future sales.
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Vision
Introduction - by Dr. Nathan Nifco, Due Diligence Team
“The Internet of Things (IoT) and the Industrial Internet of Things (IIoT) is a fast-growing industry destined to
transform homes, buildings, cities, farms, factories, and practically everything else by making them smart and
more efficient.
According to Gartner (http://www.gartner.com/newsroom/id/3165317 – see a copy of Gartner's press release
included at the end of this chapter) in 2016 there are 6.4 billion IoT connected devices which is 30% more than
there where in 2015, and by 2020 there would be more than 21 billion connected things across the globe,
powering a market that will be worth north of $3 trillion.
The adoption of IIoT, which is the use of IoT devices for industrial applications, is fast catching up with the
adoption of IoT in homes and consumer products.
The challenge to be part of this new revolution will be secure accessibility to these sensors to gather and mine
the data.
Like in the times of the railroad, those who own the real-estate near the railway stations became billionaires.
Real-estate went up because owning real-estate around the rail stations got you access to the supply and
demand of people, products and services. In fact, today owning such data will be more valuable than any real
estate around the rail station because real-estate is not scalable, replicable, transportable, transformational
and elastic like data is.
If SHM Controls owns the sensors/control that produce the real-time data of consumption and usage of energy
at every level (suite,floor,building,neighbourhood,municipality,etc), it will own a micro railway station of supply
and demand of energy that could translate into new opportunities for everybody and not just for the owner.
For example, hedging with energy futures in the financial markets, just imagine if SHM controls has exclusive
access at a large scale of usage and consumption of gas consumption.
You may think this will take a linear growth approach to reach such a scale, but if you think that SHM can also
aggregate, broker and reciprocate with other energy management and utility companies by sharing and
acquiring even more data, then growth and expansion does not necessarily need to wait until all the railway
stations are owned by SHM.
The real commodity is this applied data creating new opportunities for everybody.
The local economy is just a stepping-stone to a bigger market. Workshops and certification programs will
become a good marketing strategy but also private label branding for the bigger players should be considered
especially if they own a distribution and customer network provincially, nationally and internationally. They can
become your sponsors with your own private label excellence award certification that SHM will own.
The inability of people to understand how SHM Controls can optimize gas energy savings, is just another sign
that SHM Controls' disruptive technology revolution is about to happen. The moment SHM Controls gets
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traction outside Greater Vancouver is the moment the disruptive revolution will take a new face where the
laggards will become adopters of SHM Controls' products and solutions.
Moreover, the big firms like Johnson Controls, Honeywell, etc. will no doubt try to induce financial, economic
and political pressure to stop this disruption.
It is imperative that SHM Controls owns a standard of excellence/certification to create a brand that goes
beyond SHM products and services and into owning the data and intelligence in smart energy savings.
If SHM Controls could conquer and own the domain of knowing every usage and consumption pattern leading
to energy savings based on local, regional and geographical demands constrains and trends, SHM could
potentially become a global enterprise that could reach more important roles than any utility company public or
private by owning the data and intelligence of what consumers of energy need and want.
In short, SHM can potentially become the Uber of smart energy and access consumption in the midst of a
shared economy revolution.
SHM Controls will never own the buildings, the suites, the energy or the equipment to deliver the energy. It will
only own the data and usage consumption at a granular level that no other company can and have the
potential ability to infer on patterns of usage and consumption that can lead to a new commodity by itself.
Gas heating savings is only the beginning for SHM. Dominating the smart energy usage and consumption has a
global scale and owning the data, patterns and intelligence can develop the next unicorn.“
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Largely untapped market for B2B sophisticated control systems
The main segment of SHM Controls' primary target market is the small/medium apartment buildings, with a
total estimated count of 2,140,000 candidate buildings across USA and Canada alone (see “Market” chapter for
data sources). This market is largely untapped: Historically small/medium buildings are conservatively managed
since cannot afford large expenses on sophisticated control systems. Almost all computerized control systems
are priced at a level that only large buildings can afford, and consequently are typically found and marketed to
only in large buildings with large budgets.
Given the current market status, SHM Controls' plan is to position itself to be a major player in this market,
providing initially very affordable boiler and automation control systems.
Infrastructure services for 3rd parties in a largely untapped market
As per SHM Controls' business plan, the SHM Controller could be utilized to connect to 3rd party software and
hardware applications. The ability to do so was developed out of the initial need to interface to 3rd party
temperature sensors, software APIs and hardware modules.
In the future SHM Controls intends to sell “infrastructure services” to 3rd party service providers. Those services
could include access to live temperature data and provide direct control over the mechanical equipment. This
would be well utilized with Energy Management software applications, home automation style remote
controls, access control systems and more.
Original Sensors – Also as a stand alone product or spawned into a subsidiary business
Most IoT and IIoT companies use for their sensors 3rd party and OEM style hardware, so they can focus on the
software and services. That adds a reliability on 3rd party pricing, quality of product and software/hardware
interface – which is critical to speed an quality of software development. Needless to say that the quality,
affordability and reliability of the sensors are extremely critical to an IoT company. Leaving it under 3rd party
control code pose a serious risk to the IoT company.
Although SHM Controls initially also used 3rd party wireless sensors from companies like Omega and Monnit,
the ongoing difficulties presented when relying on a 3rd party product (termination of product lines, limited
technical support, increasing pricing, long lead time, constant changes to software APIs) lead SHM to develop
its own wireless sensors system. However, SHM Controls did not develop the low level hardware needed but
instead used existing “off the shelf” radio and sensors building blocks, available from some of the largest
manufacturers and suppliers in the world. The outcome is an extremely flexible and reliable wireless sensor
network at a very low cost. SHM Controls sensors also have by far the lowest number of internal parts in
comparison to any other sensors in the market.
SHM Controls' intention is to potentially offer this wireless sensor network solution as a stand alone solution to
other B2B companies developing IIoT solutions. This could also be achieved by spawning the products into a
subsidiary.
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Battery-less Sensors
The next phase in the development of SHM Controls own wireless sensor network, is battery-less sensors. All
wireless sensors are operating with a battery inside, which obviously has a limited time life. Although the life
expectancy of the battery could be improved in many ways, ultimately it is finite and it will need to be
replaced. Statistically, the more sensors are installed, the more batteries will need to be replaced and on
average - more often.
Since May 2016 SHM Controls had been working to develop its next generation of sensors – “battery-less
wireless sensors”. SHM Controls managed to identify other sources of energy which would are able to provide
sufficient energy for its sensors. The first prototypes were already tested in July 2016. SHM Controls intends to
role out its new battery-less sensors with the new version of the SHM Controller system slated for early 2017.
Battery-less Sensors – Also as a stand alone product or spawned into a subsidiary business
SHM Controls' intention is so potentially offer its battery-less sensors solution as a stand alone solution to
other B2B companies developing IIoT solutions. This could also be achieved by spawning the products into a
subsidiary
Big Data
Once SHM Controls' installation base passes the critical mass (200 installations) the live and historical data
generated from the buildings would be used and be commercialized in more than one way:
● A BC Hydro representative (BC Hydro is the crown hydro company in BC) was in initial contact with
SHM Controls mid 2015, expressing interest in SHM Controls' future ability to regulate and synchronize
electrical machinery operations in the boiler rooms among many controlled buildings. The drive would
be to effectively regulate load balance on the electrical grid. They were also interested in data, showing
usage patterns.
● Fortis BC (the gas utility company in BC) has been in ongoing contact with SHM Controls since late 2014
for conducting with SHM a market feasibility test on a few dozens of buildings. Other than the
technology itself, Fortis is also interested in live and historical gas usage data from all building
installations. It is not only the data that we can provide, but the depth and details (minute by minute).
● Other research institutes, government agencies and private companies may have interest in the
growing big live/historical data mine, and SHM Controls definitely intends to commercialize it.
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LPWAN – Also as a stand alone product or spawned into a subsidiary business
(LPWAN = Low Power Wide Area Network)
One of the main obstacles for any IOT/IIOT system with remote control is the need to rely on the cellular GSM
network providers and quality for remote connection. As well, cellular connection, even at the highest quality
of GSM 4G/LTE technology, was not designed for constant Internet connection and at times is struggling to
provide a consistent quality of service. SHM Controls already identified issues that are systematic to a cell
tower network which affect the quality of the remote connection provided to any IOT/IIOT system, SHM
included. As a result, in the last little while some companies started to develop solutions called “Low Power
Wide Area Network” or LPWAN. This is basically a direct wireless radio connection, be it point-to-point or mesh
style network, between the different IOT/IIOT devices, controller and remote its application server, thus
eliminating the need to rely on cellular GSM network for remote Internet connection.
As it happens, the radio technology SHM Controls uses today for its wireless sensor network is actually capable
of reaching a maximum range of about 20 Km/12 miles. In order to access properties remotely via this direct
connection and avoid the cellular GSM network altogether. This solution may require an added external
antenna combined with a transceiver station within 20 Km/12 miles range, however any one of the existing
SHM installations within range could serve as the transceiver station.
SHM Controls will investigate and research this approach to LPWAN in the near future, with the intention to
completely eliminate its reliance on cellular GSM network. SHM would effectively use its existing building
installation as LPWAN infrastructure to provide LPWAN services to itself and others.
SHM Controls would then offer its LPWAN remote access solution as a stand alone solution to other B2B
companies developing IoT and IIoT solutions. This could also be achieved by spawning the products into a
subsidiary.
Wireless/Remote/Alert control services provided to other types of machinery
SHM Controls was recently approached by Floatek Pool Covers Inc., (http://floatekpoolcover.com) a Vancouver
based company that manufactures pneumatic pool covers. Floatek's automated pool covers require a basic
control unit that can support several types of wireless sensors, including motion sensors, temperature sensors
and chlorine level sensors. Floatek asked SHM Controls to customize its controller to provide controlling
features to its pool cover while providing the pool owner and pool maintenance team the ability remote
control everything as well as to see live conditions (pool temperature, chlorine levels) and receive immediate
alerts when someone falls onto the pool cover.
Although this market is definitely not one of SHM Controls target markets, it is a very large market by itself.
Regardless, the opportunity to expand to a different markets using other companies by providing
complimentary services – could be a very profitable one.
SHM Controls does not intend to deviate from its laser sharp focus to reach critical mass of installations, but
will investigate this and similar options.
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Press Release
STAMFORD, Conn., November 10, 2015
Gartner Says 6.4 Billion Connected "Things" Will Be in Use in 2016, Up 30 Percent From 2015
Analysts to Explore the Value and Impact of IoT on Business at Gartner Symposium/ITxpo 2015,
November 8-12 in Barcelona, Spain
Gartner, Inc. forecasts that 6.4 billion connected things will be in use worldwide in 2016, up 30 percent from 2015,
and will reach 20.8 billion by 2020. In 2016, 5.5 million new things will get connected every day.
Gartner estimates that the Internet of Things (IoT) will support total services spending of $235 billion in 2016, up 22
percent from 2015. Services are dominated by the professional category (in which businesses contract with external
providers in order to design, install and operate IoT systems), however connectivity services (through
communications service providers) and consumer services will grow at a faster pace.
"IoT services are the real driver of value in IoT, and increasing attention is being focused on new services by end-user
organisations and vendors," said Jim Tully, vice president and distinguished analyst at Gartner.
Enterprises to Bolster IoT Revenue
"Aside from connected cars, consumer uses will continue to account for the greatest number of connected things,
while enterprise will account for the largest spending," said Mr. Tully. Gartner estimates that 4 billion connected
things will be in use in the consumer sector in 2016, and will reach 13.5 billion in 2020 (see Table 1).
Table 1: Internet of Things Units Installed Base by Category (Millions of Units)
Category 2014 2015 2016 2020
Consumer 2,277 3,023 4,024 13,509
Business: Cross-Industry 632 815 1,092 4,408
Business: Vertical-Specific 898 1,065 1,276 2,880
Grand Total 3,807 4,902 6,392 20,797
Source: Gartner (November 2015)
In terms of hardware spending, consumer applications will amount to $546 billion in 2016, while the use of
connected things in the enterprise will drive $868 billion in 2016 (see Table 2).
Table 2: Internet of Things Endpoint Spending by Category (Billions of Dollars)
Category 2014 2015 2016 2020
Consumer 257 416 546 1,534
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Business: Cross-Industry 115 155 201 566
Business: Vertical-Specific 567 612 667 911
Grand Total 939 1,183 1,414 3,010
Source: Gartner (November 2015)
In the enterprise, Gartner considers two classes of connected things. The first class consists of generic or cross-
industry devices that are used in multiple industries, and vertical-specific devices that are found in particular
industries.
Cross-industry devices include connected light bulbs, HVAC and building management systems that are mainly
deployed for purposes of cost saving. The second class includes vertical-specific devices, such as specialised
equipment used in hospital operating theatres, tracking devices in container ships, and many others.
"Connected things for specialised use are currently the largest category, however, this is quickly changing with the
increased use of generic devices. By 2020, cross-industry devices will dominate the number of connected things used
in the enterprise," said Mr. Tully.
About Gartner Symposium/ITxpo
Gartner Symposium/ITxpo is the world's most important gathering of CIOs and senior IT executives. This event
delivers independent and objective content with the authority and weight of the world's leading IT research and
advisory organization, and provides access to the latest solutions from key technology providers. Gartner's annual
Symposium/ITxpo events are key components of attendees' annual planning efforts. IT executives rely on Gartner
Symposium/ITxpo to gain insight into how their organizations can use IT to address business challenges and improve
operational efficiency.
Contacts
Rob van der Meulen, Gartner
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APPENDIX B Technology and Software Report
Prepared by: Dr. Nathan Nifco
Describing the technology
June 2018 update by Dr. Nathan Nifco
UPDATES TO HARDWARE
The wireless radio network was changed from 2.4GHz ZigBee radios (consumer frequency range) to 900MHz
Digimesh long-range industrial radios, using the same manufacturer and the same form factor, same price, no
software changes required, yet much superior technology in an industrial environment, superior range (several
miles point-to-point and limitless when using the mesh feature) and superior battery life (over 2 years).
The computer core of the SHM Controller was upgraded to a faster RPi3 CPU, at the same price
Introduced a new type of control product - The WRTC - Wireless Retrofit Thermostat Control. The SHM System
can now remotely control (wirelessly) all existing thermostats in a property, and this way control any
equipment the thermostats are controlling (heating, cooling, electricity, gas, fans etc). The retrofit units allows
unified wireless control even regardless of the type of thermostat currently in place, ranging from the legacy
mercury weight thermostats, as well as the newest digital thermostats, over a very long range.
Supports was added to all types of HVAC equipment including A/Cs and thermostats, not only boilers, allowing
saving and control of electricity as well, not only natural gas.
Formed partnership with Rogers Communications (Canada’s largest cell carrier). As a result, the small Internet
modules providing Internet service to the SHM Controllers were replaced with industrial grade cellular
modems. This new industrial Internet modem goes inside the SHM Controller and adds another external
antenna, and is certified to work with all cell carriers in North America and Europe. It is designed for
‘unmanaged operation’ in an industrial environment. The new cellular modems had been operating flawlessly
throughout the past year.
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UPDATES TO SOFTWARE
Enhancements were made to the main operational algorithm to support unpredictable and uncharacteristic
behaviour in certain types of boiler/DHW combinations when they are integrated into a controlled system.
Created a new secure web interface to allow direct, secure and encrypted access to SHM Controllers in
buildings using any Internet browser, without any the need to download specific client software. All browsers
and operating systems are supported in both desktop and mobile devices.
Support was extended to additional types of boilers. The SHM system can now control 95% of boiler types
Operating system was changed to Linux Ubuntu Mate 16.04 LTS (Long Term Support)
UPDATE TO PRODUCT LINE SHM CONTROLLER: A Wireless IIoT HVAC Controller SHM ROUTER A Wireless Network Extender SHM PROBED WIRELESS TEMPERATURE SENSOR SHM REMOTE WIRELESS TEMPERATURE SENSOR WRTC > Wireless Retrofit Thermostat Control Unit, up to 8 HVAC appliances, 16A each WRTC MINI > Wireless Retrofit Thermostat Control Unit (Battery Operated), 2 HVAC appliances, 2A each WRTC CUSTOMIZED HONEYWELL THERMOSTAT, using companies own developed PCB unit
NEW FUTURE DEVELOPMENT MILESTONES
Replaced the new industrial cellular module with a brand new SIM enabled radio device by the same radio unit manufacturer, which is 1/10th of the size and 1/3 of the price of the existing industrial cellular modem from Rogers. Although the current cellular modem is working flawlessly, it is the largest (physically) and most expensive building block inside the controller. This reduction in size and price will also pave the way to a future modular version of the SHM Controller and reduce the cost of hardware (COGS) by additional 30%.
Enhance the already existing data communication interface to receive/send data to/from other computer systems supporting the possibility of interfacing to other data recipient and suppliers. The need to exchange statistical data with other systems had been raised a couple of times in the past year. Most recently it was by the BC Government Safety Authority (asking for auto alerts on buildings that are less efficient than others and usage data).
A modular version of the SHM Controller where the 3 main components communicates wirelessly but can be placed individually in different locations in the property, resulting in even a smaller footprint, easier scalability and even faster completely wireless installation on site.
Add to the product line a few additional non-intrusive sensors, including electrical current sensor and a water flow sensor
Complete the ongoing R&D and incorporated a battery-less version of all wireless sensors that operate using only ambient energy sources (also in dark mechanical rooms), without the need for battery replacement, while still support the long-range industrial 900MHz radio technology.
Use custom designed injection mould enclosures for controller and sensor, instead of off-the-shelf designs.
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GOVERNMENT R&D GRANTS
SHM was found to be eligible for a SR&ED tax credit/refund from the Canadian government for its past R&D activities. The amount of $15,000 for 2015 fiscal year was approved by the Canadian government and received by SHM in July 2017.
SHM was found to be eligible for a SR&ED tax credit/refund from the Canadian government for its past R&D activities. The amount of $45,750 for 2016 fiscal year was approved by the Canadian government and received by SHM in July 2017.
SHM was found to be eligible for a SR&ED tax credit/refund from the Canadian government for its past R&D activities. The amount of $66,501 for 2017 fiscal year was approved by the Canadian government and will be received by SHM in July 2018.
Software
SHM has implemented its software technology by employing the programming environment of MonoDevelop
which is an open source cross-platform and cross hardware environment for Windows and Mac OS, making all
the SHM software can operate under Windows and Mac OS.
The software has been written with the C# computer language on a Linux operating environment with a
current version of Ubuntu Mate 15.10.
In order to minimize bandwidth and storage space, SHM proprietary data structure and format keeps a very
lean approach to data communication and data transfer offering as well a layer of data protection.
SHM software architecture is organized in various modules:
Automatic procedure software module:
Automatically runs every minute to collect all the live data from the sensors and based on the current
configuration and settings, decides on the right action (what devices to turn on and in what fashion).
Manual procedure software module:
Allows the user to be in charge of the SHM Controller using the local touch screen, including seeing the main
GUI screen showing the current status of the heat system, the heat chart, current and part heat charts and
outputs of all sensors and accessing the user configuration section.
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Technical configuration software module:
Allows the technician to set up all the hardware/software settings that are not related to heating features.
Analytics software module:
A module that is embedded at the controller level (on-site) to analyze live current data readings to inform the
next decision and historical data to use for comparative analysis. This module performs in different operating
modes to assist in the decision making in order to notice any significant changes in pattern usage, boiler
operation and need to adjust settings.
The off-site version of this module will also be present at the server outside the building in order to compare
past and present consumption behavior between different buildings.
Interface software module:
SHM’s proprietary user interface software technology provides three main modules to design and customized
the user interface according to the layout of each building:
● The generic layout designer
● The plumbing layout designer
● The sensor layout editor
The generic layout designer
Allows for the customization of a graphic interface based on the number of floors, suites, suites per floors,
number of blocks and walls.
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Plumbing layout editor
Allows for the customization of the graphical user interface of the controller inside the boiler room supporting
multiple zones. The following is a screen shot of the main user interface:
In addition to multiple zones, the plumbing layout editor supports virtual zones for the purpose of adding more
sensors while maintaining a simple and not overcrowded screen.
Suite layout editor
Customizes the graphic user interface for the general location of the walls on each suite.
Server and background tasks
The application server hardware is placed in a private secure site with controlled access. The electrical power
to the room is equipped with an industrial grade uninterruptible power supply unit that not only protects the
site from power line spikes but would also provide continuous power to the facility for several hours in case of
a power outage.
In order to have secure remote access to the deployed SHM Controllers, SHM created an application server
that resides in the middle-tier between the SHM Controller in the field and the remote user trying to access
providing secure remote access to specific channels of communications, as well as live backup to data collected
from the SHM Controller.
In addition, the application server provides different levels of alerts to the maintenance team in case there is a
networking problem. A secure email server services to all SHM Controller ensures that all alerts sent by the
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SHM Controller are properly delivered and received by the team, customers, property managers and HVAC
technicians.
The server itself is set up with a separate private and secured hardware backup to ensure all data is duplicated
constantly.
In the first 3 version of the SHM Controller, which was active between the years 2012-2015, SHM relied on
several 3rd party hardware and software modules. After finding that such reliance came at a cost, In February
2015, SHM decided in version 4 through a technological breakthrough that led to:
1. A considerable reduction in our cost, labor and parts, to build the controller (from $4,500 to $1,000)
2. Lead time for parts ordering is typically less than 1 week, so we don't need to keep stock anymore
3. A considerable reduction in final product size
4. A considerable increase in reliability
5. A considerable increase in practical wireless range
At the moment the only 3rd party component SHM relies on is the long-range wireless connection to the SHM
Controller in a building via Internet over Cellular connection. As part of SHM future milestone plans is to
replace this in the near future with a practical technological solution.
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The following diagram presents an overview of SHM Controller functionality:
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Usability studies and test results
The SHM Controller hardware/software has been released and installed in 19 buildings in Greater Vancouver
area:
August 2011 – Alpha Field Test released
September 2011 – Beta Field Test released
November 2011- V1 Field Test Release Candidate
February 2012 – V1 SW/HW Field Test Release
May 2012 – V2 SW/HW Field Test Release
March 2013 – V3 SW/HW Field Test Release
August 2015 – V4 SW/HW Field Test Release Candidate
November 2015 – V4 SW/HW Commercial Release
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Finding from the test results indicate an average gas saving consumption of 28% ranging up to 44% across the
20 test sites incorporating 600 residential units across 29 boilers:
gas
savings
Test Number Number April 2016
over
# of units of floors April 2015
1 20 3 34%
2 25 3 42%
3 16 4 44%
4 40 16 N/A
5 11 3 24%
6 11 2 8%
7 18 4 27%
8 22 4 41%
9 18 3 24%
10 11 3 40%
11 15 4 27%
12 25 3 32%
13 22 3 11%
14 34 3 35%
15 30 6 20%
16 38 3 20%
17 70 3 25%
18 70 3 27%
19 29 3 N/A
20 75 32 N/A
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Milestone/re-design/upgrade history
The first line of code was written in 2011. There have been 3 major hardware upgrades and 2 major software
server upgrades. Where the last major software upgrade was performed in 2015.
Regarding remote upgrades, SHM has the ability to push upgrades; although it is planned for upgrades to be
performed on a pull based on the needs of each installation to upgrade needed the software.
The sensors have been changed 3 times, the current version proves to be the best and cheapest working
solution. Without getting into proprietary details, the upgrade history of sensors ranged from wired to wireless
and from multi-part to 2-part sensors for all sensing functionality.
Next software milestones - future release schedule (as planned):
March 2017 – V5 SW/HW Commercial Release Candidate
May 2017 – V5 SW/HW Commercial Release
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Hardware
June 2018 update by Dr. Nathan Nifco
SHM Controls introduced a new type of control product: The WRTC - Wireless Retrofit Thermostat Control. The
SHM System can now remotely control (wirelessly) all existing thermostats in a property, and in this way
control any equipment the thermostats are controlling (heating, cooling, electricity, gas, fans etc). The retrofit
units allows unified wireless control even over all types of thermostats, ranging from legacy mercury weight
thermostats, to the newest digital thermostat,s over a very long range. In addition to being able to control even
non-digital thermostats, the long-range wireless technology and the unified control over hundreds of
thermostats concurrently, is quite unique in the market today.
The WRTC (Wireless Retrofit Thermostat Control) is an extension to the SHM Controller system that transforms
a building’s existing set of independent thermostats into a networked array of IoT sensors and smart
temperature control units that can operate based on a system wide energy saving algorithm.
Each thermostat can now be allowed to manage temperature independently, or overridden to execute our
energy saving predictive-adaptive algorithm. Each Wireless Thermostat Control unit provides real time data
from all over the building for the SHM Controller to analyze, improving overall temperature control.
The Wireless Thermostat Control unit has a temperature sensor and a motion detection sensor. This allows for
dynamic temperature control that is responsive to tenant activity, ensuring your tenants are comfortable
whenever they are on-premises.
There are two main near future plans for the sensors:
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1) A firmware/hardware upgrade for the radio device, to change the working frequency from 2.4Ghs (crowded
frequency space, limited range) to 900MHz (free frequency space, longer range) and slightly different network
flow topology. This will also allow for first testing in our version of LPWAN (Low Power WAN) - connecting to
the controller/sensors from a much further distance (several miles) without the need to use cell phone carrier
Internet.
2) A technological upgrade (which was already mostly developed) to make the sensors battery-less, allowing
them to work non-stop without the need to change batteries. This will reduce pretty much to zero any
maintenance needs and related costs.
Any IIOT (Industrial Internet of Things) system would typically have 3 main components:
1) Sensors units
2) Control units
3) Decision making unit
Sensors, controllers and routers
SHM Controller
The SHM Controller is installed in the boiler room of the property. The
controller connects wirelessly to our IIOT wireless network and
communicates with all the SHM Sensors, routers or other units. It also
controls all the different control units (dry contact relays, DAC outputs
with 0-10v or 4-20mA, RS232 and MODBUS.
SHM Temperature Sensors
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The are two types of temperature sensors: The type with a probe is
installed for the boiler room, while the type without a probe is for
tenant’s suites.
Typically between 4-11 probed sensors are installed in the boiler
room (based on the configuration of the boilers/pumps/valves in the boiler room) and for each heating zone in
the property (with a separate heat pump in the boiler room) we install 3 tenant temperature sensors – in suites
belonging to that zone.
SHM Router
The SHM Router is called that way due to its actual technological
functionality. However, the end user may see it simply as a “Network
Extender”. The SHM Router has a standard plug form factor, so it is
simply plugged in in wall outlet where needed. Since our IIOT
wireless network is a “self healing” type of network, no other setting
is required and any new SHM router plugged into an outlet will
automatically register itself on our IIOT network and allow
communication to be routed through it, in case it could offer a better
connection through-output than existing routes (hence the name
'router').
Telecommunication – Wireless
SHM employs a self-healing wireless network topology known as ‘Zigbee’ that provides a virtual high capacity
to work with a large number of sensors as needed.
Assembly, supply-chain and logistics requirements
Until now SHM used internal staff for soldering and assembling of all units in the same location. In order to
allow fast scaling up, SHM intends to source out all soldering and assembling of units. Outsourcing the
soldering and assembly would allow SHM to reduce those costs production costs, while being able to order
small or large amounts of products, as per the sales requirements.
Current our typical lead time for hardware parts is 1 week on average, sourcing out the production would allow
SHM to continue avoiding having any stock, reducing dramatically all related financial and technological costs.
Once the milestone of 200 units has been reached, an expansion of the shipping, logistics, outsourcing and
quality control management strategies will be put in place in order to avoid delays and bottlenecks.
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The number of units projected in the next five years is 392, 905, 3050, 7075 and 11,625. To analyze at what
point the current centralized physical manufacturing process will need to be changed during the growth of the
installation base is an important consideration in SHM supply-chain strategy:
The current capacity for assembling SHM hardware takes approximately (60/10*7, 60/10,3/60) with 10 sensors
is about 2 hours. With an additional hired technician assembling SHM hardware will be reduced to 1 hour.
At 0.25 man-hours for enclosure assembling each unit, SHM will need 100 man hours to deliver the first year
projection and 20 sq. ft. per assembler.
As the installation base and demand grows to 75 units, man hours and physical space demand will increase
requiring a quality management control and logistics system to collect and track data statistics. It is at this point
where quality management and statistic tracking technology will be required in order to transition to a
distributed manufacturing delivery in order to accommodate a larger geographical capacity.
Compatibility and customization
SHM has engaged in the past in developing custom features and functionality requested be clients. All these
customization features have been fully incorporated in the current version of the software.
SHM does not engage in any present product customization but it projects that up to 20% of total installations
could incorporate some special customization based on a case-by-case evaluation to add value to SHM’s
business and technology.
SHM design and software architecture offers the potential to deliver custom solutions that could be requested
for large contracts with corporations with an established network operating or managing a consortium of small
and medium buildings.
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Security and protection
June 2018 update by Dr. Nathan Nifco
Additional layers of security were added, in order to allow users (building managers, property owners, HVAC
technicians) direct remote access to the controllers on-site without the need to install a proprietary app or
client software. This is done using a secure web interface (SSL secure certificate) and HTML5 with an SSH
communication encryption level on top of it.
As well, all the wireless communication between the sensor/controller radio modules is now encrypted with a
higher level of SSH security keys. The new Digimesh 900Mhz technology makes it almost impossible for a
hacker to even sense the radio signals, since they communicate in extremely short bursts of 30 nanoseconds, at
times up to 15 min apart.
Security and Data protection
Data is collected and updated daily from each installation daily while each SHM box keeps a log of all the
activities and sensor readings.
All SHM Controllers have unexposed IP address, being unreachable from the outside world by any public IP.
Since email servers reject often all emails sent from an untraceable IP as spam, SHM solution re-routed all
email alerts via the application secure email server.
A proprietary source code and backup system maintains both the code and the data backed up every time a
change is made and most important, it allows SHM to restore the code or the data going back to any point time
if needed.
Multiple channels of communications exist between head office and each installed box. The redundancy offers
SHM the ability to troubleshoot any monitor any issues.
The server is also backed up in two separate drives using the proprietary SHM backup-restore software and is
located in a physically secured server farm with access control and an uninterruptible backup power system.
Product or industry certification
HVAC certification (Gasfitter Class A - up to 100,000 BTU, Gasfitter Class B - above 100,000 BTU) is required to
connect external equipment to a boiler and for the installation of the SHM hardware. This certification can be
hold by a supervisor staff for their technicians to be able to install.
Green energy certification for a ready made box like the SHM controller is being pursued. In addition, SHM is
considering issuing its own standard/award of excellence certification for energy savings and sustainability
program similar to the Energy Star certification.
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Company’s solution
Description
SHM’s hardware and software solution is designed to help small and medium size buildings in their gas heating
savings and efficient management of energy consumption and to analyze and pointing out any domestic hot
water malfunction by analyzing the heat temperature curve. Sophisticated and advanced technology of this
kind is often exclusive to large buildings with very large budget costing hundreds of thousands of dollars. By
developing a customer network with ‘IoT’ (Internet of Things) controls and sensors, the leveraging of such
infrastructure can lead to multiple dimensions of growth and expansion and position SHM to lead a data
exchange standard interface to aggregate, broker, consolidate and supply usage and data consumption.
Value proposition
In addition to energy savings and gas cost savings, SHM’s solution offers the ability to simplify the complexity of
analyzing data and patterns of usage while economize from this effort in a streamlined and group effort
manner at a reasonable price ensuring maximum levels of privacy and security.
SHM’s value proposition offers each customer the following:
● The ability to remote control and viewing of the equipment condition of operation
● The ability to monitor, predict and detect central boiler malfunctions
● The ability to monitor and detect suite equipment malfunctions
● The ability to monitor, predict and detect below or above overall gas saving consumptions compared to
other buildings in the neighborhood
● The ability to monitor, predict or detect below or above seasonal gas saving consumptions against
previous years
● The ability to monitor and detect average per suite gas consumption
● The ability to monitor and detect what seasonal periods during the day, the week, the month and the
year gas saving consumption is minimized, maximized and optimized.
● The ability to monitor and detect below/above average load on natural gas supply grid network based
on live gas usage conditions in buildings, and actually provide load balancing.
● The ability to monitor and detect below/above average load on power grid network based on live
power usage conditions in buildings, and actually provide some load balancing on electrical equipment
As the network of installed SHM solutions grows, the above value propositions become more refined
and valuable to each customer.
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Current installations
June 2018 update by SHM
By March 2018 SHM has completed 35 building installations, in Canada and in the USA. Average energy savings
results (natural gas and electricity) continues to be in the 20%-30% range.
As of April 2016 the current two-dozen installations in the lower Vancouver mainland have consistently
average a minimum of 30% of savings.
Obsolescence
According to SHM’s CEO/CTO, the none of the hardware and software components will face the risk of
obsolescence in the near and long term future as both the software and hardware has been built and
developed to be an extremely lean device where functionality has been added only as per the actual need to
keep the hardware low production cost and software agility.
Scalability
SHM application server is capable of supporting literally hundreds of SHM Controllers concurrently. When
scaling up is required to support a larger number of controllers or to provide distributed services in different
locales, additional server units could be added at the same location. SHM’s load balancing software module is
enabled to provide easy and safe operation. Alternatively, application server units could be located in different
geographical locations.
SHM’s hardware solution consists of a 2-part component in its hardware. Representations were made by the
CEO/CTO there are no other similar hardware solutions consisting of just two parts.
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Nevertheless, during conversations held with experts with this type of technology including SHM’s CEO/CTO,
the difficulty for competitors to develop a similar solution was ranked in a scale from 1 to 10 (1 very easy and
10 being very difficult) by a start-up and by an established company. The results are shown in the table below:
Start-up Established
Hardware 2-3 6-8
Software 8 4
Overall 9 7
In addition, competitor’s solution will also require having a minimum 3 years of testing track record.
The current quality management system consists of proprietary software created by SHM to internally test the
2-part hardware after being assembled. Test results have generated a zero fault track record.
Risk and strategic assessment on the technology
Most if not all the software modules in the SHM solution are proprietary and first to market making the
solution also a first to market. With over 20 installations, SHM can expand to its next 200 installation
milestone. There is no question from the analysis I conducted that SHM has the ability to deliver the next
milestone with the current technology solution.
The strategic assessment to scale up SHM business beyond the 200 milestone will be determine by the priority
placed in targeting large custom solution and global installation contracts in a building consortia or the one by
one ‘plain vanilla’ regional building installations.
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Site visit observations
Company culture and work environment
During the site visit the first observations on the company culture and work environment reflected the simple,
agile and lean approach to streamline the development, support and maintenance of its software and
hardware technology. The current scale of operation to support new and existing installations has been
simplified with a lean approach that lend itself to be scaled up to support different regions.
Live demonstration of technology and products
During my site visit there was a live demonstration of the controller and its interface with the user and the
sensors providing a comprehensive understanding of the role each component in the SHM technology works in
order to optimize gas savings.
In addition, a separate session with SHM’s CEO/CTO I reviewed some of the source code from the various
software modules and develop an understanding of the approach in the design, development and deployment
of all the SHM software.
Simplifying complexity is a motto that not only qualifies what the overall SHM solution does, It also qualifies
the design, development and deployment process of the software and its hardware.
Future direction, growth plans and scalability
Future hardware plans
SHM’s intentions is to convert all existing wired module connections to wireless connections in order to
streamline installations even more and allow even greater modularity and reduce the average cost of an
installation, both the hardware cost and the labor time.
In addition, the conversion of all existing wireless sensors to battery-less sensors will reduce the time and
hassle in any future need to change batteries in the sensors.
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A near future technology upgrade for two types of sensors, an electrical current sensor and a water flow sensor
will provide more detailed information measuring electrical energy used and allow for elevated levels of alerts
not only in identifying what is the problem, it will also provide information as to why.
Water flow sensor Electrical Current Sensor
Next hardware milestones
1) Separating the different hardware parts to completely wireless modular units.
This will reduce even further the installation time in a property, will reduce the hardware costs related to the
installation (hardware parts that are not needed will not be included in the installation) and will be much easier
to maintain.
- Wireless Relays
- Wireless 0v-10v
- Wireless 4-20mA
2) Battery-less temperature sensors and other wireless units. At the moment the main
maintenance related task in all existing IIOT and IOT systems have is the need to replace
batteries in the wireless units. There were a few attempts by companies to offer a battery-
less sensor, but non is a practical solution for SHM industrial quality requirements.
SHM Controls has already identified a combination of technologies that would allow them to have a new kind
of completely battery-less wireless units (sensors, relays etc.) with no change at all to existing infrastructure! A
proof of concept unit was successfully tested. In addition to improving SHM Controls' value proposition, these
sensors could potentially be a by-product that could be spawned out of SHM to a subsidiary company.
3) LPWAN – Low Power Wide Area Network.
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One of the main obstacles for any IOT/IIOT system with remote control is the need to rely on the cellular GSM
network providers and quality for remote connection. As well, cellular connection, even at the high quality of
cellular GSM 4G/LTE, was not designed for constant Internet connection and at times is struggling to provide a
consistent quality of service. SHM has been working with the enterprise technical team of Rogers Wireless in
the past year and identifies issues that are systematic to a cell tower network that affect the quality of the
remote connection provided to any IOT/IIOT system, SHM included.
As a result, in the last little while some companies started to develop solutions called LPWAN – Low Power
Wide Area Network. This is basically a direct wireless radio connection, be it point-to-point or mesh style
network, between the different IOT/IIOT devices and controller, including the remote control.
The radio technology we use today for our IIOT network within a property (between the SHM Controller and
the SHM wireless temperature sensors) is actually capable of reaching a maximum range of about 20Km. In
order to do access properties remotely via this direct connection and avoid the cellular GSM network
altogether, we would possibly need to mount an antenna on the roof of the property and have our transceiver
station within 20Km range. In fact, one of the properties in any single localized area could serve as the
transceiver station.
This solution need to be tested, but if working well, would reduce the cost of the SHM Controller even further
while solve all current cellular network related issues. Granted, it might bring new issues of its own, but the
potential benefits definitely warrant testing the idea.
Future software plans
June 2018 update by Dr. Nathan Nifco
SHM Controls intends to enhance the software’s existing data communication interface to receive/send data to/from other computer systems supporting the possibility of interfacing to other data recipient and suppliers. The need to exchange statistical data with other systems had been raised a couple of times in the past year. Most recently it was by the BC Government Safety Authority (asking for auto alerts on buildings that are less efficient than others and usage data).
Additional pattern recognition analysis would be added to be able to analyze, predict and alert based on
additional specific conditions.
Predictive models will be enhanced to include also cross-section data from other controller located in other
properties in the same area. So if behaviour of a single property stands out from the rest, it may generate an
automatic alert.
A statistics module will continue to be evolved and improved in order to provide the ability for clients to see
and predict the savings at any moment.
Plans to develop further the analytics engine model for the off-site operation mode will increase the value of
SHM’s data services and prognosis capabilities. These services will not only alert customers of the problem,
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they will also get a full and detailed explanation of why the problem is happening and suggest a course of
action.
For example:
Today an existing alert is:
"Tenant unit XX is too cold, currently at 17:4C"
In the future, the alert could be:
"Tenant unit XX is too cold, at 17:4C
Diagnosis: Air-bubbles in heating pipes and radiators in unit XX are at 25%
Suggested course of action:
Please air-bleed the baseboard radiators in unit XX"
Today an existing alert is:
"Boiler is not heating although received command to do so 15 min ago"
In the future, the alert could be:
"Boiler is not heating although received command to do so 15 min ago"
Diagnosis: The low-water cut-off switch was tripped due to temporary loss of pressure
Suggested course of action:
“There is low water pressure, the low-water cut-off switch must be reset manually"
An analytics expert system module could not only collect intelligence for more efficient troubleshooting, it will
also collect feedback from each customer regarding the outcome of the source of action. Such data will be
valuable for equipment manufacturers.
Leveraging big-data and the development of an expanded analytics module to compare historical and current
consumptions between many buildings may provide SHM not only with the ability to analyze the data through
various forms of segmentation such as by block, neighborhood, municipality, region or country. SHM can
potentially be selling in the future data services on energy consumption behavior and expert recommendations
to 3rd parties and non-SHM customers.
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Data and cloud strategies
The current data and cloud strategy is based on Linux servers running a proprietary software server layer to
communicate across all the installations. Currently there is one single centralized server servicing all
installations.
Eventually and based on market demand and expansion strategies, SHM will chose distributed support centers
by giving cluster of properties their own hosted server while collecting and handling all the data centrally.
The distributed server infrastructure will work in a similar fashion as the Dropbox server infrastructure: You can
connect to it from any location in the world, and you would connect to the server that is closest to you
technologically, while server maintenance and data is all centralized.
Technical and customer support
SHM operates its technical and customer support from one central location to service all municipal
installations.
With a distributed server topology and central data management, SHM can address scaling at both, national
and international levels and strategically decide at what point to decentralize or distribute its customer and
technical support services according to market demand and geographic install base requirements.
Technology alignment with future plans
The design of the SHM server technology incorporates the ability to employ and work with other protocols that
may be required from time to time for alignment and compatibility with other cloud based infrastructure when
targeting large contracts with building consortia and corporations.
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Conclusions and remarks
It is projected that by 2020, around 50 billion devices and 1 trillion sensors will come on line making IoT
exploding exponentially. The main problem with all these devices will be to have a secure access to these
sensors to gather and mine the data and protect the privacy.
SHM contribution to this problem offers a robust solution for smart energy savings based on predictive
analytics and the gathering, analyzing and detecting data patterns to benefit of all customers and by expanding
the installed base additional data products can be offered.
The executive team of SHM has the specialized knowledge and the material previous experience in the smart
energy saving solutions with a solid awareness of where the next generation of technology of this kind is
heading.
By streamlining software and hardware SHM can scale and expand market penetration for its small-medium
building niche and become a lead provider of energy savings virtual expert systems of choice to manage and
give real-time or on-demand advice. The system can also become smarter and adaptive the more data and
customers become part of the network and its data grid.
Harvesting data on energy usage and saving consumption to benchmark each building could very well become
the commodity of choice to understand and influence supply and demand and ultimately optimize
consumption costs.
The local economy is just a stepping-stone to a bigger market for not only SHM’s solution across small-medium
buildings, the actual gathering and mining of data can position SHM to become an important player in the
predictive analytics and data center of its kind with a global scale potential.
SHM’s analytics engine could potentially mine data at multiple levels and segments of the market. Bringing
monitoring, detection and prediction to a new level.
SHM has completed its product discovery phase and has found a repeatable and scalable business model to
dominate a niche in the market of smart energy savings.
An integrated hardware/software turnkey solution with an adaptive expert that learns from the same network
it provides expert services, does not exist today in the industry. The ability to harvest and commercialize data
on energy consumption and savings could prove a more valuable commodity than the energy itself.
It is all about the collective intelligence than can be harnessed by SHM when building a network of customers
that become data providers that ultimately benefit all members of the SHM grid.
The energy grid will be redefined by the ability to analyze, predict, troubleshoot and optimize energy
consumption. Indeed, the data energy grid could become the new real commodity and SHM could be carving a
unique niche in this market.
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APPENDIX C Finance Report
Prepared by: Irina Gera and Sean Melrose
June 2018 update by Sean Melrose
The original finance chapter was prepared by Irina Gera and Sean Melrose. The June 2018 update below was
revised by Sean Melrose. The revisions were incorporated directly into the body of the chapter to properly
reflect the financial updates
Summary
SHM Controls was incorporated on January 29, 2015 under the laws of the Province of British Columbia and
commenced active operations in June, 2015. The Company provided financial statements compiled by their
accounting firm, Steele & Company, at the required “Notice to Reader” review level for the period from
December 1, 2016 to November 30, 2017. Other presented financial documents include projected and actual
cash flow for the period May 2017 through November 2022, capitalization table, and central securities register.
These documents serve as a foundation for SHM financial history in this report. The company is currently in its
fourth fiscal year of revenue earning. To date, SHM Controls has raised $1,080,000 via a pre-seed and
subsequent seed round, associated warrants, and a small follow-on investment. The post money valuation
after prior financings was CAD $5,087,000 (approx USD $3,913,000 at a CAD/USD FX rate of 1.30). SHM
Controls also provided the financial forecast for the period 2018 - 2022. The forecast includes cash flow and
income statements, including underlying assumptions for the revenue forecast, and key hires up to 2022. All
documents, save for those related to the currently proposed share issuance denominated in USD$, present
numbers in Canadian dollars.
Historical Financial Performance
SHM Controls’ financial statements were compiled and reviewed by their accounting firm, Steele & Company,
based in Vancouver as per the “Notice to Reader” Canadian accounting review requirements. As of November
30, 2017, the balance statement shows that the Company had $201,692 in cash. As of April 30, 2018, the cash
position decreased to $93,174, reflecting a Net Loss for the fiscal year-to-date of $131,148. The average cash
burn rate for the fiscal year-to-date is approximately $21,000 per month (excluding recent costs specific to the
capital raising).
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Source: SHM Controls, Inc
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Source: SHM Controls, Inc
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Use of Proceeds / Weighted expenditures from 2018 (Q3/4)-2022 Source: SHM
Controls
2018 (Q3/4) 2019 2020 2021 2022
Sales and Marketing: Staff and Resources
CRO $25,000 $100,000 $106,000 $112,360 $119,102
VP Marketing $18,750 $80,000 $83,200 $86,528 $89,989
Regional VP-Sales $0 $0 $53,000 $112,360 $238,203
VP Media $6,000 $48,000 $49,920 $51,917 $53,993
Marketing staff $15,000 $70,000 $218,400 $227,136 $236,221
Marketing budget $29,000 $96,000 $192,000 $384,000 $768,000
Subtotals $93,750 $394,000 $702,520 $974,301 $1,505,509
Technology: Staff and Resources
CTO $0 $50,000 $106,000 $112,360 $119,102
HVAC Engineers $17,500 $90,000 $187,200 $194,688 $303,713
Field Technicians $25,000 $130,000 $202,800 $210,912 $219,348
Lab Technicians $24,000 $99,000 $149,760 $155,750 $161,980
Web Programmer $0 $32,500 $67,600 $70,304 $73,116
Production manager $0 $60,000 $62,400 $64,896 $67,492
Software/Hardware engineers $20,000 $148,750 $265,200 $275,808 $286,840
R&D Materials (20% of Travel/R&D) $8,000 $24,000 $36,000 $50,000 $50,000
Subtotals $94,500 $634,250 $1,076,960 $1,134,718 $1,281,592
Executive and Admin Staff
CEO $24,750 $100,000 $110,000 $121,000 $133,100
CFO $0 $50,000 $106,000 $112,360 $119,102
Controller $0 $37,500 $52,000 $54,080 $56,243
VP Business Development $6,000 $0 $0 $0 $0
VP Operations $27,000 $60,000 $62,400 $64,896 $67,492
VP HR $0 $80,000 $83,200 $86,528 $89,989
Office Manager/Admin $24,000 $60,000 $124,800 $129,792 $134,984
Subtotals $81,750 $387,500 $538,400 $568,656 $600,909
G&A
Office Expenses & rent $27,000 $114,000 $171,000 $174,000 $186,000
Accounting expenses $4,000 $11,000 $15,000 $20,000 $20,000
Legal expenses $6,000 $18,000 $30,000 $50,000 $50,000
Overhead & unexpected $33,500 $57,000 $85,500 $87,000 $93,000
Other expenses (80% of Travel/R&D) $32,000 $96,000 $144,000 $200,000 $200,000
Subtotals $102,500 $296,000 $445,500 $531,000 $549,000
Total Expenses $372,500 $1,711,750 $2,763,380 $3,208,675 $3,937,010
% of Annual Expenditure
Sales and Marketing: Staff and Resources 25.17% 23.02% 25.42% 30.36% 38.24%
Technology: Staff and Resources 25.37% 37.05% 38.97% 35.36% 32.55%
Executive and Admin Staff 21.95% 22.64% 19.48% 17.72% 15.26%
G&A 27.52% 17.29% 16.12% 16.55% 13.94%
Total % of Expenditures 100.00% 100.00% 100.00% 100.00% 100.00%
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Funding History
Since the initial formation of the company (August, 2011), to date SHM Controls has raised approximately
$1,155,00K, including initial investment by the founders of $75,000 and $1,080,000 raised in the the pre-seed
and seed rounds. The summary of the Company's funding activities, including post-money valuations is
provided in Table 2.
Table 2. SHM Controls Funding History
Series Date Source $
Amount Class of
Equity % of
equity # of shares
outstanding Post-money
valuation
Initial 2011 -
14 Founders $75,000 Common 100% 8,000,000 $800,000
Pre-Seed 2015 Angel Investors/
Micro-VCs $260,000 Common 24.5% 10,600,000 1,060,000
Seed 2017 Angel Investors/
Micro-VCs
$820,000 Preferred 23.6% 16,957,000 $5,090,000
Source: SHM Controls
Source: SHM Controls
Current Capitalization
As of March 1, 2018, SHM Controls had 12,339,000 shares outstanding. The Company has eighteen holders of
common and/or participating preferred stock. The largest shareholder is the co-founder and CEO Oded Malky,
held personally (23.3% and through a HoldCo controlled by him (Netspell Services Inc. at 35.0%)
Both tables confirm that shares ownership is neither dispersed, nor concentrated, with the founders owning
between 58.6% (fully diluted) and 64.8% (issued) of the Company.
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1A holding corporation controlled by Oded Malky
Source: SHM Controls
Future Funding
SHM Controls is currently raising up to USD$2,000,000 in preferred stock at a $5,500,000 pre-money valuation.
The Company plans to use funds to finance key hires in marketing and sales (described below in the section
headcount forecast). In general, capital requirements seem to be reasonable and if SHM raises funds sufficient
to proceed with its business plans, it should be able to get safely to cashflow-breakeven without additional
equity financing.
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Future Financial Model
Financial Projections
Financial projections cover the period from May 2018 through November 2022. SHM Controls used only the
primary market data to project installations over the next five years. Primary market customers include:
1. Centrally heated buildings: small and medium sized multi-residential (up to 100 units); commercial/industrial
2. Multi-residential and commercial/industrial buildings with several separate thermostats/control zones in
need of a networked solution
3. Institutions: schools and hospitals
SHM Controls has recently developed a new device that they refer to as the Wireless Remote Thermostat
Controller, which allows them to retrofit a series of thermostats and allow them to be managed, individually
and severally, by SHM’s primary offering, the SHM Controller. This addition to their portfolio has added both a
new revenue source (hardware sales of the WRTC…#2 above), and provides a significant expansion of their
potential market for their primary HaaS/SaaS offering(#1 above).
During the first full fiscal year to follow the current financing (F2019), SHM expects to install 270 SHM
Controller devices and 66 sets of WRTC devices, generating $2.00MM. The revenue is driven by the installed
base and monthly and annual monitoring fees.
The basic assumptions for the 5-year projection are as follows:
1. SHM Controller Installation revenue (avg) - $3,000 (Retail price of $3,750 with up to 20% promo discount)
2. Monthly monitoring fee (avg) - $375
3. Wireless Remote Thermostat Controller Installation revenue (avg) - $6,250
7. Install fee paid to HVAC Contractor - $1,250
8. 1 unit parts + labor cost - $1,875
SHM offers a variable fee structure where the $3,750 retail value of installation may either be paid by the
customer upfront as a single payment, or the customer may finance the installation as a 3 year HaaS
(Hardware as a Service) contract. The monthly monitoring fee is based on a fixed +variable pricing model, with
the variable component driven by the breadth of the installation. SHM has modelled the average monthly fee
as $375 per month. Installations of the boiler control devices are either executed by SHM’s in-house technical
team, or contracted out to certified HVAC technicians through the HVAC companies. HVAC companies are
incented with a $1,250 fee per SHM Controller install. The cost of parts and labor to build the controller is
$1,875 per unit.
According to the 5-year projections, SHM expects to reach 8,741 installations in the fifth year (2022) and
generate $47.6MM in annual revenue. This projection seems realistic and consistent with industry norms. The
commissions paid to the sales representatives are included in the cost estimates in the table below.
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SHM Controls Financial Projections (2017 - 2022):
Source: SHM Controls, Inc.
Source: The graphs are created on the basis of SHM Controls projected financial statements
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Based on the current projections, SHM installations should grow at 302% CAGR over the 5-year period. Given
the statistics on residential apartments of three sample target markets (Vancouver, Toronto, Seattle) and SHM
Controls customer acquisition model (explained in the Sales & Marketing Chapter), this growth rate seems to
be reasonable. Refer to the Exhibit 1 for the related statistics on residential apartments:
Exhibit 1: Target Cities Statistics on Residential Apartment:
Target City Residential Apartment (Units >
20)
Vancouver (BC) 129,255 Toronto (Ont) 545,840 Seattle (WA) 136,100 Source: census.gov, statcan.gc.ca
SHM Controls Management Comment on the target market:
The Company will first target the markets that are the easiest, cheapest and fastest to enter and scale up. The
Pacific Northwest (Greater Vancouver and Victoria, NY, Greater Seattle) is the first choice, and will be part of
the expansion plan in all years. The decision as for when to expand to additional markets would be based on
the statistics coming from the first year, including market penetration rate in the Pacific Northwest and
estimated cost of expansion to the other possible markets. SHM will expand not only directly but also by
licensing the technology/products and/or by franchising the business model.
Ratio Analysis
The gross margin is projected to grow from 61.4% to 74.7% by year 2022:
Ratio Analysis 2018 2019 2020 2021 2022
Gross Margin: SHM Controls 61.4% 57.9% 55.4% 63.2% 74.7%
If to look at the gross margins of the analogous established companies, such as JCI, BOSCH, and Schneider Electric, SHM’s gross margins are favourably comparable.
Gross Margin 2015
2016 2017
JCI 26.5% 27.1% 31.0%
BOSCH 46.7% 48.0% 48.2%
Schneider Electric 37.0% 38.3% 38.4%
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Headcount Forecast
Year 2018 2019 2020 2021 2022
Headcount 10 22 28 29 31
In 2018, SHM Controls plans to hire key employees, including a Chief Revenue Officer, 2 marketing staff, an
HVAC technician, a lab technician, a hardware/software engineer and an office manager. They intend to
continue increasing their sales and technical/production capacity by hiring through to 2022. The growth of the
installation base will require accelerating the physical manufacturing process. Therefore, hiring additional
technicians is extremely important to reduce the assembly time of the hardware.
Cash Flow Statement Projections
As of April 30, 2018, SHM Controls had $143,174 in cash. The cash is projected to cover all operating expenses,
including staffing, COGS, and overhead expenses through September 2018. The funds raised in the current
financing round (up to USD $2MM) will sustain the company through to the date it expects to achieve cash-
flow breakeven (December 2019). SHM does not discount the possibility of future equity rounds were that to
best serve the interests of SHM’s shareholders and the company’s ongoing growth strategy.
A monthly cash-flow projection for the 12 month period of May 2018-April 2019 is attached below.
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Source: SHM Controls, Inc.
Issues Raised:
Analyzing the revenue versus expenses growth rate, there might be an issue of underestimated expenses.
Giving SHM's plan to reach $47.6MM in annual revenue by Year 5, one of the area of expenses to be scrutinized is the staffing level. Looking to established companies such as JCI, BOSCH, and Schneider Electrics for a baseline, we find that their respective revenues per employee are $267,475 for JCI, $203,900 for BOSCH, and $180,250 for Schneider Electric. Considering SHM is B2B high growth company, we note that the $1,535,400 in revenue per employee required of the projected 31 person headcount is a healthy, but reasonable, expectation.
Since SHM Controls does not have equivalent investments in fixed assets, the operating income margins of
SHM Controls can be compared to the EBITDA of JCI, BOSCH, and Schneider Electric:
Operating income margin is projected to grow from -125% to 89% by year 2022:
Ratio Analysis 2018 2019 2020 2021 2022
Operating Income Margin -125% -48% 54% 80% 89%
Source: Analyst Estimates on the basis of the provided financial projections
Operating income margin of the comparable established companies:
EBITDA 2017
JCI 11.69%
BOSCH 14.42%
Schneider Electric 14.00%
Source: Yahoo Finance
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Taxes
SHM Controls has provided "Corporation Notice of Assessment" that provides tax information. Since its
inception, SHM Controls has no outstanding tax liabilities.
Financial Risks and Risk Mitigations
SHM Controls management identified a few risks that might have financial implications. The risks along with
risk mitigation strategies are summarized below:
1. Scaling up may not be as fast as planned, and as a result, income might not grow fast enough to reach
positive cash flow on time.
Mitigation:
The current financing will provide approximately 16 months of runway in the event that the rate of customer
acquisition varies from plan to as low as 50% of the predicted rate. In that scenario, a reduced annualized
revenue figure of approximately $1MM would be sufficient to secure non-dilutive capital if needed to extend
the runway and preserve investors’ respective shareholdings.
2. A big player enters the market in a big way and changes everything, from introducing competitive pricing,
competing technologies and taking over new customers faster.
Mitigation:
While SHM feels confident that their 6 years of tested results provides an initial moat of credibility with regard
to smaller and newer market entrants, the Honeywell’s, GE’s and Siemens’ of the world would be challenging
competitors. However, SHM has been pro-active in partnership and collaboration discussions, and recent
acquisition activity suggests that a big player is more likely to engage with SHM, rather than compete with it, in
SHM’s chosen market space.
3. In large scale installations and/or in new markets, SHM’s primary business model of HaaS/SaaS may find less
acceptance.
Mitigation:
SHM has repositioned its business and revenue model such that it is agnostic as to whether a customer
capitalizes the cost of installation upfront, or chooses to finance the installation through a multi-year HaaS
contract. Further, the addition of the Wireless Remote Thermostat Controller as an additional revenue stream
that is independent of the subscription model will insulate SHM were certain markets less enamoured of the
hardware/software-as-a-service approach.
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Valuation
According to SHM Controls' sources, the company's valuation after the last seed round was CAD $5,087,000 (approx USD $3,913,000 at a CAD/USD FX rate of 1.30). SHM Controls is currently raising up to USD $2,000,000 in participating preferred shares on a USD$5,500,000 pre-money valuation (up to 26.67% equity). Based on the Company's current stage of development (with complete product development and ready go to market strategy) this is a reasonable valuation.
SHM Controls financial projections indicate ROI to be around 13-15x, based on an investment at a USD$6.5-7.5MM post-money valuation and a $100 million exit value. Standard practice in angel investing considers more than one valuation methodology. It also recognizes that valuation is a moving target. That is, as a company achieves certain milestones its valuation should rise. In the case of SHM Controls, the Company specifies the following milestones:
● Q3 2018: Complete minimum raise of USD$1MM
● Q4 2018: Key Hire: Chief Revenue Officer
● Q4 2018: Marketing team (reporting to CRO) is assembled
● Q2 2019: Installation base reaches 200 buildings
● Q1 2020: Cash-flow breakeven; MRR crosses $100K mark, annualized monthly revenue exceeds $6MM
● Q3 2020: Installation base reaches 1000 buildings
● Q3 2021: MRR crosses the $1MM mark, annualized monthly revenue exceeds $27MM
● Q4 2021: Installation base reaches nearly 5000 buildings The most easily verifiable method of valuation is to reference actual acquisition transactions. Accuracy depends crucially on how comparable these acquisitions are to the company in question. SHM Controls referenced acquisition of its indirect competitor Delta Controls by Delta Electronics in 2016 for $220MM 1, as well as BitStew Systems by GE in 2017 for $153MM2, and Enlightened by Siemens in 20183 for an undisclosed sum. While only a “ballpark” metric, it is worth noting that BitStew had raised $27.8MM in capital prior to its sale for $153MM, and Enlightened had raised $80.6MM, so the proceeds of the Enlightened sale to Siemens can be reasonably expected to be a multiple of the $153MM garnered by BitStew Systems.
SHM Controls makes special mention of Entic, Envio, Pepco Controls, Olympic Controls, ESC Automation,
Confirmed Automation, and Delta Controls as competitors or comparable firms. Unfortunately, these
companies are private and getting access to their financials is challenging. Among other potential comparable
firms, there are 5 listed companies that manufacture electrical and electronic products. These companies and
their financial highlights appear below. Even though, these companies have a broader spectrum of products
and services, they represent well the potential growth for SHM Controls.
1 http://www.delta-es.com.au/delta-acquires-delta-controls/#.WC8YBS0rLIU
2https://www.theglobeandmail.com/technology/general-electric-buys-vancouver-startup-bit-stew-for-153-
million/article32841507/ 3 https://www.constructiondive.com/news/siemens-acquires-smart-buildings-firm-enlightened/525137/
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Source: Yahoo Finance
A comparison of the financial highlights of the five firms indicates that they are all medium to large size companies with annual revenues ranging from $3.7B to $61.3B, enterprise values ranging from $7.2B to $120.4B, operating margins ranging from 12.12% to 17.36%, and profit margins ranging from 4.26% to 8.96%.
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APPENDIX D
Market Report Prepared by: Colin Prior
June 2018 update by SHM
The company’s primary target market has largely stayed the same, while the focus has shifted from single
building owners and property managers, to owners of multiple multi-residential/commercial properties and
apartment building offices. The addition of the WRTC (Wireless Retrofit Thermostat Control - see more about
that in Appendix F on “Products”) allows a technological and marketing advantage to offices buildings,
providing a potential for an easier expansion into that market.
The recent SHM Controller installation on the US East Coast provided evidence and proof for the company’s
working theory that the SHM Controller system would generate improved savings in that area. The large
temperature swings between day and night around the US and Canadian Eastern Seaboard during shoulder
seasons allow the SHM System to generate better average energy savings than in the more mild weather of the
West Coast. The company is now working with potential new building customers and property managers in
New York and Toronto to install SHM Controller systems in buildings those areas.
The company is also working with the West-Vancouver School Board to expand the single public school
controller installation already in place, into additional schools in that region. The process is slow and requires
administrative certification as an “approved vendor”.
Several additional reports produced by government and other research institutions support and reinforce SHM
Controls’ initial stand on market size for its products and services (over $110B), its findings on ongoing energy
waste in buildings (average of 30%) and the total amount of energy used by buildings (44% of entire energy
consumption in the market).
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Introduction
SHM Controls identified primary and secondary markets as described below. All their current installations are
in the first segment of the primary market (small/medium buildings) which is also the largest target market
segment and which customers stand to benefit the most from the SHM Controller.
Primary Target Market Segments
SHM Controls primary target market is composed of 3 segments
● Small and medium size apartment buildings (up to 50 units)
● Boiler heated houses
● Public schools
The Total Addressable Market (TAM) size calculation below is done based on counting the number of
properties in USA and Canada that are prime candidates for the SHM Controller, and the revenue that could be
generated from each one during a minimum service period of 3-5 years.
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Primary Market Size
Total Addressable Market Calculation
Sources:
Multifamily buildings USA: National Multifamily Housing Council (NMHC)
Canada: Canada Mortgage and Housing Corporation (CMHC)
Boiler Heated Houses USA: USA Census
Canada: Statistics Canada
Public Schools USA: National Center for Education Statistics
Canada: Canadian Association of Public Schools
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Secondary Target Market Segments
SHM Controls secondary target market is composed of 2 main segments:
1. Small hotels
2. Commercial buildings
The Total Addressable Market (TAM) size calculation below is done based on counting the number of
properties in USA and Canada that are candidates for using the SHM Controller, and the revenue that could be
generated from each one during a minimum service period of 5 years.
Secondary Market Size
Total Addressable Market Calculation
Sources:
Small Hotels USA: Statistica - Number of lodging franchise establishments in the USA
Canada: Statistics Canada - 2011 Census – Number of Hotels & Motels
Commercial Buildings USA: US Energy Information Administration
Canada: Natural Resource Canada – Office of Energy Efficiency
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Article Supporting Primary Market Size – by US Department of Energy
US Department of Energy, July 15, 2016
Link: https://goo.gl/uJRUfi
Energy Department Invests $19 Million to Improve
Efficiency of Nation’s Buildings July 15, 2016 – 1:06pm
WASHINGTON – The Energy Department announced today it is investing $19 million to improve the efficiency of
our nation’s homes, offices, schools, hospitals, restaurants and stores. These projects will develop advanced
building technologies that will help American consumers and businesses save money on their utility bills, reduce
greenhouse gas emissions, and create jobs.
Buildings are the largest energy consumer in the nation—accounting for more than 40 percent of the nation’s
total energy demand and greenhouse emissions, and resulting in an annual energy bill totaling $430 billion. On
average, nearly a third of this energy is wasted. It’s estimated that if the U.S. reduced energy use in buildings by
20 percent, the nation could save nearly $80 billion annually on energy bills.
Today’s 18 innovative projects will develop sensors and energy modeling tools to make our buildings smarter,
reduce refrigerant leaks and improve the efficiency of heating, ventilation, air conditioning, and refrigeration
(HVAC&R) systems, and produce a low-impact, gas-powered heat pump that can operate efficiently in colder
climates. The projects will also support renewable energy market penetration through energy storage, pinpoint
air leaks and reduce energy losses through the building envelope, and cut electricity use by transmitting sunlight
to building interiors.
―Improving the efficiency of our nation’s buildings presents one of our best opportunities for cutting Americans’
energy bills and slashing greenhouse gas emissions,‖ said Secretary of Energy Ernest Moniz. ―These innovative
technologies will make our buildings smarter, healthier, and more efficient, driving us toward our goal of reducing
the energy use intensity of the U.S. buildings sector by 30 percent by 2030.‖
The 18 selected projects span multiple technology areas, targeting a variety of building efficiency improvements:
Sensors and Controls
● Lawrence Berkeley National Laboratory (LBNL) (Berkeley, California) will develop a platform for design and
specification of HVAC control sequences that inter-operates with both whole-building energy simulation and automated
control implementation. OpenBuildingControl will eliminate the manual translation steps currently associated with HVAC
control design, reducing both effort and error.
● Carnegie Mellon University (Pittsburgh, Pennsylvania) will develop a sensing and control system that can save
significant energy by accurately estimating the number of occupants in an area, and then adjusting HVAC operations
accordingly. Current HVAC systems waste energy by assuming maximum occupancy in each room.
● PARC (Palo Alto, California) will develop a wireless system of peel-and-stick sensor nodes that are powered by
radio frequency hubs, relaying data to building management systems that can significantly reduce energy use.
● Clemson University (Clemson, South Carolina) will develop low-cost, digital, plug-and-play, passive radio-
frequency identification sensors for measuring indoor and outdoor temperature. These sensors will improve building
operations and cut energy costs.
● The University of California-Berkeley (Berkeley, California) will create a low-cost, open-source, wireless sensor
system, which will be integrated with building management systems, their components, and smartphones to enable
installation of secure and easily deployed building energy efficiency applications, such as demand response.
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● Oak Ridge National Laboratory (ORNL) (Oak Ridge, Tennessee) will develop system-level architecture for a
plug-and-play multi-sensor platform, which can use peel-and-stick sensors less than a quarter of an inch thick that are
powered by indoor, high-performance, flexible photovoltaics.
● SLAC National Accelerator Laboratory (Menlo Park, California) will develop a toolkit for the Department’s open-
source VOLTTRON platform, which supports a wide range of building energy management and grid integration
applications. The toolkit adds testing and simulation tools to cut costs by as much as 30 percent for systems integration,
distributed energy, and microgrid development projects.
● Columbia University (New York, New York) will use metering and automated personalized feedback to encourage
occupants of multifamily buildings to save electricity by reducing appliance use or shifting use to non-peak hours.
HVAC&R and Joining Technologies
Optimized Thermal Systems (Beltsville, Maryland) will develop a manufacturing procedure for a serpentine heat
exchanger for HVAC&R systems that has 90 percent fewer joints than current heat exchangers; joint leaks can release
greenhouse gases into the atmosphere and reduce system efficiency.
Ingersoll Rand (La Crosse, Wisconsin) will reduce refrigerant leaks and enhance HVAC&R systems’ efficiency by
improving the strength and quality of brazed joints.
ORNL will develop adhesive chemistries for bonding aluminum and copper during heat exchanger manufacture, resulting
in enhanced bonding and significant energy savings.
ORNL will integrate its Ground-Level Integrated Diverse Energy Storage (GLIDES) system with HVAC systems to
provide efficient, building-integrated electrical and thermal energy storage.
ORNL will develop a residential, gas-fired split heat pump that will use an ammonia refrigerant, which is not a
greenhouse gas and can convert chemical energy to heating and cooling without using any moving seals.
Windows and Building Envelope
LBNL will develop insulation that is 2 to 4 times more efficient than conventional materials and at a comparable installed
cost. The new insulation will make it easier and cost-effective to retrofit existing buildings.
LBNL will also extend its popular detailed envelope heat-transfer model THERM with moisture-transfer modeling
capabilities to help industry evaluate and design energy-efficient facades that mitigate moisture and problems, avoiding
structural degradation and mold.
Iowa State University (Ames, Iowa) will develop an infiltration diagnostics system that uses a laser to locally heat a
portion of the building envelope, and then uses an infrared camera to pinpoint air leaks.
Glint Photonics (Burlingame, California) will develop a stationary, roof-mounted concentrating daylighting system that
uses internal optics to track the sun in the sky and light guides to transmit the light to the building interior, thereby
reducing the energy use for electric lighting by 40-70 percent.
Energy Modeling
● The University of Miami (Miami, Florida) will integrate several existing energy modeling packages to create a tool
that is customized for the design and operational requirements of data centers and large computer rooms. These account
for a significant and growing share of energy consumption in the U.S., reaching 2 percent of all electricity use in 2013.
The Energy Department's Office of Energy Efficiency and Renewable Energy (EERE) accelerates development and
facilitates deployment of energy efficiency and renewable energy technologies and market-based solutions that strengthen
U.S. energy security, environmental quality, and economic vitality. EERE supports innovative technologies that reduce both
risk and costs of bringing energy efficient building technologies online. Learn more about the Department's efforts to help
homes and buildings save energy at Energy.gov.
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June 2018 update by SHM
Lawrence Livermore National Laboratory has issued a revised graphic report for 2017, showing the relative
portions of energy as are used by different sectors in the US market. The numbers show that buildings are still
responsible for over 40% of the entire energy consumed in the market.
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Small and Medium Size Apartment Buildings
- Market Status and Heat Waste Issues
Market status
Older buildings were not designed with heat efficiency in mind. At the time, advanced sensors, panel
computers and wireless technologies were not available. As well, decades ago natural gas and oil were not
expensive commodities, resulting in little incentive for additional spending on heat efficient designs and
construction. As a result, many buildings typically have only a single temperature sensor located outside the
building and occasionally also a thermostat in the hallway.
However, the temperatures outside the building or in the hallway do not really mirror the actual conditions
inside tenant apartments. Yet, it is the temperature inside those apartments that we want to regulate, not the
temperature in the hallway or outside the building... The common industry solution used for years by most
boilers is a “preset temperature look-up table”. Using that table, for any specific outside temperature the
boiler works a predefined amount of time generating a predefined amount of heat. In other words, the amount
of heat the boiler sends to the tenant apartments is determined by the temperature outside the building, not
by the existing temperatures inside those apartments!
This method, although very common, is obviously not at all accurate, causing building managers to increase
boiler heat in response to tenant complaints. It is not uncommon to see apartment windows wide open even in
cold weather. This translates to higher natural gas consumption and of course - larger gas bills.
In recent years new high efficiency boilers were introduced to the market with an attempt to address this
expensive energy waste. However, a boiler is only one part of the entire heating infrastructure, which includes
also the piping, the pumps and the building's layout. Even a high efficiency boiler can only marginally adjust for
the inaccuracy of the “preset table” method, and it definitely cannot rectify the heat loss on exposed pipes,
oversized pumps or tenant apartments that are already overheated by hot water pipes running through their
walls.
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Existing Heat Issues
Many of the heat related issues in buildings are not always easy to identify to begin with, and even when
identified, they are not easy to repair (if system related) or to enforce (if behavior related).
It is extremely common that the people in charge of identifying those problems, correcting them or enforcing
new behaviors (property managers, resident caretakers) have no result related incentive. When also
considering the fact that investigating, finding and enforcing those behavior changes are a tedious ongoing
task, it is clear why the existing heating issues are so common.
In the next section we review several heat related maintenance issues that are very common in small/medium
size buildings yet are quite hard to identify in an efficient, economical and practical way.
All these issues cause a reduction in the heat provided to the units. Consequently in most cases the caretaker
opts for the obvious solution - pushing the boiler to work more hours and at higher temperatures than
necessary to provide more heat in an attempt to compensate on the heat loss.
Since the SHM Controller is dealing with the building as a whole, like a 'unified heat system' and not only with
the individual parts (boilers, pumps, baseboard radiators etc.), the inevitable outcome is that those heat
related issues are easily identified and flushed out. Proper heat usage is better enforced, and alleviating the
tedious part of identifying the individual problems thus allowing the property manager and caretakers to
monitor and repair as needed in a much more efficient and economical way.
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Common Heat Issues in Buildings, Which the SHM Controller Helps to Identify
Open windows in Winter (heat evaporates from the units outside the building)
Unnecessary open windows is one of the largest contributors to heat and energy losses in apartment buildings
today. Since owners and/or property managers cannot verify complaints from tenants about being “too cold”,
often they end up cranking up the boiler heat output far beyond the reasonable need. Eventually tenants who
feel too hot in their unit typically would simply open windows to regulate their unit's temperature. This is a
classic of “lack of buyer's control”: the person who pays for the energy bills (the building owner) is not the
person who is using that energy (the tenant).
Windows wide open during the winter.
This photo was taken in November 2013, outside
temperature was 7C / 44F and the boiler was working at
100% capacity 24/7. Average unit temperatures was
measured at 27C / 80F – resulting in windows wide open all
around the building.
Windows wide open during the winter
This photo was taken March 2016 when outside temperature
was 12C / 53F
Infrared image of same building above, showing the heat
actually escaping through the open windows
Clogged or squished radiator fins (convection effect disabled, reduced or no heat radiation)
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Baseboard radiators in buildings work using the “convection principle”:
The baseboard radiator heats the air touching its surface.
The air that is heated up, becomes lighter and rises, allowing
fresh colder air to arrive to the baseboard radiator.
In order to make the process more efficient, baseboard
radiators have 'fins' to increase the surface area that can be
used to heat up the air.
Those radiator fins collect dust over the years and at times are even damaged and squished by moving
furniture or falling objects and as a result, do not heat up the air around them as well.
Consequently the boiler is working to deliver the heat energy to the tenant units, but the radiators are not
radiating the heat as efficiently as they could, or not at all. Tenants end up complaining and the boiler is
cranked even higher – wasting even more energy.
FACT: It has been proven empirically by SHM Controls, that after a clogged and squished baseboard radiator is
cleaned and its fins were straightened, the tenant's unit's ambient temperature could immediately rise by up to
4C° / 7F° Without any change to the boiler's heat energy output!
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Radiator fins clogged with dust
Radiator fins clogged with dust
Squished radiator fins – no longer operating as well as could
Manually straightening squished radiator fins
Blocked air flow by curtains, sofas, beds (convection effect disabled, reduced or no heat radiation)
In order to allow for sufficient air flow around the baseboard radiator, a minimum distance should be kept
between the baseboard radiator and any other objects around it and above it. However, it is not uncommon to
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see that space covered and blocked by objects like curtains and sofas, while the tenant is complaining: “there is
not enough heat”.
A sofa is covering the baseboard radiator, blocking air flow
– heat generation is limited
A curtain is covering the baseboard radiator, blocking air
flow – heat generation is limited
Infra red visualization – The part of the baseboard radiator
that is covered by the curtain produces almost no heat
Infra red visualization – The part of the baseboard radiator
that is covered by the curtain produces almost no heat, or the
heat is contained within the space behind the curtain
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Air Bubbles in Heat Pipes and Baseboard Radiators (insufficient water flow, reduced heat radiation)
A hydronic heating system is based on water heated up by a boiler, which is then pushed via a pump through
pipes, and through baseboard radiators in the areas to be heat, like tenant units. The pipe system is supposed
to be relatively sealed, but commonly it is not “hermetically” sealed. During the summer the heat system is not
in use, so typically water pressure in the pipes reduces and gravity takes its tall, pulling the water down and
bring in some air into the pipe system. As a result, when the heat system is turned on at the beginning of
winter, many buildings may have some air in the heat pipes. When the heat water flows, those air bubbles
would move with the flow and since air is lighter than water, those bubbles get caught under a baseboard
radiator. The outcome is that although water is flowing in the heat pipes, those radiators with air bubbles will
not produce enough heat, or not at all.
In order to remove air from the heat system, baseboard radiators are typically equipped with a manual “air
bleed nozzle” or “air bleed valve”. The maintenance person would open the nozzle and let the caged air out,
until the heat water reaches the nozzle, and then shut it off again.
There are also special air-separator filters that could be installed either on the baseboard radiators or in other
pipe locations, which will automatically vent out any air in the system. However, installing automatic air-
separator filters in all baseboard radiators in a typical building is commonly quite expensive. Having no
practical way to measure the return on investment, only few existing and old buildings owners would do that.
Baseboard radiator with air bubble caged in its upper
portion.
Baseboard radiator with air bubble caged in its upper
portion.
Only the are where the hot heating water is touching, would
warm up. As long as there are air bubbles in the system, the
baseboard radiator would not heat up to its full capacity
Air bleed valve would typically be at the top of the
baseboard radiator. Air bubbles lighter than water, propagate
to the top part of the baseboard radiator, where they could be
manually bled out of the system using the air-bleed nozzle.
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An air bleed nozzle placed on the heat pipes
An air bleed nozzle that is placed at the top of the radiator
(air bubble go up, lighter than water),
Air bleed nozzle that is placed at the water entry point into a
low profile baseboard radiator
An air-separator filter which constantly vents any air
bubbles flowing in the heat pipes
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Uninsulated pipes (heat evaporates before reaching the units)
A boiler heating system is working based on “closed water pipe loop”: Water is heated by the boiler, the
pushed by a pump through pipes which lead to the baseboard radiators in tenant units, and then back to the
boiler to be re-heated, and the loop starts again. If the pipes between the boiler and the baseboard radiators
are not well insulated, heat energy will radiate from the pipes on the way to/from the tenant units, and be lost.
That energy loss was rarely measured or quantified in older buildings, and even in newer boiler installations it
is apparently not always a common practice. Decades ago, when costs of heating were not as expensive as
today, it was less of an issue and if needed the boiler would simply set to work more. However even in today's
market, many new boilers are installed with little or no insulation. Based on observation alone, SHM Controls
estimates that about half of old and new installations are done without proper pipe insulation. The reason is
most likely to save on up front costs, while never knowing for sure of the real practical difference that such
insulation would make.
With the SHM Controller, this change can be measured accurately, and in most cases it is considerable! Having
temperature sensors both in tenant units and in the boiler room, the difference between the Heat Supply
temperature (water sent by pipes to the tenant units radiators) and the Heat Return temperature (water
coming back by pipes from tenant units radiators) and the temperature in the tenants units is visually
displayed, showing all heat energy losses in the way.
Insulated boiler pipes, prevent energy waste between the
boiler and the baseboard radiators in tenant units
Uninsulated boiler pipes, cause additional energy waste
between the boiler and the baseboard radiators in tenant
units.
Common Boiler Controllers Currently In Use in Small-Medium Apartment Buildings
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In order to reference the differences between boiler control devices and technologies, we defined the
following terminology:
Thermostat A device that can turn a dry contact relay on/off based on temperature going above or
below a set threshold
Simple Boiler Controller
A device that can control one ore more boilers to turn on/off based on several
temperature inputs going above or below a set threshold (boiler control requires a
combination of timed dry contact relays and analog voltage/current output).
The operation code is typically embedded in the device's hardware/firmware and is left
unchanged throughout the devices lifetime
The typical cost of a Simple Boiler Controller is $500-$3,000
Smart Boiler Controller A device that can control one or more boilers to turn on/off based on many temperature
inputs, both by the level going above or below a set threshold and by the behavior
pattern of each temperature. The decision making process is based on algorithms
designed to improve operation and energy efficiency (boiler control requires a timed
combination of dry contact relays and analog voltage/current output).
The operation code resides in an on-board computer running a high level operating
system, written in high level software and is updated and upgraded on occasions
throughout the devices lifetime
The typical cost of a Smart Boiler Controller starts at $25,000 (hardware + installation)
and up to hundreds of thousands of dollars
SHM Controls surveyed over 100 small-medium size buildings as potential candidates. All buildings in that
survey had a “Simple Boiler Controller” (as defined above) as means to control the boilers, pumps and valves in
the boiler rooms.
None of the buildings surveyed by SHM Controls used Smart Boiler Controllers (as per the definition above) and
the only instances where such a system was in place was in tall buildings with over 100 units. The typical reason
for that is the high cost of the Smart Boiler Controllers, which simply doesn't fit the small expense budget of
small and medium buildings. SHM Controls survey found that about 85% of the small-medium size buildings in
Greater Vancouver area use simple boiler controllers made by two companies: Honeywell and Tekmar.
Honeywell makes both simple boiler controllers and expensive smart boiler controllers, while Tekmar focuses
only the simple boiler controllers.
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Tekmar Controls
Over the past 28 years, tekmar has earned a reputation as the leader in
complete control solutions for radiant floor and baseboard heating systems,
multi-stage boiler plants, and automatic snow melting systems.
http://tekmarcontrols.com
Typical Tekmar Simple Boiler Controllers, commonly found
in most boiler rooms today.
<-- 1-Stage boiler controllers
2-Stage boiler controller -->
Price range: $500-$1,500. Allows basic operation of the boiler based on outside temperature (“Outdoor Reset”)
Honeywell
<-- “Simple Boiler Controller by Honeywell
Price range: $500-$1,500. Allows basic operation of the boiler based on outside
temperature (“Outdoor Reset”), some version do not even use the outdoor
temperature.
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Examples of Simple Boiler Controllers in buildings
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APPENDIX E Legal, Deal Documents and IP Position
Prepared by: Brian Santarelli
June 2018 update by SHM
Staring March 2018 the patent examiner at the US Patent Office has been in back-and-forth communication
with SHM Controls via the company’s patent agents (Smart & Biggar/Fetherstonhaugh) and agreed to separate
the original patent submission to 5 separate patents.
Mr. Bryan Santarelli4 reviewed the following documents. For each document or set of documents, brief
comments, or an indication where more detailed comments can be found, are included.
1) Development Agreement (dated 01 August 2015) between SHM and Netspell, a consulting firm owned by
Mr. Oded Malky, who is CEO and CTO of SHM. Under this Agreement, SHM agrees to pay Mr. Malky
for consulting services. From a legal perspective, this Agreement appears to be in order, but potential
investors may wish to review the financial terms in this Agreement as these terms may affect
shareholder value.
2) Transfer Agreement (dated 02 June 2015) between SHM and Netspell. Under this Agreement, SHM agreed
to pay Netspell CA$75,000 (CA$30,000 in cash, the remainder in SHM stock) for certain Intellectual
Property, including technical know-how. From a legal perspective, this Agreement appears to be in
order, but potential investors may wish to review the financial terms in this Agreement as these terms
may affect shareholder value.
3) Confidential Information, Employee Inventions, and NonCompetition Agreements – appear to be in order,
see IP DD report.
4
Mr. Bryan Santarelli is a patent attorney licensed to practice law in Washington State and before the United States Patent and Trademark Office. SHM is a company incorporated under the laws of British Columbia, Canada; therefore, some of the legal documents that Mr. Santarelli reviewed are written to comply with Canadian law, and may be valid and enforceable only in Canada. Because Mr. Santarelli is not licensed to practice law in British Columbia or in any other Canadian province, potential investors may wish to seek the advice of an attorney licensed in British Columbia regarding such legal documents.
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4) Service Agreements – appear to be in order, but recommend adding a clause that a customer is liable for
damages he/she causes to SHM equipment, and recommend that SHM’s legal counsel review and, if
needed, revise, the Service Agreement to comply with U.S. law if/when SHM services customers in the
U.S.
5) Board Meeting Minutes – appear to be in order.
6) (Director) Indemnification Agreement (dated 29 January 2015) – appears to be in order.5
7) Articles (of Incorporation) (dated 29 January 2015) and other incorporation documents – these documents
appear to be in order.6
8) Letter from the Investment Capital Branch of the Ministry of International Trade of Canada (dated 22 June
2015) indicating that SHM is an eligible business corporation under British Columbia’s Small Business
Venture Capital Act – appears to be in order.
9) Central Securities Register (dated 03 July 2015, lists shareholder names, number of shares, type of shares,
and price/per share) – appears to be in order.
10) Cap Table (dated 19 October 2016) – appears to be in order.
11) Summary of Terms (dated 08 November 2016) for the equity shares and/orconvertiblenotes round in
which Keiretsu members are invited to participate – appears to be in order.
12) Trademark applications and registrations – SHM has no trademark applications or registrations, see IP DD
report.
13) Patent Applications – appear to be in order, see IP DD report.
14) Trade Secrets - see IP DD report.
5
Although not a problem from a legal standpoint, it is unclear why the (Director) Indemnification Agreement is governed by, and is construed in accordance with, the laws of Alberta, Canada considering that SHM is incorporated under the laws of British Columbia, Canada and has its principal place of business in British Columbia. 6
SHM is incorporated under the laws of British Columbia, Canada.
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Intellectual Property (IP) Due Diligence
Summary of IP
The overall IP position of SHM Controls, Inc. (hereinafter “SHM”) is “good” for an entity at its stage.
On the upside, SHM maintains, as trade secrets, the features of its proprietary boiler-control algorithm
that are difficult to reverse engineer, and has a U.S. patent application and a counterpart Canadian patent
application directed to other features of its boiler-control algorithm and to its boiler-control system.
Furthermore, the transfer and assignment agreements by which SHM acquired the trade secrets and patent
applications appear to be in order. Moreover, SHM’s CEO and CTO, Mr. Oded Malky, has a good understanding
of the importance of obtaining, and how to obtain, patent, trademark, trade secret, and other intellectual
property protection that enhances SHM’s shareholder value. In addition, SHM has performed a novelty search
for its patent applications, has disclosed the references discovered during the search to the U.S. and Canadian
Patent Offices, and believes that none of the discovered references will prevent SHM from receiving
meaningful patent protection for its products. And because SHM’s patent applications have not yet issued, it is
still possible to tailor existing claims, and to file continuation applications with new claims, to respond to
current and future competitor activities and to otherwise enhance the value of SHM’s patent portfolio to
shareholders.
On the downside, as of 25 November 2016, SHM has not sought trademark protection for any marks
that it is using,7 has no patents or patent applications outside of the U.S. and Canada, and the two patent
applications that SHM does own have not yet been searched or examined by the U.S. or Canadian Patent
Offices (not the fault of SHM). Furthermore, SHM has obtained no written freedom-to-operate (FTO) opinion
for its current products.
7
The only unregistered mark that Mr. Santarelli is aware of SHM using is “SHM.”
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PatentPortfolio and Trade-Secret Assessment
Patent-Portfolio and Trade-Secret Strengths
The following is a list of SHM’s pending patent applications:
U.S. 2016/018789 - (claims priority to U.S. Provisional Patent Application No. 62/098,551, filed 31
December 2014)
CA 2915655 - (claims priority to U.S. Provisional Patent Application No. 62/098,551, filed 31 December
2014)
SHM uses a combination of trade secret and patent applications to protect its current and planned
future products.
SHM maintains, as trade secrets, the harder-to-reverse-engineer features of its boiler-control
algorithm, such as predicting a boiler-heating profile based on past heating and hotwater usage. Although it is
possible that a competitor may eventually develop boiler-control algorithm with the same or similar features,
Mr. Oded Malky, CEO and CTO of SHM, believes that, based on the time that it took him to develop SHM’s
boiler control algorithm, SHM’s products will have at least a two-year development advantage over, and,
therefore, will be superior to, any competing products due to the time Mr. Malky anticipates that a competitor
will need to develop and test a competing algorithm.
SHM’s patent applications are directed to other features of its current and planned boiler-control
algorithms and boiler control systems. Such features include, for example, setting the boiler idle temperature
based on the outside temperature and the current demand for heat or hot water, and detecting a failure in the
boiler system. Furthermore, SHM’s patent applications describe multiple variations of SHM’s current and
planned products to make it more difficult for a competitor to “design around” SHM’s patent coverage.
Using a combination of trade secret and patent protection to protect a product or products is a
common and sound strategy, where the technology maintained as a trade secret is difficult to reverse engineer
from examination of the trade-secret holder’s product and/or related publicly available information, and is
difficult to detect from examination of a competitor’s product and/or related publicly available information.
Furthermore, although SHM has not obtained a written FTO opinion from patent counsel, SHM has
performed a search to determine the risk that SHM’s current and planned products infringe one or more issued
third party patents. Based on a detailed study of the claims of the patents discovered during this search, SHM
believes that none of SHM’s current or planned products infringe any of the discovered patents.
Moreover, SHM’s patent counsel, Fetherstonhaugh, is a well-known and well-respected Canadian
patent law firm with experience preparing and prosecuting both U.S. and Canadian patent applications.
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Patent Portfolio and Trade-Secret Risks
None of SHM’s patent applications have been searched and initially examined by a patent office;
therefore, the timing and final scope of patent protection that SHM will ultimately obtain for its products is
unknown (currently, the art unit of the U.S. Patent and Trademark Office (hereinafter “USPTO) to which SHM’s
U.S. utility patent application is assigned has a backlog in the range of 12 – 36 months).
Furthermore, SHM has filed no patent applications outside of the U.S. and Canada, even though there
are markets (e.g., northern Europe) for SHM’s products outside of the U.S. and Canada.
And regarding SHM’s trade secrets, it is possible that a competitor may, without knowledge of SHM’s
trade secrets, eventually develop a boiler-control algorithm that includes features that are similar to, or the
same as, the secret features8 of SHM’s boiler-control algorithm. Because trade-secret law provides legal
recourse only for a misappropriation of another’s trade secrets and, therefore, does not provide legal recourse
for independent development of another’s trade secrets, SHM would have no legal recourse against such a
competitor unless, of course, the competitor’s boiler control algorithm were to infringe one or more of SHM’s
patents.
Recommendations of the DD Team Regarding SHM’s Patent Portfolio
For future technological developments, SHM should continue to determine whether filing a patent
application covering the technological development, or maintaining the technological development as a trade
secret, affords the best protection to the technological development.
For future patent applications, SHM should consider also filing the patent applications in jurisdictions
(e.g., Europe, Asia) outside of the U.S. and Canada, for example, by filing Patent Cooperation Treaty (PCT)
patent applications.
And during his review of the SHM patent applications, Mr. Bryan Santarelli discovered a few potential
minor issues (e.g., typographical errors), and recommended that SHM discuss these potential issues with its
patent counsel. Mr. Oded Malky indicated that he will discuss these potential issues with his patent counsel,
and will proceed as his patent counsel recommends.
8
Here, “secret features” means the features that SHM maintains as trade secrets and, therefore, that SHM did not include in its patent applications.
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Trademark Portfolio
Trademark Portfolio Assessment
Trademark-Portfolio Strengths
Although SHM has no trademark applications or registrations, for any marks that it is using, SHM enjoys
the protection to unregistered marks available under U.S. law (and possibly under Canadian law).
Trademark Portfolio Risks
SHM has no trademark applications or registrations.
Recommendations of the IP DD Team to SHM Regarding Trademarks
SHM should apply for registration of its current and planned trademarks not only in the U.S. and
Canada, but also outside of the U.S. (e.g., Europe, Asia), for example, via the Madrid Protocol.
Employee and Consultant Agreements
SHM’s employees and contractors have each signed a respective agreement that includes an
intellectual-property assignment and a confidentiality clause, and that otherwise appears to be in order. It is
SHM’s policy that it will require future employees and contractors to execute the same or similar agreements.
Furthermore, SHM’s employee/contractor agreement appears to comply with
Canadian law; but if SHM ever retains U.S. employees or consultants, SHM should review its employee/contract
agreement to insure that it also complies with U.S. law.
SHM’s Response to the IP DD Team’s Recommendations
SHM and its IP counsel will review the minor issues discovered in SHM’s patent applications, and will
address these issues as SHM and its IP counsel deem fit.
Furthermore, SHM and its IP counsel will consider the IP DD team’s other recommendations (e.g., also
file future patent applications outside of the U.S. and Canada, obtain a written freedom-to-operate (FTO)
opinion for SHM’s current products, and file applications to register SHM’s trademarks).
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Due Diligence Process
Due-diligence team member Mr. Bryan Santarelli performed the following steps, and reviewed the
following documents, during the Legal and IP due-diligence processes.
1) Studied documentation, provided by SHM, that describes the structure, operation, and application
of SHM’s current and planned products and product features.
2) Studied each of SHM’s patent applications.9
3) Spoke with Mr. Oded Malky, CEO and CTO of SHM, about the operation and structure of SHM’s
current and planned products and product features, the operation and structure of the products and product
features described in each of SHM’s patent applications, and SHM’s patent portfolio and trade-secret strategies
to date and going forward.
4) Studied all of the other documents listed above in the Legal and IP Summary.
9
Because the Canadian counterpart patent application 2915655 is the same as U.S. patent application 2016/0187894, Bryan Santarelli studied only the U.S. patent application.
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APPENDIX F Products and Operations Report
Prepared by: Colin Prior
PRODUCTS
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June 2018 update by SHM
SHM Controls introduced a new type of control product: The WRTC - Wireless Retrofit Thermostat Control. The
SHM System can now remote control wirelessly all existing thermostats within a property, and in this way
control any equipment the thermostats are controlling (heating, cooling, electricity, gas, fans etc). The retrofit
units allows unified wireless control even over all types of thermostats, ranging from legacy mercury weight
thermostats to the newest digital thermostats over a very long range. In addition to being able to control even
non-digital thermostats, the long-range wireless technology and the unified control over hundreds of
thermostats concurrently, is quite unique in the market today.
The WRTC (Wireless Retrofit Thermostat Control) is an extension to the SHM Controller system that transforms
a building’s existing set of independent thermostats into a networked array of IoT sensors and smart
temperature control units that can operate based on a system wide energy saving algorithm.
Each thermostat can now be allowed to manage temperature independently, or overridden to execute our
energy saving predictive-adaptive algorithm. Each Wireless Thermostat Control unit provides real time data
from all over the building for the SHM Controller to analyze, improving overall temperature control.
The Wireless Thermostat Control unit has a temperature sensor and a motion detection sensor. This allows for
dynamic temperature control that is responsive to tenant activity, ensuring your tenants are comfortable
whenever they are on-premises.
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The SHM System include three main parts:
● The SHM Controller
Placed in the boiler room, the SHM Controller is connected to the boiler, pumps and valves. The SHM
Controller is the heart of the SHM System: It is running the
decision making software, connected wirelessly to all other
system parts, as well as to the remote application servers.
The SHM Controller is equipped with a 7” touch screen, allowing the user
to view and control almost all aspects of the boiler room operations with
great ease, using a simple, clear yet powerful graphical user interface,
designed for single finger touch screen operation.
The SHM Controller has two separate wireless systems, one for
communication with the SHM temperature sensors and SHM Routers,
and the other to connect with the remote application server, allowing
remote control, sending email/text alerts and receive software updates.
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● The SHM Wireless Temperature Sensors
The SHM wireless temperature sensors are the
main source of data points for the controller. The
sensors are placed in strategic locations inside the
boiler room as well as in tenant units.
Boiler room temperature sensors are equipped
with a probe, so can be mounted externally (non
intrusive) on the object which temperature is
measured.
Tenant unit temperature sensors have no probe in order to have a minimal foot print, and are
mounted on the wall inside selected tenant suites. Typically having 3 sensors per heat zone is
sufficient.
● The SHM Routers
The purpose of the SHM Router is to extend the range of the wireless
network coverage. Since it is doing so by rerouting communication
between the SHM Temperature Sensors and the SHM Controller, it is
named after its underlying functionality – a routing device.
The SHM Router is a “plug-able” device, and can be placed in any power
outlet anywhere in the property - as needed. Typically there are 2 SHM
Routers installed per property, but in larger properties or more
wirelessly challenging properties, there could be more SHM Routers.
Once the SHM Router is plugged, it connects to the SHM wireless
network and announces its existence. Any additional SHM Router in the wireless network could offer a
new node in a wireless path of the data transferred between any specific SHM Sensor to the SHM
Controller. There more SHM Routers are added to a network, the more possible paths will be available
and the wireless network becomes more robust. If a SHM Router is removed from the network (or
there is any wireless interference blocking the communication path), the wireless network would
automatically use alternate transmission paths through other SHM Routers or even directly between
the SHM Controller and the SHM Sensors.
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There are typically between 4-11 SHM Sensors in the boiler room. The number of sensors is determined by the
type of mechanical equipment present in the boiler room. Typical locations for the sensors would be: Outside
temperature, Main heat supply (boiler output), Main heat return (boiler input), Domestic Hot Water. In
mechanical configurations where the boiler also controls the domestic hot water tank, additional sensors
would be added to monitor that heating process as well.
The SHM Routers would be placed in such way that would allow creating several possible wireless paths
between the SHM Controller, via the SHM Router and to the SHM Sensors in the tenant units. The actual
routing is done automatically by the wireless network underlying control mechanism.
SHM Sensors are placed in 3 tenant units in each heat zone. Most buildings would have only one heat zone
(meaning, when heating - the entire building is being heated), but some buildings may have several zones,
allowing the boiler to heat different parts of the building at different times, as per the need in that part. When
building heat system is constructed that way, it allows for better efficiency and better use of heat energy.
System Features
● Natural Gas Savings – Average saving is 30%
The software in the SHM Controller collects all data from the SHM Sensors in minute-by-minute, and
uses proprietary predictive-adaptive algorithms to calculate what action needs to be taken in this
minute, based on the current conditions, the ongoing activity and prediction models. The system takes
in consideration all the learned property information, which is affected by the property size (space to
heat), boiler type and size, boiler heat capacity in relation to the property, boiler heating time, heat
dissipation factor (and heat loss) between the boiler and the tenant units and target temperature set
for that specific moment in time.
The inevitable outcome is a much greater efficiency in how the boiler is utilized, all units are getting the
right amount of heat at the right time, not more and not less.
The average year-over-year gas saving showing in existing SHM Building installations in the past 4
years, even after adjusting for temperature differences in same months of consecutive years – has
been 30%
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Example from a real gas bill
In this property the SHM Controller was installed in March 2016. The gas bill shows that the average daily
temperature was the same in October 2015 and October 2016. In 2015, without the SHM Controller the
average daily consumption was 3.92 Gj while with the SHM Controller the gas consumption was only 2.09 Gj –
which a considerable change, showing 47% savings!
June 2018 update by SHM
Utility bills are available from different properties, in Canada and in the USA showing consistent and
considerable energy savings.
Savings obviously vary throughout the year: Most savings are during the shoulder seasons. As well, some
buildings would show much higher savings than others.
For more test-case examples please refer to the “Technology, Software” chapter.
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● Remote monitoring and control
The SHM Controller allows full remote controller over
the heating and domestic HW system, using
computers, smartphones and tablets, via two remote
graphical user interfaces:
The technician interface: Is an identical interface to
that on the SHM Controller touch screen, and is done
via a cross platform app, supporting all operating
system (Windows, Mac, Linux, IOS, Android).
The owner/manager interface: Is a web based interface, providing a graphical user interface with a very
similar look and feel to the technician interface, but used mostly to view information and allow only
minimal ability to make changes.
Main screen interface
All objects are “touchable” and
interactive.
The objects in that layout would be
different for each property, based on
the actual equipment installed
Heat Chart interface
Both live and historical data is
immediately visible, as well as
statistical information
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● Email/Text alerts on emergencies, preemptive alerts
The SHM Controller can sense almost 40 different situations in which it could send an email and/or text
message alert to a list of pre-defined recipients. There is no limit to the number of the alert recipients
and each recipient has an individual setting for which alerts to receive, and how often.
Alerts can be set to be sent at pre-defined intervals “as long as the tested condition is in effect”, or only
once.
Examples of typical alerts would be:
- Domestic hot water is too cold/too hot
- Boiler is not heating up, although received command to do so
- Tenant unit is too cold/too hot
- Boiler has been turned off due to a possible pump malfunction
Pre-emptive Alerts
Some alerts conditions are sensed ahead of the actual emergency using pattern recognition of the heat
temperature curve. For example, an upcoming malfunction of a domestic hot water tank could be
identified by analyzing the heat temperature curve a couple of hours before the actual emergency and
before tenants even notice a change in domestic hot water temperature. When the SHM software
identifies the heat pattern of a possible malfunction in the domestic hot water tank, it will send the
alert to the recipients, allowing the property manager and HVAC technicians to address the issue in a
timely manner, often avoiding emergency call charges and potential property damage.
● A quick wireless retrofit
All parts of the SHM Controls system are wireless as well, they are non-intrusive in nature. This means
that no actual plumbing is required, and the installation is as simple as connecting the SHM Controller
to a wall with 2-4 screws, connecting the boiler room sensors with a cable tie around the relevant pipe
and installing the tenant suite sensors on a wall using 2 screws.
Consequently, the installation process is very fast. Typical installation time in an average property takes
about 1 hour. The property size has only a small effect on installation time.
In comparison – other controllers may take as little as 6-8 hours to install or even days.
● A visual diagnostic tool
The Heat Chart screen provides comprehensive information, but live and historical, derived from the
temperatures collected from all wireless sensors and other sources, as well as statistics information.
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The logging feature and visual display provides an easy way to identify issues and problems in the heat
system.
HVAC Technicians can diagnose existing or past situations, quite literally see the behavior of the boilers
and domestic hot water tanks, and conclude based on that on the proper actions.
Property managers could also use it to see exact temperatures in tenant units and average
temperatures across the entire property, to make sure the tenant units are properly heated and not
overheated.
The display could also be sent immediately as a graphic file (PNG) by email to any recipient.
Example:
The following heat chart shows that the domestic hot water temperature drop down suddenly every
morning at around 7:30AM. The conclusion is that the domestic hot water tank is undersized for the
property. In this property the domestic hot water tank is heated by the boiler (procedure called
“externally fired”). However, it took the boiler over 2 hours to heat up that small domestic hot water
tank, which means – the boiler is too small for the job as well.
In this specific case, after the owner received this heat chart, he immediately understood the situation
and in the following summer months had replaced both boiler and domestic hot water with a new set.
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OPERATIONS
Since January 2015 SHM Controls had been working out of two main locations, only 6 blocks apart:
#103 - 750 W. 16th Ave., Vancouver – Administration office, secure access site
3777 Cambie St., Vancouver – Workshop, Assembly room, test-bed boiler room
In 2017 SHM Controls will move into a larger facility.
June 2018 update by SHM
In May 2017 SHM Controls’ moved its operations to a new office located at 8284 Sherbrooke St., Vancouver.
The administration office location has not changed.
Due to the relatively quick lead time of all vendors and suppliers, SHM Controls do not need to maintain any
stock other than for the basic items used as a backup, potential repairs and R&D.
None of the active SHM Controllers installed in buildings was ever returned for repairs, and accordingly SHM
Controls still has the original planned stock of 10 new, unused SHM Controllers.
Suppliers
Name Typical Lead Time
Digi-key, USA 24 hours
Mouser, USA 24 hours
WeedTech, USA 7-10 days
Adafruit, USA 5-7 days
At Battery Company, USA 10-14 days
SparkFun, USA 5-10 days
RobotShop, Montreal 3-5 days
Lee's Electronic, Vancouver 24 hours
Other vendors used in the supply chain
Name Typical Lead Time
Laser Cutter, Vancouver 7-10 days
StickerYou, Toronto 7 days
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Assembly of the SHM Controller, SHM Sensors and SHM Routers
June 2018 update by SHM
Photos of the assembly stations in SHM Controls’ new office are available in Appendix H “Site Visit”
So far the assembly of the SHM Controller, SHM Sensors and SHM Routers was done in-house in SHM Control's
workshop and assembly room. As production requirements grow, the assembly would eventually be
outsourced to local and/or remote assembly contractors.
Soldering and assembling SHM Sensors and SHM Routers
in the workshop
Assembling the SHM Controller in the assembly room
New spare stock of SHM Controllers in the assembly room,
ready for installation
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Installation in buildings
For optimal operation efficiency, installation in a property is done in 2 visits:
Initial visit The purpose of the initial visit is to collect all data needed, so the installation visit would be quick and efficient. It includes: 1. Surveying the property (# floors, # suites, layout) 2. Surveying of relevant mechanical equipment in the boiler room 3. Identify tenant units in which the sensors will be install 4. Identify potential spots for placement of the SHM Routers Typical time required for the initial visit: 30 minutes.
Installation visit 1. The visit would be scheduled with the building manager, giving notices to the tenants units in which sensors would be placed. 2. The SHM Controller is install Typical time required for the installation visit: 1-2 hour
Examples of active SHM Controller installations in buildings
SHM wireless Sensors in a boiler room
SHM Controllers installed in boiler rooms
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Testing a SHM Controller installations on site, to verify remote access and full operation
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Production Capacity
Product capacity using our current workforce
Part Capacity Testing
SHM Sensors 7 units/hour 20 units/hour
SHM Routers 10 units/hour 30 units/hour
SHM Controller 2-4 units/hour 10 units/hour
Product capacity using our 1 additional hired technician
Part Capacity Testing
SHM Sensors 20 units/hour 60 units/hour
SHM Routers 30 units/hour 90 units/hour
SHM Controller 7 units/hour 20 units/hour
Product capacity when outsourcing all production
Unlimited.
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APPENDIX G Marketing and Sales Report
Prepared by: Raj Bharti June 2018 update by SHM
In the past 5 months scale up focus has been directed toward two main channels that represent multiple
owners of multi-residential apartment buildings and office buildings:
- Distribution deals with regional HVAC companies and regional HVAC equipment dealers
- Forming strategic partnership with family offices that own real estate portfolios
Active negotiation in process at the highest executive levels with Modern Niagara (the largest nationwide HVAC
company in Canada) for an exclusive distribution agreement in eastern Canadian provinces. Basic details
discussed: Modern Niagara will do all marketing, sales and installations while SHM will assemble systems and
provide tech support. Customers will not pay for installation; instead, the cost of installation will be paid by the
utility company directly to SHM/MN via rebates. Monthly monitoring fee will be included in customer’s
monthly utility bill.
Distribution agreement finalized and in place with SABD Corp of Santiago, Chile, which will be a single contact
point for SHM. The distributor will buy, market install and provide local support for SHMs systems, while SHM
will assemble, provide overall technical support and training to the distributor’s technical team.
Initial contacts made at the highest executive levels for a possible partnership with BuildingLink. BuildingLink
supplies software and hardware to help building managers of residential, commercial and hotels etc, run more
efficiently. They currently service 4448 buildings in 34 US states and 30 countries worldwide.
Summary
SHM Controls has developed an excellent product, including hardware and software components, but the
company has not been able to scale the sales & marketing efforts due to its limited amount of resources. One
of the major goals of fund raising is to beef up the marketing activities, increase product awareness, acquire
new customers, and establish a solid sales channel. The following sections describe some of the key initiatives
the company is planning to have across sales and marketing.
In addition to the subsequent marketing strategies, the company should continue to build a strong presence on
the following social channels. This will not only help with the branding, product positioning, and user
engagement, it will be instrumental for the SEO.
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● LinkedIn (Currently present with 20 followers, including me)
● Twitter (Currently present with 17 followers, including me)
● YouTube
● Crunchbase
● Facebook (Not the top priority since it’s a B2B business)
● Glass Door (Not urgent. Although important for future hires)
Create key pieces of collateral with long shelf life that can be re-purposed for both digital and traditional
marketing.
● Videos: High-resolution and high-quality videos for the YouTube channel and website.
● Infographics: Easy to assemble and can draw a lot of attention.
● Objection Handlers: Compare SHM Controls' products and services to its competitors and differentiate
ourselves. If we don’t do this, our customers will end up doing it in their own way.
● White Papers: Showcasing in-depth information about the company, product, customer testimonials,
screenshots, technical details, etc.
● Introductory Flyers: Can also be printed for conferences, leave-behind.
● Press Releases: For all significant events, e.g. partnerships, clients, product launches, and executive
hires.
● Blog Entries: Blogs and white papers help with user engagement, SEO, and brand enrichment. Blog
entries can also be repurposed for media publications.
Talent Gap: Within its small team, the company has coverage across engineering, operations, finance, and
sales, but it has a clear gap for marketing strategy & branding talent. An experienced marketing leader can help
the firm enhance its brand and elevate its market position.
Additionally, there is also a need for supporting sales staff to scale the business across direct and indirect
channels.
Branding: Current acronym-based name, SHM Controls Inc., is highly engineering-centric and doesn’t describe
the nature of business without requiring further explanation. The company will benefit immensely by
rebranding with a simpler and catchy consumer-friendly name, supported by appropriate website, tag line, and
logo, etc.
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Pricing Structure
SHM’s current pricing structure includes two-part pricing, which includes upfront installation cost and a
recurring monthly service fee as follows. Please note “$” below indicates Canadian dollar unless otherwise
stated.
Installation Cost: $3,000 (Approx. US $2,300)
Monthly Monitoring Fee (Subscription Model): $200-500/month.
Monthly monitoring fee $9/unit per month. For example, a building consisting of 20 units would pay
$180/month. The company’s goal is to try and charge the buildings about 50% of the eventual annual gas
savings. However, the company has found that with larger buildings, a monthly monitoring fee above $500 may
create psychological barriers for the firm to scale the business. The subscription model does not exist in this
industry and it starts to feel “too expensive” for the owners/managers.
The company is considering $9/unit per month, with a minimum monthly fee of $150 to a maximum of $450.
Hardware Financing
Currently the company is also reviewing two financing options to remove some of the price friction, like a cell
phone pricing model.
● Instead of charging the building $3,000 upfront for the hardware and installation fees, the company
will charge additional $100/month for 3 years resulting in a total of $3,600 revenue. Cell phone carriers
are switching to this model with T-Mobile leading the pack
Benefits:
◦ For the owner/manager: No need to pay upfront anything
◦ For SHM: the owner/manager will sign a service contract with a minimum term of 3 years, allowing
SHM Controls to sell that contract right away to a financier for a discount to, and use the money to
fund purchase of hardware parts
◦ For SHM: Would have the funds to pay for some of the hardware parts purchase upfront (although
funds would be limited to the number of deals signed in a period)
● Atlantic Venture Capital (AVC) and Runway Financial of Nova Scotia, Canada, have been in
conversations with SHM to offer financing of hardware parts in the following manner.
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◦ AVC would provide non-dilutive debt financing to SHM Controls to be used for hardware parts
purchases to assemble the controllers, secured by present and future assets. The loan would carry
a 15% annual interest.
◦ In turn, the SHM Controller would be offered to customers at no upfront cost. At the same time
the monthly monitoring fee would include an additional portion ($25-$50) to pay for that expense.
Benefits:
a. For the owner/manager: No need to pay upfront hardware cost
b. For SHM:
1. The owner/manager would pay a higher monthly monitoring fee in perpetuity
2. Would have the funds to pay for ALL of the hardware parts purchase upfront, with no delay.
3. Owners/managers would continue to pay a higher monthly fee even after the initial installation
cost was paid for.
Option 2 is currently the favorite option and the company is in conversations with AVC to proceed in that
direction.
Go-to-Market Strategy
SHM sales team will include 3 persons to execute the following sales plan.
Goal: “Land grab” or get the “foot at the door” in as many buildings as possible in the first year and during the
following years. It is likely that within a relatively short time, especially if SHM Controls is making positive
headway, more competitors will enter the market.
Because of the nature of the industry, the first company to put its controller in a building is the one the building
will use for years to come. These products heavily rely on the “customer inertia”; unlike a consumer product,
where customers may switch between providers, with an industrial product, especially in a niche market like
building maintenance, products and services typically continue enjoying the customer loyalty for multiple years
or decades.
Methods: SHM Controls got to their existing customers within 5 weeks using solely the Viral method using the
HVAC and PM channel partner. To speed up the “land grab” several folds SHM will push in all following sales
methods, with “Paid” being the strongest one.
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June 2018 update by SHM
In the past 5 months of scale-up, focus has been directed toward two main channels that represent multiple
owners of multi-residential apartment buildings and office buildings:
- Distribution deals with regional HVAC companies and regional HVAC equipment dealers
- Forming strategic partnership with family offices that own real estate portfolios
Deals currently signed or in negotiation are:
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● Sales methods: Viral, Sticky, Paid
Viral Marketing
Viral Marketing is a marketing strategy that focuses on spreading information and opinions about a product or
service from person to person (aka word of mouth), especially by using unconventional means such as the
Internet or email. Viral marketing has not cost to the seller, so cost of customer acquisition is minimal, but the
trade-off is that number of new customers per a time-period is inconsistent.
Using 3 main channel partners: HVACs, PMs, ESCOs:
● HVAC Companies
Installations of boilers and related controls devices require certification (typically referred to as a “gas
ticket”. The official certificate is called “Gasfitter class A” and “Gasfitter Class B”). The certified technicians
are employed by the HVAC companies (HVAC = Heat, Ventilation, Air-Conditioning) and they are installing
and providing maintenance to all HVAC systems in buildings. As such, a typical HVAC company would have
hundreds of building customers in which they installed boilers and maintain it. Large companies may even
have thousands of such building customers.
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Boiler controllers are manufactured by control companies, not by the boiler manufacturers. When a boiler
is installed, it is the HVAC company that decides on the type of boiler controller they will install and use.
The SHM Controller is superior to existing controllers by being quick to install, allow remote control (even
by the HVAC company), provide alerts on emergencies (which can be received by the HVAC company as
well) and provides visual analysis tools which the HVAC company uses to diagnose and solve problems.
In addition to all the technological benefits, SHM Controls provides the HVAC company a considerable
financial incentive to install the controller (5 times the regular hourly charge).
Consequently, HVAC companies are motivated to promote the SHM Controller to their existing clients.
SHM Controls uses the HVAC companies as a “back door” to the building customers: When the HVAC
company recommends to a building manager or owner to install one type of controller or another, the
managers/owners commonly accept that recommendation. Since based on SHM’s pricing structure the
SHM Controller is not going to cost the building owner upfront, and will save natural gas for heating within
months, having a payback on customer's investment within less than a year – building managers and
owners have low barrier to entry, and almost all cases accept.
● Property Management Companies
Property Management companies manage dozens or even hundreds of buildings. In SHM Controls initial
assessment of marketing channels in 2015, they did not expect property managers to be a good channel
partner since they don't stand to make any money from installing one controller or another. The only party
that stands to benefit from the gas savings is the building owner. Financial incentive is the typical drive in
many industries.
However, throughout all the year 2016 SHM Controls was increasingly and regularly approached by
property managers and property management companies, after they have seen a working SHM Controller
in a building managed by a colleague property manager – and asking to ask to install in some of their
buildings too.
o Showing gas savings to their owners reflects well on them professionally, as they keep expenses at bay.
o The ability to remote control and receive automatic alerts is very useful for them, not only for dealing
with reluctant tenants but also to address maintenance issues in a timely manner before there is any
further inconvenience to tenants or even property damage.
● Energy Savings Companies (ESCOs)
There are generally two kinds of Energy Service Companies or Energy Savings Companies.
1. The smaller companies would function as consultants, recommending to their building clients different
technologies and products to use to save energy.
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2. The larger companies would use stand alone or remote control energy management software
application, to actively monitor and manage energy consumptions in the buildings.
Both kinds typically have dozens to hundreds of building customers. The largest ESCOs may have even
thousands of building customers nationwide.
ESCOs benefit directly, both financially by reputation from introducing good technologies and products to
their customers. The financial benefit is when some charge the building customer a consultation fee or an
installation fee. The reputation benefits if the outcome of the installation was successful and the energy
savings were achieved.
As such the SHM Controller has built in features that match the requirement of all ESCOs:
1. It offers to the user considerable gas savings
2. It offers payback to the customer within less than a year (very fast)
3. It offers complete remote control + alerts on emergencies
(both features are used by the larger ESCOs)
Since September 2016, three ESCO companies have contacted SHM Controls and initial meetings and
presentations were conducted in order to form a working procedure. One of the tasks for the dedicated
sales personnel SHM Controls will hire, will be to promote and follow up with additional ESCO
representatives.
● Energy Management Companies
Energy Management companies are entities that create and/or operate remote-control energy
management software, operating in many buildings. This type of software interfaces with automated parts
of a building to provide a unified remote control ability.
The company claims that after an introduction by Bosch Ventures (Germany), SHM Controls has been
approached by Aareon France (https://www.aareon.fr) a subsidiary of Aareal Bank, Germany
(http://www.aareal-bank.com/en), both are entities that own/manage thousands of apartment buildings,
with over 1 million tenant units in UK, Germany and France.
The company further claims that Aareon France already asked SHM Controls to start a prototype market
test, having the SHM Controller installed in 5 buildings located in Paris France, and running for 6-9 months.
If gas saving results are consistent with the results SHM received so far in Canada, the Aareal group of
companies could be interested in an integration of the SHM System into their existing energy management
software, for fast deployment throughout their thousands of apartment buildings in France, Germany and
the UK.
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Paid Sales and Marketing
Paid marketing method refers to any direct costs involved in generating sales. The cost of customer-acquisition
can be easily quantified (y customer acquired while including x expenses mean that the cost of customer
acquisition is x/y), and typically can generate a predictable flow of new customers.
Promoting and marketing SHM Controls to the three channel partners:
● HVAC Companies
● Property Management Companies
● ESCOs
Direct marketing campaigns - Industry contact lists
June 2018 update by SHM
SHM Controls has acquired extensive detailed databases and contact lists of family offices and family office
personnel, to be used in carefully planned sales and marketing campaigns.
Industry contact lists of building owners and managers are available either directly by their professional
organizations or by data resellers or publishers. Professional organization members would get complete access
to the phone numbers and addresses and would be able to contact those potential customers directly.
Otherwise, All the above organizations offer mailing services to their contact lists, and for a nominal pay would
include promotional material from SHM Controls in their mailout to their contact list (by paper or by email).
In BC, Canada the professional organization for building owners and manager is “Landlord BC” with over 3,300
building owners and managers representing a stock of about 6,000 buildings. SHM Controls already have access
to its membership since Oded Malky is a member of that organization. SHM will need to join as an associate
member.
Commercial realtors (buying/selling buildings) maintain their own private contact list of building owners, and
typically offer a mailout package for promotional material to their contact list. SHM Controls have personal
relationship with the 3 largest commercial realtors in Greater Vancouver area, with access to a total of over
20,000 contacts on their lists.
● Landlord BC Associations (SHM Controls is a member by association) over 3,300 owners
● Commercial Realtors
o HQ Commercial – Goodman Report
o Bill Goold Realty
o NAI Commercial
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Sticky Marketing
Sticky Marketing refers to existing customers, who need to pay, to continue receiving the service. So, all
subscription based customers using methods like SaaS (Software as a Service) or HaaS (Hardware as a Service),
are “Sticky” customers. Sticky customers typically bring additional customers, if they like the service. Customer
acquisition costs are negligible, while the rate of new customer acquisition is inconsistent and hard to predict
in advance.
● Since SHM Controls' business model is a subscription model, all its customers would be “Sticky” customers.
However, unlike a regular ongoing service, with SHM Controls many of the customers could be
“multiplied”: Statistically most building owners own several properties, with the average being 3
properties. When introduced to a new technology like SHM Controls, customers typically are cautious and
try it first in 1-2 buildings. After a few months or a full year, if they like it, they would install in their other
properties as well.
Since each building counts as a “customer”, building owners that have several properties and keep adding
more of their properties to the mix, are in effect being “multiplied”, without the need for any sales process
or related costs.
SHM-in-a-Box
● SHM-in-a-box: Future plans are to create a consumer version of the SHM Controller system sold to
boiler-heated houses. The product name would be “SHM-in-a-box” and will include the controller and
all necessary sensors and software + installation instructions in a single box.
Strategic Partnerships
June 2018 update by SHM
Partnerships with Rogers Communication: Rogers Communications (The largest national cellular carrier in
Canada) initiated a partnership deal with SHM Controls when it realized that SHM was rapidly growing its set of
subscribed data lines, with obvious plans to increase capacity to 100-200. Rogers provided SHM with a special
customized solution for Internet connection (an industrial miniature cellular modem) to be placed inside each
SHM Controller in the field, increasing considerably the reliability and quality of the remote Internet
connection to the controller
Distribution agreement finalized and in place with SABD Corp of Santiago, Chile, which will be a single contact
point for SHM. The distributor will buy, market install and provide local support for SHMs systems, while SHM
will assemble, provide overall technical support and training to the distributor’s technical team.
Partnership formed with two family offices based in Miami, each with real estate properties across the US.
Partnership formed with Wilson Conferences, allowing SHM Controls to present and maintain regular presence
at family office industry events.
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● Allied Plumbing
The HVAC Company with which SHM Controls installed most of our building installations, and will
continue to install more installations.
● 1st Service Residential (largest Property Management company in BC, Canada)
● Landlord BC – The largest professional association of building owners and managers in BC, Canada,
with over 3,300 members representing about 6,000 building.
● Goodman Report - HQ Commercial
● Bill Goold Realty
● NAI Commercial
New Partnerships under Development
June 2018 update by SHM
Active negotiation in process at the highest executive levels with Modern Niagara (the largest nationwide HVAC
company in Canada) for an exclusive distribution agreement in eastern Canadian provinces. Basic details
discussed: Modern Niagara will do all marketing, sales and installations while SHM will assemble systems and
provide tech support. Customers will not pay for installation; instead, the cost of installation will be paid by the
utility company directly to SHM/MN via rebates. Monthly monitoring fee will be included in customer’s
monthly utility bill.
Initial contacts made at the highest executive levels for a possible partnership with BuildingLink. BuildingLink
supplies software and hardware to help building managers of residential, commercial and hotels etc, run more
efficiently. They currently service 4448 buildings in 34 US states and 30 countries worldwide.
Partnership negotiation with mCloud. mCloud is an IoT Solution provider that improves the health and
performance of industrial energy assets, as such, they provide monthly subscription monitoring and energy
efficiency services to thousands of commercial properties in the USA and Canada. mCloud is looking for an
HVAC control company that can provide their system with bi-directional information (remote-
control/reporting-alerting) from HVAC equipment in small residential/commercial properties. The initial step
now is to set up a few test cases in the University of Toronto.
Partnership formed with two family offices based in Miami, each with real estate properties across the US.
Ongoing discussions with additional family office representatives, some for potential SHM system installation -
as customers, and others as potential investors in SHM Controls
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● Runway Capital and Atlantic Venture Capital (Debt financing for upfront hardware parts purchases)
● Other HVAC companies (SHM Controls already has working relationship with Trinity Plumbing and
Latham's Plumbing)
● Additional ESCOs and Energy management companies
● Additional commercial realtors
Future Plans
Expanding to other geographic areas would eventually be done using local channel partners, in effect
replicating the same methods listed above. To execute the plan, SHM Controls is considering two potential
models:
Franchising
Pros: Would create an additional income source, while cutting down on sales and marketing efforts and
expenses. The franchisee will be driven to increase sales.
Cons: Franchise model works well when the product/service are well established with good sales record. So,
SHM Controls might be able to expand this way only after an initial period after establishing substantial sales in
Greater Vancouver area.
Licensing
Pros: Relatively easy to expend, but with additional costs in comparison to the franchise model
Cons: Maybe more challenging in maintaining control over the IP and know how as well as protecting the brand
name. Also, like in the franchise model, it would work better once the product/service are well established with
good sales record. So, we might be able to expand this way only after an initial period after establishing
substantial sales in Greater Vancouver area.
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APPENDIX H Site Visit Report
Prepared by: Sherry Zins Calvert June 2018 update by SHM
SHM Controls moved to a new office in May 2017. This update includes photos of the new company office,
assembly room, R&D desks, board room and sales room.
Board Room
Sales Room
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Assembly Room
Assembly Station
QC Station & Assembly Station
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QC Station
R&D Station 1
R&D Station 2
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By Sherry Zins Calvert, President of Keiretsu Forum NW Region
Main workshop:
Testing a new technology upgrade
Main workshop:
Left: R&D station Middle: Operation station Right: Accounting station
Main Workshop:
Small parts storage bins and accounting files
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Main Workshop
Main Workshop:
Soldering a new wireless sensor
Assembly Room:
Assembling an SHM Controller
Assembly Room:
Assembling an SHM Controller
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Assembly Room:
Assembling an SHM Controller - building stock
Assembly Room:
SHM Controllers in stock, ready for installation
A live operational SHM Controller installation in an apartment building
(70 units, Richmond, BC)
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A live operational SHM Controller installation in an apartment building
(140 units, Richmond, BC)
A live operational SHM Controller installation in an apartment building
(18 units, Vancouver, BC)
SHM Controls' presentation table in September 2016 CleanTech event
Surrey, BC
SHM Controls ranked #2 out of 33 companies
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Site Visit Report
The company culture
SHM Controls company culture reflects on their goals to innovate, simplify and be resource efficient, both in
their way of thinking and in their small efficient staff structure. They demonstrate a passion to bring their
disruptive technology to the market. They have creative strategies to overcome development, operation and
go to market challenges. They show a high level of adaptability and a commitment to succeed. SHM Controls'
staff commonly have lunches together at the near by restaurants, and they discuss all issues regularly, both
during those lunch times, but also in periodic company meetings, so every person has the opportunity to know
about all aspects of the operation and share his or her opinions and views and be involved in the process.
Employees (management) present
SHM Controls
Oded Malky – CEO/CTO
Chris Ainscough – VP Business Development
Melissa Coombe – Director of Operations
Keiretsu Due Diligence Team member guests:
Sherry Zins Calvert – Site Visit Report
Dr. Nathan Nifco – Technology and Software Report
Raj Bharti – Marketing and Sales Report
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The work environment, office space, furniture, computers and other assets
During the site visit the first observations on the company culture and work environment reflected the simple,
agile and lean approach to streamline the development, support and maintenance of its software and
hardware technology. The current scale of operation to support new and existing installations has been
simplified with a lean approach that lend itself to be scaled up to support different regions.
Products/services in real environment in presence of technology expert
Keiretsu's due diligence technology expert at the site visit was Dr. Nathan Nifco (Technology and Software due
diligence report). During the site visit there was a live demonstration of the controller and its interface with the
user and the sensors providing a comprehensive understanding of the role each component in the SHM
technology works in order to optimize gas savings.
In addition, in a separate session with SHM’s CEO/CTO, Dr. Nathan Nifco reviewed some of the source code
from the various software modules and developed an understanding of the approach in the design,
development and deployment of all the SHM software.
Simplifying complexity is a motto that not only qualifies what the overall SHM solution does, It also qualifies
the design, development and deployment process of the software and its hardware.
SHM Controls has installed its SHM Boiler Controller in 17 buildings around Metro Vancouver. This is not
'vapor-ware' but real hardware and software that is designed, built, installed in customer building sites and has
been in full operation between 1-4 years. We inspected an active SHM Controller installation at a building on
Cambie St., Vancouver. The SHM Controller at this location has been in operation since 2011 (version 1) and
has been functioning successfully during all that time. In 2015 the SHM Controller has been upgraded to the
latest hardware/software version (version 4). When we checked some natural gas bills of that building, they
indeed show consistent savings of approximately 30% over operation without the controller, with no apparent
'down sides'. The average saving of all 17 installs is also in this 30% range. The building has a consistent heat
delivered efficiently, with less down time due to the alert feature of the SHM System, which sends a note via e
mail or text if something is not operating within the defined parameters. SHM has developed a new and
improved hardware solution to eliminate battery issues and will be implementing this upgrade in future
installations.
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Level of security deployed by SHM Controls to protect information and intellectual property
SHM Control's system and office security has been developed by Oded Malky, who has a significant resume
working in security related technologies and used to provide related consultation services to large corporations
and government agencies. The SHM Controller units in the customer properties are self-sufficient and do not
actually require Internet connection in order to operate, but of course are connected to the Internet using IP
numbers that are inaccessible to the outside world, and all communication is done via encrypted and secure
SSH channels. The company runs multiple application servers at secure locations (not at their workshop) and
have real-time redundant backups. Actual physical access to the application servers is limited only to SHM
Controls' staff. SHM customers online access to view their specific building's control systems is through a web
interface on a separate web server which is password protected and allows limited ability to view live
temperature conditions at the specific property. SHM Controls' staff uses a complete separate secure interface
via a secure sub-network and a special app that allows them full remote control of all remote SHM Controllers.
These interfaces run independently of each other, so the customer has no ability to access the configuration
part of the system. All SHM Controllers in the customer buildings upload regularly all property configuration
and collected data to the SHM Controls' secure application servers, using a secure sub-network
communication.
In order to enter the company's workshop during our visit, we needed to go through 2 levels of locked
doors and the actual workshop entrance door has a keypad type lock, allowing each employee to have a
separate access code. That keypad lock can also send email/text alerts in cases of attempts to tamper with the
lock and could be completely shut-off remotely.
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APPENDIX I Existing Investor Report Prepared by: Mike Volker
June 2018 update by SHM
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June 2018 update by SHM
Powerhaus Technology Ventures (VCC) was acquired in 2018 by WUTIF Capital (VCC)
POWERHAUS TECHNOLOGY VENTURES (VCC)
PowerHaus is a network that invests time and capital in promising new
companies providing innovative solutions for established industries that have
immediate commercial potential. Companies must be based in British Columbia.
We focus not only on investment, but also helping companies with management
and customer development.
Mike Volker, BASc, MASc, President, PowerHaus Technology Ventures (VCC)
President, Keiretsu Forum, Vancouver Chapter
Mike Volker, who is also the president of the Keiretsu Chapter in
Vancouver, BC, is an entrepreneur active in the development of
new high technology ventures and is presently the Director of the
Simon Fraser University Innovation Office. Mike is actively involved
with his two latest projects: Greenangel Energy Corp (GAE.V) – a public
company that invests in green technologies and WUTIF, the Western
Universities Technology Innovation Fund – an angel fund for start-ups. To
further encourage tech entrepreneurship, Mike runs the Vancouver Angel
Network, VANTEC and the Vancouver Chapter of the Keiretsu Forum. He is also
on the Board of New Ventures BC – an annual business competition.
A University of Waterloo Engineering graduate, BASc and MASc, Mr. Volker started his own company (Volker-
Craig Ltd) in 1973. He sold this company in 1981 and decided to work with entrepreneurs in building new
companies. Since then he has been active in various early stage businesses as a founder, investor, director, and
officer. Mike served two terms as a Governor of the University of Waterloo, was the first Chairman of the Shad
Valley Program, and led the BC Advanced Systems Institute as Executive Director and later as Chairman.
Furthermore, Mike was Chairman of the Vancouver Enterprise Forum for several years.
Mr. Volker is past and present director in numerous public and private corporations, founder and member of
several angel forums (Vantec, Keiretsu, WUTIF, the Vancouver Angel Network and the BC Angel Forum).
In 2009, Mr. Volker was named Canadian Angel Investor of the Year by the National Angel Capital Organization
(NACO) as well as B.C. Angel of the Year by the B.C. Angel Forum.
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Elmer K. Sum, M.Sc, Director & Officer, PowerHaus Technology Ventures (VCC)
Elmer K. Sum, Managing Director of the GreenTech Exchange (GTEx), has
engaged the innovation process throughout his career in business, industry,
investment and academia across US, Canada and the Asia Pacific. Along the way,
Elmer has achieved success in both the corporate and entrepreneur endeavors.
He is well versed with key aspects of an innovation based economy and has
cultivated extensive business networks in North America, Asia and Europe. His
current focus centers on connecting management, research, capabilities and
discoveries with business, industry, commerce, and investment as well as
helping to fast track businesses.Elmer led the launch of GreenTech Exchange
from the Harbour Centre at SFU Vancouver in March 2009. This industry platform delivers education forums,
networking events, investment & trade missions as well as market oriented programs. It aims to accelerate the
growth of green innovations and clean solutions, and increase the flow into traditional industries for
competitive benefits and productivity gains. Since January 2011, GTEx has also established a chapter serving
Vancouver Island and delivering forums for the communities of interest.
An alumnus of the University of California, Elmer holds a B.Sc. at UC Berkeley and a M.Sc. from UCLA in
Engineering & Science. He is a graduate of the Technology Management Program at the MIT Sloan School of
Management. A longtime member of the Professional Engineer Associations in Ontario and British Columbia,
Elmer is an advisor to several Cleantech and environmental organizations including Global Cleantech Cluster
Association, Clean Energy Research Centre, Globe Foundation, Climate Smart and Latincouver as well as several
promising technology ventures.
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RHIZA CAPITAL / SUNSHINE COAST VENTURE PARTNERS (VCC)
Rhiza Capital is a joint initiative between Community Futures Sunshine Coast,
Sunshine Coast Credit Union and Powell River Community Investment Corporation
(PRCIC). These three partners are working in collaboration to address the need for
local equity-based investment. Moreover these partners are joining forces to raise
local capital for investment in ventures that will add economic, social and financial value to our communities.
Rhiza Capital applies the tools of the capital markets to the issues of community impact and rural regional
economic sustainability. By identifying and managing opportunities for investing in and partnering with
community businesses on the one hand, and by making those opportunities investible, accessible and risk-
managed so that the community members themselves can engage and thrive with the business on the other
hand, Rhiza Capital provides the tools for communities to thrive in place.
Sean Melrose, Chief Investment Officer Rhiza Capital / Sunshine Coast Venture Partners (VCC)
Mr. Melrose is an active angel investor with over 20 years of experience. He is
an advisor and a director in numerous start-up companies and has been active
in both public and private markets.
Mr. Melrose's focus is identifying and executing sustainable financial solutions
for private clients and non-profit organizations. Applying a community impact
lens, he develops, finances and mentors social enterprises, community-based
businesses and impact-driven startups.
Specialties: Investment Management, Financial Analysis, Innovation and Design
of Impact Investments, Business Strategy
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INDIVIDUAL ANGEL INVESTORS
SHAHRAM TAFAZOLI – Angel Investor
Shahram Tafazoli, PhD, President & CEO, Motion Metrics
Dr. Shahram Tafazoli founded Motion Metrics International conducted his
thesis in the area of Robotics and Intelligent Systems at University of British
Colombia’s ECE Department and graduated in January 1997. Dr. Tafazoli is also
an avid inventor holding several patents, an adjunct professor with UBC ECE, an
angel investor in several promising Canadian tech startups, and an associate
member of the Creative Destruction Lab in University of Toronto.
SAUL KAHN – Angel investor
Saul Kahn, President, Kahn Holdings and president of the Kahn Foundation
Saul Kahn has been involved with real estate investments for over 30 years via
two main organizations: Kahn Holdings and the Kahn Foundation.
Kahn Holdgins Ltd is a public organization founded in 2003, which specializes in
investment advisory and real estate related ventures. The Kahn Foundation is an
organization that provides housing to seniors, low-income people, and those
with disabilities as well as education and research in independent schools boards
and places of worship.
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FOUNDERS
Oded Malky, B.Sc, CEO / CTO at SHM Controls Inc.
Mr. Malky was born and raised in the technology start-up environment of Israel.
Between the years 1984-1988 Mr. Malky served in the Israeli Army, primarily in
the Air-Force starting at the pilot academy, special field-tech operations,
Commander at the Air Force Academy, special assignments with Unit 8200, and
eventually as an army reserve expert technology consultant for the Main
Forensic Lab at the Israeli Police headquarters in Jerusalem.
In 1992 Mr. Malky received his B.Sc in Computer Engineering from the Technion,
Israeli Institute of Technology, while taking concurrently additional curriculum of
Business Administration, Corporate Law, Contracts and Patents & Trademarks
law.
In 1992, two months after graduating from university, Mr. Malky founded his first startup - M.O.Tek Ltd. and
hired his teaching assistant as his first employee. After a tedious negotiation process, Mr. Malky managed to
received the largest investment possible from the Israeli government's Science Ministry - US $500,000. The
company grew within 2 years to 10 employees, mostly computer and electrical engineers, and developed a
unique technology for voice-verification and voice-identification, used primarily in access control applications.
In 1996 the technology was delivered to the Main Forensic Lab in the Israeli Police Headquarters, Jerusalem.
Further to that transaction, Mr. Malky was nominated as a special reserve forces technology consultant to the
Main Forensic Lab at the Israeli Police Headquarters in Jerusalem. Mr. Malky was also invited to appear as a
guest in a popular technology TV show to talk about his voice verification technology, and few articles were
written about it in professional magazines as well as “Maariv” - one of the largest evening newspapers in Israel.
In 1992 the High Tech College, Herzelya, Israel started to invite Mr. Malky to provide 5 day seminars and
lectures to computer engineers and scientists, teaching unique software/hardware methodologies.
In 1993 the Israeli Aerospace Industries (the largest security corporation in Israel with 40,000 employees)
started to invite Mr. Malky on a regular basis to provide 5 days seminars and lectures, given to computer
software and hardware engineers. The Israeli Aerospace Industries continued to contracted Mr. Malkys'
services for 14 years thereafter especially after his move to Canada, each year for 3-4 visits providing 15 days of
seminars and lectures in each visit.
In 1995 Mr. Malky wrote and published his first book on the subject of the Internet. As it happened, this book
was the first original book published on the subject of the Internet in Israel, and as such it was prefaced by a
high profile member of Israeli parliament (Hon. Michael Eitan) as well as the Chief Editor of “PC World” (Israel),
Mr. Uri Alony.
In 1996 following a family visit to Canada, the Canadian government offered Mr. Malky a special immigration
visa and in the process he was contracted as a technology expert consultant by the Canadian Embassy in Tel-
Aviv and by the Canadian Department of Foreign Affairs and International Trade (DFAIT).
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In 1997, following his move to Canada, Mr. Malky founded Netspell Internet Services Inc. - a Canadian software
and security consulting firm. Netspell Inc. was the first non-Israeli company to be awarded a security project by
the Procurement Department of the Israeli Aerospace Industries (IAI) – a Unix based distributed software
infrastructure that creates a secure sub-network channel between all procurement delegations of the IAI
worldwide.
In 1999 Mr. Malky Co-Founded Now International Inc to develop a new eLearning delivery technology and
produce course content for corporate clients. Within 1 year Now International grew to have 24 employees in 3
offices in 2 continents (Vancouver, Calgary, Barbados) and 42 shareholders, among them from Vancouver,
Calgary and Israel.
In January 2003 Now International was awarded the BC eLearning Award of Excellence in the category of Best
Product. Mr. Malky received the award in a ceremony in Victoria, BC from the minister in charge, Hon. Kevin
Falcon.
In 2004 Mr. Malky started a new venture, using his holding company MO Investments Inc: Acquiring and
operating apartment buildings and furnished rental suites. The first 20-unit apartment and commercial building
was acquired in 2004, the second 25-unit apartment building in 2006 and the third building was acquired in
2008. The first furnished rental suite was acquired in 2007, the second in 2008 and third in 2009. All furnished
rental suites were located in trendy Yaletown neighborhood downtown Vancouver and operating under the
trade name 'Yaletown Suites'.
In 2009 Mr. Malky co-created a one-time multi-million dollar property project called “2010 Home Rentals“,
which targeted the 2010 Winter Olympics in Vancouver. With a team of 15 employees “2010 Home Rentals”
constructed and accumulated a stock of over 1,000 furnished rental condos in downtown Vancouver, to be
leased from their owners and later on rented out with a mark up to the US Department of State. The State
Department used the furnished condos to accommodate all their security personnel attending the 2010
Olympic games in Vancouver.
In 2011 Mr. Malky started to develop and conduct initial field tests with a new gas-saving controller project,
which at the time was called “Smart Heat Management”. By 2014 the gas saving results were so impressive
that the decision was made to make it a business and “Smart Heat Management” was spawned into the new
company under the name: “SHM Controls Inc”.
In January 2015 SHM Controls Inc was founded by Mr Malky and Mr. Ainscough (SHM Control's VP Business
Development) and the first round of financing was announced. The first presentation to potential investors was
done in February 2015 and by May 2015 the first financial round closed successfully being oversubscribed,
receiving 20% more in investment than the company initially asked for.
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Chris Ainscough, VP Business Development, SHM Controls Inc.
Chris is co-founder of SHM Controls with Oded Malky. They have known each other for 17 years and worked on 2 previous startups together, including Now International, an e learning company.
A Diploma of Technology from BCIT paved the way for Chris to gain considerable experience in broadcasting, including private and public with 2 years at the CBC and then on to Post Modern Sound, where he was Head Editor and supervising sound post for hundreds of hours of film and TV for 19 years. As well, Chris created and designed many Worlds Fair Expo pavilion, shows and installations. In 2010 Chris also created the main screen show documentary for the Vancouver Pavilion for Shanghai World Expo, through his company Predator Communications.
Predator works with many clients on PR campaigns and documentaries including Doctors of BC, Canadian Bar Association and the BC and Victoria Chambers of Commerce.
Chris also worked with Vancouver Fire Rescue on their strategic planning and development for recruitment and community outreach by creating various targeted multi media tools.
His work has garnered many accolades including a Leo Awards win and multiple nominations, as well as Genie, Clio and Golden Reel nominations.
Social media experience includes extensive use of all media platforms and technologies.
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APPENDIX J Competitive Analysis and Exits Report
Prepared by: Hafi Barry
Competitive Analysis
June 2018 update by SHM
A few more companies are approaching the building market with “IIoT” based “Wireless” technologies.
Companies that were not included in the original due diligence report were added in this chapter with a
detailed description.
It is important to note that the distinctions between the companies, technologies and operational functionality,
and how they can greatly affect the target market, pricing and competitiveness.
The important aspects are:
1. Ability to actively control and automatically operation HVAC equipment, including boilers, pumps and valves
2. When referring to “wireless”, there is a clear distinction between battery operated and line-power operated
3. When referring to “wireless”, there is a distinctive difference between “consumer” grade frequency and
“industrial” grade frequency, which greatly affects the range and reliability of the transmissions
4. When referring to “battery lifetime” it is important to note if this is an “estimate” or an “actual field result”
5. Customer cost. When a “competitor” is pricing the product at $60,000, it’s market is narrowed down to only
20% of the building market, the large properties, that may have sufficient budgets to afford that purchase. Due
to the extremely low cost of the SHM System, such “competitor” often does not target the same market as
SHM, so often does not directly compete with SHM.
The findings are that:
1. Most early-stage potential competitor” offer only a wireless monitoring service, but do not offer an actual
automatic control over the HVAC equipment. SHM system provides full control over the equipment and that is
key to the generating of energy savings. This is a most critical difference and, in effect, is a different service.
2. Several of the competitors that offer battery-powered wireless sensors require the deployment of many
wireless access points to support the short range of their wireless system. SHM uses long range wireless radios
with no need for access points, by using an industrial grade radios.
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Summary
Major players in the market are mostly conglomerates for which an M&A with a small company means
geographical expansion as well as vertical and horizontal integration. Key players in the world stage market
include companies like: Honeywell, Johnson Controls, General Electric, Schneider Electric and Robert Bosch,
In the North American market we could also find smaller companies like: Olympic Controls, Delta Controls,
Confirmed Automation, ESC Automation, Pepco Controls and more.
In order to distinguish between two inherently different types of boiler controllers that exist in the market, we
will make the following distinction and term definition:
Basic Boiler Controller:
These are small devices that can receive input from a wired temperature sensor placed outside the building
and use that information to turn the boiler ON/OFF in the manner prescribed by the boiler manufacturer and
the boiler type . Some of those devices could also control the Domestic Hot Water (showers, sinks) either
directly ('internally fired'), or heating it up using heat generated by the boiler ('externally fired'). The
functionality of the Basic Boiler Controller is fixed and cannot be changed or updated. The only flexibility the
HVAC technician has is to change the settings on the controller.
The price range of a Basic Boiler Controller is generally between CAN $500 – CAN $3500 (US$ 375 – US $2,500).
Typical installation takes a 3-6 hours.
Smart Boiler Controller:
A computerized device with high-level software functionality that can be updated and at times allows remote
control ability. A Smart Boiler Controller could do everything that the Basic Boiler Controller would do, but
typically also implements specially designed dynamic algorithms in order to allow additional control features,
functionality and operation.
The price range of a Smart Boiler Controller start typically at CAD $15,000 (US $11,250) and based on the
configuration and installation could reach over CAD $150,000 (US$ 112,500). Typical installation could take
several days, and accordingly installation cost could also start at CAD $15,000 (US $11,250) and up.
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LARGE EXISTING PLAYERS IN THE MARKET
OLYMPIC CONTROLS
Olympic Controls Inc. is a full-service solutions provider of heating, ventilating and air
conditioning (HVAC) controls and building automation systems serving British Columbia.
Since 1995, Olympic Controls provides HVAC system controls for commercial
applications, including the hospitality industry, high-end residential buildings as well as critical air flow controls
for the laboratory, life sciences and healthcare markets.
http://olympicinternational.com/controls/profile
Comparison to SHM Controls:
Olympic Controls manufacturers boiler controls for large buildings, typically using buildings blocks made by
Johnson Controls. Typical controller prices, including installation start at CAD $20,000 / US$ 15,000.
RELIABLE CONTROLS
June 2018 update by SHM
Reliable Controls has partnered up with EnOcean to integrate wireless temperature sensors.
Reliable Controls specializes in the design and manufacture of Internet-connected building controls and DDC
units (Direct Digital Control). Building controls are known as direct digital controls, but can also be referred to
as BACnet® building automation systems or facility energy management systems. The MACH-System
encompasses all of these industry standard terms because it monitors and controls the complete spectrum of
digital building equipment while remaining simple, flexible, sustainable, and competitively priced. Our designs
utilize the ASHRAE standard BACnet protocol and ship with a 5-year warranty.
http://www.reliablecontrols.com
Comparison to SHM Controls:
Reliable Controls manufacturers boiler controls for large buildings, typically using buildings blocks made by
Johnson Controls and Delta Controls. Typical controller prices, including installation start at CAD $20,000 / US$
15,000.
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DELTA CONTROLS
June 2018 update by SHM
Delta Controls now offers sensors with EnOcean technology to integrate wireless temperature sensors.
Delta Controls is one of the largest independent manufacturers of building automation systems with more than
300 installers in over 80 countries. For more than 3 decades Delta Controls has offered dependable and user-
friendly building control solutions to commercial, healthcare, education, leisure buildings and more. Their track
record includes delivering the world’s first fully integrated native BACnet building solution encompassing HVAC,
Lighting and Access products.
http://www.deltacontrols.com
Delta Controls was acquired in 2016 by Delta Electronics for CAD $220M.
Article: http://www.bctechnology.com/news/2016/5/20/Vancouver-based-Delta-Controls-Acquired-by-7-
Billion-Delta-Electronics-(Netherlands)-B.V.-(DEN).cfm?id=35962
Comparison to SHM Controls:
Delta Controls mostly manufacturers building blocks (boards, units) for OEM automation companies. However
the company also offers their own control system and even have a wireless system approach. Typical controller
prices, including installation start at CAD $20,000 / US$ 15,000.
ESC AUTOMATION
ESC Automation is a Building Automation and Energy Management Company serving
British Columbia, Alberta, Ontario, Washington and Oregon. They are service-based
company focused on the long-term performance and efficiency of building, installing
HVAC controls, lighting controls, secured access or CCTV systems, Has six branches and over 450 employees
http://www.escautomation.com/products/hvac-controls
Comparison to SHM Controls:
ESC Automation is a sister company of Delta Controls. Their focus is on providing boiler controllers made by
Delta Controls, adding a remote control ability and selling that remote control ability as a service. Using Delta
Controls parts makes the controllers expensive (price range with installation starts at CAD $50,000 / US$
37,500) and the monthly charge for controlling and monitoring their systems range at the thousands of dollars.
As such their customers are only the tall buildings with large budgets that can afford it.
CONFIRMED AUTOMATION
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The Confirmed Automation Systems approach optimizes the operation of
the existing equipment. They focus on monitoring and improving the
control of current equipment to provide their customers with significant
and sustainable productivity gains.
http://www.confirmedautomation.com
Comparison to SHM Controls:
Confirmed Automation build their boiler controllers themselves using building blocks mostly made by Johnson
Controls. As a result, the cost of their boiler controllers start at the CAD $20,000 / US $15,000 range. As well,
they do not offer wireless connectivity, so any installation involves running wires and cables over the property,
making the installation that much more expensive, typically at the CAD $20,000 / US $15,000 or more range.
Confirmed Automation typically do not have a 'finished' look to their controllers, but use off-the-shelf industrial
enclosures. Their controller software is based on Windows XP operating system and similar software design
methodology.
JOHNSON CONTROLS
Johnson Controls is a global diversified technology and industrial leader serving
customers in more than 150 countries. Johnson Controls' MetaSys system
connects the HVAC, lighting, security and protection systems, and gets them all
“talking” to each other in a single language, on a single platform to give
information to make better decisions, save money and improve the way your building functions.
http://www.johnsoncontrols.com
Comparison to SHM Controls:
Johnson Controls is mostly known in the industry for its parts and building blocks for automation and control
unit manufacturers. Because of the reliability, availability and ubiquitous of their parts in the market, many
large/tall building designers define automation requirement using Johnson Control parts. However, Johnson
Controls parts are very expensive, the small units would typically cost CAD $500-CAD $3,500 (US $375 – US$
2,500). As well, developing the firmware for those parts (software embedded in the hardware) requires an
annual license and purchasing a special development kit from Johnson Controls at about CAD $10,000/year (US
$7,500). The development itself is complex and will require the knowledge of a software/hardware engineers.
Due to the cost of the building block parts, the licensing and the ongoing development expenses, companies
that build controllers using Johnson Controls need to sell their controllers for tens of thousands of dollars to
offset that cost.
Johnson Controls also offers their own integrated systems for building automation, but like with other large
companies, those systems are intended for the tall and large budgeted buildings, costing hundreds of thousands
of dollars.
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HONEYWELL
June 2018 update by SHM
Honeywell now offers a wireless thermostat for the consumer market, using consumer grade short range WiFi
Honeywell’s portfolio of software and controls for building automation provides the backbone to the
Internet of Things. These cutting-edge solutions are the building blocks of that enable buildings to be smarter,
safer and more efficient. Honeywell’s comprehensive portfolio of building automation systems gives owners
and managers the opportunity to select the best solution for their specific needs. These scalable solutions are
the foundation of an integrated energy management and security plan for over 100,000 buildings worldwide.
http://www.honeywell.com
Comparison to SHM Controls:
Honeywell has been around for over 100 years and their products cover a wide variety of industries and target
markets. Honeywell also offers consumer thermostats and smart home systems.
As far as boiler controllers for buildings are concerned, Honeywell differs from the other large companies by
offering both “smart” boiler controllers and “Basic Boiler Controllers” (i.e. “dumb” boiler controllers). The smart
boiler controllers fall into the same category as the other large companies mentioned here: Expensive units
(over $20,000) with expensive maintenance and parts, offered almost solely to the tall/large buildings with
large budgets. Installation cost would also typically be in the tens of thousands of dollars. In contrast, the “Basic
Boiler Controllers” are aiming at the small-medium building market, that cannot afford the smart boiler
controllers. A “Basic Boiler Controller” is a small control device that can turn the boiler On/Off based on
feedback from the outside temperature, boiler's output temperature and the manufacturer's operating
guidelines for the specific boiler. A typically “Basic Boiler Controller” costs CAD $500 - CAD $3,500 / US $375 –
US $2,500 and its functionality is fixed.
Honeywell has been using wireless technology for a while, but predominantly in home automation products
(consumer level) and not yet in boiler controllers. Although they have building blocks that can do it, the wireless
support for boiler and industrial level products is not yet pushed to the main stream in boiler controller
technology.
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WALKER TECHNOLOGIES
Walker Technologies Corp. is a Canadian company that has specialized in
designing and manufacturing real-time, microprocessor based HVAC control
systems since 1981. Walker's extensive line of controllers are sold worldwide
and designed to offer a complete solution to the automated building controls
industry. Years of experience, innovative ideas, quality production facilities, and dependable service make
Walker a leader in building control solutions. Walker is focused on the wireless HVAC controls market. We
believe that wireless is the future of the HVAC controls industry because of its numerous advantages such as
simplicity of installation, flexibility and low cost.
http://walkersys.com/multiple-units.html
Comparison to SHM Controls:
Walker Technologies manufacturers boiler controls products for large buildings. Years ago they manufactured
boiler controls as OEM units for Honeywell. Typical prices of a controller with installation included starts at CAD
$20,000 / US $15,000.
Like SHM, Walker uses wireless technologies to receive temperature feedback from tenant suites. No
information is available about the type of wireless technology used and how it is being used.
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DISTECH CONTROLS
Distech Controls was established in 1995 and is headquartered in Montreal,
Canada. They provide energy management solutions for buildings to
optimize efficiency and tenant comfort. Distech Controls was purchased by Acuity Brands in 2015 for $252M.
Distech Controls targets larger properties such as colleges/universities, hospitals, offices and commercial
buildings. They have a wide variety of field and room devices that provide building automation. Some of which
are HVAC controllers, wired and wireless sensors, and battery and battery-less sensors. Some varieties of
sensors use Wi-fi to communicate, while other use common frequencies like 2.4GHz and BLE (Bluetooth Low
Energy).
http://www.distech-controls.com
Comparison to SHM Controls:
Distech Controls manufacturers boiler controls and energy management software products for large buildings.
Typical controller prices including installation start at CAD $20,000 / US $15,000.
Distech uses wireless technology with wireless sensors in tenant suites.
In comparison to SHM, other than the obvious higher cost of a typical system, Distech uses for their sensors and
controls consumer grade short range WiFi technology over a crowded frequency. The consumer WiFi wireless
technology is a very crowded wireless range, with many devices and technologies using it today, it has a
relatively short range and is a peer to peer (infrastructure) topology. SHM uses an industrial grade mesh
wireless technology over the 900MHz range, which is considerably more reliable with a much longer range and
low power consumption.
June 2018 update by SHM
Distech Controls’ battery-less wireless sensors work only over a very short range and require powered access
points throughout the property. In comparison, SHM’s working prototype for its battery-less wireless sensor
uses the same industrial mesh wireless radio technology as with the powered sensors, with range of up to 2
miles inside buildings.
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SMALL EXISTING AND NEW PLAYERS IN THE MARKET
ENTIC
June 2018 update by SHM Added to the report
Entic is a tech company founded in 2011 by neighbours, Manuel Rosendo and Carlos Diaz. Headquartered in
Miami, Florida, they have raised a total of $12M in two rounds of funding. Blackstone Group was the lead
investor in their last round of financing in May 2017.
Entic is a SaaS (software as a service) based company that uses proprietary sensors and technology to improve
operations in buildings. By monitoring and analyzing the HVAC, lighting and water in a building, they are able to
provide visibility and operational optimizations for the building operators. The company targets office
buildings, hospitals, hotels, sports venues, large infrastructure, and educational facilities.
Entic uses a subscription based model, where the price is determined by the size of the facility, amount of
sensors needed, and the number of modules for analytics (e.g. kWh, water, gas).
http://www.entic.com
Comparison to SHM
Entic targets large commercial properties (over 500,000 square feet) with a minimum annual electricity bill of
$400K, while SHM can work with small and medium size buildings. Entic also does not control the building
equipment, but only monitors and analyzes the data from their sensors. SHM is able to monitor, as well as
control the building’s HVAC systems.
SHM Controls June 2018
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ENVIO
June 2018 update by SHM Added to the report
Envio is a tech company based in Calgary, Canada. Founded in 2013, the company has raised $1.2M in three rounds of funding. Envio provides monitoring and control services for HVAC, electrical, and water in commercial buildings. Proprietary algorithms are used to controls equipment, in turn reducing energy consumption by 20-70%. They also offer a payback period of approximately 3 years. Envio has an installation fee of approximately $60K-$90K CAD ($46K-$90K USD), plus a monthly recurring fee. https://enviosystems.com Comparison to SHM Envio and SHM have many similarities, they are both hardware and software based, and have web-based monitoring and control. Additionally, Envio can control lighting and ventilation in a building, whereas SHM does not. Envio describes high potential energy savings, as does SHM, but Envio is much more expensive than SHM, putting it out of reach for small to medium size buildings which are in SHM’s target market.
ENERTIV
June 2018 update by SHM Added to the report
Founded in 2009, Enertiv is a New York City based tech company that focuses on sub-metering and predictive
maintenance services in industrial, office, hospitality and multifamily properties. Enertiv’s total funding amount
is $4.3M with latest lead funder FifthWall.
Their EnertivTwo Meter connects to a cellular network to monitor the building’s critical systems, including
boilers, elevators, chillers and exhaust fans. The data they collect is used for sub-metering purposes, and well
as reporting on building operations. Additionally, Enertiv has wireless sensors that can detect issues related to
leaks, floods, and poor air quality. These can be purchased separately, or as a bundle.
https://www.enertiv.com
Comparison to SHM
Enertiv’s focus is sub-metering and monitoring equipment performance, generally in larger, commercial
buildings. Conversely, SHM uses wireless sensors and algorithms to monitor and control HVAC equipment in
small to medium sized buildings, as well as larger properties.
Depending on building size, installation can take up to two days for Enertiv. The SHM Controller is a quick
wireless retrofit that can be installed in as little as two hours.
SHM Controls June 2018
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PEPCO CONTROL SPECONIC ENERGY PRODUCTS CORPORATION
(“PEPCO”)
delivers energy savings of Gas, Oil, Electric and Steam in multi-family
residential, commercial and industrial facilities by monitoring and
controlling building mechanical and electrical systems (Boilers, Pumps, Fans, Chillers, AHU’s, RTU’s, FCU’s and
Lighting) via Computerized Building Automation and Energy Management System powered by Delta Controls.
Energy savings range from 15% to 45% while providing improved occupant comfort.
http://pepcocontrols.com/products.html
Comparison to SHM Controls:
Pepco Controls is using Delta Controls (see above) electronic parts to build their boiler controller. Pepco's
HeatMaster system has similarities to SHM Controls in having wireless sensors placed in tenant suites to collect
temperature data and send it to the computerized boiler controller that controls the boiler and domestic hot
water tank. The system also offers remote control ability and visual heat chart.
The main differences are: Pricing, installation and sensors:
● Pepco Controls does not offer installations at all, but sells the product in a box.
● A minimum system costs about CAD $13,500 / US $10,000 and the customer has to commission an
HVAC company to install and maintain it. The typical additional cost for installation is estimated to be
at least CAD $10,000 / US $7,500.
● Pepco Controls is using 3rd party wireless sensors that cost CAD $200-CAD $400 / US $150 – US $300 per
sensor. Although the customer can purchase from Pepco up to 100 sensors, the related cost would
accordingly be hundreds of thousands of dollars. In comparison, SHM Controls' sensors are designed
and built in-house at a typical cost of CAD $35 / US$ 27 per sensor. The SHM Controller's installation
takes less than 2 hours on average at a negligible cost.
SHM Controls June 2018
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RADIATOR LABS
June 2018 update by SHM
Radiator Labs have raised , to date. a total of USD $3.2M over 4 rounds.
Each radiator cover costs approximately USD $500 USD, plus an installation cost of USD $50-$100 each.
Radiators Labs was founded in New York by Dr. Marshall Cox and Professor John Kymissis in 2011. Their mission
is to use a systems-based thermodynamic approach to solving the overheating problem in millions of
overheated homes across the United States and abroad.
Radiator Labs produces smart radiator covers that can be used in steam heated buildings. They are controlled
wirelessly to reduce overheating in suites, which increases tenant comfort. They use a mesh network of
sensors to direct excess heat from hot suites to cooler suites..|
https://www.radiatorlabs.com
Comparison to SHM Controls:
The main similarity is the goal to try and save energy. However Radiator Labs controls the heat in each room
assuming that boilers would work less when less heat is emitted by the baseboard radiators. As well, it relies on
cooperation by the individual tenants. However, without any feedback system to the boilers, most boiler
controllers would not react as efficiently (in case of high efficiency boilers that measure temperature difference
between the Heat Supply line and the Heat Return line) or at all (in case of older atmospheric boilers that react
only to outdoor reset temperatures). So, most boilers would continue working even if rooms are kept at a lower
temperature. As well, in our experience the vast majority of tenants do not cooperate and will not cooperate in
reducing the heat voluntarily in their rooms. In comparison - SHM Controls the boilers based on direct feedback
from our wireless temperature sensors in tenant suites (not letting the tenants any control over the system) and
wireless temperatures sensors in the boiler room.
SHM Controls June 2018
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SENSOR SUITE
June 2018 update by SHM
SensorSuite now offer control over certain types of boiler equipment.
Costs vary based on the size and complexity of the building. For a 20 unit, 3 story building parts and installation
cost approximately USD $3100 USD, plus an annual fee of $460 USD.
Based in Toronto, Canada, SensorSuite offers monitoring and control of water use, boilers and electrical HVAC
equipment. They have recently partnered with Bell Mobility, and are listed on Bell’s website offering energy
management services.
Their monitoring system can be used for detecting water leaks, dry contact/machine faults, doors open,
humidity, and temperature. Their recently released control system, BoilerLink uses cloud technology and
wireless sensors to control existing equipment in the building. They cater to mid-size buildings in the retail,
multi-family, hospitality and education markets.
http://www.sensorsuite.com
Comparison to SHM Controls:
The main similarity that SensorSuite is using feedback from wireless sensors to control the heating equipment.
However there are two main but very important differences:
1) Although boiler control feature is showing on their website, when we called them anonymously to learn
more, we found that at the moment SensorSuite DOES NOT YET control boilers at all! This is a future feature
they want to add. At the moment they control only local electrical instruments (similar functionality to Nest).
SHM Controls control the boiler and the entire building as a system.
2) The wireless sensors they use are 3rd party sensors, costing hundreds of dollars each. In comparison, SHM
Controls builds its own sensors using its own wireless sensor technology at a fraction of that cost, allowing to
quickly place dozens of reliable wireless sensors in a building at a very low cost.
SHM Controls June 2018
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BUILDPULSE
June 2018 update by SHM Added to the report
Founded in 2013 by Brice Kosniak and Jason Burt, BuildPulse is a Seattle based tech company that offers
analytics based on data gathered from existing BAS (Building Automation Systems) in the building. BuildPulse's
device connects with systems already in place, sends the data to the cloud and analyzes the building’s
behaviour. This provides owners and managers with insight to how their building is functioning, and where
inefficiencies may lie. The company typically targets larger commercial buildings, such as hospitals and
universities, which already have existing BAS installed. BuildPulse was funded in late 2016 by Alliance of Angels
with $1.8M. BuildPulse does not offer active automatic control over the HVAC equipment.
https://www.buildpulse.com
Comparison to SHM
BuildPulse’s equipment uses already installed BAS in the building to pull data from. They do not install sensors
or control any equipment in the building. Instead, they analyse the data from other equipment, and provide
reports.
In comparison, SHM provides it’s own controller and wireless sensors to gather accurate data, and then uses
proprietary software and algorithms to automatically actively control, turn on/off and fine tune the building’s
HVAC systems.
SHM Controls June 2018
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ENLIGHTED
June 2018 update by SHM Added to the report
Enlighted is an IoT (Internet of Things) smart buildings and data analytics tech company with focus on light
control in commercial buildings. It was founded in 2009 by Premal Ashar and Tanuj Mohar. In May 2018, it was
acquired by Siemens Building Technologies. It is currently headquartered in the Silicon Valley, with offices in
India, UK, Germany, France and Netherlands. Since founding, Enlighted has raised $80.6M in funding rounds
and has approximately 150 employees.
Enlighted focuses on increasing efficiency and offering smart energy solutions in commercial spaces. This is
done by using IoT enabled sensors for luminance, movement, temperature and energy-consumption. Sensors
are placed across the commercial space, which send data wirelessly to gateways which are connected to the
main controller. A connection between controller and DDC (Direct Digital Control) enables the system to take
over control of the building’s lighting.
Enlighted announced its acquisition by Siemens in May 2018 for an undisclosed amount.
http://www.enlightedinc.com
Comparison to SHM
Enlighted focuses on controlling lighting, while SHM focuses on controlling HVAC systems. Most of Enlighted
sensors are not battery-powered and use short range communication. SHM currently uses battery-powered
sensors, and a more reliable, longer range communication system.
Initial costs for installing Enlighted’s equipment are significantly higher than SHM, as they target large
commercial buildings (schools, hospitals, offices) with already existing BAS (Building Automated System).
SHM Controls June 2018
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EXISTING PRODUCTS WHICH ARE COMMON IN SMALL/MEDIUM BUILDINGS
In a physical survey of about 100 small-medium size buildings in Greater Vancouver area it was found that all
buildings used only “Basic Boiler Controllers” and none had a “Smart Boiler Controller”. This is most likely
because of the high cost of the Smart Boiler Controllers, which could not be justified in a small/medium
building budget. The most common Basic Boiler Controllers found in those buildings were made by two
companies: Honeywell and Tekmar. Although Honeywell makes both Basic Boiler Controllers and expensive
Smart Boiler Controllers, it seems that only its low cost Basic Boiler Controllers are found in the small/medium
size buildings.
TEKMAR CONTROLS
Over the past 28 years, tekmar has earned a reputation as the leader in
complete control solutions for radiant floor and baseboard heating
systems, multi-stage boiler plants, and automatic snow melting systems.
http://tekmarcontrols.com
Typical Tekmar Basic Boiler Controllers, commonly found
in most boiler rooms today.
<-- 1-Stage Tekmar “Basic Boiler Controllers”
2-Stage “Tekmar Basic Boiler Controller” -->
Price range: CAN $500 – CAN $3500 (US$ 275 – US $2,500).
Allows basic operation of the boiler based on outside temperature (“Outdoor Reset”)
HONEYWELL
<-- “Basic Boiler Controller” by Honeywell
Price range: CAN $500 – CAN $3500 (US$ 375 – US $2,500). Allows basic
operation of the boiler based on outside temperature (“Outdoor Reset”), some
version do not even use the outdoor temperature.
SHM Controls June 2018
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Exit Opportunities
June 2018 update by SHM
In May 2018 Siemens announced it is acquiring Enlighted for an undisclosed amount. Enlighted is an IoT smart
buildings and data analytics tech company with focus on light control in commercial buildings. A full summary
on Enlighted is available in the previous chapter.
The main two exit opportunities the SHM Controls is aiming at are M&A (merger & acquisition) by a large
player in the market or going public via IPO or RTO. This is not necessarily an either-or option, but could
potentially be also achieved via an IPO/RTO following by a later M&A.
In order to assess the possibilities for either exit opportunities, we review here the implication of each option
starting with M&A and following with IPO/RTO.
M&A (Merger & Acquisition)
Mergers and acquisitions (M&A) is a general term that refers to the consolidation of companies or assets.
While there are several types of transactions classified under the notion of M&A, a merger means a
combination of two companies to form a new company, while an acquisition is the purchase of one company
by another in which no new company is formed.
In the following pages we reviewed the acquisition habits of a few of the large players in the market, in order
to get a better sense of the type of companies they acquire, how often and at what price range.
We have identified and short-listed several companies that are active on the world stage including also at the
same industry as SHM Controls, and could be a potential candidate acquirer. Among those companies are:
General Electric, Schneider Electric, Honeywell, Robert Bosch, Delta Electronics, and Watts Water Technology.
A description of each company and their acquisition in past years is included in the following pages.
The most active company as far as M&As are concerned seems to be General Electric, which acquired 6
companies in 2016 alone. Notable, recent and relevant acquisitions include Vancouver based Bit Stew Systems
(CAD$ 205M / US $153M), an IIoT company gathering data from sensors via “connected devices” to help
companies plan predictive maintenance on industrial systems to help avoid interruptions, and Wise.io, doing
machine learning service that helps businesses find patterns and trends in their vast data stores. In the past 4
years General Electric acquired 2 Vancouver based companies.
SHM Controls June 2018
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Two of the smaller players in the Canadian boiler controller market were recently acquired by larger players:
Watts Water Company acquired Tekmar Controls (Vernon, BC) in 2012 and Delta Electronics acquired Delta
Controls in 2015.
Based on the acquisition pattern presented here, we can conclude that it is common that the acquisition takes
place at least 3 years after the company reached profitability. Purchase prices are typically in the hundreds of
millions of dollars range, but there are also a few acquisitions in the US $1B – US $5B range. There is no specific
preferred geographic location; acquisitions are done worldwide.
SHM Controls had several contacts and meetings with Bosch as well as with Schneider Electric. Both companies
have shown interest and are keeping contact with SHM Controls.
SHM Controls June 2018
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M&A HABITS OF LARGE MARKET PLAYERS
GENERAL ELECTRIC – Acquisitions in past years
General Electric Company offers infrastructure and financial services worldwide. It operates in various
segments, including power and water, oil and gas, energy management, aviation, healthcare, transportation,
appliances and lighting, GE capital, and more.
Source 1: https://www.crunchbase.com/organization/general-electric#/entity
Source 2: http://betakit.com/general-electric-acquires-vancouver-based-bit-stew-for-205-million/
Source 3: https://techcrunch.com/2016/11/15/ge-acquires-wise-io-to-deepen-its-machine-learning-stack
2016-11-15 GE to acquire Bit Stew Systems (Vancouver, BC) an IIoT company gathering data from sensors via
“connected devices” to help companies plan predictive maintenance on industrial systems to help avoid
interruptions..
Acquisition cost: US$ 153M
2016-11-15 GE to acquire Wise.io, Inc. (Berkeley, Clifornia) a machine learning powered service that helps businesses
find patterns and trends in their vast data stores.
Acquisition cost: Unknown
2016-10-27 GE to acquire Concept Laser (Lichtenfels, Bayern, Germany), a supplier of machinery and plant technology
for 3D printing of metal components.
Acquisition cost: US$ 599M
2016-10-11 Schneider Electric to acquire LM Wind Power (Kolding, Syddanmark, Denmark) an independent supplier of
blades for wind turbines, offering blade development, manufacturing and service and logistics.
Acquisition cost: US$ 1.65B
2016-09-06 GE to acquire Arcam (Mölndal, Vastra Gotaland, Sweden) a company that provides additive manufacturing
solutions for the production of metal components. The company offers Arcam Q10, an electron beam
Acquisition cost: Cash
2016-04-04 GE to acquire Metem Corporation (Parsippany, New Jersey, USA) a company that manufactures and supplies
machining and assembled turbine super-alloy components for companies in the power generation.
Acquisition cost: Unknown
2014-05-09 GE to acquire Wurldtech (Vancouver, BC) a company that is in the business of protecting critical
infrastructure from cyber attack.
Acquisition cost: Unknown
2014-01-21 GE to acquire API Healthcare (Hartford, Wisconsin) a company that develops labor resource management
software solutions for healthcare organizations.
Acquisition cost: Unknown
2013-09-27 GE to acquire Imbera Electronics (Melbourne Beach, Florida) a company that develops and licenses an
Integrated Module Board technology enabling the embedding of components inside a printed circuit board.
Acquisition cost: Unknown
2012-11-26 GE to acquire Albeo Technologies (Boulder, Colorado) a company that provides LED lighting solutions for
industrial and commercial buildings.
Acquisition cost: Unknown
SCHNEIDER ELECTRIC – Acquisitions in past years
SHM Controls June 2018
Confidential – Keiretsu Forum / SHM Controls Due Diligence Report Page 172
Schneider Electric is the global specialist in energy management.
Schneider Electric helps customers make the most of their energy by making their energy - - Safe: protecting
you, your customers, your business - Reliable: uninterrupted, ultra-pure power all the time - Efficient: up to 30%
energy savings is now available - Productive: simplicity and peace of mind - Green: connection to renewable
energy sources
Source 1: http://www2.schneider-electric.com/sites/corporate/en/finance/presentations/acquisitions/acquisitions.page
Source 2: https://www.crunchbase.com/organization/schneider-electric#/entity
2013-07-31 Schneider Electric to reinforce its position in industrial automation and electro-intensive segments through the
acquisition of Invensys plc (London, England)
Acquisition cost: $5.2B
2011-12-31 Viridity Software is an energy management company enabling businesses to map datacenter infrastructure
while optimizing power consumption (Burlington, Massachusetts)
Acquisition cost: Unknown
2011-06-01 Schneider Electric to acquire leading software firm TELVENT to reinforce its solution capability for the
smart grid and mission-critical infrastructure (Madrid, Spain)
Acquisition cost: $2B
2011-04-04 Schneider Electric to acquire Lee Technologies (Fairfax, Virginia), a U.S. based technology solution provider
specializing in large-scale data center solutions and professional services.
Acquisition cost: Unknown
2010-11-23 Schneider Electric reinforces its position in precision cooling with the acquisition of Uniflair
Acquisition cost: Unknown
2010-04-13 Schneider Electric acquires SCADAgroup, a leader in telemetry technologies and solutions for water and oil
& gas segments. Acquisition cost: Unknown
2011-03-24 Schneider Electric acquires Summit Energy (Louisville, Kentucky), provides energy management and
sustainability services to organizations in a wide range of industries.
Acquisition cost: $268M
2010-12-13 Schneider Electric acquires D5X solutions (Antony, France), which transform real estate infrastructure,
simple resources, real players in the economic performance of the company.
Acquisition cost: Unknown
2008-08-31 Schneider Electric strengthens its position in renewable energy solutions with the acquisition of Xantrex, a
worldwide leader in the inverter market
Acquisition cost: Unknown
2007-08-01 Schneider Electric further expands its Building Automation offering with the acquisition of Pelco, a
worldwide leader of video security
Acquisition cost: Unknown
SHM Controls June 2018
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HONEYWELL – Acquisitions in past years
Honeywell International is a technology and manufacturing company that offers energy, safety, and security
solutions and technologies. It offers aerospace products and services; control technologies for buildings, homes,
and industry; automotive products; turbochargers; specialty chemicals; electronic and advanced materials;
process technology for refining and petrochemicals; and energy efficient products and solutions.
The company offers energy efficiency benefits across four industry sectors: transportation, commercial
buildings, industrial, and residential. Its safety technologies focus on emergency management, flights, and
workplace. It offers security and control technologies for industrial, defense, and residential purposes.
Source: https://www.crunchbase.com/organization/honeywell#/entity
2016-07-01 Honeywell acquires Intelligrated (Mason, Ohio), a leading North American-based, single-source provider of
intelligent automated material handling solutions.
Acquisition cost: $1.5B
2016-03-01 Honeywell acquires Movilizer (Mannheim, Germany), THE Cloud for Field Operations to drive Enterprise
profitability at large manufacturing and services companies.
Acquisition cost: Unknown
2016-03-01 Honeywell acquires RSI manufactures Videofied (Minneapolis, MN), a wireless alarm system that sends a
short video clip over 3G/4G cellular or Ethernet.
Acquisition cost: Unknown
2016-02-07 Honeywell acquires Xtralis, a global provider of aspirating smoke detection along with advanced perimeter
security technologies and video analytics software.
Acquisition cost: $480M
2016-02-04 Honeywell acquires COM DEV International (TSX: CDV) (Cambridge, Ontario), a leading satellite and
space components provider of switches and multiplexers.
Acquisition cost: Unknown
2015-11-18 Honeywell acquires Satcom1, an aeronautical satellite communication solution provider.
Acquisition cost: Unknown
2015-09-16 Honeywell acquires Aviaso, an international aviation software company.
Acquisition cost: Unknown
2015-07-28 Honeywell acquires Elster Group (Essen, Germany), a manufacturer and supplier of integrated metering and
utilization solutions to the gas, electricity and water utilities.
Acquisition cost: $5.1B
2012-12-11 Honeywell acquires Intermec designs (Everett, Washington), sells, and repairs wired and wireless automated
identification and data collection products and related services.
Acquisition cost: $600M
2015-03-01 Honeywell acquires Saia-Burgess Controls (Murten, Switzerland), their technology have been built on
grassroots democracy. Both operate according to the “bottom up” principle.
Acquisition cost: Unknown
SHM Controls June 2018
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ROBERT BOSCH GmBH (Germany) – Acquisitions in past years
Bosch USA subsidiary is focused on sustainability and building automation, but its acquisitions activity is not
disclosed and as such are not included in the list below.
Robert Bosch GmbH is an engineering and electronics company. Its products include automotive components
such as brakes, controls, electrical drives, electronics, fuel systems, generators, starter motors and steering
systems. It is also focused on industrial products such as drives and controls, packaging technology and
consumer goods, and building products such as household appliances, power tools, security systems and
thermal technology.
With more than 350 subsidiaries covering more than 60 countries, Robert Bosch GmbH offers its products in
more than 150 countries worldwide. Bosch employs around 306,000 people and had revenues of approximately
€52.5 billion in 2012. In 2012 it invested around €4.8 billion in research and development and applied for
around 4,800 patents worldwide.
Robert Bosch GmbH was established on 15 November, 1886 by Robert Bosch. It currently carries out its
operations under the name of Bosch.
Source: https://www.crunchbase.com/organization/robert-bosch-gmbh/acquisitions
2016-10-13 Bosch acquires ITK Engineering (Rülzheim, Germany), a provider for system and software development
across industries.
Acquisition cost: Unknown
2015-08-28 Bosch acquires Seeo (Hayward, California), a manufactures and distributes lithium-polymer batteries.
Acquisition cost: Unknown
2015-04-24 Bosch acquires ProSyst Software (Cologne, Germany), software solutions that are used as the technological
basis for consumer networking services
Acquisition cost: Unknown
2008-12-22 Bosch acquires Health Hero Network - Bosch Healthcare (Palo Alto, California), offers technology-based
solutions for remote health monitoring and management.
Acquisition cost: Unknown
2005-08-19 Bosch acquires Akustica (Pittsburgh, Pennsylvania), a fabless semiconductor company developing single-
chip digital and analog microphones used in phones and headsets.
Acquisition cost: Unknown
SHM Controls June 2018
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DELTA ELECTRONICS – Acquisitions in past years
Delta Group is the global leader in power and thermal management solutions. Their mission statement is “To
provide innovative, clean and energy-efficient solutions for a better tomorrow,” focuses their role in addressing
key environmental issues such as global climate change. As an energy-saving solutions provider, Delta's
businesses encompass power electronics, energy management, and smart green life. Delta’s brand promise
“Smarter. Greener. Together.” encourages the development and broad application of smart, energy-efficient
solutions.
Delta Electronics (Netherlands), a wholly subsidiary of Delta Electronics valued at over $7B, continues to
dedicate in R&D to support the most important businesses with advanced energy-saving technology and
solutions.
With the acquisition of Energy Systems business from Ascom, a Swiss company in 2003, and Eltek ASA, a
Norwegian company in Ahttp://deltaww.com/about/milestone.aspx?secID=5&pid=5&tid=0&hl=en-USpril 2015,
Delta has inherited the excellent engineering resources and power design knowledge since 1906 and further
development into telecom, industrial and medical markets.
It is a significant step forward in Delta’s ability to offer complex high-power solutions, a broader product
portfolio and strengthened Delta's position in the European market.
Source: http://deltaww.com/about/milestone.aspx?secID=5&pid=5&tid=0&hl=en-US
2016-05 Delta Electronics (Netherland), a wholly owned subsidiary of Delta Electronics, acquires Delta Controls
(Surrey, BC, Canada)
Acquisition cost: $220M
2015-04 Delta Electronics acquires Eltek ASA (Norway), a world leader in high-efficiency power electronics, telecom
power, datacenter power solutions and energy conversion
Acquisition cost: Unknown
2003-05 Delta Electronics acquires Ascom Energy Systems (Switzerland), an organization with expertise in power
supply with a history of over 100 years
Acquisition cost: Unknown
SHM Controls June 2018
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WATTS WATER TECHNOLOGY, Inc – Acquisitions in past years
Watts Water Technologies, Inc. (Watts). is a provider of water quality, water conservation, water safety and
water flow control products for the residential and commercial markets in North America and Europe. The
Company operates in three segments: North America, Europe and China. It distributes its products through
three primary distribution channels: wholesale, do-it-yourself (DIY) and original equipment manufacturers
(OEMs). The Company also sells products for the residential construction and home repair and remodeling
industries through DIY plumbing retailers, national catalog distribution companies, hardware stores, building
material outlets and retail home center chains and through plumbing and heating wholesalers. In January 2010,
it sold Watts Valve (Changsha) Co., Ltd. In April 2010, the Company acquired Blue Ridge Atlantic Enterprises. In
June 2010, the Company acquired Austroflex Rohr-Isoliersysteme GmbH.
Source 1: http://tekmarcontrols.com/news-a-events/news-releases.html
Source 2: https://www.crunchbase.com/organization/watts-water-technologies#/entity
2015-10-28 Watts Water Technology acquires Apex Valves (New Zealand) a company specializing in the design and
manufacture of water control valves.
Acquisition cost: $22M
2014-11-06 Watts Water Technology acquires AERCO International (Blauvelt, NY), a leading supplier of boilers and
water heating products, and the originator of semi-instantaneous water heating.
Acquisition cost: $264.5M
2012-02-01 Watts Water Technology acquires Tekmar Controls (Vernon, BC, Canada), a manufacturer of control
solutions to the North American hydronic heating, ventilation and air conditioning (HVAC) industry
Acquisition cost: Unknown
SHM Controls June 2018
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IPO AND RTO POSSIBILITIES
June 2018 update by SHM
In the past 3 years, SHM Controls has ben approached twice by investment bankers and M&A advisors with
proposals to go public on the TSX Venture Exchange by way of an RTO. In both cases, the company’s board
decided against it. Often the cost was high, the risk to a young company was very high, research suggested that
other companies in similar circumstances that took the RTO route prematurely did not necessarily succeed,
incurring significant debt and/or becoming insolvent completely. The company’s leadership concluded it is
simply too early for the company to go public.
Public Listing via an IPO (Initial Public Offering) or an RTO (Reverse Take Over)
A reverse takeover (RTO) is a type of merger that private companies use to become publicly traded without
resorting to an initial public offering (IPO). Initially, the private company buys enough shares to control a
publicly traded company. The private company's shareholder then uses its shares in the private company to
exchange for shares in the public company. At this point, the private company has effectively become a publicly
traded company. An RTO is also known as a reverse merger or a reverse IPO.
In Canada, the Toronto Stock Exchange (TSX) listing requirements via an RTO could be achieved quite early in a
company's life: When a company reaches a pre-tax revenue of CAD $300,000 / US $225,000 or a pre-tax cash
flow of CAD $700,000 / $525,000 it would be eligible to proceed with a public listing via an RTO.
What Is a Reverse Take-Over (RTO)?
Companies wishing to access the Canadian capital markets by listing on the Toronto Stock Exchange (TSX) or
the TSX Venture Exchange (TSX-V) may become listed through a number of methods including a traditional
initial public offering (IPO), through a special purpose acquisition vehicle (SPAC) or by completing a reverse
take-over (RTO) of an existing listed issuer.
Generally, an RTO is a transaction whereby a company which is publicly listed on a stock exchange (Public Co.),
but which has few if any assets, acquires all of the securities of a private company which has substantial assets
and/or operations (Private Co.), resulting in Private Co. indirectly “going public.” Public Co. acquires the
securities of Private Co. by issuing to Private Co.’s shareholders a significant number of shares in Public Co.
(equivalent in value to the assets or operations of Private Co.).
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Reverse Take-Overs in Canada Typically, the result of an RTO is a change of control in the ownership of Public
Co. and in many cases, the former shareholders of Private Co. hold a large majority of the shares of Public Co.
which remains listed on a stock exchange and which now also has assets and/or operations.
Why do an RTO?
The IPO process in Canada is time consuming, uncertain and relies on public market conditions. An
RTO structure is often used where a traditional IPO is not feasible or practical. An RTO does not necessarily
include an equity financing component, so it is often used where the principal goal of the transaction is
liquidity for shareholders from the stock exchange listing, versus an IPO where capital raising from the public is
generally the principal goal. For example, during times of volatility
in stock markets an IPO may be difficult to successfully conclude and risky if market conditions change and the
offering cannot be completed. In such circumstances a company can instead acquire a stock market listing,
liquidity for its shares and access to the public capital markets, by completing an RTO involving a company
which is already listed on an exchange. An RTO transaction is generally shorter in duration to complete and is
more cost efficient from a professional fees basis than an IPO.
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RTO Options
Many public companies in Canada are created and maintained for the purpose of engaging in RTO transactions
with Private Co.’s seeking to access the Canadian capital markets in situations where an IPO is not the most
viable alternative. Other Public Co.’s have wound up or disposed of their prior business and may have cash or
other attributes as their only asset. The preferred RTO transaction structure is dependent on a number of
factors including the Private Co. Sector and the maturity and sophistication of the Private Co.’s business.
Although RTOs have typically been completed predominantly in the oil and gas and mining sectors in Canada,
RTOs are not restricted to these sectors
and are prevalent in other sectors, including the renewable energy sector and the industrial sector.
There are multiple forms of RTO transactions to gain access to the Canadian capital markets including the
following:
TSX TSX-V
• Reverse Take-Over (Back Door Listing) • Reverse Take-Over
• Capital Pool Company (CPC) Qualifying Transaction
(QT)
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Toronto Stock Exchange Listing Requirements
The Toronto Stock Exchange (TSX) has different listing requirements for natural resource, finance, and
industrial and technology companies.
The attached chart set-out the listing requirements of the TSX for industrial, technology and life sciences
companies which are referred to as research and development companies.
Source: http://venturelawcorp.com/listing-requirements-toronto-stock-exchange-technology-life-sciences/
TSX – Industrial & Technology Companies Listing Requirements
Requirements Profitable
Companies
Companies
Forecasting
Profitability
Technology Companies
Research &
Development
Companies
Pre-Tax Income Last Year C$300,000 C$200,000 N/A (Evidence for current
or next fiscal year only) N/A
Pre-Tax Cash Flow Last Year
C$700,000 and
average
$500,000 for
past 2 fiscal
years
C$500,000
(Evidence for
current or next
fiscal year)
N/A N/A
Minimum Operating History One Year N/A
Advanced stage
development or
commercialization of
product/services
Two years of R&D
expenditures
Net Tangible Assets C$2,000,000 C$7,500,000 N/A N/A
# of Public Board Lot Holders 300 300 300 300
Minimum Free Trading Public
Float 1,000,000 1,000,000 1,000,000 1,000,000
Value of Free Trading Public
Float C$4,000,000 C$4,000,000 C$10,000,000 C$4,000,000
Market value of Issued Securities
to be Listed N/A N/A C$50,000,000 N/A
Minimum Cash in Treasury N/A N/A C$10,000,000 C$12,000,000
Minimum Additional Working
Capital
Adequate given
business
Adequate given
business One year coverage Two years coverage
Sponsorship Required No Yes(1) Yes Yes
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SHM Controls was approached in October 2016 by an investor relation firm (Varshney Capital, Vancouver)
offering to help taking SHM Controls public using an RTO at the Toronto Stock Exchange, within 18 months.
Varshney Capital and Pyfera Capital also presented a term sheet to SHM Controls that outlines those terms.
SHM Controls current revenue forecast as presented below, was reviewed by Robert Kang, a former Toronto
Stock Exchange (TSX) Director of Listed Issuer Services and he confirmed that based on that forecast, SHM
Controls would be eligible to be publicly listed using an RTO as early as Q4 2017.
The RTO and public listing costs, both initial and ongoing, are already included in the forecast below and are
estimated to be:
CDN $100,000 – in annual legal fees
CDN $100,000 – in annual accounting fees
CDN $100,000 – in annual investor relations fees
CDN $300,000 – in one-time stock exchange listing fees
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APPENDIX K Term Sheet attachment
Prepared by: Sean Melrose
June 2018 update by Sean Melrose
The term sheet presented below is the term sheet for the current round of financing
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APPENDIX L FREQUENTLY ASKED QUESTIONS
Prepared by: SHM Controls
Do the sensors work in a zone by zone area in the building or room by room?
The sensors work in a zone by zone are in the building, 3 sensors are assigned for each heating zone.
There is no limit to the number of heating zones the software can handle.
Does it work only with gas or can be used with other heating methods?
The SHM Controller was initially designed to work with hydronic heating systems (water heat), but
works also with oil and steam heating systems. As well, it could control concurrently also central or
local A/C systems.
How do you intend to go after small and medium sized buildings for sales?
June 2018 update by SHM
Our current scale-up focus is on distribution deals and strategic partnerships with family offices that have real-
estate portfolio. Both those directions represent multiple multi-residential properties. Currently distribution
deals in process are with Modern Niagara, largest nationwide HVAC company in Canada for exclusive
sales/marketing/installation in east provinces, and with SABD Corp in Chile. We are already working with a NY
family office with properties in 7 states, and a GA family office with properties across the nation. Additional
focus is also on partnerships with vendors that offer products/services that complement our own and share the
same target market. An example would be BuildingLink, which supplies software and hardware to help building
managers of residential, commercial and hotels etc, run more efficiently. They currently service 4448 buildings
in 34 US states and 30 countries worldwide.
Our main marketing channel is direct marketing to building owners using industry contact list and
industry associations (we currently have access to such list with 3,300 building owners/managers in BC,
Canada, representing more than 6,000 buildings). As well, we are already using successfully our 3 main
channel partners:
HVAC Companies – Receive from us a nice financial incentive to install the controller, as well they
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benefit from the remote control ability, alerts on emergencies and visual diagnostic tools. They contact
us asking to have further installations.
Property Managers – Benefit by reputation, able to show their owners savings instead of bills.
They regularly contact us asking to have further installations in their other buildings.
ESCOs – Energy consulting companies, benefit both financially and by reputation. They contacted us,
and after learning on our system via site visits, they are asking to include us in their recommendation to
potential clients
Energy Management Companies – Typically use energy management software to remote control many
properties. The SHM Controller can interface with other software systems to receive control
commands and to provide live/historical data.
Would this work in residential homes too? Would there be any opportunity for SHM to provide for this
market?
Yes, it would work in residential homes, which are heated by a boiler system. In those cases it could
also control an A/C system, if the home has one. Homes equipped with a boiler system are a segment
of our primary market and we intend to market a “SHM-in-a-Box” to this market segment, so home
owners could install it with the help of a local HVAC technician.
Are these being used in only older buildings?
Not at all. Although the SHM Controller is a retrofit system, it could be installed in any building, old or
new, and with any boiler installation – existing or new. Since a retrofit system has a great value to an
already existing installation specifically in an old building, these are the low hanging fruit customers we
market to. However, the SHM system could be installed as is also in new buildings with new boiler
systems and generate nice gas savings. Our installations are divided almost equally between old
atmospheric boilers new high efficiency boilers, yet the savings generated are not affected by the age
or type of the boiler.
Can you explain what it is that the average boiler does wrong?
In order for any heating system to operate efficiently it should be looked at and handled as a “unified
whole feedback based system”, and not just as the sum of its parts. The heating system in a building is
composed of many parts, including the boilers, HW tanks, pumps, valves, pipes, building architecture
and structure, piping structure, heat dissipation factor, heat loss factors in the different parts and
more. If an old boiler is replaced with a new high efficiency boiler, we may have improved the
efficiency in one item of the heat system, but without improving the system as a whole, the savings
would always be limited. This is no different than putting a new engine in an old car – some aspects of
driving would be better but as a system, it would still be an old car, with the same wind drag factor and
performance limitations.
Just like overusing the gas throttle in an accelerating car would waste gas, heating up a boiler without
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considering the heat dissipation factor between the boiler, the pipes and the building, would waste gas.
Alternatively, keeping the boiler running at preset idle temperatures instead of setting up the proper
idle temperature according to actual live conditions, results in more gas being used than needed.
Heating up a building without any live feedback from the heating areas being regulated, would always
be inaccurate and will end up in gas waste.
What is the secret sauce in the technology that makes a large corporation in this space want to acquire you?
Typical boilers are traditionally set to operate in an inefficient way: From the way the boiler is
controlled to reach its target temperature, through keeping it in a pre-defined idle output temperature
during cold weather and up to pumps that are kept running far more than needed. SHM Controls
identified many conditions in which traditional control methodologies are not as efficient as they could
be.
Typical heat maintenance issues (see more on those in the “Market” chapter) are quite hard, tedious
and costly to identify using proactive maintenance, so often are dealt with locally after complaints are
received. Consequently, boilers are often kept by caretakers running longer and harder than needed,
while tenants regulate themselves by opening the windows. As well, caretakers cannot easily verify the
validity of complaints and the easy solution is to crank up the boiler.
In comparison, the SHM Controller treats the entire building heat system as a single unified system
where heat is generated on one end (boiler) and propagated to tenant units (using pumps, valves and
pipes) in order to maintain a desired target temperate in tenant suites. Boiler output temperatures at
source and destination are sensed by wireless sensors, allowing the system to know and respond to
heat propagation time, at current weather conditions, in that specific building and its specific heat
losses, with its specific boiler. Pumps and valves are also controlled to redirect the existing or excess
heat based on current and predicted need. Based on all that information as well as usage patterns we
can additionally predict need for heat at specific time of day and days of the week in order to provide
the proper heat in advance (and not reactive, which results in a large energy waste). SHM Controller's
visual diagnostic tool helps pointing out remotely or on site, heat related issues that otherwise are hard
to identify.
Is it an open integration system that can integrate with other existing systems?
Yes. The software was revised in the past to work in a modular way in order to allow the usage of
different types of hardware with minimal changes in the software. As such, any kind of new interface,
be it for a new type of hardware device or an two-way interface to another software system (both
receive control and provide data) would only require the addition of a slim software interface module.
This module is quite simple to build as needed.
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What was different about the building in New West that only decreased 8%. (Newer boiler?)
The boiler in that building was malfunctioning at the time of the measurement. A short while later it
was found that the boiler had a faulty main board that caused it to erase its configuration occasionally
and operate in an unpredicted way. As a result the 8% saving achieved in April 2016 was lower than the
average achieved in other buildings (while 8% is still nice savings).
Regardless, that boiler has been repaired since and is now generating higher gas savings.
It is important to note that gas saving is achieved regardless if the boiler is old or new. Our installations
are divided almost equally between old atmospheric boilers new high efficiency boilers, yet the savings
generated are similar in all buildings and are not affected by the age or type of the boiler.
Can customers buy outright without the service model? Or is service the only way?
Yes, in 2017 we indeed intend to offer a buy-out option.
Could there be an option, with sophisticated Facilities Managers to own outright?
Yes.
What are the barriers from a competitor entering this space?
Once learning to avoid old ways of thinking and think outside the box (and if considering that R&D cost
is not an issue to the big players) the main barrier to entry would be the time needed to develop the
algorithms, mathematical and logical methods, the software and related lean and reliable wireless
hardware, and above all - to field-test the prototype in several properties over several years. In order
to be able to show year-over-year gas savings, any valid field-testing would need to last at least 3 years.
Saying that, development of smart new algorithms, software interfaces and lean wireless hardware is
neither easy nor cheap and takes time. An existing large market player would need to re-design its
prototypes from the bottom up in order to come up with a low cost and comparable device. However
this process is very hard for an established manufacturer, which would typically prefer to acquire the
technology from a newcomer.
How long are the contracts?
The length of the contracts will depend on the type of deal offered:
Regular customers that pay for their installation up front – are on a month-to-month basis. Customers
that pay for the installations over 36 months, have a 3-year contract (similar structure to cell phone
customers). Customers that receive free installation have a contract of 4-5 years.
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What are the challenges to installing the product, are they site specific?
There are no installation challenges, installation is actually is quite simple and quick: The SHM
Controller is secured to a wall in the boiler room using 4 screws, wireless boiler room sensors are
secured to pipes in the boiler room using cable ties and wireless tenant unit sensors are secure to the
walls in tenant units using 2 screws. The plumbing layout is obviously site specific and is programmed in
on controller prior to installation. This is done using our Plumbing Layout Designer software module
and using our layout design templates. The actual plumbing layout information is collected during the
initial visit in the property on a simple form and photos.
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APPENDIX M PITCH DECK
Prepared by: SHM Controls
June 2018 update by SHM
The Pitch Deck here has been updated to the most current version
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