Business Overview

5. INFORMATION ON OUR GROUP 5. INFORMATION ON OUR GROUP
5.1 INFORMATION ON FOCUS LUMBER 5.1.1 Background and principal activities Our Company was incorporated in Malaysia under the Act on 30 October 1989 as a private limited liability company under the name of Focus Lumber Sdn Bhd. Our Company was subsequently converted to a public limited liability company and assumed our present name on 13 November 2009 to facilitate our listing on the Main Market of Bursa Securities. We are principally involved in the manufacturing and sale of plywood, veneer and LVL, and investment holding. Plywood is our core product, generating the bulk of our Group’s revenue. Our Group was established by our three (3) key founders, namely Lin Fong Ming, Lu Chin Ting and Yang Chien Chih who have developed our Group since incorporation into a major plywood manufacturer in Malaysia. They each have more than 30 years of business experience in the timber industry. Prior to establishing our Group, our founders were involved in timber trading and plywood manufacturing businesses in Taiwan. In the 1980s, after taking into consideration, inter-alia, Sabah’s rich natural tropical forest resources and the Malaysian government’s initiative to further develop the downstream timber industry, they incorporated Focus Lumber in 1989. We subsequently set up our plywood manufacturing mill in Keningau, Sabah in 1990. In November 1991, we saw the commencement of our plywood manufacturing business. As part of our management succession plan, in recent years, our Group has groomed key management personnel who have brought in new ideas to our Group. They are the children of our founders. Over the years, we have gained vast experience in the manufacturing of plywood. With our strong technical capabilities and know-how, we have become a major player in the plywood industry. Our plywood is environmentally friendly and we were the first Malaysian plywood mill company certified as a CARB Certified Manufacturer on 2 October 2008 by Professional Service Industries, Inc., a CARB authorised third party certifier. The CARB standards regulate formaldehyde emissions from wood products sold in California or used to make finished goods for sale in California. In addition, our Company was also awarded with the JAS Certification by the Ministry of Agriculture, Forestry and Fisheries of Japan in 2009 for our quality plywood. JAS imposes stringent requirements on various aspects of production process. Hence, the JAS certification will facilitate our Group to supply to the Japanese market. These certifications awarded to our Company represent an official acknowledgement and endorsement of the quality of our plywood and enhance our customers’ confidence on our plywood. Our plywood can be used in many different applications where high-quality and high­strength sheet materials are required. We produce mainly thin panel plywood of which the thickness is below 6 mm and they are capable of further processing by laminate factories. These factories prefer thin panel plywood which is also a preferred choice for the RV market in the US, where most of our plywood is exported to. We also produce thick panel plywood ranging from 6 mm to 18 mm. For the FYE 31 December 2010, 95.2% of the revenue of our Group was derived from the manufacturing and sale of plywood. 55.1 %, 20.3% and 2.0% of the plywood, veneer and LVL products produced were exported to the US, Taiwan and Korea markets respectively whilst the domestic market contributed to 12.5% of our Group’s revenue. As part of our Group’s strategy to consistently enhance our customer base, we have also exported our plywood to Mexico, India and other countries. Our plywood is widely used in various industries which include the RV industry (mainly in the US market), home decorating industry, furniture industry, vehicle internal body work, floors, walls and roofs in transport vehicles and house constructions. In 2009, our Group attained a market share of approximately 23.9% in the US market for the imports of plywood, veneered panels and similar laminated wood from Malaysia. 5. INFORMATION ON OUR GROUP (Cont’d) Our wholly-owned subsidiary, Untung Ria, commenced its operation in 2006 after the completion of its power plant construction in the same year. Untung Ria is principally involved in the generation, transmission, distribution and sale of electricity. Untung Ria reuses bulk waste to generate biomass energy to supply electricity to our Group’s operations. This has resulted in substantial cost savings for our Group and has reduced our reliance on expensive fossil fuels which in turn has reduced our overall cost of production and improved our profit margin, thus putting our Group at a competitive advantage. Our Group has also started a production line for the manufacturing of LVL which commenced operations in March 2010 and the sales of LVL started in April 2010. The start­up involved the purchase of new machinery amounting to RMO.48 million, which was financed through our internally generated funds. The manufacturing and selling of the new LVL product is part of our plan to diversify into different product market segments whilst maintaining our established position in the thin panel plywood market. Please refer to Section 5.7 of this Prospectus for further details of our Group’s business. 5.1.2 Our competitive strengths Our competitive strengths are as follows:­(a) Experienced management team Our Group has a management team comprising experienced, skilled, dynamic and competent individuals whose commitment and dedication have been the driving force of the present achievements and growth since the date of incorporation. Our founders, namely our Vice Chairman, Lu Chin Ting, Managing Director, Lin Fong Ming and Executive Director, Yang Chien Chih possess more than 30 years of experience each in the trading of timber and plywood manufacturing. They played an instrumental role in charting the strategic direction of our Group. Under their leadership, our Group has grown from a small company to a major player in plywood manufacturing in Malaysia. In order to stay competitive in the plywood manufacturing industry, the ability to produce good quality plywood is of utmost importance. With their vast experience and technical expertise and know-how in the manufacturing of plywood, our Group has been able to produce a wide range of quality plywood that meets our customers’ stringent requirements and international quality standards. Due to their vast experience, they have also in-depth expertise in timber logs selection. There are numerous types of timber logs with different characteristics. Our Group is able to select quality and suitable timber logs to produce the types of plywood required by the customers. Our Company gained technical know-how in the manufacturing of plywood through numerous testing and research in order to meet the customers’ requirements. Our key management takes the initiative to understand the requirements of the customers as well as the requirements of the end-users of our Company’s products to continuously improve our manufacturing process. It represents the commitments of our Company on continuous enhancement in our manufacturing process. Over the years, our Group has also invested in machineries to enhance the efficiency of our manufacturing process as listed below. Our Group has been able to blend our technical know-how with our ability in operating the advanced machineries to produce quality plywood. With the above, our Group is capable of the following:­(i) Integrating different types of timber logs to produce plywood. This has reduced the restriction in the use of only certain types of timber logs;

5. INFORMATION ON OUR GROUP (Cont’d) (ii) Better production efficiency which increased the recovery of logs resulting in lower production cost; (iii) Use of smaller logs (which are lower in cost) in our manufacturing operation which has resulted in lower cost of raw material and broaden the source of log supply for our production; (iv) Producing plywood with low content of formaldehyde; and
(v) Reusing waste to generate biomass energy.

In recent years, our Group has groomed key management personnel who have brought in new ideas to our Group which include, amongst others, penetration into overseas markets such as US, Mexico, European countries, Middle East, Singapore, Australia, India, Korea and Japan, and introducing and commercialising the new LVL products. They are the children of our founders who have provided impetus for our growth and to-date, they have played a significant role in assisting our Group expand our sales successfully in the overseas markets. In addition, in order to remain competitive, our management team takes the initiative to understand the market requirements and has been able to meet the expectations of our customers. (b) Approved international recognition on product quality Our Group adopts the following standards in manufacturing plywood to ensure our plywood is well accepted by our customers from various countries in the world:­(i) The product standard for imported wood veneer and platforms (IHPA-2000) ­by the International Wood Products Association, US (“IWPA”). IWPA’s mission is the development and promotion of voluntary industry standards. The “IHPA grade” mark clearly identifies products as meeting the highest standards of quality and consistency in the market place; and
(ii) Export standard specification of Japanese plywood.

We produce mainly thin panel plywood of which the thickness is below 6 mm. With our strong technical capabilities and know-how in plywood manufacturing, we take pride in our capability to produce high quality plywood which is manufactured according to the tightly controlled customers’ specifications and requirements. Hence, new companies often find great difficulty in penetrating into our market segment as it takes many years to obtain the technical know-how to manufacture good quality plywood. New companies need to ensure that before their plywood can be marketed, they have to meet a high standard of quality and obtain market acceptance for their plywood. This can prove to be difficult as the market is being dominated by the existing established players, which have long-term relationships with the customers. A testament of the quality of our plywood is our ability to penetrate into the RV market in the US. The RV market requires high quality plywood and our Group has, over the years, created a name in the RV market in the US, testifying to the quality of our plywood. In 2009, our Group attained a market share of apprOXimately 23.9% in the US market for the imports of plywood, veneered panels and similar laminated wood from Malaysia. We are the first plywood mill company in Malaysia certified as a CARB Certified Manufacturer by Professional Service Industries, Inc.. The CARB standards regulate formaldehyde emissions from wood products sold in California or used to make finished goods for sale in California. Through our technical expertise and know-how, we have been able to produce good quality plywood, which includes amongst others, the following features:­

5. INFORMATION ON OUR GROUP (Cont’d) (i) Low content of formaldehyde emissions. It is a pre-requisite requirement for sale of plywood in certain areas. The formaldehyde emission of our Company’s plywood is below 0.05 parts per million. Formaldehyde is a chemical used widely by industry to manufacture building materials and household products. In the manufacturing of plywood, formaldehyde is used as a component of glue and adhesive. Formaldehyde emits a pungent smell, can cause watery eyes, burning sensations in the eyes and throat, nausea, and difficulty in breathing in some humans exposed at elevated levels. High concentrations may trigger attacks in people with asthma; and
(ii) Plywood that has smooth and straight edges for easy bonding, smooth surface finishing and uniform thickness throughout the plywood to ease laminating process.

In addition, our Company was also awarded the JAS Certification by the Ministry of Agriculture, Forestry and Fisheries of Japan. The JAS imposes stringent requirements on, amongst others, the production process including receiving and storing of raw materials, formulations of finished products and processing methods and machinery and/or tools used in production. These certifications represent an official acknowledgement and endorsement of the quality of our plywood and enhance our customers’ confidence on our plywood. (c) Reusing waste to generate biomass energy Our Group, under our subsidiary, Untung Ria, reuses waste to generate biomass energy to supply electricity for our Group’s manufacturing operations in Keningau. This has resulted in substantial cost savings for our Group and has reduced our reliance on expensive fossil fuels, which in turn has reduced our overall cost of production and improved our profit margin, thus putting our Group at a competitive advantage. In addition, the reuse of waste has also minimised the impact of our operations on the environment, which is in line with the global awareness to protect the environment. (d) Established position in the plywood industry and capital intensiveness (barrier to entry) Since the commencement of our plant’s operations in Keningau in November 1991, we have been very focused in doing what we excel at, Le. plywood manufacturing. We have grown from strength to strength and become a major plywood manufacturer in Malaysia. As part of our growth strategy, we have started manufacturing and selling LVL, an engineered wood product and a secondary processed product, in April 2010. We take pride in our achievements in using our own internally generated funds and minimal bank borrOWings in the recent years to fund our business expansions. Within the highly capital intensive plywood manufacturing industry, it is crucial that we are able to manage and maintain sufficient liquidity to ensure that our daily operations are not interrupted due to inadequate working capital and poor cash flow management. Furthermore, substantial cash outlay is required for the purchase of raw materials, particUlarly timber logs. It is also critical to ensure that sufficient raw materials are in stock to meet production requirements. In addition, operating in a customer-driven industry, our Group is constantly faced with the challenge of technical excellence in adopting cost-effective manufacturing processes using innovative production machinery and equipments. As a result, a company like us is capital intensive and this serves as a barrier to entry for new players. We have been investing in high-end operations and large production facilities to increase production efficiency to maintain and enhance our competitive edge. To produce quality products, we have been investing in advanced machineries that are 5. INFORMATION ON OUR GROUP (Cont’d) usually imported from countries such as Japan and Taiwan. Automation of the production processes provides huge benefits in terms of the following: • Production cost-savings whereby our Group is able to reduce labour usage hence reducing incidences of human error;
• Improved efficiencies with higher rate of output; and
• Enhanced product quality with minimal defect.

(e) Established track records and relationship with customers Our Company has built a strong business relationship with our major customers through, amongst others, timely delivery, reliability, consistency in the quality of our plywood. These factors have enabled us to gain our customers’ loyalty over the years and retain our market share, particularly in the US market, which places utmost importance on the quality of plywood and reliability and are willing to pay a premium for our good quality plywood. Through our track records established with these customers, we have created a reputation for our Company and been recognised as one of the trusted and highly recognised plywood manufacturers in the industry. Our Company’s established business reputation and track records serve as an important reference to secure new potential customers, enabling us to expand our market presence and attract new customers globally. Currently, our Group’s customer base includes a Fortune 500 company, namely Weyerhaeuser NR Company, based in the US. (f) Strategically located with easy accessibility to log supply Our manufacturing plant is strategically located in Keningau, Sabah which is a strategic timber district in Sabah. Keningau also provides a vast supply of the Seraya species timber logs, which is one of the better quality timber species for the manufacturing of plywood. Our strategic location gives us easy access to supplies of timber logs, our main raw material, which in turn allows us to obtain steady and timely delivery of raw materials and save on transportation costs, thus reducing our storage and production costs. These allow us to maintain our competitiveness. Our Group has dealt with more than 40 log suppliers in Keningau and vicinity areas. 5.1.3 Share capital and changes in share capital As at the LPO, our authorised and issued and paid-up share capital is as follows:­Par value  Amount  No. of shares  (RM)  (RM)  Authorised  300,000,000  0.50  150,000,000  Issued and paid-up  91,000,000  0.50  45,500,000
Oetails of the changes in our issued and paid-up share capital for the last three (3) years are as follows:­Date of Allotment I Share Split  No. of Shares allotted  Par value (RM)  Consideration  Cumulative Issued and Paid-up Share Capital (RM)  16 December 2010 17 December 2010  10,500,000 – 1.00 0.50  Bonus Issue Share Split  45,500,000 45,500,000

 

5. INFORMATION ON OUR GROUP (Cont’d) As at the LPD, our Company does not have any outstanding warrants, options, convertible securities and uncalled capital. 5.1.4 Subsidiary and associated company Our existing corporate Group structure is as follows:­Focus Lumber ~ 100% Untung Ria Details of our subsidiary are set out below:­Subsidiary  Date and Place of Incorporation  Date of Commencement of Business  Issued and Paid-Up Share Capital (RM)  Effective Equity Interest (0/0)  Principal Activities  Untung Ria  9.6.1997 Malaysia  1 March 2006  5,000,000 (Ordinary Shares) 10,000,000 (Redeemable Non-Cumulative Preference Shares)  100.00  Generation, transmission, distribution and sale of electricity.
Further details on our subsidiary are set out in Section 5.2 below. As at the LPD, we do not have any associated companies. 5.2 INFORMATION ON UNTUNG RIA (a) Background and history Untung Ria was incorporated in Malaysia under the Act on 9 June 1997 as a private limited liability company under the name of Untung Ria Sdn Bhd. Untung Ria commenced business on 1 March 2006 after completion of its power plant construction in the same year. On 1 August 2009, our Company acqUired the remaining 20% equity interest in Untung Ria from Lin Hao Yu and Lu Wei Hsu, who are both the existing substantial shareholders of our Company, for a purchase consideration of RM1.00 million satisfied by way of cash which was based on willing-buyer willing-seller basis. The above acquisition gives rise to a discount on acqUisition of approximately RM2.77 million after taking into consideration the unaudited NA of Untung Ria as at 31 July 2009 of approximately RM18.83 million. Subsequently, Untung Ria became a wholly-owned subsidiary of our Group. With the aforesaid acquisition, we can avoid any potential conflict of interest situation in the future and related party transactions arising from the sale of electricity from Untung Ria to our Company.
5. INFORMATION ON OUR GROUP (Cont’d) (b) Principal activity Untung Ria is principally involved in the generation, transmission, distribution and sale of electricity. Untung Ria reuses bulk waste to generate biomass energy to supply electricity to our Group’s operations. This has resulted in substantial cost savings for our Group and has reduced our reliance on expensive fossil fuels which in turn has reduced our overall cost of production and improved our profit margin, thus putting our Group at a competitive advantage. (c) Share Capital (i) Ordinary Shares As at the LPD, the authorised and issued and paid-up share capital of Untung Ria is as follows;­Par value  Amount  No. of shares  (RM)  (RM)  Authorised  5,000,000  1.00  5,000,000  Issued and paid-up  5,000,000  1.00  5,000,000
There were no changes in the issued and paid-up share capital of Untung Ria for the last three (3) years. (ii) 7% Redeemable Non-Cumulative Preference Shares The 7% Redeemable Non-Cumulative Preference Shares are held by Focus Lumber. As at the LPD, the authorised and issued and paid-up 7% Redeemable Non­Cumulative Preference Shares of Untung Ria is as follows:­Par value  Amount  No. of shares  (RM)  (RM)  Authorised  10,000,000  1.00  10,000,000  Issued and paid-up  10,000,000  1.00  10,000,000
Details of the changes in the issued and paid-up 7% Redeemable Non-Cumulative Preference Shares of Untung Ria for the last three (3) years are as follows:­Date of allotment  No. of shares  Par value (RM)  Consideration  Cumulative Total (RM)  14.07.2008  10,000,000  1.00  10,000,000  10,000,000
As at the LPD, Untung Ria does not have any outstanding warrants, options, convertible securities and uncalled capital.
5. INFORMATION ON OUR GROUP (Cont’d) (d) Substantial Shareholder Untung Ria is our wholly-owned subsidiary.

(e) Subsidiary and Associated Companies Untung Ria does not have any subsidiaries or associated companies.

 

5.3 LISTING SCHEME In conjunction with and as an integral part of our listing of and quotation for the entire enlarged issued and paid-up share capital of our Company on the Main Market of Bursa Securities, the details of our Listing Scheme are as follows:­(i) Bonus Issue Our Company has undertaken a bonus issue of 10,500,000 new ordinary shares of RM1.00 each credited as fully paid-up on the basis of three (3) new ordinary shares of RM1.00 each for every ten (10) ordinary shares of RM1.00 each held. The Bonus Issue was completed on 16 December 2010. Upon completion of the Bonus Issue, the issued and paid-up share capital of our Company has increased from RM35,OOO,OOO comprising 35,000,000 ordinary shares of RM1.00 each to RM45,500,000 comprising 45,500,000 ordinary shares of RM1.00 each. (ii) Share Split After the Bonus Issue, our Company has implemented a share split of every one (1) ordinary share of RM1.00 each into two (2) ordinary shares of R1VI0.50 each. The Share Split was completed on 17 December 2010. The number of issued ordinary shares in our Company has changed from 45,500,000 ordinary shares of RM1.00 each to 91,000,000 ordinary shares of RMO.50 each after completion of the Share Split. (iii) Public Issue After the Bonus Issue and Share Split, our Company will undertake a public issue of 12,200,000 new Shares, at the Issue Price, payable in full on application upon such terms and conditions as set out in this Prospectus and will be allocated and allotted in the following manner:-. (a) 6,000,000 new Focus Lumber Shares, representing approximately 5.81 % of our enlarged issued and paid-up share capital, to be made available for application by the Malaysian Public via balloting, of which at least 50% is to be set aside strictly for Bumiputera investors;
(b) 900,000 new Focus Lumber Shares, representing approximately 0.87% of our enlarged issued and paid-up share capital to be reserved for the eligible employees and persons who have contributed to the success of our Group; and
(c) 5,300,000 new Focus Lumber Shares, representing approximately 5.14% of our enlarged issued and paid-up share capital, has been allocated to be placed out to Bumiputera investors approved by the MIT/.

Upon completion of the Public Issue, the issued and paid-up share capital of our Company will increase to RM51 ,600,000 comprising 103,200,000 Shares. 5. INFORMATION ON OUR GROUP (Cont’d) (iv) Offer for Sale The Offerors will also undertake an offer for sale of up to 5,160,000 Offer Shares, representing up to 5.00% of our enlarged issued and paid-up share capital, at the Offer Price, payable in full on application upon such terms and conditions as set out in this Prospectus and will be allocated and allotted in the following manner:­(a) 412,000 Offer Shares, representing approximately 0.40% of our enlarged issued and paid-up share capital, to be made available by way of placement to Bumiputera investors approved by the MITI; and
(b) Up to 4,748,000 Offer Shares, representing approximately 4.60% of our enlarged issued and paid-up share capital, to be made available by way of placement to identified investors.

Pursuant to the Offer for Sale, the Offerors are expected to raise up to approximately RM3.10 million based on the Offer Price. All the Issue Shares and Offer Shares shall rank pari passu in all respects with the existing issued and paid-up shares of our Company, including the voting rights and rights to all dividends and distributions that may be declared, made or paid subsequent to the date of the allotment thereof. (v) Listing The admission and the listing of and quotation for our entire enlarged issued and paid-up share capital of RM51,600,OOO comprising 103,200,000 Focus Lumber Shares, and any share(s) arising from the exercise of the ESOS options under the ESOS (as mentioned in Section 5.3(vi) below) on the Main Market of Bursa Securities. (vi) ESOS In conjunction with the Listing, our Company will also implement an ESOS involving up to 10% of the issued and paid-Up share capital of Focus Lumber at any time during the existence of the ESOS, to be issued pursuant to the options to be granted under the ESOS to the eligible Directors and employees of our Group. In determining the number of ESOS options to be offered to the eligible Directors and employees under the ESOS, the seniority and performance of the eligible Directors and employees and his/her length of service and contribution to our Group as at the date of offer shall be taken into consideration, subject to a minimum of 100 ESOS options and in multiples of 100 ESOS options. Further information on the basis of allotment is set out in Section 14 of this Prospectus. The sUbscription price of each Focus Lumber Share comprised in any option shall, subject always to the provision as set out in Section 14 of this Prospectus, be as follows:­(a) In respect of any offer under the ESOS By-laws which is made in conjunction with our Company’s listing on the Main Market of Bursa Securities, not less than the IPO Price; and
(b) In respect of any offer under the ESOS By-laws which is made subsequent to our Company’s listing on the Main Market of Bursa Securities:­

(i) The weighted average market price of the Focus Lumber Shares for the five (5) market days immediately preceding the date of offer with a discount of not more than 10%; and 5. INFORMATION ON OUR GROUP (Cont’d) (ii) The price so determined shall not be less than the par value of the Focus Lumber Shares; or at a subscription price in accordance with any gUidelines, rules and regulations of the relevant authorities governing the ESOS at the time of the offer under the ESOS By-laws. The ·ESOS shall be in force for a duration of five (5) years. However, our Board at its discretion, upon the recommendation of the option committee may extend the ESOS for a further period of up to five (5) years or any other duration that is allowed by the relevant authorities. The new Shares to be issued pursuant to the exercise of the ESOS options will, upon allotment and issue, rank pari passu in all respects with our existing issued and paid-up share capital, except that the new Shares will not be entitled to any dividend, right, allotment or other distribution, the entitlement date of which is prior to the date of allotment of the said Shares. The new Shares will be subject to all provision of our Articles of Association. 5.4 LOCATION OF OPERATIONS The locations of our Group’s operational and administrative premises are as follows:­Company  Purpose  Location  Focus Lumber  Corporate Office Factory and warehouse  11 In Floor, Wisma Perindustrian Jalan Istiadat, Likas 88400 Kota Kinabalu Sabah Mile 3, Jalan Masak Kg. Ulu Patikang 89008 Keningau Sabah
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5.5 KEY ACHIEVEMENTS I MILESTONES I AWARDS Since the commencement of our plant’s operations in Keningau in November 1991, we have been very focused in doing what we excel at, Le. plywood manufacturing. Our most significant achievement is that we have grown from strength to strength and become a major plywood manufacturer in Malaysia. Our other key milestones are as follows:­Year  Key Milestones  1996  Installed a new Uroko Rotary Lathe machine which increased production capacity and improved the quality of our product.  2001  Successfully penetrated into the US market and become the sole supplier of plywood to one of our long term customers from the US, Ihlo Sales & Import Co. Our plywood is mainly used in the RV market and high value added fumiture industry.  2003  For continuous quality improvement, we added a Meinan SBAL-4 Rotary Lathe machine into the existing production line. The installation of the new machinery allowed us to reduce man power used in production, increase product quality and facilitate production processes.  2005  In order to cope with increasing demand, we added a Sunway four deck automatic Roller Dryer, which enabled us to expand our production capacity. Our subsidiary, Untung Ria, was granted the Investment Tax Allowance (“ITA”) under the Promotion of Investment Act, 1986 at the rate of 100% on the qualifying capital expenditures for its power generation activity for a period of five (5) years.  2006  Setting up of a power plant under Untung Ria which reuses bulk waste to generate biomass energy to supply electricity to our office, production plant and hostel, which has significantly reduced our dependency on fossil fuel for our production.  2007  Installed a new Kikukawa sanding machine with computer-aided thickness detection. The computerised production process increased our quality control and production quality further.  2008  Added another upgraded Meinan Rotary Lathe machine into our production line. The installation of the new machinery was to improve our processing technique to achieve higher wood recovery rates. Acquired the Blue Cube formaldehyde emissions testing machine from the US and established our own small chamber room for formaldehyde emissions testing. This investment further reflected our commitment towards quality control and ensuring we continuously meet our customers’ specifications and requirements. Became the first Malaysian plywood mill company certified as a CARB Certified Manufacturer by Professional Service Industries, Inc. The CARB standards regulate formaldehyde emissions from wood products sold in California or used to make finished goods for sale in California.  2009  Awarded the JAS certification by the Japan Plywood Inspection Corporation. JAS requires evaluation of the intemal structure and managerial competence that supports the processes that occur along the organic chain and further focuses on verifying that systems are in place for deciding and ensuring the products meet the relevant standards (grading). Our Group attained a market share of approximately 23.9% in the US market for the imports of plywood, veneered panels and similar laminated wood from Malaysia.  2010  Started a new production line for the manufacturing and sale of LVL as part of our growth strategy.

5. INFORMATION ON OUR GROUP (Cant’d) 5.6 CAPITAL EXPENDITURE AND DIVESTITURES Save as disclosed below, our Company did not incur any other capital expenditure and had no other divestitures for the past three (3) FYE 31 December 2008 to 2010:­Capital Expenditures  Transaction value for FYE 31 December  2008  2009  2010  RM’OOO  RM’OOO  RM’OOO  Factory and Office Building Motor vehicle Heavy Equipment, plant and machinery Furniture and fittings  12 262 6,116 31  127 -4,770 25  494 709 4,548 77  Total capital expenditures  6,421  4,922  5,828  Investment Acquisition of the remaining 20% equity interest in Untung Ria Divestitures Heavy equipment, plant and machinery Motor vehicles  — 1,000 510 – -43 141  Total Divestitures  .  510  184
The above capital expenditures and investment were financed through internally generated funds. The capital expenditures incurred on heavy equipment, plant and machinery was mainly to enhance our Group’s manufacturing process such as improving recoverability of logs and production quality as well as to test formaldehyde emissions. Our Group incurred capital expenditure on a need-be basis, hence the amount of capital expenditure incur every year may vary based on requirement. In 2008, our Group invested in an upgraded rotary machine to improve our processing technique to achieve higher log recovery rates. In the same year, we purchased a formaldehyde emissions testing machine from the US. Therefore, there is a significant increase in capital expenditure in the FYE 31 December 2008. In 2009, we purchased two (2) rotary lathe machineries to further enhance our Group’s manufacturing process for better log recovery and quality to meet the demand from our customers. In addition, our Group also acquired a few machineries for our new LVL production line in 2009. In 2010, our Group purchased nine (9) sets of full automatic veneer builder and three (3) sets of automatic veneer reeling for our manufacturing process. In addition, we have also purchased a sanding belt equipment for our core sanding process. In the same year, our Group has disposed of nine (9) sets of full automatic core builder which was replaced by the purchase of the above machineries. The purchase of the abovementioned machineries is to further improve our manufacturing process to achieve better efficiency. As at the LPD, we have not undertaken any material capital expenditure and material divestitures that is currently in progress.
5. INFORMATION ON OUR GROUP (Cont’d) 5.7 BUSINESS OVERVIEW 5.7.1 Our Products The main products manufactured and sold by us include plywood and veneer. The breakdown of our Group’s revenue by products for the past three (3) FYE 31 December 2008 to 2010 are as follows:­<.—–.—–..—-..-.———..·—–FyE 31 December ——————-_._————> 2008 2009 2010 RM’OOO % RM’OOO % RM’OOO % Plywood  105,039  91.84  98,030  95.83  114,591  95.19  Veneer  9,178  8.02  4,270  4.17  4,514  3.75  LVL  1,216  1.01  Others  156  0.14  57  0.05
Total 114,373 100.00 102,300 100.00 120,378 100.00 5.7.1.1 Plywood Plywood is a flat panel built up of sheets of veneer called plies, united under pressure by a bonding agent to create a panel with an adhesive bond between the plies. Plywood can be .made from either softwood or hardwood. It is always constructed with an odd numbers of layers with the grain direction of adjacent layers oriented perpendicular to one another. Cross-laminating layers of wood veneer actually improve upon the inherent structural advantages of wood by distributing along-the-grain strength in both directions. Since the layers can consist of a single ply or of two (2) or more plies laminated such that their grains are parallel, a panel can contain an odd or even number of plies. The outside plies are called faces or back plies; the inner plies are called cores or centres; and the plies with grains perpendicular to that of the face are called crossbands. The core could be either wood veneer or other materials such as oil palm veneer. Plywood is a highly stable panel. When exposed to moisture or high humidity, plywood is up to seven (7) times more resistant to thickness swell than substitute wood-based panels. Plywood also returns to its original dimensions when it dries. Plywood is stronger than substitute wood-based panels in the four (4) important engineering strength properties of bending, tension, compression, and planar shear and plywood weighs up to 40% less than substitute wood-based panels of equivalent thickness. In addition, plywood is a highly impact-resistant panel and continues to perform even when wet. Our company is capable of producing plywood with various number of plies. Our thin plywood, which is composed of three (3) plies, comes in thickness varying from 2.5 mm to 5.2 mm. This three (3) plies plywood also comes in different sizes ranging from 3 feet x 6 feet (914.4 mm x 1828.8 mm) to 4 feet x 8 feet (1219.2 mm x 2438.4 mm). Apart from the three (3) plies plywood, our plywood is also available in thickness ranging from 6 mm to 18 mm which is composed of five (5) plies or seven (7) plies. We mainly produce and market the three (3)-ply plywood with the standard size of 4 feet x 8 feet (1219.2 mm x 2438.4 mm) with 2.7 mm in thickness while other combinations are usually manufactured to order. The types of wood used for conventional plywood are all sourced locally. The most common wood used includes Seraya, Mengilan, Kapur, Kembang, Keruing, Majau, Melapi and Nyatoh. 5. INFORMATION ON OUR GROUP (Cont’d) The followings are the grades of our plywood:­(i) Top grade (for use as overlays and direct varnishing);
(ii) Utility grade (for general purpose and for direct retail to customers -minor surface defects); and

(iii) Packing (for industrial use -reutilisation of wood waste). 5.7.1.2 Veneer Veneer is a thin sheet of wood which forms the bUilding block for plywood. Veneer used for our plywood varies in thickness from 0.60 mm to 3.60 mm.
5.7.1.3 LVL (new product) Our Group has started a production line for the manufacturing of LVL which commenced operations in March 2010 and the sales of LVL started in April 2010. LVL is an environmental-friendly product that utilises the new production technology which uses recycled wood chips and veneer slips to produce lumber-like products hence enabling us to reduce the average cost of production thus, creating a competitive advantage and generating additional revenue. The LVL is an engineered wood product that uses multiple layers of thin wood and veneer assembled with adhesives. It is also similar in appearance to plywood without the cross bands and is typically rated by manufacturers for elastic modulus and allowable bending stress. LVL is stronger than natural lumber and can be used for hand rail and base for staircases, wooden flooring and door and window frames. The new LVL product can also be used for the production of high-value furniture, housing materials and value-added products which can command a higher margin. In addition, due to its stronger, straighter and more uniformed structure, it can withstand the impact of earthquake when used in the construction industry. The new LVL product is targeted for the US, Taiwan and Japan markets and has a separate market of its own as compared to thin . panel plywood. 5.7.1.4 Others Others comprise sales of lumber core and sales of electricity to third party by Untung Ria. Lumber core is the remains of the round log after the peeling process. Since the FYE 31 December 2009, sales of lumber core has been phased out. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.2 Our Principal Markets Our principal markets are mainly overseas markets as shown below:­Revenue for the FYE 31 December 2010 Proportion of RM’OOO total revenue % Export 105,340 87.51 Local 15,038 12.49 120,378 100.00 The export markets comprise the followings:­Revenue for the FYE  31 December 2010  %of  RM’OOO  total revenue  US  66,328  55.10  Asia(1)  36,433  30.27  Others(2)  2,579  2.14  105,340  87.51
Notes:­(1) Comprising mainly sales from India, Taiwan, Korea, Japan, Singapore and the PRC.
(2) Comprising mainly sales from Mexico, Australia and Canada.

Our plywood can be used in many different applications where high-quality and high­strength sheet materials are required. We produce mainly thin panel plywood of which the thickness is below 6 mm (which consists of more than 77% of our total plywood sold for the FYE 31 December 2010) and they can be used for further processing by laminate factories. Thin panel plywood is a preferred choice in industries such as the RV industry (mainly in the US market), home decorating industry, furniture industry, vehicle internal body work, floors, walls and roofs in transport vehicles and house constructions. The US market has been our key market since 2003. For the FYE 31 December 2010, we exported 55.1% of our plywood, mainly the thin panel plywood, to the US. It is estimated that majority of our plywood exported to the US is delivered to Elkhart, Indiana, which is the centre of the RV market in the US. As plywood is produced from organic material such as natural wood from timber log, it possesses the natural feature which is not harmful to human. Due to its light weight and natural feature which is friendly to human, our thin plywood, after further processing, is largely used in the interior of RV especially the ceiling, furniture and wall panels. The rest are essentially used in home decorating, furniture making and construction, etc. Thin panel plywood is also the main product that we sell to other main markets such as Taiwan and India. It is commonly further processed and widely used in the furniture and construction industries such as home decorating and furniture making. The thick panel plywood that we produced is mostly sold in the domestic market. The thick panel plywood can be used for floor base or wall panels. The lower grade of thick panel plywood is mainly used in construction sites for different applications such as concrete wall modeling and frame making. Thick panel plywood represented less than 23% of our total plywood sold for the FYE 31 December 2010. We also export some veneer to Korea and the PRC which consisted of 3.8% of our Group’s revenue for the FYE 31 December 2010. The veneers sold are mainly used by plywood factories in Korea and the PRC for making floor base paneis, construction panels, container flooring and as general panel. 5. INFORMATION ON OUR GROUP (Cont’d) Please refer to Section 11.4.1 of this Prospectus for the commentary on the contributions of the abovementioned markets to our Group’s revenue for the past four (4) FYE 31 December 2007, 2008, 2009 and 2010. 5.7.3 Seasonality We do not experience any material seasonality in our business. 5.7.4 Types, sources and availability of raw materials/input Our main source of raw material is logs which vary in many species such as White Seraya, Yellow Seraya, Majau and others. Our Company sources all our timber fogs from local suppliers who are licensed timber concessionaries and/or timber contractors. These suppliers are bounded by the rules and regulations of the Department of Forestry, and they risk having their licences revoked in the event of any breach of the rules and regulations. The principal timber logs are subject to price fluctuations as it is affected by, amongst others, the demand and supply of timber and weather conditions. Sourcing of logs for our business requires in-depth knowledge of the characteristics of various types of logs, understanding of our customers’ specific products requirements, as well as years of experience in understanding the plywood industry. The ability to source, identify and select raw materials that are available in the market requires in-depth technical knowledge so that the plywood produced is of good quality. Currently, we source our logs requirements mainly from Sabah, in particular Keningau. Our Group normally has various different suppliers for the supply of logs so as not to be highly reliant on anyone single supplier. To reduce our susceptibility towards any adverse repercussions arising from the shortage of log supplies, we have entered into a contract with a log supplier or contractor to source reasonable supply of logs for our production and will seek to enter into contracts with other log suppliers or contractors in future. In addition, our Group may also obtain log supplies from the other areas in Malaysia or other countries should the need arise. A discussion on the impact of fluctuations in the prices of logs has been set out in Section 4.1.4 of this Prospectus. Additionally, our Group has been purchasing new machineries that could peel smaller logs and improve the recoverability of logs. The ability to peel smaller logs provides us with more choices and availability of logs for our manufacturing process. In addition, better recoverability of logs also means that our Group is able to produce the same amount of output with lower input of logs. Further, Focus Lumber is able to integrate different types of timber logs to produce plywood. This has reduced the restriction in the use of only certain types of timber logs. Our Group’s yearly log consumption would depend on demand and production on our Company’s plywood and inventory in hand during the year. For the FYE 31 December 2010, our Company’s log consumption amounted to 131 ,758m3. Besides logs, our other raw materials are glues, flour and veneer which are used primarily for the manufacturing of plywood. The prices of these raw materials fluctuate based on demand and supply conditions. However, the impact on any unfavourable price fluctuations on our Group’s profitability is immaterial as these raw materials are not our principal raw material. In addition, we only purchase veneer on a need-be basis. For the past 12 months up to the LPD, our Company has not experienced any significant shortage in the supply of raw materials used in our manufacturing process. Please refer to Section 11.4.1 of this Prospectus for the analysis on the components of our raw material costs. 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.5 Production/operating capacities and output Our maximum production capacities and utilisation levels are as follows:­<–.-•••——··-···•••••—Average monthly utilisation——·.———-··->  <—-·——··—————·FyE 31 December·············–··—-·-·–>  Types of products  Maximum production capacity (per month)  2008  2009  2010  (m3)  (m3)  %  (m3 )  %  (m3)  %  Plywood I veneer  13,500·  6,116  45.30  5,302  39.27  6,238  46.21
Note:­On the basis of two (2) shifts, 24 hours daily. The slowdown in the US economy coupled with the start of the global financial crisis in the second half of 2008 has affected businesses in various industries globally. In 2009, our Group also needed to recruit to replace the workers whom we have made redundant during 2008 due to the global financial crisis. Recruitment for workers took place progressively during 2009 and by third quarter, our Company was able to attain the level of workers to commensurate with our Company’s desired level of productions to meet our orders. Consistent with this, the average monthly utilisation rate has gradually increased after the first half of 2009. In 2010, our average monthly utilisation increased from 39.27% in 2009 to 46.21%. The increase was due to higher demand for our products as compared to 2009 arising from the gradual recovery of the global financial crisis. In addition, Untung Ria’s maximum capacity of electricity generation is four (4) mega watts. The current usage of our Group is approximately 2.2 mega watts (approximately 55% utilisation of maximum capacity). 5.7.6 Manufacturing process Manufacturing process for plywood The typical manufacturing process for conventional plywood is depicted in the chart below:­
Face & 1 Cutting~ Back H Veneer De-bark Block Peeling Drying l-H I-+l HCutting Core Veneer r+ Cutting~ Repair 1+-1 Hot Pre”B LaminatingCOld P””I+-, Face & BackH Inspect & VeneerHRepair Setting C)~c: 0 :wol+ r­~”” ‘E tl III III…JEe, . “””,.&JHComposmgH Repair RepairCore Cold PressI….~ ~(Face) 1+-1 Sanding Local Sale~Sizing
& Export 5. INFORMATION ON OUR GROUP (Cont’d) Log storage, block cutting. de-barking and peeling The round log handling facility consists of log sorting and cutting section. Logs of similar species are de-barked, sorted and arranged for processing. De-barking involves the removal of the bark from the round logs. Once the logs are sorted, they are transported to the block cutting section. The logs are transported length-wise along a roller conveyor. Once the log reaches a predetermined point, it will be cut into sections, giving it the desired length. These log sections are then transported to the peeling section. The logs are sorted again based on their natural properties and dimensions. Our peeling facilities consist of lathe machines and veneer handling systems. The lathe machines are giant rotary peelers capable of peeling the veneer off logs of various lengths or dimensions as well as thickness. We utilise lathes of different dimensions and in different combinations to produce different dimensional types of plywood at any given time. Peeling is a process where logs are peeled lengthwise in a circular manner to obtain a continuous layer of wood known as veneers. Veneer production forms the first stage of the manufacturing of plywood. Core veneers will be sandwiched by a face and back veneer. As the core veneer is hidden from view, the process of treating the core veneer is different from those of the front and back veneers. Drying. cutting and inspect and repair After peeling, the veneers are sent to the dryers. The veneer is dried to a specific moisture content to facilitate the adhesion process later. Veneers that are not dried properly will not stick firmly when glued. The veneers are passed through a continuous dryer for the drying process. After the drying process, the short grain veneer, better known as the core veneer, is sent to the core builder machine where the veneers are edge-joint with a special glue to form plies of standard sizes. The cores are stacked together and sent to the repair areas where any irregularities are repaired. Long grain veneer, or known as the face and back veneer, are divided into two (2) categories, face and back quality, after the drying process. Once they are categorised, the long grain veneer is then set up and prepared to be used at the glue area. Laminating, cold press, repair, core sanding and hot press The glue area is made up of the glue spreader, cold press and repair area. Firstly, the back veneer is placed down onto the receiving area, then the core is passed through the glue spreader and placed on top of the back. The laminated core and back is then placed into . the cold press so that the glue is distributed evenly throughout the plywood and good bonding is achieved. After the cold press process, the rough plywood is inspected for defects. Any defects will be sent for repair. Sanding is then performed on the core surface to smoothen the surface and calibrate the thickness of the core to facilitate the lamination of the face veneer onto the core. After sanding, the face veneer is passed through the glue spreader and placed on top of the sanded core to create a three (3)-ply plywood. The plywood will then go through the same cold press and repair process. The acceptable ones will be sent for the hot press process. The hot press has layers of heated plates where the rough plywood is placed between the heated plates to be pressed to dry and harden the glue. After the pressing process, the plywood is then collected and stacked for the next stage. Sizing, sanding. inspecting, packing and shipping The uncut plywood goes through another quality check where if it is not presentable, it will be puttied to fill minor cracks or defects on the face. Once completed, the uncut plywood is sent for finishing where the plywood is sent through a double sizer and trimmed to precise dimensions and then sanding is performed to give the face of the plywood a smooth level 5. INFORMATION ON OUR GROUP (Cont’d) finish. Finally, the finished plywood goes through a final round of quality check and grading, where each board is inspected to ensure that the manufacturing quality is appropriate to the grade being produced. They are then ready for packing and shipment. Manufacturing process for LVL Our LVL uses recycled wood chips and veneer slips to produce lumber-like products. These wood chips and veneer slips are glued together to form sheets of veneer. The sheets of veneer are then glued together with the grains of all layers parallel to the length to form the uncut LVL of different thickness. This process is referred to as the lamination process. The uncut LVL would then go through the cold press process similar to that in the process for the manufacturing of plywood. After the cold press process, the uncut LVL would be inspected for defects. Any defects would be patched and repaired before the uncut LVL is sent for the hot press process similar to that in the process for the manufacturing of plywood. Sanding is then performed on the uncut LVL, which usually has a rough surface and uneven thickness, to give it a smooth finish and help achieve uniform thickness. The uncut LVL would then be cut into sections of predetermined length to form sticks of LVL. The LVL will be checked where any unsmooth edges would be puttied for a better finishing. Finally the finished LVL goes through a final round of quality check before being packed for shipment. Biomass production process
Our biomass energy is derived from bulk waste from the manufacturing of plywood. These bulk wastes include wood chips, veneer waste and saw dust which are placed into the boiler to be burnt at a temperature of 500 to 600 degrees celcius to heat up the water boiler to generate steam with a temperature of 320 to 380 degrees celcius. Steam generated at a pressure of 39kg/cm2 from the heating process will move and rotate the turbine blade with a speed of 7,450 revolutions per minute (“rpm”) where electricity will be generated. Once electricity has been generated, the rotation of the turbine will be reduced to a speed of 1,500rpm to gradually generate electricity up to a maximum capacity of 4.0 mega watts. 5.7.7 Quality control We place great emphasis in ensuring that our products are sUbject to stringent quality control in order to meet our customers’ requirements and regulatory standards. The commitment on quality broadly entails areas such as processes and scope, document control and policy, planning, and supplier and procurement review and monitoring/evaluation. We are committed in delivering high quality products to our customers by placing emphasis on defects prevention while ensuring that we have a consistent detection program in place. Our quality system is intended to ensure that our customer receives a product that is designed and manufactured in accordance with the customers’, industry and our own strict quality requirements. The result of our commitment to quality is evidenced by the CARB and JAS certification awarded to us. 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.8 Technology used and R&D Our Group uses automated equipments in some of our manufacturing processes, such as peeling, drying, cold press and hot press, to increase production and improve the quality of our products. Most of the machineries used in our manufacturing process are computer aided, particularly the dryer used in the drying process, where veneers are artificially force dried in chambers, where temperature and moisture content are regulated throughout the drying process. We do not carry out any specific R&D activities. Our focus is essentially on enhancing our manufacturing process. Our Group has an in-house maintenance department which is responsible for regular maintenance activities on production machinery and equipment on a frequency of once a week and constantly conducts technical studies into the enhancement of the manufacturing process of plywood, catering for different needs and specifications of individual customers servicing wide spectrum of end-applications. There are also trained personnel at the factory to trouble-shoot and maintain the equipments. In view of the nature of our business, our manufacturing process enhancement is mainly focused on the following:­(i) Conducting research on our manufacturing process to improve production techniques for the purpose of producing .plywood that meet our customers’ requirement and reduce production cost;
(ii) Keeping abreast with the latest development in the international and domestic plywood market; and

(iii) Improvement and variation of existing products and developing and expanding our product range to meet customers’ demand. 5.7.9 Marketing and distribution Our distribution and marketing strategy is through direct channels, using our own internal sales and marketing force, to source for new customers and strengthen our existing customer relationships. This approach enables us to work closely with our customers to attain a better understanding of their requirements and the requirements of the end users of our products, which serves as a feedback mechanism for continuous improvements on our product. In addition, through our strong business relationship with our major customers and track records established with these customers, we have been receiving referrals from some of our major customers. We also leverage on the network and contacts of our founders who have been in the industry for many years and have built up an extensive network over the years. Our founder and Managing Director, Lin Fong Ming, is primarily involved in the marketing activities for China and Taiwan markets. Yang Sen, our Head of Sales and Marketing is responsible for the marketing activities for the US, Mexico, India, Singapore, Australia and Europe and other overseas markets whilst Chen Chun Hsiung, our Executive Director and Head of Human Resources has been involved in the marketing activities for the domestic market. To maintain close relationships and to allow us to fine-tune our products to meet the customers’ specific requirements and obtain feedback on product quality, we constantly keep in contact with our customers. In addition, as part of our marketing strategy, we also invite the existing and potential customers to our factory premises to better understand our business operations and products. This strategy enables us to:­(i) keep abreast with changing customer trends and technological development to stay ahead of competition; 5. INFORMATION ON OUR GROUP (Cont’d) (ii) provide added confidence to our customers on our efficient manufacturing capability; and (iii) meet the needs of our customers. In addition, we also make visits to trade fairs to obtain new ideas as well as to meet existing and potential customers. In order to increase our networking and promote our Company, we subscribe to membership of various associations related to the plywood and timber industry such as the Sabah Timber Industry Association, International Wood Products Association and Malaysia Panel Manufacturer Association. Being a member of these associations enable us to attend their functions to increase our Company’s profile as well ~s to establish contacts with participants within the industry. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.10 Approvals, major licences and permits obtained Details of major business licenses, permits and approvals applicable to our Group as at the lPD are as follows:­Company Focus Lumber  Approving 1Issuing Authority Kota Kinabalu City Council Malaysia Timber Industry Board Department of Forestry Sabah Department of Forestry Sabah  Type of approvals 1 licences 1permits Trading Licence (Licence No. : DBKK 238473) Registered supplier and exporter of processed wood products licence (Serial No. : SBH 344) Registered mill contractor for factory license no. JP(N) KG 002100 (X01)R (Registration No.: KON(NKG) 383/95 (KK» Licence to export processed timber products (Licence No. : JP(PT) 049/00(M)R)  Date of Issuance 1 Validity 17.12.20101 31.12.2011 18.7.20031 30.6.2011 23.4.20101 6.9.2011 17.3.20101 31.12.2011  Status of Equity and other major conditions imposed compliance No equity and other major conditions. N/A This certificate will be valid on the conditions Met that the company’s sawmill licence must be valid and that the Company must be a registered member of either Sabah Timber Industry Association (STIA) or Malaysian Panel Manufacturer Association (MPMA). The Company is prohibited from funding any Met works related to forest resources of other companies, members, directors and individuals who have been blacklisted by the State Government, buying/acquiring logs/converted logs from illegal sources and any other regulations which is/are set by the Department of Forestry. Any failure on part of the Company to adhere to the restrictions will result in the withdrawal of the Certificate. 1) The licence may not be transferred or Met assigned. 2) This licence may be cancelled at any Met time should it be deemed necessary in the interest of the pUblic. 3) The Company must abide to any other Met rules pertaining to processed timber export licence that would be introduced from time to time.
5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving I Issuing Authority  Type of approvals I licences I pennits  Date of Issuance I Validity  Equity and other major conditions imposed  Status of compliance  MITI  Manufacturing licence for manufacture of veneer, plywood and blockboard (Licence No. : A 007503)  15.10.2010 I N/A  a. Sales of the Company’s shares must be notified to the MITI. b. The Company is required to train Malaysian in order for the transfer of technology know-how and expertise to all level of position in the Company. c. The Company should implement its project as approved and adhere to the laws and regulations applicable in Malaysia.  Met Met Met
5. INFORMATION ON OUR GROUP (Cont’d) 5. INFORMATION ON OUR GROUP (Cont’d) 5. INFORMATION ON OUR GROUP (Cont’d) 5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving 1Issuing Authority  Type of approvals 1 licences 1permits  Date of Issuance 1 Validity  Equity and other major conditions imposed  Status of compliance  MITI  Manufacturing licence to manufacture urea formaldehyde, melamine formaldehyde and phenol formaldehyde (Licence No. : A 07503)  15.11.2010 I N/A  a. Location:-Kampung Ulu Patikang Keningau Sabah Subject to the approval from the State Government and Department of Environment. b. Sales of the Company’s shares must be notified to the MIT!. c. The Company is required to train Malaysian in order for the transfer of technology know-how and expertise to all level of position in the Company. d. The Company is required to obtain their supply of “formalin” from local resources. e. All production of “urea formaldehyde, melamine formaldehyde and phenol formaldehyde” must be used for internal purposes and/or to be exported only. f. The Company should implement its project as approved and adhere to the laws and regulations applicable in Malaysia. No equity and other major conditions.  Met Noted Met Met Met Met  Department of Forestry  Licence to erect and/or  14.7.20081  N/A  District of Keningau  operate sawmill (kiln dry plant) (Licence No. : JP(N)KG.003/06 (X22))  2.4.2011*
Company  Approving I Issuing Authority  Type of approvals I licences I pennits  Date of Issuance I Validity  Equity and other major conditions imposed  Status of compliance  Department of Forestry  Licence to Erect and/or  28.12.20061  No equity and other major conditions.  N/A  District of Keningau  Operate Sawmill  31.12.2011  (Licence No. : JP{N)KG.  002100 (X01) R)  1) Activity of generation and supply of electricity is for private use within the area/premise of the licence holder. 2) Installation capacity shall not exceed 4,860 Kilowatts. No equity and other major conditions.  Energy Commission  Licence to generate electricity for own consumption (Licence No. : 912)  2.3.20111 29.3.2012  Met Met  Jabatan Pertanian  Approval to treat ‘Wood  15.6.20101  N/A  Sabah  Packaging Material’  30.6.2011  Registration No.: MY -SB  012  No equity and other major conditions  Keningau District Office  Business License to import, export of timber logs, process wood production (Licence No.: 752707)  13.1.20111 31.12.2011  N/A
Company  Approving ‘Issuing Authority Department of Human Resources Sabah  Type of approvals’ licences’ permits Licence to recruit foreign workers. (License No. : 8-00050/14)  Date of Issuance’ Validity 11.12.2010 1 27.10.2011  Equity and other major conditions imposed ~::~~~i:~ce 1. This licence shall not be transferred and is Met only valid for employment of non-resident workmen at the approved number. 2. The Company must comply with the terms Met and conditions of employment set under the Ordinance, the rules therewith and under the employment contract. 3. Any non-resident workmen employed Met under the licence is protected under the Workmen’s Compensation Act 1952 or Employee’s Social Security Act 1969 whichever is applicable. In the case of non-resident workmen other than domestic helpers who are not insured and who shall nevertheless be protected under the said Acts. 4. The application for renewal of this licence Noted must be presented not less than two months before the expiry of the licence. 5. This licence may be withdrawn or NIA cancelled or not renewed by the Director of Human Resources should he be satisfied that: (a) the breach of any provision of this Ordinance or any other written law or rules which is made or any other conditions of the licence; or (b) Company provided false information during the acquisition of the licence.
Company  Approving 1 Issuing Authority  Type of approvals 1 licences 1 permits  Date of Issuance 1 Validity  Equity and other major conditions imposed  Status of compliance  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967for:  30.8.20101 25.10.2011  No equity and other major conditions.  N/A  Water Tube CM-250 W  Registration No.: PMD 5241  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for:  30.8.20101 25.10.2011  No equity and other major conditions.  NIA  Overhead Crane  ~.  Registration No.: PMA 711131711141 711151711161711171711181 71119171120171121  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for:  30.8.2010/ 25.10.2011  No equity and other major conditions.  NIA  Steam Receiver  Registration No.: PMT 56968/56969
5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving I Issuing Authority  Type of approvals I licences I permits  Date of Issuance I Validity  Equity and other major conditions imposed  Status of compliance  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for: Water Softener Registration No.: PMT 57010  30.8.20101 25.10.2011  No equity and other major conditions.  N/A  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for: Air Receiver Registration No.: PMT 57152/57153  30.8.20101 25.10.2011  No equity and other major conditions.  N/A  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for: Accumulator Tank Registration No.: PMT 121785/1217861 121787  30.8.20101 25.10.20a  No equity and other major conditions.  N/A
5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving 1Issuing Authority Kementerian Kesihatan Malaysia Head of Immigration Office, Keningau  Type of approvals 1 licences 1permits Wholesaler’s Poisons Licence (Type B Licence) Licence No.: 024013 Register No.: SB 026/2011 Letter of Confirmation ·Work Permit in PATI Registration Program”  Date of Issuance 1 Validity 8.12.20101 31.12.2011 25.3.2010 1 N/A  Equity and other major conditions imposed ~:~~~i:~ce Licence is granted to: Met Charles Chin Chun Ket (I/C No.: 500912-12-5289) With business address of: Focus Lumber Sdn. Bhd. 11 til Floor Wisma Perindustrian, Jalan Istiadat, 88400 Likas, Kota Kinabalu. Such person not being engaged or concerned in any business of selling goods by retail to import, store and sell by wholesale such poisons (not being Group A Poison) specified as follows: 1. Formaldehyde 5% and above. 2. Sodium Hydroxide 12% and above. 3. Hydrochloric Acid 9% and above. Subject to the provisions of the Poisons Act 1952 and of any regulations made under it and such other terms and conditions specified in it. No equity and other major conditions. NIA
5. INFORMATION ON OUR GROUP (Cont’d) Company Untung Ria  Approving JIssuingAuthority Energy Commission  Type of approvals J licences Jpennits Licence issued by Energy Commission under the Electricity Supply Act 1990  Date of Issuance J Validity 9.8.2010 J 8.8.2020  Equity and other major conditions imposed ~::~~~i:~ce 1) To use, work or operate a generation Met and distribution system at Lot No. CL 135193752 and CL 135366139, Kg Ulu Patikang, Keningau, Sabah in order to supply electricity to or for the use of Focus Lumber and Ho Lian Sawmill Sdn. Bhd. 2) This licence shall enter into force on Noted 9.8.2010 and shall be of 10 years duration. 3) The licence shall secure a supply of Met electricity up to 4,000 KW for the supply and sale of electricity to any persons in the area as supply as specified in Annexure of the license Le. Lot No. CL 135193752 and CL 135366139 Kg Ulu Patikang, Keningau, Sabah. 4) The Licensee shall not supply electricity Met to persons other than the persons in the area of supply mentioned above, provided that the Energy Commission may with the approval of the Minister in writing permit the Licensee to supply electricity to such persons. 5) The Licensee shall not assign, transfer, Met sublet or otherwise dispose of its rights, duties, liabilities, obligations and privileges or part thereof under the terms and conditions of this license except with the prior written approval of the Minister. 6) The Licence shall not be transferred, Met charged, pledged or otherwise encumbered without the prior written approval of the Minister.
5. INFORMATION ON OUR GROUP (Cont’d) 5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving I Issuing Authority Type of approvals I licences I permits Keningau District Office Business license to generate electricity (Licence No.: F752708)  Date of Issuance I Validity 13.1.2011/ 31.12.2011  Equity and other major conditions imposed 7) The creation of any charge, mortgages, pledges, lien or other securities over the land used for the generating facility is prohibited without express written consent of the Minister. Status of compliance Met 8) The Energy Commission may at any Noted time revoke this Licence by giving not less than 30 days notice in writing to the licensee at its registered office in any of the following circumstances: (a) If the Licensee agrees in writing with the Energy Commission that this Licence should be revoked; (b) Upon breach of the conditions imposed in this License; (c) If the Licensee ceases to supply electricity to consumers; (d) If any amount payable under Condition 15 is unpaid after it has become due whether notice in writing has been given to the Licensee or not; (e) If a receiver or liquidator has been appointed for the Licensee; and (f) If any action taken for voluntary winding up or dissolution of the Licensee’s company or any order pursuant to the Companies Act 1965 is made for the compulsory winding up the Licensee’s Company. No equity and other major conditions. N/A
Company  Approving I Issuing Authority  Type of approvals I licences I permits  Date of Issuance I Validity  Equity and other major conditions imposed  Status of compliance  Kota Kinabalu City Council  Trading Licence Licence No.: DBKK238474  17.12.2010 I 31.12.2011  No equity and other major conditions.  N/A  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories & Machinery Act, 1967 tor: Water Tube Steam Boiler Registration No.: SB PMD 151  15.12.2010 I 20.12.2011  No equity and other major conditions.  N/A  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories & Machinery Act, 1967 for: Deaerator Tank Registration No.: SB PMT 1066  15.12.20101 20.12.2011  No equity and other major conditions.  N/A  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories & Machinery Act, 1967 for: Flash Tank Registration No.: SB PMT 1068  15.12.20101 20.12.2011  No equity and other major conditions.  N/A
5. INFORMATION ON OUR GROUP (Cont’d) Company  Approving I Issuing Authority  Type of approvals I licences I permits  Date of Issuance I Validity  Equity and other major conditions imposed  Status of compliance  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for:  15.12.20101 20.12.2011  No equity and other major conditions.  N/A  Air Tank  Registration No.: S8 PMT 1069  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for:  15.12.20101 20.12.2011  No equity and other major conditions.  N/A  ACTower  Registration No.: S8 PMT 1972  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories &Machinery Act, 1967 for:  15.12.20101 20.12.2011  No equity and other major conditions.  N/A  Air Tank  Registration No.: S8 PMT 1973  Department of Occupational Safety and Health  Certificate of Fitness & Inspection under the Factories & Machinery Act, 1967 for:  15.12.20101 20.12.2011  No equity and other major conditions.  N/A  M8 Tower  Registration No.: S8 PMT 1974
5. INFORMATION ON OUR GROUP (Cont’d) Note: Application for renewal of the licence has been submitted on 7 March 2011 and is currently pending. NlA Not applicable. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.11 Patents, trademarks and registrations Save for the trade mark registration for our logo, we do not hold any other patents, trademarks or registrations. Application for the trademarkl logo below has been made under Class 19 of Nice Classification on 14 March 2011. The application is still pending approval from the relevant authorities. No. Place of applicationTrademark Application number Description of trademarkApplicant
Malaysia1. Timber product plywood, blockboard, LVL bearing trademark “FLB”, included under Class 19· of the Nice Classification1• Focus Lumber 2011004570 Malaysia2. 2011004569 Timber product plywood, blockboard, LVL bearing trademark “FLB”, included under Class 19· of the Nice Classification1. Focus Lumber Notes:­1. The Nice ClassifICation is based on the Nice Agreement, Malaysia accedes to the Nice Agreement on 28 June 2007 which were enforced on 28 September 2007, Nice Agreement related to the international classification of goods and services for the purposes of the registration of marks. It comprises class headings, which describes the nature ofgoods and services in each ofthe 34 classes ofgoods and 11 classes ofservices. Class 19 is descn”bed as “Building materials (non-material); non-metallic rigid pipes for building; asphalt, pitch and bitumen; non-metallic transportable buildings; monuments, not ofmetal.” 5.7.12 Salient terms ofthe contracts/arrangements on which our Group is highly dependent As at the LPD, our Group has not entered into any contracts/arrangements for which our Group is highly dependent upon. 5.7.13 Interruptions in business Our Group has not experienced any material interruption to the business of our Group in the past 12 months preceding the date of this Prospectus. 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.14 Major customers The major customers that contributed 5% or more to our Group’s revenue for the past three (3) FYE 31 December 2008 to 2010 are listed below:­Name  Country of oriain  Principal Activities  Product Sold  Length of relationship as at the LPD (vears)  2008 RM’OOO  %  Total Group Revenue FYE 31 December 2009 RM’OOO %  2010 RM’OOO  %  Ihlo Sales & Import Co.  US  Plywood trading  Plywood  9  38,688  33.87  35,041  34.25  42,630  35.41  Agro Fine Imports  US  Plywood trading  Plywood  6  9,517  8.33  – – – – Choon Huat Plywood  Malaysia  Plywood trading  Plywood  5  5,991  5.24  1,977  1.93  1,677  1.39  Hwa Sing Plywood  Taiwan  Plywood trading  Plywood and veneer  9  6,941  6.08  1,818  1.78  2,952  2.45  Weyerhaeuser NR Company  US  Timber and plywood trading  Plywood  3  1,356  1.19  8,418  8.23  13,777  11.45  Grow Rich Limited  US  Timber and plywood trading  Plywood  1  – – – – 9,220  7.66  Mega Gallop Co. Ltd  Taiwan  Timber and plywood trading  Plywood, veneer and LVL  9  1,490  1.30  3,323  3.25  8,790  7.30  Sudima International Pte Ltd  India  Timber and plywood trading  Plywood  2  – – 3,530  3.45  6,229  5.17
5. INFORMATION ON OUR GROUP (Cont’d) Ihlo Sales & Imports Co. has been our major customer for nine (9) consecutive years and our sales to the US market accounted for more than 40% of our Group’s revenue for the past three (3) financial years. In the FYE 31 December 2009, our sales to Ihlo Sales & Imports Co. has decreased by RM3.65 million or 9.43% as compared to the FYE 31 December 2008. The decrease was due to the slowdown in the US economy and the global financial crisis which has resulted in a lower demand for our plywood by Ihlo Sales & Import Co. in the FYE 31 December 2009. With the gradual recovery of the global financial crisis and the US economy in 2010,· demand for our products has resumed thereby contributing to an increase in sales to Ihlo Sales & Import Co. in the FYE 31 December 2010 from RM35.04 million to RM42.63 million, representing an increase of RM7.59 million or 21.7% as compared to the FYE 31 December 2009. In 2008, our Group had successfully procured Weyerhaeuser NR Company from the US as our customer. This is a key achievement for our Group as Weyerhaeuser NR Company is one of the largest companies in the timber industry and is listed on the Fortune 500 companies as well as the US Stock Exchange. The sales contributed by Weyerhaeuser NR Company towards our Group’s revenue has significantly increased in the FYE 31 December 2009 from RM1.36 million or 1.19% in the FYE 31 December 2008 to RM8.42 million or 8.23%. For the FYE 31 December 2010, the sales contributed by Weyerhaeuser NR Company to our Group’s revenue have continued to increase in the FYE 31 December 2010 to RM13.78 million, representing an increase of 63.7%. The significant increase in the revenue to Weyerhaeuser NR Company is attributable to their acceptance of our plywood quality. In addition, we have procured a new US-based customer, namely Grow Rich Limited, which contributed RM9.22 million or 7.66% to our Group’s revenue for the FYE 31 December 2010. Whilst our Group is dependent on certain major customers for our business, we have been consistently striving to enhance our customer base. To-date, we export our products to various countries such as Taiwan, Korea, Singapore, Australia, the PRC, India and Mexico. Our key management is also actively involved in diversifying our market portfolio within the existing countries by procuring new customers as well as penetrating into new countries and market segments to expand our customer base. We have also developed good relationship with our major customers through timely delivery, reliability and quality of our products. [ TH_E_R_E_S_T_O_F_T_H_’S_P_A_G_E_H_A_S_B_E_E_N_’_N_T_E_N_TI_O_N_A_L_L_y_L_E_FT_B_LA_N_K _ 5. INFORMATION ON OUR GROUP (Cont’d) 5.7.15 Major suppliers The major suppliers that contributed 5% or more to our Group’s purchases for the past three (3) FYE 31 December 2008 to 2010 are listed below:­Name  Country of origin  Principal Activities  Product I Services Purchased  Length of relationship as at the LPD (years)  2008 RM’OOO  %  Total Group Purchases FYE 31 December 2009 RM’OOO %  2010 RM’OOO  %  GSSB  Malaysia  Timber trading  Timber logs  4  21,138  26.20  15,251  24.53  6,090  6.90  Sepangar Chemical Industry Sdn Bhd  Malaysia  Glue producer  Glue  11  11,588  14.36  8,110  13.04  10,928  12.38  Rimba Kita Sdn Bhd  Malaysia  Timber trading  Timber logs  3  8,495  10.53  1,014  1.63  – – Samling Flooring Product Sdn Bhd  Malaysia  Plywood and veneer manufacturer  Veneer  4  4,775  5.92  – – 5,235  5.93  Micavest Sdn Bhd  Malaysia  Timber trading  Timber logs  2  – – 3,549  5.71  – – Andatu Plantation (Sabah) Sdn Bhd  Malaysia  Timber trading  Timber logs  1  – – – – 5,027  5.70  Primrose Sdn Bhd  Malaysia  Timber trading  Timber logs  1  – – – – 9,351  10.60  PACC Container Line Pte Ltd  Singapore  Shipping Company  Freight services  1  – – – – 6,903  7.82
Our purchases of raw materials are supplied by local suppliers only. We do not import any materials from neighbouring countries. Although our Group is not highly dependent on any single supplier, a significant portion of our raw material purchases is made up of log suppliers. As mentioned in Section 4.1.2 of this Prospectus, our Group has various suppliers for the sourcing of logs so as not to be highly reliant on anyone single supplier. To reduce our susceptibility towards any shortage of log supplies. we have entered into a log supply contract with a log supplier. 5. INFORMATION ON OUR GROUP (Cont’d) 5.8 FUTURE PLANS, STRATEGIES AND PROSPECTS 5.8.1 Future plans and strategies In order to maintain and enhance our competitive edge, our Group intends to deploy the following strategies as part of our future plans for the next three (3) years:­(a) Further penetration into existing and new markets Going forward, we will continue to expand our customer base in the US market as we believe that, based on our current good standing in supplying plywood for the use by the RV market, we are in a position to procure more customers from the lucrative RV market in which our plywood can command better profit margin. In addition, we will supply our plywood to many other industries in the US such as furniture, home decorating and house constructions where the penetration of our plywood sales in these industries is still low. In 2008, our Group successfully procured Weyerhaeuser NR Company from the US as a customer. Weyerhaeuser NR Company is one of the largest companies in the timber industry and is listed on Fortune 500 companies as well as US Stock Exchange. Weyerhaeuser NR Company sold its products to various industries such as the RV, furniture, home decorating and house construction industries. Thus, with the procurement of Weyerhaeuser NR Company as our customer, it would enable us to diversify our markets and penetrate into the said industries indirectly. Based on the information as stated in Independent Market Researcher Report by Dun & Bradstreet (D&B) Malaysia Sdn Bhd, the US import of plywood, veneered panels and similar laminated wood from the world amounted to approximately RM4.53 billion in 2009, whereby approximately RM188.7 million were imported from Malaysia. It is also stated that the RV market in the US is recovering from one of the worst years ever in 2009, with projections of a robust increase in unit shipments in 2010 due to pent-up demand, hence, the US market is a big market for our plywood to tap upon. We will continue to expand our sales in other existing markets such as Taiwan, India, Mexico, Korea, Singapore, Australia and the PRC. We believe that there are significant market potentials in these markets. We will leverage on our good track record established with our existing customers in these markets for potential referrals and also through the connections and networks established by our founders with business associates in certain of these countries. In addition, our key management is exploring to penetrate into other new lucrative markets such as the US, Taiwan and Japan for our new LVL product. The US, Taiwan and Japan are the lucrative markets for the LVL product due to the demand for LVL from these markets. The LVL is beginning to be widely used in these markets as LVL is considered as an environmental friendly product made of recycled wood waste. Hence, it is the intention of our Group to concentrate on these three (3) markets for our LVL product before expanding to other markets. (b) Investment in new machinery and continuous manufacturing process enhancement Our Group is continuously working towards improving the quality of our products and reducing our average cost of production. We plan to invest in new and higher technology machineries for our manufacturing process. The key benefits of these new machineries are to enable us to improve the quality of our prOducts, improve processes and recovery and reduce dependency on labour, thus reducing our average cost of production. These new machineries are also capable of cutting smaller logs, which are cheaper, thus reducing our cost of production and broaden the sources of log supply for our production. In this regard, we intend to install a new peeling machine in 2012 which is estimated to cost RM12.0 million, to be funded via our internally generated funds. 5. INFORMATION ON OUR GROUP (Cont’d) 5.8.2 Prospects Our Board is of the view that our Group will enjoy positive and promising growth and favourable prospects in the long-term premised on the following:­(i) Our competitive strengths are as follows:­• Experienced management team;
• Approved international recognition on product quality;
• Reusing waste to generate biomass energy;
• Established position in the plywood industry and capital intensiveness (barrier to entry);
• Established track records and relationship with customers; and
• Strategically located with easy accessibility to log supply.

Further details of our competitive strengths are set out in Section 5.1.2 of this Prospectus. (ii) Our Group’s future plans and strategies as set out in Section 5.8.1 of this Prospectus. (iii) The promising prospects of the plywood industry and attributes which Focus Lumber is in a position to capitalise as mentioned in Section 6 of this Prospectus are as follows:­(a) The demand for hardwood plywood remains strong in the global market due to its widespread usage in many application markets;
(b) The market trend is towards thinner panels, as both manufacturer and consumers of hardwood plywood seek to reduce cost in the building industry and RV industries. We produce mainly thin panel plywood, hence the shift in market trend towards thinner panels will be to our Group’s advantage;
(c) The RV market is recovering from one of the worst years ever in 2009, with projections of a robust increase in unit shipments in 2010 due to pent-up demand; and
(d) It is the aim of the government to make Malaysia a major producer of high value-added, wood-based products in the world market.

 

 

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