Business Overview

5. INFORMATION ON OUR GROUP 5. INFORMATION ON OUR GROUP OUR HISTORY We were incorporated under the Act on 27 August 2012 as a private limited company under the name of Kanger International Sdn Bhd. We were subsequently converted into a public limited company and assumed our current name on 5 February 2013 to facilitate our listing on the ACE Market of Bursa Securities. On 30 September 20 I3, we acquired tbe beneficial ownership of all shares of HK Kanger and KAR Masterpiece, the details of which are set out in Section 5.4 of this Prospectus, and fanned the following group stmcture: Kaoger International
Malaysia Investment holding  100%  I  100%  KAR Masterpieee Malaysia  HK Kaoger Hong Kong  R&D and trading of bamboo flooring and related products  Investment holding I 100%
Ganzhou Kaoger PRC Manufacturing and trading ofbamboo flooring and related products  100%  I  I  1 100%  Yanshan Kaoger PRC  Shenzhen Kauger PRC  Manufacturing and trading o/bamboo products  Trading ofbamboo flooring and related products

5. INFORMATION ON OUR GROUP (Conl’d) Our Group’s history can be traced back to 2004 when Leng Xingmin’s family established Shcnzhen Kanger to undertake the trading of bamboo flooring and related products. In the same year, we were recognised and have remained as the sole authorised bamboo flooring supplier of B&Q China, one of the largest Western home improvement retailers in China with nearly forty (40) stores across China and which is part of the Kingfisher Pic Group, Europe’s largest home improvement retailer. We also launched our environmentaJly friendly bamboo flooring product under the brand ‘Kanger’ in the same year. In 2007, our Promoter and Managing Director, Leng Xingmin invented an interlocking system which enables easy installation for some of our bamboo flooring products. In 20081 we ventured upstream into the manufacturing of bamboo flooring through the acquisition of Ganzhou Kanger by Leng Xingmin to ensure tbe quality of our bamboo flooring. Prior to this acquisition, the processing of the horizontal and vertical bamboo planks into bamboo flooring was outsourced to a third party bamboo manufacturer. In addition, we also acquired a piece of land and commenced construction of our manufacturing plant on the said land at Jinling West Road, Gannan Industrial Park, Ecouomic and Technology Development Zone, Ganzhou City, PRe. We obtained CE marking for our products in recognition of their compliance with the European Union legislation, which enabled our products to be marketed within the European Union in 2008. In 2009, we obtained a trademark registration for our ‘Kanger’ brand from the SAlC. Subsequently in 2010, we expanded our operations range to include the manufacturing of strand woven bamboo flooring and related products through the acquisition of Yanshan Kanger by Leng Xingmin and his siblings. In the same year, as part of Our internal restructuring, Ganzhou Kanger acquired the entire equity interests in Shenzhen Kanger from Leug Xingmin and its other shareholders. In 2011, we entered into a R&D Agreement with FRIM Board, through KAR Masterpiece, to collaborate with PRIM on R&D on amongst others, utilisation of a suitable Malaysian bamboo species for strand woven bamboo products. This R&D collaboration with PRIM arose due to amongst others, our interest to enhance existing and to develop new strand woven products as well as PRIM’s and the Malaysian government’s interests to develop the Malaysian bamboo industry. In addition, FRIM is a well-known institution in tropical forestry research whilst Malaysia has an abundant supply of bamboo. The details of our R&D collaboration with FRIM are set out in Section 6.6 ofthis Prospectus. Pursuant to our R&D activities including our R&D collaboration with FRIM, we launched a new brand ‘KAR Masterpiece’ for our premium strand woven bamboo flooring and related products in the same year. In addition, we also improved our interlocking system to facilitate easier installation of our flooring products and obtained a patent for the improved interlocking system in the same year. In 2012, we obtained a trademark registration for our ‘K.AR Masterpiece’ brand and established our first ‘KAR Masterpiece’ retail store in Shenzhen to showcase our premium strand woven bamboo flooring and related products. In addition, our products are also distributed via third party appointed dealers who manage their 0\\’11 retail stores which cany our ‘Kanger’ signage. As at the LPD, there are 31 ‘Kanger’ stores which are mainly located in the Guangdong province of China. As part of Our internal restructuring, HK Kanger acquired the entire equity interests in Ganzhou Kanger in 2012, whereupon Ganzhou Kanger became a WFOE as HK Kanger was wholly owned by a foreigner at the time of the acquisition. Later, on 30 September 2013, Kanger International acquired the beneficial ownership of the entire equity interests in HK Kanger and KAR Masterpiece in conjunction with our Listing. We have pursued a listing in Malaysia after taking into consideration amongst others, our R&D collaboration with FRIM and the potential future expansion of our operations in Malaysia upon the successful development of commercially viable bamboo products using a suitable Malaysian bamboo species as detailed in Section 6.6 of this Prospectus, as well as the interests of our existing Malaysian shareholders. Please refer to Section 5.4 of this Prospectus for details of the above internal restructuring. —_.. _~…_~._ .._. 5. INFORMATION ON OUR GROUP (Conl’dj Over the years, we have been the recipient of various accreditations and/or awards in recognition of amongst others, our quality products and customer service with the most recent being Ganzhou Leading Enterprise” (~HI 1tik :i£’!I:) by the Ganzhou Municipal Government ($MI’iJ1J A I’\’;jfj[R1), In addition, our commitment to quality and environmentally responsible practices have also enabled us to obtain the ISO 9001:2008 certification for our QMS and the ISO 14001:2004 certification for our environmental management system. 5,2 SHARE CAPITAL Our authorised share capital is RM50,000,000 comprising 500,000,000 ordinary shares of RMO.IO each, of which 350,000,000 Shares have been issued and fully paid-up, Upon completion of our Public Issue, our issued and paid-up share capital will be increased to RM43,000,000 comprising 430,000,000 Shares. The movements in our issued and paid-up share capital since the date of our incorporation are set out below:
27 August 2012  2  LOO  Subscribers’ shares  2  25 January 2013  0.10  Share split  2  30 September 2013  349,999,960  0.10  Shares issued as consideration for  34,999,998  the Acquisition of HK Kanger  30 September 20 13  20  0,10  Shares issued as consideration for  35,000,000  the Acquisition ofKAR  Masterpiece  ‘-­ …_  .._.  •  .–.J
There are no discounts, special tenus or instalment payment tenus applicable to the payment of consideration for the above allotments. As at the LPD, there are no outstanding warrants, options, convertible securities or uncalled capital in our Company. 5.3 SUBSIDIARY COMPANIES 5.3.1 KAR Masterpiece (a) History and Business KAR Masterpiece (Company No.: 903533-U) was incorporated in Malaysia under the Act on 7 June 2010 as a private limited company and commenced operations in the same year. It is principally involved in R&D and the trading ofbamboo flooring and related products. 5. INFORMATION ON OUR GROUP (Con/’d) (b) Share Capital KAR Masterpiece has an authorised share capital ofRM500,000 comprising 500,000 ordinary shares of RM1.00 each and an issued and paid-up share capital of RM200,000 comprising 200,000 ordinary shares ofRM1.00 each. The movements in KAR Masterpiece’s issued and paid-up share capital since its incorporation are set out below:
7 June 2010  100  1.00  Subscribers’  100  shares  21 June 2010  19,900  1.00  Cash  20,000  5 November  180,000  1.00  Otherwise than  200,000  2012  cash  ~
(c) Shareholders and Directors

KAR Masterpiece is our wholly-owned subsidiary company and its Directors are Chong Amita and Choo Vew Chun. (d) Subsidiary and Associated Companies KAR Masterpiece does not have any subsidiary or associated company. 5.3.2 HK Kanger (aj History and Business HK Kanger (Company Registration No. 1589019) was incorporated in Hong Kong under the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) on 16 April2011 as a private limited company and commenced operations in the same year. It is principally an investment holding company. THE REST OF THIS PAGE HAS BEENINTENTIONALLY LEFT BLANK 5. INFORMATION ON OUR GROUP (Conl’d) (b) Share Capital HK Kanger has an authorised and issued and paid-up share capital of HKD53,427,500 comprising 53,427,500 ordinary shares of HKDl.OO each. The movements in HK Kanger’s issued and paid-up share capital since its incorporation are set out below:
16 April2011  10,000  Subscribers’ shares  10,000  24 October 2012  37,000,000  Capitalisation of  37,010,000  shareholder’s loan  29 October 20 12  1,417,500  Capitalisation of  38,427,500  shareholder’s loan  129 October 20 12  15,000,000  Cash  53,427,500

There are no discounts, special tenus or instalment payment tenus applicable to the payment of consideration for the above allotments. As at the LPD, there are no outstanding warrants” options. convertible securities or uncalled capital in the company. (c) Shareholders and Directors

HK Kanger is our wholly-owned subsidiary company and its Directors are Lim Lai Choy, Leng Xingmin and Zhan Xiuxia. (d) Subsidiary and Associated Companies HK Kanger has one (1) wholly-owned subsidiary company, Ganzhou Kanger, which in turn has two (2) wholly-owned subsidiary companies, Shenzhen Kanger and Yanshan Kanger. HK Kanger does not have any associated company. 5.3.3 Ganzhou Kanger (a) History and Business Ganzhou Kanger (Registration No. 360703210000137) was incorporated in the PRC as a limited liability company under the PRC Company Law on 27 March 2000 and commenced operations in the same year. It is principally involved in the manufacturing and trading of bamboo flooring and related products. Ganzholl Kanger was incorporated under the name of Ganzhou HongSheng Industry Development Co., Ltd. (~j+I*JM’,*I[J;.:&}IHn~0jjj) before adopting its present name on 19 March 2008. It became a WFOE on 14 March 2012 after being acquired by HK Kanger, which in tum was wholly owned by a foreigner at that point in time. 5. INFORMATION ON OUR GROUP (Conl’d) (b) Capital Ganzhou Kanger has a registered and contributed capital of USD2,100,980. The changes in Ganzhou Kanger’s contributed capital since its incorporation are set out below:
16 March 2000 5,000,000 Cash RMB5,000,000 3 July 2007 (1,596,800) Share capital reduction RMB3,403,200 9 May 2008 7,596,800 Otherwise than cash RMBII,OOO,OOO 6 January 2012 3,000,000 Cash RMB 14,000,000 14 March 2012 Transfer * USD2,100,980 -_.._–­Note: * The entire equity interest of Ganzhol1 Kanger was tran~lerred to HK Kanger .lor a consideration of USD2, 100, 980. Pursuant thereto, the registered and contributed capital of Ganzhol1 Kanger was changed to USD2, 100, 980. There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the contributed capital. As at the LPD, there are no outstanding warrants, options, convertible securities or uncalled capital in the company. (c) Shareholders and Directors
Ganzhou Kanger is a wholly-owned subsidiary company of HK Kanger and its Director is Leng Xingmin.
(d) Subsidiary and Associated Companies

Ganzhon Kanger has two (2) wholly-owned subsidiary companies, Shenzhen Kanger and Yanshan Kanger. Ganzholl Kanger does not have any associated company

5.3.4 Shenzhen Kanger (a) History and Business Shenzhen Kanger (Registration No. 440301102854545) was incorporated in the PRC as a limited liability company under the PRC law on 9 September 2004 and commenced operations in the same year. It is principally involved in the trading of bamboo flooring and related products. 5. INFORMATION ON OUR GROUP (Cont’d) (b) Capital Shenzhen Kanger has a registered and contributed capital ofRMBIO,OOO,OOO. The changes in Shenzhen Kanger’s contributed capital since its incorporation are set out below:
9 September  1,000,000  Cash  1,000,000  2004  19 May 2006  9,000,000  Cash  10,000,000
There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the contributed capitaL As at the LPD, there are no outstanding warrants, options, convertible securities or uncalled capital in the company. (c) Shareholders and Directors
Shenzhen Kanger is a wholly-owned subsidiary company of Ganzhou Kanger and its Director is Leng Xingmin.
(d) Subsidiary and Associated Companies

Shenzhen Kanger does not have any subsidiary or associated company.
5.3.5 Yanshan Kanger (a) History and Business Yanshan Kanger (Registration No. 361124210002879) was incorporated in the PRC as a limited liability company under the PRC law on 6 November 2008 and commenced operations in the same year. It is principally involved in the manufacturing and trading of bamboo flooring and related products. Yanshan Kanger was incorporated under the name Yanshan Hualong Bamboo Co., Ltd (mw Ja:#’:i.t;t’r~1H~ 0jS)). It changed its name to Yanshan Haozhu Bamboo Co., Ltd (mW Ja:1li: t’rt’r~1H~ 0jS)) on 10 December 2010 before adopting its present name on 25 June 2012. THE REST OF THIS PAGE HAS BEEN INTENTIONALLYLEFTBLANK .–_.. _-_. 5. INFORMATION ON OUR GROUP (Colll’d) (b) Capital Yanshan Kanger has a registered and contributed capital of RMB6,000,000. The changes in Yanshan Kanger contributed capital since its incorporation are set out below:
6 November 3,000,000 Cash 3,000,000 2008 22 February 3,000,000 Cash 6,000,000 2012 ‘——————————-­There are no discounts, special terms or instalment payment terms applicable to the payment of consideration for the contributed capital. As at the LPD, there are no outE.:tanding warrants,
options, convertible securities or uncalled capital in the company, (c) Shareholders and Directors Yanshan Kanger is a wholly-owned subsidiary company of Ganzholl Kanger and its Director is Leng Wen Jue. (d) Subsidiary and Associated Companies Yanshan Kanger does not have any subsidiary or associated company.

 

5.4 RESTRUCTURING EXERCISE AND ACQUISITIONS As part of our restructuring exercise, HK Kanger acquired 100% of the equity interest in Ganzhou Kanger for a cash consideration of USD2,lOO,980 pursuant to a Share Transfer Agreement dated 9 December 2011. This acquisition by HK Kanger was approved by the Ministry of Commerce ofPRC (“MOFCOM”) on 23 February 2012. Pursuant to the acquisition, Ganzhou Kanger became a WFOE as at the time of the acquisition, HK Kanger was wholly owned by a foreigner without any links to PRe companies or individuals. According to the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors C* r7r00 ‘1)1: !it1’\-:JfWJJ:l!, i*J j£.’lJ!. (f.J ~.!\lfE) (“M&A Rules”) promulgated on 8 August 2006 and effective 8 September 2006, MOFCOM’s approval is required for acquisitions by foreign investors whereby the considerations are satisfied by overseas securities. In addition, the M&A Rules requires offshore special pmpose vehicles formed for overseas listing purposes which involves PRe companies and/or controlled by PRC companies or individuals to be approved by MOFCOM and the China Securities Regulatory Commission (“CSRC”) prior to publicly listing their securities on an overseas stock exchange. Guangdong Grebright Law Firm, the Legal Adviser to our Company on PRC law, is of the opinion that under present PRe laws, regulations and/or guidelines, no approval, save for the \WOE approval above, is required from MOFCOM and/or CSRC for the acquisition of Ganzhou Kanger by HK Kanger, the Acquisition ofHK Kanger and the Listing due to the following: (a) The acquisition of Ganzhou Kanger by HK Kanger was satisfied by cash; and
(b) At the time of the above acquisition, HK Kanger was wholly owned by a foreigner without any links to PRC companies or individuals, that is HK Kanger was not a PRC controlled

special purpose vehicle. 5. INFORMATION ON OUR GROUP (Cont’d) ——————————-_.._-­In addition to the above, we also undertook the Acquisitions, in conjunction with OUf Listing, as detailed below: (a) Acquisition of HK Kanger Pursuant to a Share Purchase Agreement dated 5 February 2013 entered into between our Company and lbe vendors of HK Kanger, on 30 September 2013, we have acquired the beneficial ownership of HK Kanger’s entire issued and paid-up share capital of HKD53,427,500 comprising 53,427,500 ordinary shares ofHKD 1.00 each for a total purchase consideration of RM34,999,996, which was wholly satisfied by the issuance of 349,999,960 new Kanger Shares at par. The vendors of HK Kanger and their respective equity interests acquired by our Company and the number of new Kanger Shares that were issued to them pursuant to the Acquisition of HK Kanger are set out as follows:
Leng Xingmin  36,210,249  67.78  23,721,090  237,210,905  Lim Lai Choy  8,658,751  1621  5,672,290  56,722,896  DYMMTuanku  2,100,000  3.93  1,375,696  13,756,959  Syed Sirajuddin  Ibni Almarhum  Tuanku Syed Putra  Jama1ullail  Syed Razlan Ibm  2,100,000  3.93  1,375,696  13,756,959  A1marhum Tuanku  Syed Putra  Jama1ullail  Lew Wai Kit  1,000,000  1.87  655,093  6,550,933
Kang Yeat Guat 1,100,000 2.06 720,603 7,206,026 ZhanXiuxia 829,250 1.55 543,236 5,432,361 Qiao Ning 829,250 1.55 543,236 5,432,361 Fosetta Limited 600,000 1.12 _~393,056 ___3,93~ Total: 53,427,500 100.00 34,999,996 349,999,960 The purchase consideration of approximately RM35.0 million was arrived at on a willing-buyer willing-seIler basis after taking into eonsideration the audited consolidated NA of HK Kanger and its subsidiary companies (“HK Kanger Group”) as at 31 December 2012 of approximately RM31.1 million and the additional profits to be generated by the HK Kanger Group subsequent to 31 December 2012 but prior to completion of the Acquisition of HK Kanger. 5. INFORMATION ON OUR GROUP (Conl’d) (b) Acquisition of KAR Masterpiece Pursuant to a Share Purchase Agreement dated 5 Febmary 2013 entered into between our Company and the vendors of K.AR Masterpiece, Chong Amita and Choo Yew Chun, we have acquired K.AR Masterpiece’s entire issued and paid-up share capital of RM200,000 comprising 200,000 ordinary shares of RMl.OO each for a total purchase consideration of RM2.00, which was wholly satisfied by the issuance of20 new Kanger Shares at par. The purchase consideration of RM2.00 was arrived at on a willing-buyer willing-seller basis after taking into consideration the audited net liabilities of KAR Masterpiece as at 31 December 2012 ofRM52,112. 5.5 KEY ACHIEVEMENTS AND MILESTONES OUf key achievements and milestones since our inception are as follows:
2004 • Commenced business via Shenzhen Kanger in the trading of bamboo flooring and related products • Recognised as and has remained as B&Q China’s sole authorised bamboo flooring supplier 2006 • Accredited as a ‘Class 3A Enterprise’ under the National Constmction Standards of the PRC (iI’:[]IJ!:1I1:*~ AAA li!H!t:%:Jf:’it) by the China Construction Building Materials Standards Research Center (cp []I}t111:ltMiiFIiJiJ! ‘J’E cp ,C,,) • Accredited as ‘Envirorunental Building Materials Products’ (It’l.i\!iM~7C.’jIj’i:>J’d3i'” fQ) by the China Construction Building Materials Standards Research Center (~~~ 1I1:ltMT,f,11HJ!’J’E cp ,C,,) 2007 • Invented an interlocking system which enables easy installation for some of our bamboo flooring products 2008 • Acquired Ganzhou Kanger to venture upstream into the manufacturing of bamboo flooring and related products • Recognised as a ‘China Famous Brand’ (cpIII’lfcg61X~) by the Research Center of China Famous Brand for Building Materials (cplIlltM[iJHi,~tIJ,gIlPDX~i}IiFl’fIi”,L.’) and China Building Materials Cooperation Association (CPlIllttJI’it-;§-fFt1J)
• Accredited with ISO 900 I :2000 by Kaixin Certification (Beijing) Co., Ltd O’illl’JiiJ,.ilE (jt:9:)~’Ill~ aj) for our QMS
• Obtained CE marking for our products from Intertek Testing Services Shenzhen Ltd

2009 • Registered ‘Kanger’ trademark with SAlC 2010 • Acquired Yanshan Kanger to venture into the manufacturing of strand woven bamboo flooring and related products • Expanded our production facilities in Ganzhou through the construction of our Head Office cum production facility with a total built-up area of 8,577 sq m which cost approximately R1vf2.6 million and resulted in an increase in our production capacity by98%
• Awarded the Ganzhou Leading Enterprise (l!l\ 1’1’1 ;It ~ :Jf: .’l~) by the Ganzhou Municipal Government (~1’1’I j1J A I’1Oil)(IM)

 

5. INFORMAnON ON OUR GROUP (Conl’d)

2011 • Entered into the R&D Agreement with FRIM Board for our R&D collat’or:’t!cm FRIM • Selected as a member of the National-Level Certification of Bamboo Standard-Setting Team by the Research Institute of Wood Industry, China Acad,emy of Forestry • Patented our improved interlocking system, which facilitated easier H”‘dc’dHUH some of our flooring products 2012 • Accredited with ISO 9001 :2008 by Certification International (UK) Ltd for our • Accredited with ISO 14001:2004 by Beijing BTIHEA Certification Co., Ltd (jt;3?’~ xillZiAtiE1§j”~~0’5]) for our environmental management system
• Registered ‘KAR Masterpiece’ trademark with SAlC

• Established first ‘KAR Masterpiece’ retail store in Shenzhen THE REST OF THIS PAGE HAS BEENINTENTIONALLYLEFTBLANK
—._–_.—-­6. BUSINESS OVERVIEW (Cotlt’d)

6.2 PRODUCTS We are a ‘green’ building materials provider, specialising in the manufacturing and trading of bamboo flooring and related products for the residential and commercial markets under OUf brands ‘Kanger’ and ‘KAR Masterpiece’ as well as OEM at the request of our customers. In addition, we also sell strand woven bamboo planks, a semi-finished product from our strand woven bamboo flooring manufacturing process, to funliture and building materials manufacturers as raw materials for thejr production. The details of our products are set out in the ensuing sections. 6.2.1 Bamboo Flooring Bamboo flooring is a rdatively new altenlative flooring which is environmentally friendly due to the quick regrowth cycle of bamboo plants. In addition, bamboo flooring is dw”able and naturally moisture resistant. J Currently, ow’ bamboo flooring are manufactured using Moso bamboo, which grow in abundance in the Jiangxi province of China where our Ganzhou and Yanshan manufacturing plants are located, through two (2) methods as depicted below; (i) Horizontal or Vertical Bamboo Flooring Bamboo strips can be flat pressed (horizontal bamboo flooring) or side pressed (vertical bamboo flooring). The bamboo grain can be seen clearly on the horizontal bamboo flooring whilst the bamboo grain visibility is reduced on the vertical bamboo flooring. In addition, vertical bamboo flooring is more dense and due to its vertical pressed structure, is less prone to warping.
(ii) Strand Woven Bamboo Flooring Strand woven is a relatively new method of using bamboo to produce flooring panels whereby quality bamboo fibres are compressed under high pressure to create a higher density bamboo material. As a building material, strand woven bamboo flooring is not ouly good insulators of sound, but also more material efficient in its production as compared to horizontal or vertical bamboo flooring. Strand woven bamboo flooring has a wider area of application, such as being used as outdoor flooring and high traffic areas.

 

 

–_.. _—–_.  6.  BUSINESS OVERVIEW (Collt’d)  —————–­ ——_.­ 6.3.1  Yan,han Kanger  (i)  Sonrcing of Raw Bamhoo
There are over 200 species of bamboo that can be found in China. Maso bamboo (also known as Phyllostachys edl-tlis) is the main raw material used in the manufacturing of our bamboo flooring. We use Maso bamboo of four (4) to six (6) years old for our production process as mature Maso bamboo is stronger in terms of tension and thus, yields higher quality bamboo flooring. OUf Maso bamboo is sourced from bamboo eli tters or bamboo distributors mainly located in the Jiangxi province of China. (il) Cutting and Splitting The raw bamboo stalks, which are hollow with a hard outer wall and a softer inner wall, are cut to remove the top section which is smaller in diameter and then split down the length of the poles.
Splitting THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANI( ———_._——-_._——–­6. BOSINESS OVERVIEW (Conl’d) (iii) Early Planing The rectangular shaped bamboo strips are then planed to remove the green outer skin, itmer layer and nodes until only the fibre layers remain.
Bamboo fibre strips (iv) Boiling / Carboni.alion After early planing, the bamboo fibre strips are boiled and/or carbonised (that is, steamed under high pressure) to kiH pests and remove the sugar and oii contents in the:: bamboo. The bamboo fibre strips \J,lhich have undergone the carborrisation process will change colour from a blonde, yello\\’ colour to a brown, coffee colour. Bamboo fibre strips mayor may not be carbonised depending on the colour requirements of the desired end products.

6. BUSINESS OVERVIEW (Coll/’d) -_._–­(v) Parching The bamboo fibre strips are then dned III the drying kiln to reduce their moisture content to prevent warping of the resultant bamboo flooring.
D,ying kiln (vi) Gluing After parchtng, the bamboo fibre strIpS are immersed in water-based adhesives to bmd the bamboo strips during the pressing process. As a ‘green’ building materials provider, we ensure that the adhesives used in our manufacturing process are environmentally friendly and meets regulatory requirements on formaldehyde emission, includmg the strict European Union standards. Currently, we are using a water-based adhesive, developed in-house through our R&D efforts, which has less than 0.1 % formaldehyde emission.
Glue pond 6. BUSINESS OVERVIEW (Com’d) (vii) Drying .nd Pressing After drying though a heated conveyor belt system, the bamboo fibre strips then undergo a pressing process, whereby the loose bamboo fibre strips are compressed under high pressure to form strand woven bamboo blocks.

(viii) Fine PI.ning .nd Slicing The strand woven bamboo blocks are then planed to remove the two (2) ends and outer layer to create even, homogenous blocks. Thereafter, the blocks will be sliced into planks of different measurements according to our customers’ requirements.
Strand WOven bamboo planks —–_..–­6. BUSINESS OVERVIEW (Cont’d)
6.3.2 Ganzhou Kanger The strand woven bamboo planks used in the production of our strand woven bamboo flooring are manufactured at our Yanshan plant while the horizontal or vertical bamboo planks used in the production of our horizontal or vertical bamboo flooring are sourced from third pat1y suppliers. (i) Trimming The bamboo planks are trimmed to even out the thickness for our subsequent production process.
Trimming (ii) Sanding and Polishing Sanding is a surface treatment process to create an even surface on the bamboo planks, which are then polished for a smoother finish. At the same time, ‘tongues and grooves’ are moulded on the sides and ends of the bamboo planks to facilitate the installation of the bamboo flooring.
Sanding 6. BUSINESS OVERVIEW (Coflf’,f) (iii) Coating We will then apply several coatings of sealant aluminium oxide ultraviolet (“UV”) to enhance the look of the bamboo flooring and at the same time increase their durability as well as wear and water resistance.
Aluminium oxide UV coating (iv) Checking and Packin~ After coating, the finished bamboo flooring planks are individually checked for defects before being packed into cartons for warehousing or delivery to customers. Any defects are rectified, reworked or send back to the earlier manufacturing process for touch up.

—–,-“,-,,—‘–­6. 6.4 6.4.1 No. of Units / Lines  Monthly Maximum Producliou Capacity (2)  Average Mouthly Actual Production (3)  Average Monthly CapaCity Utilisation %  ‘~ Audited ‘ NBV as at 30 June ‘2013 RM  Yallshan Kallger (I)  Cutting & splitting machine  2,500 tonnes  1,164 lonnes  46.56  2,947  Planing machine  2  2,500 lonnes  1, 164 100Ules  46.56  54,351  Carbonizing chamber  2  2,500 tOlmes  1,164 tOlmes  46.56  66,681  Drying kiln IAdhesive tank  7  1,750 tonnes 1,140 tonnes  1,164 lonnes 530 tonnes  66.51 46.49  58,506 3,251  Presser & heated conveyor system  15,000 blocks  7,500 blocks  50.00  272,927  Fine planing machine  2,500 tonnes  1,164 tonnes  46.56  121,345  Slicer  2  15,000 blocks  7,500 blocks  50.00  134,346  Ganzholl Kanger (I)  QC conveyor Sanding and polishing machine  5 I  50,000 m’ 50,000 m’  27,500 m’ 27,500 m2  55.00 55.00  42,048 51,608  ‘Tongue and groove’ miller Trimmer Spray paint machine Embosser  2  50,000 m’ 60,000 m2 50,000 m2 15,000 m2  27,500 m’ 27,500 m’ 27,500 m2 3,000 m’  55.00 45.83 55.00 20.00  101,229 205,136 167,313 33,469  UV coater  2  50,000 m2  27,500 m’  55.00  88,370  Total:  1,400,579  Notes:
BUSINESS OVERVIEW (Cotlt’d) MANUFACTURING FACILITIES Material equipment and production capacity The details of our material equipment and their monthly maximum production capacity, average production output and utilisations levels are as follows: (1) Currently runs on one (1) 8-hour shift per day, 22 days a month.
(2) Based on two (2) 8-hour shifts per day.
(3) Based 011 actual overage monthly outputfor the FYE 31 December 2012.

——–_.——_._——–_.. —­6. BUSINESS OVERVIEW (Collt’,I) –_..———–_.. ——-­
6.4.2 Technology Used The technology used in OUf manufacturing process is mainly derived from the machineries we used as detailed in the preceding section. In addition, we possess the technological know-how for our manufacturing process, such as the technicalities of carbonisatioll, duration of each process, temperature settings, pressure control and mixing fonnula of adhesives and coatings, through amongst others our R&D initiatives and the knowledge and experience of our key management and key technical persolmel. This has helped to enhance our manufacturing process and the quality of our products as well as to facilitate the launch of new series of products.

6.5 SALES AND DISTRIBUTION Our Sales and Marketing Department is led by our Group Sales and Marketing Manager, Qiao Ning who has over fifteen (15) years of relevant experience in sales and marketing. Qiao Ning reports directly to our Managing Director, Leng Xingmin who has ten (10) years of experience in the bamboo flooring industry and who has been instmmental in the establishment of our Group and our brands ‘Kanger’ and ‘KAR Masterpiece’ They are supported by 40 sales and marketing personnel based in our sales offices in Shanghai, Guangzhou and Shenzhen as wen as various B&Q stores in China. Our Sales and Marketing Department is responsible for brand building, development and execution of marketing strategies, building and maintaining customers’ relationships, monitoring of sales and marketing activities and providing market feedback to our Production and R&D Departmenl<.;. 6.5.1 Marketing Strategies The marketing strategies initiated by our Group include the following: (i) Advertising We market and advertise through various mediums including:

• Billboards and banners, particularly at home improvement malls where Our products are sold;
• Pamphlets and brochures;
• Information on our Group and products on our website; and
• Posting of our products on business-to-business websites such as www.alibaba.col11.

 

(ii) Trade exhibitions

We have participated in various trade exhibitions to showcase our products and to solicit orders from loeal and overseas customers as follows: Event  —­ . Location-._—-­-~—————-==  Date  _~  China Import and Export Fair (9′ OOiliW Q j1li &’X.I’l4i’)  Guangzhou  April2012  I  China Import and Export Fair (9″ 00 ill WQ iiiH’pc>C: .I’l4i’)  Guangzhou  June 2011  I  China Import and Export Fair (9″ 00 itt WQ 1lli ,po Xf&f,»  Guangzhou  ~P~iI2:J
6. BUSINESS OVERVIEW (Conl’,l) –_._——-_…. —­These exhibitions are also platforms for us to gather valuable feedbacks from our customers and to increase awareness of our brands as well as to keep abreast with the latest indus{ly developments, paliicularly 011 the competitive landscape, which helps to shape our marketing strategies. 6.5.2 Sales Channels We distribute our producl<j through a variety of sales channels as follows: Sales Chann.ls
Notes:  •  Percentage camYibution to our revenuejor the FPE 30 JUlie 2013.  All sales through these sales channels arc 0/1 an outright basis, that is our products are sold upon delivery 10 our C/J.r::rome1:r::, snvpfi:”. sales to B&Q China as detailed below.  (i)  Home improvement retailers and distributors  We are the sole authorised supplier of bamboo flooring to B&Q China, one of the largest western home improvement retailers in China with nearly forty (40) stores across China. At B&Q Chiua, our products are sold under oW’ own brands on consignment basis, that is sales are only recognised after our products are sold to B&Q China’s retail customers, as well as OEM for B&Q China whereby the sales are on au outright basis. As part of our marketing strategy to increase awareness of our products and brauds, we have also stationed our own sales personnel at various B&Q stores to promote our products.  In addition, we also distribute our products through local building materials distributors.  (ii)  Own retail stores and appointed dealers  We have appointed third party dealers who sell our ‘Kanger’ bamboo flooring at their stores which carry our ‘Kanger’ signage. These dealers, who consist of individuals, owned and managed their stores independently from our Group, whereby our products are sold to these dealers on an outright basis. Those dealers who meet certain criteria such as a certain size of display area for our products within their shops are given incentives such as discounted or free sample products for display purposes.  As part of our marketing strategy to widen our distribution network and to increase brand awareness, our Sales and Marketing Department actively seek wood flooring retailers to be our dealers. As at the LPD, there are 31 third party stores which carry our ‘Kanger’ signage and are mainly located in the Guangdong province of China.  In addition, we also set up our own ‘KAR Masterpiece’ retail store in Shenzhen to showcase our premium strand woven bamboo floorjng in 2012.  63
6. BUSINESS OVERVIEW (Conl’d) –_.—.————–­(iii) Export market We have secured a number of overseas customers mainly in Turkmenistan, United Arab Emirates, Hong Kong and Romania through amongst others, the posting of our products on business-ta-business websites and participations at trade exhibitions. For the FPE 30 June 2013, we recorded sales to eight (8) overseas customers which accounted for approximately 20% of our total revenue. Please refer to Section 12.2.1 of this Prospectus for the segmental analysis of our revenue by geographical location. (Iv) Project tenders As part of our marketing strategy to increase revenue, our Sales and Marketing Department actively identify and tender for property development and/or refurbishment projects to be the supplier of bamboo flooring and related products for these projects. For the FPE 30 June 2013, we completed four (4) projects totalling RMO.9 million in revenue. We will replace any products sold which are found to be defective during the one (l) year warranty period and then send the defective products back to our manufacturing facilities for rectification, rework and/or touch up at minimal cost for subsequent sales. As such, we do not need to make any provision for the product warranty. Notwithstanding the above, if the replacements for defective products exceed 1% of our total revenue for any financial year, we will commence provision for the warranty expense. As at the LPD, we have not experienced any significant incidences of replacement of defective products, whereby the quantum of defective products replaced is less than 1% of our sales volume for the FYE 31 December 20 10 to 2012 and FPE 30 June 2013.

6.6 RESEARCH AND DEVELOPMENT In order to maintain our competitiveness, we place emphasis on R&D to improve the quality of our existing products and accelerate the development of new products. Our R&D activities are led by our Production cum R&D Manager, Li Zhisheng who is based in China. He is assisted by a team of six (6) teclmical personnel, which includes Chong Amita, director of KAR Masterpiece, who is based in Malaysia. Currently, our R&D activities are segregated into two (2) areas, namely Production R&D and R&D Collaboration with FRlM as follows: (i) Production R&D Our Production R&D, which is carried out at our manufacturing plants in Yanshan and Ganzhou, is focused on the following: (a) Development of new series of bamboo flooring with different features and/or aesthetics to cater for different consumer preferences and requirements, whereby we have launched twelve (12) series ofbamboo flooring since our inception in 2004;
(b) Development of our own water-based adhesives which meets regulatory requirements on fonnaldehyde emission;
(c) Continuous improvement of our manufacturing process to increase production efficiency and minimise wastage, thereby lowering our cost ofproduction; and
(d) Development of new applications in utilising strand woven bamboo planks for non­flooring products. The new products that we are currently developing and are expecting to launch in the near future include bamboo wall panelling and bamboo doors as detailed in our future plans in Section 6.15.1 of this Prospectus.

6. BUSINESS OVERVIEW (Cont’d) -.._——­(ii) R&D Collaboralion wilh FRIM We have entered into a R&D Agreement with FRlM Board in 2011, through KAR Masterpiece, to collaborate with FRIM on amongst others the following: • Identification of a suitable Malaysian bamboo species for development of strand woven bamboo planks;
• Testing of the resultant strand woven bamboo plank samples for structural and nOll­structural applications;
• Benchmarking the certification for the finished bamboo products; and
• Development of a bamboo plantation for commercialisation of the identified bamboo species.

We are currently the only corporation collaborating with FRIM on the above. The other salient terms of the R&D Agreement are as follows: • The R&D Agreement is a non-exclusive research and development collaboration on the appljcations of strand woven bamboo planks for structural and non-structural applications in Malaysia.
• The duration of the R&D Agreement is three (3) years from 5 July 2011.
• Intellectual Property Right,
(i) The R&D Agreement does not provide either party with any license or right to intellectual property rights of the other party.
(ii) Except as otherwise expressly agreed in writing, all rights in any intellectual property owned by any party prior to the R&D Agreement or developed independently by tl,e party in connection with the R&D Agreement shall be vested solely in that party.

 

• General Rights ofTermination:
(i) The R&D Agreement may be terminated by either party if tl,e other party commits a breach of any obligations on its part to be performed or observed under the R&D Agreement.
(ii) In addition and without prejudice to any other provisions in the R&D Agreement, the R&D Agreement shall be terminated without liability to either party if
(a) such termination is necessitated by any directive or regulation from any govenunental or statutory authority having jurisdiction over the matters herein; or
(b) such aforementioned directive or regulation expressly prohibits ejther party from perfonning any of its material obligations under the R&D Agreement.

 

 

Pursuant to this collaboration, a Malaysian bamboo species has been identified as being suitable for development of strand woven bamboo planks, which has amongst others the advantage of height as compared to the Moso bamboo, thereby making it more suitable for the production of longer and/or higher bamboo products such as furniture, doors, structural beams and other building materials.

6. BUSINESS OVERVIEW (COllI ‘d) We have produced some sample strand woven bamboo products using the identified Malaysian bamboo species, with the assistance of a bamboo equipment manufacturer, for testing purposes. These include three (3) sample houses measuring approximately 30m2 each made entirely of strand woven bamboo planks, including their wall cladding, ceiling, flooring, structural pillars, fencing and gates, which we are testing for amongst others, durability, weather resistance and suitability for tropical weather. Presently, the sample products for OUf R&D collaboration with FRIM are produced in China and subsequentJy transpolted to FRIM for testing and further evaluation. However, in conjunction with our R&D focus and our R&D collaboration with FRIM, we intend to invest approximately RM2.0 million of our IPO proceeds to set up a R&D facility in Malaysia. which will enable us to produce the sample products for our R&D collaboration with FRlM in Malaysia. Of the RM2.0 million earmarked for R&D expenditure, RMl.O million will be utilised to purchase machinery for production and testing of sample products, whilst the balance RMl.O million will be utilised to set up the facility at a location to be identified and purchase materials for testing purposes.
The setting up of our own R&D facility in Malaysia \\li11 enable us to conduct more in-depth and advance researches and testing ofproducts with the SUppOIt and assistance from FRIM. The setting up of this R&D facility is expected to commence by the first half of 2014 and is expected to be completed within a period of twelve (12) months from the date of conunencement.
Should these sample products be found to be commercially viable. we may futther expand our operations in Malaysia for the production of these bamboo products and/or bamboo planks using the Malaysian bamboo species as it would be cost prohibitive to transport such raw Malaysian bamboo materials to our existing manufacturing facilities in China. The R&D expenses incurred by our Group for the past tluee (3) FYE 31 December 2010 to 2012 and FPE 30 June 2013 are as follows:
Revenue  14,836  23,411  38,556  21,378  R&D expenses  1.029  1,045  1,124  641  % ofrevenue  6.9%  4.5%  2.9%  3.0%
THE REST OF THIS PAGE HAS BEENINTENTIONALLY LEFTBLANK
,———::1 Company No.: 1014793-D I
—–_._._- ——-­6. BUSINESS OVERVIEW (Cont’d) 6.7 ENVIRONMENT MANAGEMENT SYSTEM As a ‘green’ building materials provider, we are committed to ‘green’ operating practices and have in place an environment management system which has been accredited as being ISO 14001:2004 compliant. Our practice and control for environment management include: (a) Preserving, conserving, minimIsing waste of resources and ensuring that our work enviromnent is free from pollution and recognised hazards;
(b) Complying \\lith relevant environmental, health and safety laws for controlling hazardous chemical substances in products and materials;
(c) Conducting periodic management reviev,1 of our policy, objectives and targets to ensure suitability and effect.ive implementation of our environmental management program;
(d) Communicat.ing to all employees to ensure adequacy in environmental awareness, skill, knowledge and competency; and
(e) Communicating and promoting awareness to customers and suppliers and making the environmental policy available to the public upon request..

 

6.8 QUALITY ASSURANCE We place strong emphasis on the quality of OUr products and have in place a QMS which has been accredit.ed as being ISO 9001:2000 compliant for the manufacturing of bamboo flooring, sales and services in 2008. We also successfully obtained the updated ISO 9001:2008 certification in 2012 for the same scope, which will be effective unti121 June 2015. As part of our QC procedures, we have one (1) QC Manager for each of our manufacturing plant in Yanshan and Ganzhou. Quality checks are perfomled by the respective QC Manager throughout the manufacturing process to ensure compliance to our process standards so to ensure our product qualit.y and requirements are met. Ifany defect is detected, the product will be reworked or touched up. All in-coming raw bamboo, horizontal and vertical bamboo planks are also inspected to ensure that the materials, meet our pre-determined conditions and standards to ensure the quality of our finished products. In addition. \ve also have in place a ‘Cross QC’ policy, whereby om” production staff perform crass checking on the output of their respective team members within the same manufacturing process. A final inspection is also performed at the end of our manufacturing process to ensure the quality of our finished products. THE REST OF THIS PAGE HAS BEENINTENTIONALLY LEFTBLANK ICompany No.: 1014793-D I 6. BUSINESS OVERVIEW (Cont’d)
6.9 CUSTOMERS 6.9.1 Major Customers Our major customers (those who coutributed 10% or more to our total sales) for the past three (3) FYE 31 December 2010 to 2012 and FPE 30 June 2013 are as follows:
Total Revenue  14,836  100.00  23,411  100.00  38,556  100.00  21,378  100.00  B&Q China Consignment sales I -Outright sales ,  China  8  4,049 2,071 6,120  27.29 13.96 41.25  2,722 3,092 5,814  11.63 13.21 24.84  2,701 2,465 5,166  7.01 6.39 13.40  1,559 969 2,528  7.29 4.53 11.82  Huzhou Yue Jinge Wood Co., Ltd  China  2  4,530  19.35  3,828  9.93  2,967  13.88  CNBMIT Co., Ltd •  China  3  5,518  14.31  3,448  16.13  Shenzhen Shengxinhai Investment Co., Ltd  China  I  4,137  19.35  Shenzhenshi Huanwei Woods China Co., Ltd  China  I  2,138  10.00  Total  6,120  41.25  10,344  44.19  14,512  37.64  15,218  71.18  Total no. of customers Domestic/\ Export  32 17 49  45 17 62  29 19 48  25 8 33
68 I Company No.: 1014793-D I –._——————_._————­6. BUSINESS OVERVIEW (Cont’d) Notes:  #  Save/or the agreements with B&Q China as mentioned in Section 6.16.2 ofthis Prospectus, the nature oj the sales to our major customers are on an order-by-order basis.  For illJomtation purposes, our major customers’ nature afbusiness is as/allows:
Maior customers  Nature ofbusiness  8&0 China  Home imvrovement retailer Manufacturing and trading of wood flooring products Import and export of products including building materials Import and export ojproducts inchiding bamboo related lJroducts Manufacturing and trading of wood flooring products  Huzhou Yue Jinge Wood Co., Ltd  CNBMIT Ca., Ltd  Shenzllen Shengxinhai Investment Co., Ltd  Shenzhenshi Huanwei Woods China Co., Ltd
* CNBMlT Co., Ltd has been our export agetlt since 20)0 whereby part ofour export sales are channelled through this company as detailed in Section 12.1 ofthis Prospectus. The RJvf5.5 million sales to CNB.MlT Co., Ltd in the FYE 31 December 2012 and FPE 30 June 2013 ‘WllS in relation 10 CNBMll’ Co., Ltd’s own customers. The direct sales to some ofour domestic retail cllstomers are channelled through our appoitlted dealers, homeimprovementretailers anddistributors which resulted in a decline in the number ofcustomersfrom 45 in 2011 to 25 in 2013. We have been dependent on one (I) of our major customers, namely B&Q China which contributed to 41.25% of our total revenue for the FYE 31 December 2010. However, the quantum of our sales to B&Q China have declined from Rlvf6.1 million in the FYE 31 December 2010 to PJ-.12.5 million in the FPE 30 June 2013 mainly as a result of B&Q China’s internal restructuring to streamline its business and reposition its stores, whereby the number ofB&Q stores reduced from 62 stores as at 31 December 2009 to 39 stores as at 30 June 2013. To mitigate the risk of dependency on B&Q China, we have expanded our sales and marketing team and increased our marketing efforts to expand our sales channels. In line with our increased marketing efforts, we have secured two (2) new major customers during the FPE 30 June 2013 which resulted in the overall revenue contribution from our major customers increasing from 37.64% in the FYE 31 December 2012 to 71.18% in the FPE 30 June 2013. THE REST OF THIS PAGE HAS BEEN INTENTIONALLYLEFTBLANK ————–_._—-_._-.._———­6. BUSINESS OVERVIEW (Cont’d) 6.9.2 Principal Markets The principal markets for our products are China, Turkmenistan, United Arab Emirates, Hong Kong, Romania, USA and other countries. The diagram below illustrates our principal markets and the percentage of sales contribution for the FPE 30 June 2013: Principal Mal’ketsJ

‘” ~  ~­ )’  ;: v  ~ I,  – ‘”
-_’forktllelllstan . .: (5%l·’; f ,,–_, “:~~. _::.~_:;~­(i~”_~v­_~v~_ A~~;:~
_ . ~HoDgKong (1%) _,-. -~’ -~~ ~

 

 

;:: ‘” ‘1:­jV’ ‘-. -UDlted Arab Emirates ­(6%) .­J~ __~~~ —-~, ~–~-~­~ ~~ “~~ –­–Romania, ‘ ‘_” (4%) ‘. ~~-
L  ,,  ” ,–~ (. , Gtllei €onntrles* c-, ‘ C'(4%) “;; —.­-_. -,  Note:  *  Include countries in Europe, Asia, Africa and Australia.  Please  refer  to  Section  12.2.1  of this  Prospectus  for  the  segmental analysis of our  revenue  by
geographical location.
6. BUSINESS OVERVIEW (Conl’d) 6.10 SUPPLIERS 6.10.1 Types, Sources and Availability of Materials Tbe breakdown of our materials purcbases, which are all sourced in the PRC, for the FYE 31 December 2010 to 2012 and FPE 30 June 2013 are as follows’
Bamboo and other production materials *  11,969  92.12  21,534  96.29  26.045  9597  11,677  95.29  Accessories  1,024  7.88  829  3.71  1,093  4.03  577  4.71  Total  12,993  100.00  –,.-._. =-o;;-;;–~~–=c;;~-:-;;o:~ 22,363 100.00 27,138 100.00 12,254 100.00
——._.­Note:
* Comprises raw bamboo, horizontal and vertical bamboo planks, adhesives and paints. The main materials that we purchase for our production are raw bamboo and horizontal and vertical bamboo planks. The prices of these raw materials have remained fajrly stable over the past three (3) FYE 31 December 2010 to 2012 and FPE 30 June 2013. In the event the prices of these materials increase substantially, we would be able to pass on this cost to our customers. We have not experienced any major difficulty in sourcing our materials requirements as there are a number of Moso bamboo suppliers and adhesive and paint suppliers whom we can source from should the need arises. Further, we have entered into and will continue to enter into bamboo procurement agreements with the local bamboo suppliers on a yearly basis to ensure the continuity of our bamboo supplies. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFTBLANK ICompany No.: 1014793-D I 6. BUSINESS OVERVIEW (Cont’d)
6.10.2 Major Suppliers Our major suppliers (those who contributed 10% or more to our total purchases) for the past three (3) FYE 31 December 2010 to 2012 and the FPE 30 June 2013 are as follows:
Total Purchases 12,993 100.00 22,363 100.00 27,138 100.00 12,254 100.00 Mai Chaoxian (~ilJi’b’f)  2  702  3.14  3,242  11.95  477  3.89  Fu Yaying (1tlJt~)  6  2,324  17.89  2,638  11.80  2,317  8.54  172  lAO  Zhang Xiaomin (~lVNjfJ:)  6  1,562  12.02  2,281  10.20  2,050  7.55  486  3.97  Xiao Fenfei O’flF<:.)  4  1,435  11.04  786  3.51  65  0.24  Total  5,321  40.95  6,407  28.65  7,674  28.28  1,135  9.26  Total no. of suppliers  41  65  78  72
We are not dependent on any single supplier as there are a number of bamboo cutters and/or distributors from whom we can source our supplier. In addition, our major suppliers’ contribution to our total purchases have decreased from 40.95% in the FYE 31 December 2010 to 9.26% in the FPE 30 June 2013, in line with the increase in our supplier base from 41 suppliers in 20 I0 to 72 suppliers in 2013. 72 ICompany No.: 1014793-0 I 6. BUSINESS OVERVIEW (Cont’dj 6.11 MAJOR LICENCES As at the LPD, we hold the following major licences, permits and registrations for our business operations together with the details of the conditions attached and status of compliance: I , I ISSUing~uthQrity Ganzhou Kanger Ganzhou SAIC Jiangxi Province People’s Government
Ganzhou Quality & Technology Supervision Bureau
Ganzhou Economic and Technology Development Zone National Tax Bureau & Ganzhou Economic and Technology Development Zone Local Tax Bureau SAFE Ganzhou Branch .Type of Licence/ Permit/ . Registration (Certificate No.) Business Licence: 360703210000137
Foreign Investment Certificate (p;;j!Hi~J\*): 20120003 Enterprise Technical Code Certificate (~Jli-\;i’r): 360700-012369-1 Tax Registration Certificate (~l:IDfJ1*): 36070370571314X Foreign Exchange Registration Certificate: 00296137 Status of  Issue Date  Validity Period  Salient Conditions  Compliance  4 January 2013  27 March 2000 to  Please refer to notes  Complied  26 March 2050  (i) and (ii)  23 February  23 February 2012  Please refer to notcs  Complied  2012  to 22 February  (i) and (ii)  2032  16 March 2010  16 March 2010 to  Please refer to notes  Complied  16 March 2014  (i) and (ii)  16 March 2012  Not applicable  Please refer to notes  Complied  (i) and (ii)  2 April 2013  2 April 2013 to 2  Please refer to notes  Complied  April 2014  (i) and (ii)

73 6. BUSINESS OVERVIEW (Cont’d)
Ganzhou Kang•• (cont’d)  Ganzhou Environment Protection  Pollutant Discharge Permit:  31 July2013  31 July 2013 to  • Subject to  annual  Complied  Bureau Development Zone Branch  111  30 July 2014  review  and  continued  compliance  with  the  pollutant  discharge  standards; and  • Note (ii)  Ganzhou Forestry Bureau  Bamboo and Wood Manufacture  1 January 2013  Not applicable  Please refer to notes  Complied  Licence (~j;j*lit*):  (i) and (ii)  [2013] B0407%
State Quality and Technology  Industrial Products Manufacture  2 July 2010  2 July 2010 to 1  Nil  Not  Supervision Bureau  Licence:  July 2015  applicable  XK03-002-0261I  Shenzhen Kanger
Market Supervision Administration of Shenzhen Municipality  Business Licence: 440301102854545  24 May 2012  9 September 2004 to 9 September 2014  Please refer to notes (i) and (ii)  Complied  ,  . I  M.arket SupervisionAdministration of Shenzhen Mumclpahty  Enterprise Technical Code Certificate (~JJ.1i:’i’f): 440305-109992  2 July 2012  2 July 2012 to 9 September 2014  Please refer to notes (I) and (11)  Complied  I , I  74
ICompany No.: 1014793-D I 6. BUSINESS OVERVIEW (Conl’d) Siilient Conditions  Shenzhen Kanger Ccollt’dJ  Shenzhen National Tax Bureau & Shenzhen Local Tax Bureau  Tax Registration Certificate O*1jL~”F=): 440301766380545  22 August 2012  Not applicable  Please refer to notes (i) and (ii)  Complied  Shenzhen Transport Bureau  Transport Operators Permit (“J xifd~’i.tPJi*”F=): 440300044329  31 August 2011  31 August2011 to 30 August 2015  Please refer to notes (i) and (ii)  Complied  Yanshan Kanger  Yanshan AlC  Business License: 361124210002879  25 June 2012  6 November 2008 to 6 November 2058  Please refer to notes (i) and (ii)  Complied  Yanshan Quality & Technology Supervision Bureau  Enterprise Technical Code Certificate (m1-\;’,f): 361124-004840  26 June 2012  26 June 2012 to 26 June 2016  Please refer to notes (i) and (ii)  Complied  Jiangxi Yanshan National Tax Bureau & Yanshan Local Tax Bureau  Tax Registration Certificate (~llOO1it”F=): 361124680921486  27 June 2012  Not applicable  Please refer to notes (i) and (ii)  Complied  Yanshan Forest Pest Control Quarantine Station  Jiangxi Forest Plant Quarantine Registration Certjficate (¥ii\(~fl W)~ iii1l'”F=) [2011] 0018  25 July 2012  Not applicable  Please refer to notes (i) and (ii)  Complied
75 I Company No.: 1014793-D I 6. BUSINESS OVERVIEW (Cont’dj
Yanshan Forest Industry Bureau  Jiangxi Wood and Bamboo  25 July 2012  Not applicable  Please refer to notes  Complied  Operation (Manufacturing) Licence  (i) and (ii)  (~tt il’t”P):  [2012]m E91064 ~  Yanshan Environment Protection  Pollutant Discharge Permit:  15 November  16 November  Please refer to notes  Complied  Bureau  m:q; 2012001  2012  2012 to 15  (i) and (ii)  November 20 I4  Safety Supervision Administration  Industrial Boiler: (#l.1Ii 2940)  12 June  12 June 2012 to  Subject to periodic  Complied  2012(lntemal  11 June 2014  inspection  Inspection)  (Internal  &  Inspection)  8 July 2013  &  (External  8 July 2013 to 27  Inspection)  June 2014  I  (External  Inspection)  I  Pressure Vessels: (?6 ILR.ll 6958,?iJ. ILR.1Ii 6959)  8 July 2013  8 July 2013 to 27 June 2019  Subject to periodic inspection  Complied  I I  Electric Hoist Crane: [im CB ~ EOOOI (13, im CB ~  18 March 2013  19 May 2012 to May 2014  Subject to periodic inspection  Complied  I  E0002  (13]  Electric Hoist Crane: [im CB .jl EOOn (1, im CB ~  26 September 2012  19 May 2012 to May 2014  Subject to periodic inspection  Complied  I,  E0071  (1]  ~  76
ICompany No.: 1014793-0 I 6. BUSINESS OVERVIEW (Cont’d)
Internal Combustion Counterbalance Forklift Truck  8 May 2012  Not applicable  Subject to periodic inspection  Complied  Pressure Meter: (YL2013264, YL2013265)  II September 2013  II September 2013 to 10 March 2014  Subject to periodic inspection  Complied
Notes: (i) Subject to annual review.
(ii) Toapplyforre-issuanceintheevent ofvariationofregisteredinformation.

Save as disclosed above, we are not dependent on any major licences, permits and registrations for our business operations. 77 ICompany No.: 1014793-0 ] 6. BUSINESS OVERVIEW (Cont’d)

 

6.12 INTELLECTUAL PROPERTY OUf commitment to quality is the foundation for the building of our brands. As at the LPD, ,\ve have registered trademarks for our following brands, which are important to our continued growth: (i) Trademarks

 

10206937 19 -Lumber. woodfloor, wood paving, China Under application plywood, veneer, floor, fiber board, \Illood paneling. nonmetal lath

111_:
5036822 20 -Bamboo, Bamboo shade, bamboo China 14 June 2009 to 13 June 2019 weaving (except hat, mat and cushion), bamboo handicrajts. bamboo and wood~1I$
handicrajts, lacquer handicrajt, wood or w “”” \il),,’lI~”i;A”~plastiC signboard~~19~~l~~~~
9097209 19 ~ Lumber, woodfloor, wood paving, China 21 May 2012 to 20 May 2022 p(V’iA.’ood. veneer, .floor, fiber board, ~vood paneling, nonmetal lath K.A..R ma5!8r~IE(;il

7995479 19 -Semi-finished Limber, timberfor China 7 Febru<Jry 2011 to 6 Febru<Jry 202 J construction, timber, woodfloor, floor, floorsg~
batten, parquet, oakfloor, resin compound PEnJAf’U board, floor timber 78
I Company No.: 1014793-D I 6. BUSINESS OVERVIEW (Conl’d) (ii) Patents As at the LPD, we own the following patent which is registered in China:

AP1,llcation Date Validity Perio” .

A type ofbamboo flooring 201120534007.3 Utility Model 16 December 2011 10 years commencing from (-fh’r*±t.!ltR) * 16 December 2011 Note:
* In relation to our improved interlocking system for our bamboo flooring Save as disclosed above, we are not dependent on any intellectual property for our business operations. THE REST OF THIS PAGE HAS BEENINTENTIONALLYLEFTBLANK 79
I Company No.: 1014793-D I 6. BUSINESS OVERVIEW (Cont’d) 6.13  PROPERTIES  6.13.1  Own Property  As at the LPD, we own the following property:

Audit.d NBV as at 30 June 2013
EncumbrancesOwner 19,6621 Industrial Land Mortgaged in Kanger Jinling, Gannan with the 8,577** use ~jlitf 00 ffl (2008) favour of Industrial Park, following Jl’401 “§-Industry and Ganzhou buildings CommerceI 30 April 2008 Economic and erected thereon:
Bank ofChina Technology i-storey factory Ganzhou Development I-storey Head Office Gongjiang’iiimt.z iiF!”JI’Zone, Jiangxi detached and Branch SOOl57131 “§­Province, 341000 building manufacturing 120 May 2009China annexed with facility (1′ ooIIjffi1tJ’~MH a 3-storey

3-storey buildingdetached~£iJf1x*tfli:1X
building ~~m;&ijf*JI”iili’/JI’lttmr’JJit
S00166848 Ҥ-;d4 jffi J1JI~ll)W
Several 1­Dust S00166849 .’}; 341000) storey vacuum,
S00166850 “§­detached waste storage I I0 August 2009 temporary and switch
buildings*  board rooms  I -storey detached temporary building*  •  Cafeteria and staff dormitory
80

I Company No.: 10147~ 6. BUSINESS OVERVIEW (Cont’d)
Encumbrances  Ganzhou Kanger (conl·d)  •  Several 1­storey detached temporary buildings*  Rented to a 3Td party from 15 December 2012 to 15 December 2015

 

Notes: • Under the PRe law, a temporary building cannot obtain building ownership certificate but shall be subject to approval of the planning and constmction department of the government, whereby it shall be use no more than three (3) years and shall be dismantled before the expiration a/the approved lime limit. The Ganzhou Urban and Rural Planning Construction Bureau, Development Zone Branch has approved the temporary buildings and use ofthe temporary buildings on 1 Jufy 201J We will dismantle the temporary buildings and relocate our dust vacuum, waste storage and switch board rooms within our manufacturing facility as well as lease a suitable premise as dormitory for our staff, Ifnecessary, before the expiration ofthe approved time limit. •• Build-up area is excluding temporary buildings. THE REST OF THIS PAGE BAS BEEN INTENTIONALLY LEFT BLANK 81
ICompany No.: 1014793-D I

 

6. BUSINESS OVERVIEW (Cont’d) 6.13.2 Leased Properties As at the LPD, we have leased the following properties for our operations:
Dayu County  Jiuniutang Village, Neiliang Town, Dayu  A vacant land used for our  inspection  20 June  600/­ -(2)  NeiIiang Town  County, Jiangxi Province, 341509 China  site of raw  bamboo purchased from  2010  Jiuniutang Village  (9” OOrri1!ii!i’7c,*~ PJ “j;fL’I’Ji8 341509)  the local suppliers  to  Committee  19 June  (7c,*~PJ “j;fL  2030  ‘l’Ji8;f1Hl\’;~ffl  ~)  Shenzhen  Lin “(ixian  West 3rd Floor, Building A,  1 floor of a 6·storey semi-detached  18 May  (1)/628  R1v14,48i6) per  Kanger  (tfZ’: ~)  No.1 Eastern Section, Xiii Dakan Industrial Zone,  building for our warehouse and office  2013  month  Nanshan District, Shenzhen,  to  Guangdong Province,  17 May  518055 China(3)  2016  (9″ 00 r-*,/;,!*JJII J1JWl w rz ll’lmm::idi;b;flIillcrs:  *W I-¥} A.f*.=:tl:’ll’lit!518055)  Shenzhen  Lin Yixian  Room 102, 151 Floor, Building B  1 floor of a 7-storey semi-detached  1 May  (1)/150  RMI,650(6 )  Kanger  (tfZ’: ‘If)  No. I Eastern Section, XiIi Dakan Industrial Zone,  building  for OUT staff dormitory and  20131030  per month  Nanshan District, Shenzhen,  canteen  April 2016  Guangdong Province, 518055 Chinal))  (9″OOr-*,/;,!*~J1JWlw~ll’lD~~Hlillcrs:  *W 1 Ji} B .f*-tl:’ 102518055)
82
I Company No.: I014793-D I 6. BUSINESS OVERVIEW (Conl’d)
Shcnzhen  Shcnzhen  Room 268B and 278B, r d Floor, Le’Anju  2 units of shop lot in a detached retail  1 August  (1)/85.4  RM5.017{b) per  Kanger  ROMAJ’IJOY  Xinzhou Store, Interchange of Fuqiang Road and  mall for our ‘KAR Masterpiece’ store  2013  month  Commercial Co.,  Shazui Road, Futian District, Shenzhen,  to  Ltd  Guangdong Province,  31 July  (i*~11 W!i’15 j’.lj it  518048 China(4)  2014  1H~0jjj)  (ep OO;)M”ii*~IIr1J;ffli ffi IRji’ii5!ii~JlE;rY~~Y:  )eJ1t5t’lcl5ffJiillli6 I*J~ 2 JHt 268B#1lJ 278B#  -5 518048)  Shenzhen  Shanghai Kant  Building 9, No. 2260, Jiatang Road,  I-storey detached building for our  10 July  (1)/453  RM3,IOi6)  Kanger  Industry  Loutang Town, Jiading District, Shanghai,  warehouse  2013t09  per month  Development Co.,  201906 China  July 2016  Ltd (L.itfJ.tj”3;itJ;t  (ep 00 L iiiHiJ t.; iE B: ~Jili*,tIi:'” Ill’~ 2260 -5 #91*-~ 201906)  !!HH~0jjj)  Shenzhen  Li Hai Fen  No.2, GangMei Road, LiShui Gang, Nanhai,  l·storey detached building for our  1 June  (1)/300  RMI,553(6)  Kanger  (‘¥’itf3l’)  Foshan, Guangdong Province,  warehouse  2012t030  per month  528244 China(4)  May 2014  (ep 00;*1″if!ll wPllitf111JKi’l] ~fHJl 2 -5 z.=  528244)
83 I Company No.: 1O\4793-D I 6. BUSINESS OVERVIEW (Cont’d)
84
6. BUSINESS OVERVIEW (Cont’d) Notes: (1) Not available as the leased property is a unit within a building or the leased agreement does not include the land area.
(2) Provided for Ganzhou Kanger’s usage for free by Dayu County Neiliang Town Jiuniutang Village Committee via an agreement dated 20 June 2010 0/7 (he understanding that the former will contribute to the local economic development by way a/promoting bamboo harvesting activities by the localfarmers in the vicinity and in return, the latter will provide support and services in the process of bamboo examination and procurement as weI! as an empty land to be used by Ganzhou Kanger for .free on such
purposes.
(3) The leased property does no! possess a real property ownership eert(/iea/e. In accordance with the approval conditions imposed by Bursa Securities as detailed in Section 9.1 of this Pr05pectus, we will lease other property which has a real property ownership certificate within one (1) year Fom 9 September 2013.
(4) The leased property does not possess a real property ownership cerr(jlcate. As such, we will lease other property which has a real property ownership certificate upon the exphy ofthe current tenancy. We do not expect any material disruption to our business or operations jimn such relocation as there is no manufacturing activity conducted at the property.
(5) The buildings used by Yanshan Kanger do not possess real property ownership certificates, As such, we have obtained a confirmation from Yanshan Real Estate Administration Bureau via a letter dated 10 May 2013 which confirmed that the buildings are qualifiedfor use by Yanshan Kangerfor its operations.
(6) Basedontheexchangerateasatthe LPDofRMB1:RMO.5178.
(7) The lessor has obtained the cerlificate of practical completion for this office building and is in the process of obtaining the certificate of completion and compliance (“CCC”). Nonetheless, KAR Masterpiece has undertaken not to renew the tenancy and to relocate to a suitable premise in the event the lessor is unable 10 obtain the CCC by the endoflhe tenancy on 31 July 2014.

Save for the matters highlighted above (in relation to our leased properties in Shenzhen, Foshan and Malaysia), as at the LPD, we are in compliance with all regulatory requirements in respect of our owned and leased properties. 6.14 COMPETITIVE STRENGTHS Our key competitive strengths which have enabled us to compete effectively in the industry that we are operating in are as follows: 6.14.1 Wide Distribution Network In 2004, we were recognised and have remained as the sole authorised supplier of bamboo flooring to B&Q China, one of the largest Westem home improvement retailers in China with nearly 40 stores across China. In addition, as at tile LPD, we also have a wide distribution network of 31 ‘Kanger’ stores and one (1) ‘KAR Masterpieee’ store in the Guangdong province of China. To facilitate the logistics, distribution and servicing of our customers in these locations, we have set up warehouses in Shanghai, Foshan and Shenzhen as well as stationed sales personnel at various B&Q stores in China. We recognise that our wide distribution network has enabled us to grow our business and increase awareness of our products and our brands. Thus, our Sales and Marketing Department actively seeks new distributors and new wood flooring retailers to be our dealers. In addition, through amongst others our marketing strategies of posting our products on business-to­business websites and pm1icipations at trade shows, we have secured a number of overseas customers in Turkmenistan, United Arab Emirates, Hong Kong, Romania and other countries which accounted for 20% of our total revenue for the FPE 30 June 2013.
6.14.2 Quality ‘Green’ Products We place strong emphasis on the quality of our products and our services which has helped us to establish and maintain our relationships with our customers, such as B&Q China whom we have been 6. BUSINESS OVERVIEW (Con/’d) dealing with since our inception In 2004, as well as establish our brands, ‘Kanger’ and ‘KAR Masterpiece’ . As a testament to the quality of OUf products, we provide a one (1) year product W3lTanty whereby we will replace any defect products free of charge. Thus far, the product walTanly claims have been minimal. Further, any product walTanty claims will not have a material impact on OUf financial performance as the defective products can be rectified or reworked at minimal cost for subsequent sales. OUf commitment and dedication to quality have been affIrmed by various commendations, with the most recent being the ISO 9001:2008 certification for our QMS. In addition, we have also obtained CE marking for our products which enabled them to be marketed within the European Union. In addition, to complement bamboo as an environmentally friendly material, we are committed to ‘green’ operating practices whereby our environment management system has been accredited as being ISO 14001:2004 compliant. With increasing consumer preference for environmentally friendly products, we envisage increasing demand for our products.
6.14.3 Prodnet Development and Innovation Our success may be attributable to our continuous R&D efforts to improve the quality of ow’ existing products and accelerate the development of new products. Through our R&D efforts, we have launched twelve (12) series of bamboo flooring with different features and/or aesthetics to cater for different consumer preferences and requirements as well as different pricing to cater for different segments of the market. In addition, we are also able to offer different types of bamboo flooring, that is strand woven bamboo floorrug, and horizontal and vertical bamboo flooring. Through our R&D efforts, we are also exploring the production of new products to widen our product range, such as outdoor bamboo flooring, bamboo wall panelling and bamboo doors. Please refer to Section 6.15.1 of this Prospectus for further details of our future products. In addition, to further our R&D capabilities, we have entered into the R&D Agreement with FRIM Board to collaborate with FRIM on amongst others, the development of strand woven bamboo planks using a suitable Malaysian bamboo species for structural and non-structural applications. Please refer to Section 6.6 of this Prospectus for further details of our R&D collaboration with FRIM. Pursuant to our R&D collaboration with FRIM, we are able to tap onto the expertise and knowledge of FRIM’s staff as well as utilise FRIM’s facilities for the testing of our products which has facilitated the launch of new series of bamboo flooring, particularly our strand woven bamboo flooring.
6.14.4 Experienced Management Team Our Group is led by our Managing Director, Leng Xingmin who has ten (10) years of experience in the bamboo flooring industry and who has been instrumental in the development of our Group. He is supported by our team of six (6) key management and key technical personnel, comprising of staff with diverse background and experience in various industries, including manufacturing and marketing. Their different expertise, experience and ability to collaborate as a team have contributed positively to OUf operations and growth, which is reflected in our improved financial perfonnance over the past three (3) financial years and recent financial period. 6. BUSINESS OVERVIEW (Cont’d) -~–_…. _——_._————-._._._._——­

6.15 FUTURE PLANS, STRATEGIES AND PROSPECTS 6.15.1 Future Plans and Strategies (i) Expansion of Our Flooring Products As part of our growth strategies, we will be purchasing new machineries for our Ganzhou plant to facilitate the launching of new series of bamboo flooring to cater to customers’ requirements. The new machineries, which will be added on to OUf production line in Ganzhou, will enable us to produce bamboo flooring with improved interlocking system and/or finishing to meet customers’ demands for such features. At the same time, the installation of these new machineries 011tO our existing production line will increase the monthly production capacity of our Ganzhou plant by 10,000 m’ to 60,000 m’ due to the improved efficiency of these new machineries. The new machineries arc expected to be purchased by the first quarter of 2014 and are estimated to cost approximately RMl.O million, which will be funded through our IPQ proceeds, (Ii) Enhancement of Our Flooring Products Through our R&D efforts, we have developed our own water-based adhesive which meets regulatory requirements on fonnaldehyde emission, including the strict European Union standards, aud has less than 0.1 % formaldehyde emission. This water-based adhesive is currently being used in the production of oW’ strand woven products. As part of our strategy to further enhance our competitive strength as a quality ‘green’ supplier, we are clearing our existing inventories of strand woven products which were not produced using our own water­based adhesive at lower selling prices to enable us to be focused on selling more ‘green’ strand woven products, that is products which are produced using our own water-based adhesive. We believe with increasing consumer preference for environmentally friendly products, the introduction of more ‘green’ strand woven products will enhanee demand for our products and thereby our revenue, (iii) Expansion of Our Product Portfolio Currently, our products are focused on bamboo flooring and strand woven bamboo planks, a semi-finished product from our strand woven bamboo flooring manufacturing process, Moving forward, we intend to introduce new types of products to be included in our products portfolio pursuant to our Production R&D as mentioned in Section 6.6(i) of this Prospectus. THE REST OF THIS PAGE lIAS BEENINTENTIONALLY LEFT BLANK

6. BUSINESS OVERVIEW (Conl’d) —._–_….-­The outlook of the bamboo flooring market in China is projected to be positive; the market is expected to grow during the forecast from 2013 to 2017. GroMh in the said market is likely to derive from domestic and international demand. Over the years, China’s strong economic growth has led to increasingly affluent consumers who now have the purchasing power as well as the willingness to pay to enhance individual lifestyles for greater comfort and pleasure. The modernisation and urbanisation of the country has also caused a grov.1h in the China’s property construction industry, an industry that the bamboo flooring market is dependent on for the consumption of of its products. China’s initiatives of development its westeln region and the construction of 36 million affordable houses as stated in its 121h Five-Year Plan (2011 -20(5) is envisaged to uphold perfomlance of the construction industry which is expected to positively affect the bamboo flooring market. On the global frontier, consumers are becoming more aware of the importance ofprotecting the environment. In tandem with Ihe growing awareness of the benefits and aesthetic value of bamboo, bamboo flooring has become one of the trending choices in the flooring material industry as a greener and more sustainable materiaL This is likely to increase demand for Chinese bamboo flooring, especially among advanced societies where environmental concern is more mature. China’s bamboo flooring market is valued at RMB3.37 billion in 2012 and is expected to grow at a CAGR of 8.4 percent for the year 2012 to 2017 to RMB5 .04 billion in 2017. (Source: IMR Report) Based on the expected groMh for the bamboo industry and specifically, the bamboo flooring market, as well as our future plans and strategies and our competitive strengths as set out in Sections 6.15.1 and 6.14 of this Prospectus respectively, our Board is of the view that we will continue to enjoy positive growth in the foreseeable future. Whilst we recognise the market challenges in the industry and the risk factors as outlined in Section 4 of this Prospectus, we are committed to implement our future plans and strategies to achieve our business goals and objectives.

6.16 OTHER FACTORS AFFECTING OUR BUSINESS 6.16.1 Demand and Seasonality Save for the following, our activities are not significantly affected by seasonal/cyclical effects: (i) Bamboo cutters are not encouraged to harvest bamboo during the spring season from January to March to avoid potential damage to the growth ofnew bamboo or shoots during this season. As such~ we increase our inventory level at year end as well as place advance orders for bamboo materials to avoid disruption to our operations.
6.16.2 Dependency on IndustriaI~ Commercial and Financial Contracts Save as disclosed below, we are not dependent on any material contracts or agreements including industrial, commercial and financial contracts, which are material to our business or profitability: (i) Ganzhou Kanger and Shenzhen Kanger had entered into agreements with B&Q China Investment Co., Ltd., our major customer, for the period I January 20 13 to 31 December 2013 with an automatic extension to fOlTIlalise the terms of our supply arrangemenl to B&Q China without corrunitment on the quantity to be supplied.
(ii) KAR Masterpiece had entered into the R&D Agreement with FRIM Board to collaborate on R&D on the applications of strand woven bamboo planks for structural and non-structural applications in Malaysia. The salient terms of the R&D Agreement are detailed in Section 6.6(ii) of this Prospectus.

______~_·__o _ 6. BUSINESS OVERVIEW (COllI ‘d) _____000_0 00 _ Whilst our R&D collaboration with FRIM has facilitated the launch of new series of bamboo flooring, we are not overly dependent on this R&D collaboration as we can outsource the testing of our products to other third party laboratories.  6.16.3  Interruptions to Business and Operations  During the past twelve (12) months preceding the lPG, we have not experienced any significant intelTIlptions in our operations which had a significant impact on our business.  6.16.4  Regulatory Requirements and Environmental Issues  Save as disclosed in Sections 4 and 6.13.2 of this Prospectus, as at the LPD, we are in compliance with all regulatory requirements and have not experienced any environmental issues which may materially affect our operations and utilisation of assets.
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