About SKL Company

Our business model We are a well-known supermarket chain operator with a geographical focus on Guangdong Province, China, and the network in Foshan (one of the richest cities in the region) is particularly large. For the years ended December 31, 2014, and the four months ended April 30, 2015, [83.5]%, [78.6]% and [78.9]% of our total revenue came from Foshan, respectively. We operate across retail and wholesale distribution channels. We were ranked as one of the top 100 FMCG chain stores in China by the China Chain Management Association in 2013 (note). As of April 30, 2015, we operate 84 retail stores, including 68 supermarkets and 16 hypermarkets in Foshan, Zhaoqing, Zhuhai and Guangzhou, Guangdong, and Macau, China. With our expertise and experience in supermarket operations, we have been and will continue to focus on the supermarket business. According to Euromonitor's report, in the 2014 Guangdong supermarket retail classification, our supermarket retail business ranked fifth in terms of retail sales, with a market share of 0.2%, and third in terms of the number of stores, with a market share of 0.5%. We operate our retail business under the well-known “Shunkelong” brand and provide a wide range of consumer goods, including private label consumer goods mainly sold by retail stores. We provide our customers with a comprehensive one-stop shopping experience, and we believe we can effectively meet the needs of retail customers. We are continuously expanding our retail network by opening new retail stores and launching online supermarkets in Guangdong Province and Macau, China. We also earn rental income by renting out certain areas of our retail stores to tenants. Our wholesale distribution business segment distributes several consumer brands of side food products to sub-distributors and retail store operators and supplies FMCG products to franchisees. As of April 30, 2015, we have obtained sole and exclusive distribution rights for 14 consumer brands, which can be distributed in designated regions. We have set up a franchise program where interested parties can publicly apply to operate their franchise retail stores under the “Happy” brand. As of April 30, 2015, we have 31 franchise stores. Our business strategy Our goal is to become one of the largest supermarket operators in third- and fourth-tier cities in Guangdong Province, and to become one of the largest well-known supermarket operators in China through continuous expansion. We plan to achieve these goals by implementing the following strategies: We will further strengthen our market position by expanding our business scope and number of retail stores; We will focus on third- and fourth-tier cities in Guangdong Province to deepen market penetration; We will expand our O2O e-commerce platform and establish simplified and enhanced online sales channels; and We will continue to focus on improving customer satisfaction through a customer-centric approach and adjusting our product portfolio. Our competitive advantage Our key competitive advantages include: We have retail stores forming a comprehensive regional network and strategic retail store locations; our “Shunkelong” brand has been fully recognized by consumers in Guangdong Province; We have centralized distribution centers and advanced information technology systems; We have an experienced and stable management team and a customer-centric corporate culture; and We implement strict quality control to meet our customers' expectations and concerns about product quality and food safety Note. Our customers Retail store management and sales customers are comprised of retail customers and tenants who rent certain spaces in our retail stores and counters. Our retail customers are mainly individuals living in the surrounding area and some of the companies and government entities that make bulk purchases from us. Our wholesale distribution customers are secondary distributors, retail store operators and our franchisees in China, who sell products to other end consumers and their target consumer groups. No individual customer accounted for more than 5% of revenue for each of the three years ended December 31, 2012, and December 31, 2014, and for the four months ended April 30, 2015. Our suppliers Our suppliers can be broadly divided into manufacturers, distributors, and OEM manufacturers of our own branded products. Through our retail store operation and sales and wholesale distribution business, we procure a full range of high-quality products from suppliers, including everyday consumer goods for end consumers and a variety of products for secondary distributors and retail store operators. We mainly purchase fresh food, side food and household products for our retail business and side food products for our wholesale business. For the years ending December 31, 2014, and the four months ending April 30, 2015, our total purchases from the five major suppliers accounted for 32.1%, 28.3%, 29.5% and 35.0% of our total inventory costs sold during the same period, respectively. Our purchases from the single largest supplier during the same period accounted for 13.7%, 12.3%, 14.1% and 12.6% of our total cost of inventory sold during the same period, respectively. Market and competition The supermarket retail industry in Guangdong Province is quite scattered. Our main direct competitors include domestic and international retail chain operators and regional and local supermarket operators. These retail store operators have all established market positions in the region and are likely to expand their presence in the same cities where we have opened or intend to open retail stores.