About SKL Company

Our business model We are a well-known supermarket chain operator with geographical coverage focused on Guangdong Province, China, and our network is particularly large in Foshan (one of the richest cities in the region). For the years ended December 31, 2012, 2013 and 2014 and the four months ended April 30, 2015, [83.5]%, [78.6]% and [78.9]% of our total revenue, respectively, came from Foshan. Our business scope spans retail and wholesale distribution channels. We were ranked as one of the top 100 FMCG chain companies in China by the China Chain Management Association in 2013 (note). As of April 30, 2015, we operated 84 retail stores, including 68 supermarkets and 16 hypermarkets located in Foshan, Zhaoqing, Zhuhai and Guangzhou in Guangdong Province 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 the Euromonitor report, in the 2014 Guangdong supermarket retail classification, our supermarket retail business ranked fifth in terms of retail sales, 0.2% market share, and third in terms of number of stores, with a market share of 0.5%. We operate the retail business under the well-known “Shunkelong” brand and provide a wide range of consumer goods, including our own brand consumer goods mainly sold in retail stores. We provide 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 division distributes certain consumer brands of side food products to sub-distributors and retail store operators and supplies FMCG products to franchisees. On April 30, 2015, we obtained sole and exclusive distribution rights for 14 consumer brands, which can be distributed in designated regions. We have set up an affiliate 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 franchised 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 in order to deepen market penetration; We will expand our O2O e-commerce platform to establish simplified and enhanced online sales channels; and We will continue to focus on improving customer satisfaction through a customer-centric approach and product portfolio adjustments. Our competitive advantage Our key competitive advantages include: We have retail stores and strategic retail locations that form a comprehensive regional network; our “Shunkelong” brand is 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-centered 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 operating and sales customers are comprised of retail customers and tenants who rent some space in our retail stores and counters. Retail customers are mainly individuals living in the surrounding area and some companies and government entities that make bulk purchases from us. Our wholesale distribution customers are second-tier 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 2012, 2013 and December 31, 2014 and 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 various 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 for our wholesale business. For the years ended December 31, 2012, 2013 and 2014, and the four months ended April 30, 2015, our total purchases from the five major suppliers accounted for 32.1%, 28.3%, 29.5% and 35.0% of the total cost of our sold inventory during the same period, respectively. Our purchases from the single largest supplier in the same period accounted for 13.7%, 12.3%, 14.1% and 12.6% of the total cost of our sold inventory 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 as well as regional and regional supermarket operators. These retail store operators have all established market positions in the region and may expand their presence in the same cities where we have opened or intend to open retail stores.