Nature Wood Group Limited American Depositary Shares (NWGL) 20-F2023 FY Annual report (foreign)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

OR

For the fiscal year ended December 31, 2023

OR

OR

Date of event requiring this shell company report __________

Commission file number 001-41796

NATURE WOOD GROUP LIMITED

(Exact name of Registrant as specified in its charter)

British Virgin Islands

(Jurisdiction of incorporation or organization)

Avenida da Amizade no. 1287

Chong Fok Centro Comercial, 13 E

Macau S.A.R.

(Address of principal executive offices)

Jianjun Zeng, Chief Executive Officer

Telephone: +853 2855-3594

Email: johnny@nature-wood.com

At the address of the Company set forth above

(Name, Telephone, E-mail and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

* Not for trading, but only in connection with the listing of the American depositary shares on The Nasdaq Stock Market LLC

Securities registered or to be registered pursuant to Section 12(g): None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

132,425,321 ordinary shares were outstanding as of December 31, 2023

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark which basis of accounting the registration has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which consolidated financial statement item the registrant has elected to follow. ☐ Item 17 ☐ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). ☐ Yes ☒ No

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☒ No

Table of Contents

CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F

Unless we indicate otherwise, references in this report to:

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties, including statements based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements are made under the “safe harbor” provision under Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and as defined in the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may”, “will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan”, “believe”, “potential”, “continue”, “is/are likely to” or other similar expressions. The forward-looking statements included in this annual report relate to, among others:

You should read these statements in conjunction with the risks disclosed in “Item 3. Key Information—3.D. Risk Factors” of this annual report and other risks outlined in our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in an evolving environment. New risks may emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the impact of such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we have referred to in this annual report, completely and with the understanding that our actual future results may be materially different from what we expect.

PART I.

Not Applicable.

Not Applicable.

3.A. [Reserved]

3.B. Capitalization and Indebtedness

Not Applicable.

3.C. Reasons for the Offer and Use of Proceeds

Not Applicable.

3.D. Risk Factors

You should carefully consider each of the following risks and all the other information contained in this 2023 20-F Report in evaluating us and our common stock. Although the risks are organized by headings, and each risk is discussed separately, many are interrelated. Our business, financial condition, results of operations and cash flows could be materially and adversely affected by these risks, and, as a result, the trading price of our common stock could decline. We have in the past been adversely affected by certain of, and may in the future be affected by, these risks. You should not interpret the disclosure of any risk factor to imply that the risk has not already materialized.

Risks Related to Our Business and Industry

Our revenues are sensitive to fluctuations of log price and selling price of our products in the forestry industry.

Historically, prices for logs have been volatile and are affected by numerous factors that are not under control, including demand for wood and wood products, supply from illegal logging, changes in currency exchange rates, economic growth rates, foreign and domestic interest rates, trade policies, and prevailing fuel and transportation costs.

In addition, industry-wide increases in the supply of logs during a favorable price period can also lead to downward pressure on prices through oversupply. Increased production by us and our competitors could lead to oversupply and lower prices. Oversupply and lower prices may also result from illegal logging activity or decreased government enforcement of logging restrictions. Our revenues and profits are extremely sensitive to changes in log prices and selling prices of our products. Slight changes in log prices and selling prices of our products may cause a disproportionally large change in our revenues and our results of operation. If market prices for logs or our products were to decline, it could have a material adverse effect on our business, financial condition and results of operation.

We may face increased costs for new forest acquisitions.

As the forestry sector develops, sellers may become increasingly sophisticated about the valuation and prices of their forests and may demand higher premiums for high quality forests. There is no assurance that we will be able to negotiate favorably low prices for our new forest acquisitions. Rising acquisition costs and intensifying competition for new forests may hamper our expansion plans and have an adverse impact on the profitability and results of our operations.

Our Forests are subject to environmental regulations in the relevant jurisdictions.

The operations of our forestry business are subject to a wide range of environmental laws and regulations, which regulate, among other things, forestry activities, including harvesting, land clearing for forests and the emission, noise or discharge of pollutants, effluents, or solid waste, water or atmosphere.

Environmental laws and regulations have generally become more stringent in recent years and could become even more stringent in the future. We may be required to obtain certain licenses before we are permitted to occupy certain premises and/or carry out certain activities. They also protect endangered or threatened wildlife species which may live in our Forests. Some of these environmental laws and regulations could impose significant costs, expenses, penalties, administrative measures, and liabilities on us for violations of existing conditions attached to our licenses or commitments of environmental impact assessments, whether or not we caused or knew about them. Violations of such laws and regulations may result in civil penalties (such as fines and recovery of costs), remediation expenses, potential injunctions and prohibition orders and criminal penalties. Some environmental statutes impose strict liability, rendering a person liable for environmental damage without regard to the person’s negligence or fault.

Compliance with, or damages or penalties for violating, current and future environmental laws and regulations could result in a reduction in harvesting volume, suspension of our activities and may force us to incur significant expenses, which in turn could have a material adverse effect on our business, financial condition, and results of operations. Any tightening of the requirements prescribed by environmental laws and regulations in Peru or France, or changes in the manner of interpretation or enforcement of such existing laws or regulations, could adversely impact our operations by increasing our compliance costs and potential liabilities in connection with such laws and regulations, including additional capital or operating expenditures, which may place additional demands on our liquidity and adversely affect our results of operations.

We are dependent on the availability of large numbers of workers to perform manual labor.

We rely on large numbers of workers to harvest logs and perform manual labor. As many of our Forests are located in remote areas far from population centers, there is a risk that manpower for harvesting logs and for maintaining our Forests will not be available on a continuous basis due to factors such as rural-urban migration. We are also vulnerable to labor shortages due to strikes, labor stoppages and civil unrest. Any shortage of labor could increase our costs and reduce our production, which may have a material adverse effect on our business, financial condition and results of operations.

Our Forests may not grow in accordance with our expectations.

The success of our business depends in part upon the productivity of our existing and future forests. Growth in forests depends on a number of factors, many of which are beyond our control. These include, but are not limited to, damage by fire, diseases, pests, environmental pollution, and other natural or man-made disasters, as well as weather, climate, genetic factors and soil conditions. Our ability to improve the growth speed of our Forests will depend on the factors described above as well as our ability to improve our forest management practices. As a result, there can be no assurance that our Forest will grow as we expect. Our future business, financial condition and results of operations may be adversely affected if our Forests grow at a slower rate than we expect.

Our forest survey and knowledge of our Forests are subject to errors in the survey.

Our operating results depend on our knowledge of forests, especially in Peru and France. We regularly visit our Forests to monitor their growth and condition. In this process, we use a random sampling method for our survey of forests. We cannot guarantee the reliability of the results of our survey. In the event that the results of our survey are not reliable, our knowledge of our Forests and our ability to manage our Forests could be greatly hampered, which may have a material adverse effect on our business, financial condition and results of operations.

We depend on certain major customers.

For each of the years ended December 31, 2023, 2022 and 2021, we had a total of 143, 158 and 115 customers respectively, which had purchased our wood products. Our five largest customers during the respective periods accounted for approximately 53.2%, 55.3% and 55.1% of our total turnover respectively; whilst our largest customer accounted for approximately 28.2%, 19.5% and 22.6% of our total turnover respectively.

We may face increased operating costs and staff costs.

Our business may face increased operating costs as the forestry industry continues to develop. Our operating expenses for logging activities consist of our costs of harvesting, such as labor costs, and costs associated with applying for logging permits for our Forests. We expect labor costs to rise as workers who harvest our logs become more experienced and increase their wage demands. Logging permits for our Forests are subject to periodic revisions by the local forest bureaus and we expect them to increase as the industry develops. Increases in our operating expenses for logging activities and staff costs may have a material adverse effect on our business, financial condition and results of operations.

Our inability to obtain logging permits with sufficient logging amounts could reduce our future revenues.

A logging permit setting out, among other things, the quota (in terms of the maximum area and/or number of trees) allowable for logging and the period of logging must be obtained from the local forestry bureaus for harvesting in Peru.

Because the availability of logging permits is subject to the approval of the relevant local forestry bureau, there is no assurance that we will be able to continue obtaining logging permits, or that the logging amount given to us under the logging permits will be sufficient for our operations. Should we fail to obtain logging permits with logging amounts sufficient for our operations, our revenues in the future may be reduced and our business, financial condition and results of operations may be materially and adversely affected.

Our inability to obtain certificates from the FSC could reduce our future revenues.

During the years ended December 31, 2023, 2022 and 2021, revenue generated from FSC-certified decking amounted to approximately $4.7 million, $11.2 million and $9.9 million, representing approximately 18.4%, 20.3% and 20.7% of our total revenue. This, in turn, requires that we retain and renew our existing FSC Chain of Custody (CoC) certifications. Our retention and renewal of these certificates depend on our performance in forest management.

We cannot assure you that we will be able to retain or renew our existing certificates or obtain new certificates. If we are unable to renew or retain certificates, our business, results of operations and financial condition will be materially and adversely affected.

Our inability to acquire enough immediately harvestable forests may affect our ability to meet demand.

As at December 31, 2023, our Forests covered an area of approximately 615,333 hectares. We rely on acquisitions of new forests to increase our timber supply, particularly new forests which are immediately harvestable. There can be no assurance that we will be able to acquire sufficient immediately harvestable forests in the future to keep up with demand. If we cannot do so, our business, financial condition and results of operation may be materially adversely affected.

The current global market fluctuations and economic downturn could materially and adversely affect our business, financial condition and results of operations.

The global capital and credit markets have been experiencing extreme volatility and disruption in recent times. Concerns over inflation or deflation, energy costs, geopolitical issues, and the availability and cost of credit have contributed to unprecedented levels of market volatility and diminished expectations for the global economy and the capital and consumer markets in the future. These factors, combined with volatile oil prices, declining business activities and consumer confidence and increased unemployment, have precipitated an economic slowdown and a possible prolonged global recession. These events have led to a slowdown in the global economy which a number of economists predict could be significant and protracted. As a result, the demand for our wood products may significantly decrease, thereby materially and adversely affecting our business, financial condition and results of operations.

Social conflicts may disrupt our operations.

Despite Peru’s ongoing economic growth and stabilization, high levels of poverty and unemployment and social and political tensions continue to be pervasive problems in the country. Peru has, from time to time, experienced social and political turmoil, including riots, nationwide protests, strikes and street demonstrations. In the past, Peru has experienced periods of political instability that has included a succession of regimes with differing economic policies and programs. Recently, since December 2022, Peru has experienced unrelenting political turmoil. Part of our operations are conducted in Peru and depend on economic and political developments in the country. As a result, any social conflicts may disrupt our business operations, which could have a material adverse effect on our business and financial performance.

Security, political and economic instability in the Middle East may harm our business.

The escalating conflicts between Israel and its neighboring countries and Islamist militia and political groups since late 2023, particularly the Israel-Gaza Strip and attacks targeting vessels in the southern Red Sea, has introduced geopolitical tensions and security risks within the Middle East region. Such instability may affect the global markets and potentially cause disruptions to the international trade and financial systems. As such, the conflicts and heightened tensions in the Middle East could have an indirect, adverse impact on our business and financial condition and results of operations.

We are heavily dependent on key personnel and consultants.

We are heavily dependent on our Directors and management for the success of our operations. Our ability to negotiate successfully with the forest owners for our forest rights, and to acquire high quality forests, depends on the skills, relationships and reputation of our senior management. In particular, we rely on the management skills of our chairman, Mr. Hok Pan Se, for our business across borders. We also rely on the expertise and experience of our forest management staff, procurement and inventory staff, production staff, sales and marketing staff and consultants.

If we lose the services of any of our key personnel and/or if we cannot attract or retain quality consultants to advise us, we may lose our competitive advantage and our business could be adversely affected.

We face competition from other companies in the forestry industry.

We face many local and overseas competitors who also supply wood products to the market. Our primary competitors operate either domestically or within the Asia Pacific region. In particular, we face competition from a host of small logging firms, some of which may not comply with environmental and other industry standards to the same extent as we do, resulting in their potentially lower operating costs.

Competition in our industry is influenced by factors including the costs of new forest acquisitions, regulatory compliance, and forest insurance. Some of our competitors may have lower costs than we do, or, if their operations are located in less developed countries, may be subject to less stringent environmental and other governmental regulations than we are, because of different or regional laws and business practices. If we are unable to compete effectively, or if competition increases in the future, our revenues could decline, and there may be material adverse effects on our business, financial condition, results of operations and cash flows.

The forestry industry faces competition from solid wood substitutes.

In addition to competition within the forestry industry, the forest industry faces competition from solid wood substitutes. We face competition from companies that manufacture wood substitutes, such as imitation wood, fiber-cement wood, ceramic tile and other materials that are used as alternative materials mainly in construction and furniture production. The demand for wood products is also affected by changes in consumer trends and tastes. Preference for wood substitutes among manufacturers, construction companies and consumers could decrease demand for our products and have a material adverse effect on our revenue, financial condition and results of operations.

Abnormally high or prolonged levels of rain at our Forest locations may adversely impact our ability to harvest timber.

Our harvesting activity is dependent on, among other things, the weather conditions at our Forest locations. For safety reasons, we discontinue logging in our Forests during the rainy season, which is usually from late November to May. Abnormally prolonged periods of rainfall or unusually intense rainfall will reduce the volume of logs we are able to extract, which may have a material adverse effect on our business, financial condition and results of operations and revenues.

We are subject to certain risks relating to the delivery of our products.

We often rely on third-party logistics service providers for the delivery of our wood products to customers. Such delivery services could be suspended and thus interrupt the supply of our wood products if unforeseen events occur which are beyond our control, such as transportation bottlenecks, natural disasters, disease outbreaks or labor strikes. Any failure of this personnel to provide high-quality or timely delivery to our customers may negatively impact the purchase experience of our customers, damage our reputation and cause us to lose customers. Any negative publicity or poor feedback regarding our customer service overall may harm our brand and reputation and in turn cause us to lose customers and market share.

Disruption to the supply of raw materials or increase in raw material prices could materially and adversely affect our Group’s business, financial condition and results of operations.

The major raw materials used to produce our wood products are logs and floorings. The purchase of wood products and logs together accounted for approximately 92.0%, 97.8% and 93.9% of the total raw material purchase costs during the years ended December 31, 2023, 2022 and 2021 respectively. However, our Group has not entered into any long-term supply contracts with our suppliers. In the event that the ban on commercial logging is imposed by the French government or the places where our suppliers are located or natural disasters, the supply of timber for the production of our wood products and the hosting of timber auctions may be affected. It is therefore possible that our Group will not be able to purchase sufficient raw materials from our suppliers, in a timely manner and on commercially acceptable terms, or at all.

In addition, if we are unable to acquire raw materials from our existing suppliers for any reason, we cannot assure that our Group will be able to source the raw materials from alternative sources within a reasonable period of time, and at acceptable prices or at all. Our Group cannot assure that such shortages will not occur in the future. Any failure to obtain adequate supplies of raw materials on a timely basis may disrupt our Group’s operation, and may have a material adverse effect on the business, financial condition and results of operations of our Group.

Our networks and those of our third-party service providers may be vulnerable to cybersecurity risks.

Our network and those of our third-party service providers and our customers may be vulnerable to unauthorized access, computer attacks, viruses and other security problems. Persons who circumvent security measures could wrongfully access and obtain or use information on our network or cause service interruptions, delays or malfunctions in our devices, services or operations, any of which could harm our reputation, cause demand for our products and services to fall, and compromise our ability to pursue our business plans. Recently, there have been reported several significant, widespread security attacks and breaches that have compromised network integrity for many companies and governmental agencies, in some cases reportedly originating from outside the United States. In addition, there are reportedly private products available in the market today that may attempt to unlawfully intercept communications made using our network. We may be required to expend significant resources to respond to, contain, remediate, and protect against these attacks and threats, including compliance with applicable data breach and security laws and regulations, and to alleviate problems, including reputational harm and litigation, caused by these security incidents. Although we have implemented and intend to continue to implement security measures, these measures may prove to be inadequate. These security incidents could have a significant effect on our systems, devices and services, including system failures and delays that could limit network availability, which could harm our business and our reputation and result in substantial liability.

Risks Related to Doing Business in China

Our operations are based in Peru, France, Hong Kong and Macau. We have a subsidiary that is established in the PRC, namely Foshan City Linjia Technology Company Limited, which is engaged in IT consultancy and business consultancy. As of the date of this report, the PRC subsidiary has not (i) conducted any other business operation in the PRC, (ii) owned any material assets in the PRC, (iii) received loans or additional investments, (iv) distributed any dividends to shareholders, or (v) subjected to any administrative penalties in the PRC. The PRC subsidiary does not involve in the major part of our operations and we do not intend to conduct any major part of our operations through it in the future. Although we have equity ownership in our PRC, Hong Kong and Macau subsidiaries and currently do not have or intend to have any contractual arrangement to establish a variable interest entity structure with any entity in China, we may still be subject to unique risks due to uncertainty about any future actions of the Chinese government or authorities in Hong Kong and Macau in relation to business operations in the PRC, Hong Kong or Macau, or regulatory oversight of overseas listing of companies with operations in the PRC, Hong Kong or Macau.

Despite the fact that our operations in the PRC are insignificant, a major part of our operations is based in Hong Kong and Macau, each a Special Administrative Region of China. Although Hong Kong and Macau have their own governmental and legal system that is independent of the PRC, it is uncertain whether in the future the Hong Kong or Macau government will implement regulations and policies of the Chinese government, or adopt regulations and policies of its own that are substantially the same as those of the Chinese government. Moreover, given that policies, regulations, rules, and the enforcement of laws of the Chinese government may be changed or amended, it is also uncertain in the future whether our operations in Hong Kong or Macau will be subject to the oversight of the Chinese authorities.

We may be subject to the risks that are specific to doing business in the PRC. Nevertheless, we believe that the effect of the risks below on our Group would not be material.

Due to the long arm provisions under the current PRC laws and regulations, if the Chinese government exercises any significant oversight and discretion over the conduct of our business and intervenes in or influences our operations, our operations and/or the value of our ADSs could be affected. The policies, regulations, rules, and the enforcement of laws of the Chinese government may also be changed or amended with little advance notice and our assertions and beliefs of the risk imposed by the PRC legal and regulatory system could be uncertain.

Our Company is a holding company and we conduct our operations through our Operating Subsidiaries in Peru, France, Hong Kong, Macau and China. As at the date of this report, we are not materially affected by recent statements by the Chinese Government indicating an extent to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers. However, due to long arm provisions under the current PRC laws and regulations, there remains regulatory uncertainty with respect to the implementation and interpretation of laws in China. The PRC government may choose to exercise significant oversight and discretion, and the policies, regulations, rules, and enforcement of laws of the Chinese government to which we are subject may change from time to time. As a result, the application, interpretation, and enforcement of new and existing laws and regulations in the PRC and our assertions and beliefs of the risk imposed by the PRC legal and regulatory system could also be uncertain. In addition, these laws and regulations may be interpreted and applied inconsistently by different agencies or authorities, and inconsistently with current policies and practices. New laws, regulations, and other government directives in the PRC may also be costly to comply with, and such compliance or any associated inquiries or investigations or any other government actions may:

We are aware that since 2021, the PRC government has initiated a series of regulatory actions and statements to regulate business operations in certain areas in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. Since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation-making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list on a U.S. or other foreign exchange.

The Chinese government may intervene or influence our operations at any time or may exert more control over offerings conducted overseas and foreign investment in China-based issuers, which may affect our operations and/or the value of our ADSs. The promulgation of new laws or regulations, or the new interpretation of existing laws and regulations, in each case that restricts or otherwise unfavorably impacts the ability or way we conduct our business and could require us to change certain aspects of our business to ensure compliance, which could decrease demand for our services, reduce revenues, increase costs, require us to obtain more licenses, permits, approvals or certificates, or subject us to additional liabilities. To the extent any new or more stringent measures are required to be implemented, our business, financial condition and results of operations could be adversely affected as well as materially decrease the value of our ADSs, potentially rendering them worthless.

If the Chinese government chooses to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, such action may significantly limit or completely hinder our ability to offer or continue to offer ADSs to investors and cause the value of our ADSs to significantly decline or be worthless.

Some statements by the Chinese government have indicated an intent to exert more oversight and control over offerings that are conducted overseas and/or foreign investments in China-based issuers. On July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly issued a document to crack down on illegal activities in the securities market and promote the high-quality development of the capital market, which, among other things, requires the relevant governmental authorities to strengthen cross-border oversight of law-enforcement and judicial cooperation, to enhance supervision over China-based companies listed overseas, and to establish and improve the system of extraterritorial application of the PRC securities laws. On December 24, 2021, the CSRC published the drafts of the Provisions of the State Council on the Administration of Overseas Securities Offering and Listing by Domestic Companies, and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies for public comment. On February 17, 2023, the CSRC published the formal Overseas Listing Measures to regulate overseas securities offering and listing activities by domestic companies.

Furthermore, on December 28, 2021, the CAC, the National Development and Reform Commission (“NDRC”), and several other administrations jointly issued the revised Measures for Cybersecurity Review, or the “Revised Review Measures”, which became effective on February 15, 2022 and replaced the existing Measures for Cybersecurity Review. According to the Revised Review Measures, if an “online platform operator” that is in possession of the personal data of more than one million users intends to list in a foreign country, it must apply for a cybersecurity review. Moreover, the CAC released the draft of the Regulations on Network Data Security Management in November 2021 for public consultation, which among other things, stipulates that a data processor listed overseas must conduct an annual data security review by itself or by engaging a data security service provider and submit the annual data security review report for a given year to the municipal cybersecurity department before January 31 of the following year. On July 7, 2022, the CAC released the Measures for the Security Assessment of Cross-Border Data, which becomes effective on September 1, 2022. According to the Measures for the Security Assessment of Cross-Border Data, where a data processor provides data abroad under any of the following circumstances, it shall apply for exit security assessment of data to the national cyberspace administration through the local provincial cyberspace administration: (1) the data processor provides important data abroad; (2) the operators of key information infrastructure and data processors that process the personal information of more than 1 million people provide personal information abroad; (3) data processors who have provided 100,000 personal information or 10,000 sensitive personal information abroad in aggregate since January 1 of last year provide personal information abroad; and (4) other situations required for security assessment as stipulated by the state cyberspace administration. Given the recency of the issuance of the Measures for the Security Assessment of Cross-Border Data, no guidance on the interpretation or implementation of such Measures has been published.

We sell a range of logs and flooring primarily in Hong Kong and Macau respectively, but not in mainland China. Our subsidiaries in Hong Kong and Macau have not collected or stored any data (including certain personal information) from PRC individuals. As a result, the likelihood of us being subject to the review of the CAC is remote.

In the event that we rely on dividends and other distributions on equity paid by our PRC or Hong Kong subsidiaries to fund any cash and financing requirements, we may have, any limitation on the ability of our PRC or Hong Kong subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.

In general, our PRC subsidiary’s ability to distribute dividends is based upon their distributable earnings. Current PRC regulations permit our PRC subsidiary to pay dividends to its shareholders only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our PRC subsidiary, as a Foreign Invested Enterprise, or FIE, is required to draw 10% of its after-tax profits each year, if any, to fund a common reserve, which may stop drawing its after-tax profits if the aggregate balance of the common reserve has already accounted for over 50 percent of its registered capital. These reserves are not distributable as cash dividends. If our PRC subsidiary incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiary to distribute dividends or other payments to its shareholders could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

The Enterprise Income Tax Law and its implementation rules provide that a withholding tax rate of up to 10% will be applicable to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties or arrangements between the PRC central government and governments of other countries or regions where the non-PRC resident enterprises are incorporated.

Under Hong Kong law, dividends could only be paid out of distributable profits (that is, accumulated realized profits less accumulated realized losses) or other distributable reserves. Dividends cannot be paid out of share capital. Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us.

Any limitation on the ability of our PRC or Hong Kong subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.

To the extent cash or assets in our business is in the PRC or Hong Kong or in our PRC or Hong Kong subsidiaries, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on our ability or the ability of our subsidiaries by the PRC government to transfer cash or assets.

We may in the future depend on dividends and other distributions on equity paid by our PRC and Hong Kong subsidiaries or depend on our assets located in China or Hong Kong for our cash and financing requirements. The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in the availability of foreign currency may then restrict the ability of our PRC subsidiary to remit sufficient foreign currency to our offshore entities for our offshore entities to pay dividends or make other payments or otherwise to satisfy our foreign-currency-denominated obligations. Therefore, to the extent cash or assets in our business is in the PRC or Hong Kong or in our PRC or Hong Kong subsidiaries, the funds or assets may not be available to fund operations or for other use outside of the PRC or Hong Kong due to interventions in or the imposition of restrictions and limitations on our ability or the ability of our subsidiaries by the PRC government to transfer cash or assets.

The PRC government may continue to strengthen its capital controls, and more restrictions and substantial vetting processes may be put forward by the State Administration of Foreign Exchange of the PRC for cross-border transactions. Any limitation on the ability of our PRC and Hong Kong subsidiaries to pay dividends or make other kinds of payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends or otherwise fund and conduct our business.

Although the audit report included in this report is prepared by U.S. auditors who are currently inspected by the PCAOB, there is no guarantee that future audit reports will be prepared by auditors inspected by the PCAOB and, as such, in the future investors may be deprived of the benefits of such inspection. Furthermore, trading in our ADSs may be prohibited under the HFCA Act if the SEC subsequently determines our audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely, and as a result, U.S. national securities exchanges, such as the Nasdaq, may determine to delist our securities. Furthermore, on December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was enacted, which amended the HFCA Act and requires the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, and thus reducing the time before our ADSs may be prohibited from trading or delisted.

As an auditor of companies that are registered with the SEC and publicly traded in the United States and a firm registered with the PCAOB, our auditor is required under the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. The PCAOB is currently unable to conduct inspections without the approval of the Chinese government authorities. Inspections of other auditors conducted by the PCAOB outside mainland China have at times identified deficiencies in those auditors’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The lack of PCAOB inspections of audit work undertaken in mainland China prevents the PCAOB from regularly evaluating auditors’ audits and their quality control procedures. As a result, if there is any component of our auditor’s work papers become located in mainland China in the future, such work papers will not be subject to inspection by the PCAOB. As a result, investors would be deprived of such PCAOB inspections, which could result in limitations or restrictions on our access to the U.S. capital markets.

On May 20, 2020, the U.S. Senate passed the HFCA Act, which includes requirements for the SEC to identify issuers whose audit work is performed by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The U.S. House of Representatives passed the HFCA Act on December 2, 2020, and the HFCA Act was signed into law on December 18, 2020. Additionally, in July 2020, the U.S. President’s Working Group on Financial Markets issued recommendations for actions that can be taken by the executive branch, the SEC, the PCAOB or other federal agencies and departments with respect to Chinese companies listed on U.S. stock exchanges and their audit firms, in an effort to protect investors in the United States. In response, on November 23, 2020, the SEC issued guidance highlighting certain risks (and their implications to U.S. investors) associated with investments in China-based issuers and summarizing enhanced disclosures the SEC recommends China-based issuers make regarding such risks.

On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements in the HFCA Act. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCA Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The final amendments require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in the public accounting firm’s foreign jurisdiction, and also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrants. Under the HFCA Act (as amended by the Accelerating Holding Foreign Companies Accountable Act, which was enacted on December 29, 2022), our securities may be prohibited from trading on the Nasdaq or other U.S. stock exchanges if our auditor is not inspected by the PCAOB for two consecutive years, and this ultimately could result in our ADSs being delisted.

On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, and thus, would reduce the time before our ADSs may be prohibited from trading or delisted.

On September 22, 2021, the PCAOB adopted a final rule implementing the HFCA Act, which provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On November 5, 2021, the SEC approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 provides a framework for the PCAOB to use when determining, as contemplated under the HFCA Act, whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.

On December 16, 2021, the PCAOB issued a report on its determinations that it was unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in Mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions, which determinations were vacated on December 15, 2022. The PCAOB made its determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the HFCA Act, which determinations were vacated on December 15, 2022. The report further listed in its Appendix A and Appendix B, the Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively, which determinations were vacated on December 15, 2022. Our auditor, WWC, P.C. is headquartered in the United States, and did not appear as part of the report under the lists in its Appendix A or Appendix B.

On August 26, 2022, the PCAOB signed SOP Agreements with the China Securities Regulatory Commission (the “CSRC”) and China’s Ministry of Finance. The SOP Agreements established a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong completely in 2022. The PCAOB vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s control. However, if the PCAOB continues to be prohibited from conducting complete inspections and investigations of PCAOB-registered public accounting firms in mainland China and Hong Kong, the PCAOB is likely to determine by the end of 2023 that positions taken by authorities in the PRC obstructed its ability to inspect and investigate registered public accounting firms in mainland China and Hong Kong completely, then the companies audited by those registered public accounting firms would be subject to a trading prohibition on U.S. markets pursuant to the HFCA Act.

The SEC is assessing how to implement other requirements of the HFCA Act, including the listing and trading prohibition requirements described above. Future developments in respect of increasing U.S. regulatory access to audit information are uncertain, as the legislative developments are subject to the legislative process and the regulatory developments are subject to the rule-making process and other administrative procedures.

While we understand that there has been dialogue among the CSRC, the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in mainland China, there can be no assurance that we will be able to comply with requirements imposed by U.S. regulators if there is a significant change to current political arrangements between mainland China, Macau and Hong Kong, or if any component of our auditor’s work papers become located in mainland China in the future. Delisting of our ADSs would force holders of our ADSs to sell their ADSs. The market price of our ADSs could be adversely affected as a result of anticipated negative impacts of these executive or legislative actions, regardless of whether these executive or legislative actions are implemented and regardless of our actual operating performance.

If we fail to comply with work safety or environmental regulations, we could be exposed to penalties, fines, suspensions or action in other forms.

Our operations are subject to the work safety, fire safety and environmental protection laws and regulations promulgated by the PRC government. These laws and regulations require us to maintain safe working conditions and adopt effective measures to control and properly dispose of solid waste and other environmental pollutants. We could be exposed to penalties, fines, suspensions or actions in other forms if we fail to comply with these laws and regulations. The laws and regulations in China may be amended from time to time and changes in those laws and regulations may cause us to incur additional costs in order to comply with the more stringent rules. In the event that changes to existing laws and regulations require us to incur additional compliance costs or require costly changes to our production process, our costs could increase and we may suffer a decline in sales for certain products, as a result of which our business, results of operations and financial condition could be materially and adversely affected.

Increases in labor costs and enforcement of stricter labor laws and regulations in China and our additional payments of statutory employee benefits may adversely affect our business and profitability.

The average wage in China has increased in recent years and is expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to pass on these increased labor costs to our customers, our profitability and results of operations may be materially and adversely affected. In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing funds, medical insurance, work related injury insurance, unemployment insurance and maternity insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law and its implementation rules, employers are subject to stricter requirements in terms of signing labor contracts, paying remuneration, determining the term of employee’s probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the PRC Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.

Pursuant to PRC laws and regulations, companies registered and operating in China are required to apply for social insurance registration and housing fund deposit registration within 30 days of their establishment and to pay for their employees various social insurance including pension insurance, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance to the extent required by law. According to the Social Insurance Law, if an employing entity does not pay the full amount of social insurance premiums as scheduled or required, the social insurance premium collection institution shall order it to make the payment or make up the difference within the stipulated period and impose a daily fine equivalent to 0.05% of the overdue payment from the day on which the payment is overdue. If the payment is not made within the prescribed time ordered by the social insurance authority, the authority shall impose a fine ranging from one to three times of the overdue payment amount. According to the Regulations on Management of Housing Provident Funds, where an entity fails to deposit the housing provident fund in full within the prescribed deadline, it shall be ordered by the housing provident fund management center to deposit the fund within a time limit; if it still fails to deposit the fund within the time limit, the housing provident fund management center may apply to the People’s Court for enforcement. We have paid social insurance for all employees and housing provident fund for most of our employees in China. While our payment base of social insurance and housing provident fund meets the respective local government’s minimum requirements in respect of the locations of our PRC subsidiary, it is lower than the national legal standard. As of the date of this report, we have not received any notice of warning or been subject to any material administrative penalties or other material disciplinary actions from the relevant governmental authorities for our historical shortfall in social insurance and housing fund contribution. However, as the PRC government enhanced its enforcement measures relating to social insurance collection, we may be required to make up the contributions for our employees, and may be further subjected to late fees payment and administrative fines, which may adversely affect our financial condition and results of operations. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our current employment practices do not and will not violate other effective or future labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. In addition, we may incur additional expenses in order to comply with such laws and regulations, which may adversely affect our business and profitability.

The enactment of the Law of the PRC on Safeguarding National Security in the Hong Kong Special Administrative Region (the “Hong Kong National Security Law”) could impact our Hong Kong subsidiaries.

On June 30, 2020, the Standing Committee of the PRC National People’s Congress adopted the Hong Kong National Security Law. This law defines the duties and government bodies of the Hong Kong National Security Law for safeguarding national security and four categories of offences — secession, subversion, terrorist activities, and collusion with a foreign country or external elements to endanger national security — and their corresponding penalties. On July 14, 2020, former U.S. President Donald Trump signed the Hong Kong Autonomy Act, or HKAA, into law, authorizing the U.S. administration to impose blocking sanctions against individuals and entities who are determined to have materially contributed to the erosion of Hong Kong’s autonomy. The spokesperson of the PRC government has issued statements that this document was grossly trampled on the international law and basic norms of international relations, seriously interfered in China’s internal affairs, and should have been repealed a long time ago. On August 7, 2020 the U.S. government imposed HKAA-authorized sanctions on eleven individuals, including HKSAR chief executive Carrie Lam. On October 14, 2020, the U.S. State Department submitted to relevant committees of Congress the report required under HKAA, identifying persons materially contributing to “the failure of the Government of China to meet its obligations under the Joint Declaration or the Basic Law.” The HKAA further authorizes secondary sanctions, including the imposition of blocking sanctions, against foreign financial institutions that knowingly conduct a significant transaction with foreign persons sanctioned under this authority. The imposition of sanctions may directly affect foreign financial institutions as well as any third parties or customers dealing with any foreign financial institution that is targeted. It is difficult to predict the full impact of the Hong Kong National Security Law and HKAA on Hong Kong and companies located in Hong Kong. Any such continued tension between the U.S. and the PRC may affect the economy of Hong Kong and in turn, materially and adversely affect our business and operation. If our subsidiaries in Hong Kong are determined to be in violation of the Hong Kong National Security Law or the HKAA by competent authorities, our business operations, financial position and results of operations could be materially and adversely affected.

A downturn in Hong Kong, China or the global economy, and the economic and political policies of China could materially and adversely affect our business and financial condition.

We conduct our operation through our Operating Subsidiaries in Europe, the U.S. and Asia, primarily in Hong Kong and China. Accordingly, our business, prospects, financial condition and results of operations may be influenced to a significant degree by political, economic and social conditions in Hong Kong and China generally and by continued economic growth in Hong Kong and China as a whole. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us.

Economic conditions in Hong Kong and China are sensitive to global economic conditions. Any prolonged slowdown in the global or Chinese economy may affect potential clients’ confidence in the financial market as a whole and have a negative impact on our business, results of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.

The Hong Kong legal system embodies uncertainties which could limit the legal protections available to our Company.

Hong Kong is a Special Administrative Region of the PRC and enjoys a high degree of autonomy under the “one country, two systems” principle. The Hong Kong Special Administrative Region’s constitutional document, the Basic Law, ensures that the current political situation will remain in effect for 50 years. Hong Kong has enjoyed the freedom to function with a high degree of autonomy for its affairs, including currencies, immigration and custom, an independent judiciary system and a parliamentary system. The National People’s Congress of the PRC has the right to amend the Basic Law. We cannot assure you that there will not be any amendment to the Basic Law that may affect the judiciary and legal systems of Hong Kong and guarantee the implementation of the “one country, two systems” principle and the level of autonomy as currently in place at the moment. Any changes in the state of the political environment in Hong Kong may materially and adversely affect our business and operation. Additionally, intellectual property rights and confidentiality protections in Hong Kong may not be as effective as in the United States or other countries. These uncertainties could limit the legal protections available to us, including our ability to enforce our agreements with our clients.

Changes in international trade policies, trade disputes, barriers to trade, or the emergence of a trade war may dampen growth in China and other markets where the majority of our clients reside.

Political events, international trade disputes, and other business interruptions could harm or disrupt international commerce and the global economy, and could have a material adverse effect on us and our customers, service providers and other partners. International trade disputes could result in tariffs and other protectionist measures which may materially and adversely affect our business.

Tariffs could increase the cost of goods and products which could affect customers’ investment decisions. In addition, political uncertainty surrounding international trade disputes and the potential of the escalation to trade war and global recession could have a negative effect on customer confidence, which could materially and adversely affect our business. We may have also access to fewer business opportunities, and our operations may be negatively impacted as a result. In addition, the current and future actions or escalations by either the United States or China that affect trade relations may cause global economic turmoil and potentially have a negative impact on our markets, our business, or our results of operations, as well as the financial condition of our clients. and we cannot provide any assurances as to whether such actions will occur or the form that they may take.

Under the Basic Law of the Hong Kong Special Administrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs and external relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory, Hong Kong maintains and develops relations with foreign states and regions. However, based on recent political development, the U.S. State Department has indicated that the United States no longer considers Hong Kong to have significant autonomy from China. Hong Kong’s preferential trade status was removed by the United States government and the United States may impose the same tariffs and other trade restrictions on exports from Hong Kong that it places on goods from mainland China. These and other recent actions may represent an escalation in political and trade tensions involving the U.S., China and Hong Kong, which could potentially harm our business.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.

Our revenues and expenses will be denominated in Hong Kong dollars, EUR, Renminbi and U.S. dollars. Although the exchange rate between the Hong Kong dollar to the U.S. dollar has been pegged since 1983, we cannot assure you that the Hong Kong dollar will remain pegged to the U.S. dollar. Any significant fluctuations in the exchange rates between Hong Kong dollars to the U.S. dollars may have a material adverse effect on our revenue and financial condition. We have not used any forward contracts, futures, swaps or currency borrowings to hedge our exposure to foreign currency risk.

Risks Related to Our ADSs

An active trading market for the ADSs on Nasdaq might not develop or be sustained, their trading prices might fluctuate significantly and the liquidity of our ordinary shares would be materially affected.

We cannot assure you that an active trading market for the ADSs on Nasdaq will develop or be sustained. If an active trading market of our ADSs on Nasdaq does not develop or is not sustained, the market price and liquidity of our ADSs could be materially and adversely affected.

We incurred increased costs as a result of being a public company, and will continue to incur increased costs particularly after we cease to qualify as an “emerging growth company.”

We incurred significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC, impose various requirements on the corporate governance practices of public companies. We are an “emerging growth company” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a)following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ADSs that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.

Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company”, or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.

If we fail to meet applicable listing requirements, Nasdaq may delist our ADSs from trading, in which case the liquidity and market price of our ADSs could decline.

We cannot assure you that we will be able to meet the continued listing standards of Nasdaq in the future. If we fail to comply with the applicable listing standards and Nasdaq delists our ADSs, we and our shareholders could face significant material adverse consequences, including:

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our ADSs will be listed on Nasdaq, such securities will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulations in each state in which we offer our securities.

Volatility in our ADSs price may subject us to securities litigation.

The market for our ADSs may have, when compared to seasoned issuers, significant price volatility and we expect that our ADS price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

The price and the trading volume of our ADSs may be volatile which could result in substantial losses for investors.

The price and trading volume of our ADSs may be volatile. The market price of our ADSs may fluctuate significantly and rapidly as a result of the following factors, among others, some of which are beyond our control:

There were instances of extreme stock price run-ups followed by rapid price declines and stock price volatility seemingly unrelated to company performance following a number of recent initial public offerings, particularly among companies with relatively smaller public floats. Such volatility, including stock run-up, may be unrelated or disproportionate to the actual or expected operating performance and financial condition or prospects of such companies, making it difficult for investors to assess the rapidly changing value of our ADSs.

In addition, if the trading volumes of our ADSs are low, persons buying or selling in relatively small quantities may easily influence prices of our ADSs. This low volume of trades could also cause the price of our ADSs to fluctuate greatly, with large percentage changes in price occurring in any trading day session. Holders of our ADSs may also not be able to readily liquidate their investment or may be forced to sell at depressed prices due to low volume trading. Broad market fluctuations and general economic and political conditions may also adversely affect the market price of our ADSs. As a result of this volatility, investors may experience losses on their investment in our ADSs. A decline in the market price of our ADSs also could adversely affect our ability to issue additional ADSs and our ability to obtain additional financing in the future. No assurance can be given that an active market in our ADSs will develop or be sustained. If an active market does not develop, holders of our ADSs may be unable to readily sell the ADSs they hold or may not be able to sell their shares at all.

Our pre-IPO shareholders will be able to sell their ADSs after the completion of the IPO subject to restrictions under Rule 144.

Our pre-IPO shareholders, may be able to sell their ADSs under Rule 144 after completion of the IPO. Because these shareholders have paid a lower price per ADS than participants in the IPO, when they are able to sell their pre-IPO shares under Rule 144, they may be more willing to accept a lower sales price than the IPO price. This fact could impact the trading price of the stock following completion of the IPO, to the detriment of participants in the IPO. Under rule 144, before our pre-IPO shareholders can sell their shares, in addition to meeting other requirements, they must meet the required holding period.

We will be a “controlled company” within the meaning of Nasdaq rules and we will qualify for and may rely on exemptions from certain corporate governance requirements.

We will be a “controlled company” within the meaning of Nasdaq Stock Market Rules. As at the date of this report, approximately 68.56% of the issued share capital of the Company is owned by Easy Bliss Limited, which is in turn owned approximately 60.19% by Mr. Hok Pan Se and 39.81% by Ms. Son I Un. Mr. Se Hok Pan is our Director and Ms. Un Son I is the spouse of Mr. Se Hok Pan. Mr. Hok Pan Se and Ms. Son I Un are deemed to hold the voting and dispositive power over the Ordinary Shares held by Easy Bliss Limited. Together with Mr. Se’s personal interest of 2,145,392 Ordinary Shares, Mr. Se has a total interest of 92,932,850 Ordinary Shares, representing 70.18% of the issued share capital of the Company. Under the Nasdaq rules, a company of which more than 50% of the voting power with respect to the election of directors is held by an individual, a company or a group of persons acting together is a “controlled company” and may elect not to comply with certain stock exchange rules regarding corporate governance, including the following requirements:

If we elect to be treated as a controlled company and use these exemptions, you may not have the same protections afforded to stockholders of companies that are subject to all of Nasdaq rules regarding corporate governance, which could make our ADSs less attractive to investors or otherwise harm our stock price.

Our management has broad discretion to determine how to use the funds raised in the IPO and may use them in ways that may not enhance our results of operations or the price of our ADSs.

We will use the net proceeds from the IPO for our architectural woodworking business and other corporate purposes. Our management will have significant discretion as to the use of the net proceeds to us from the IPO and could spend the proceeds in ways that do not improve our results of operations or enhance the market price of our ADSs.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

We are subject to the periodic reporting requirements of the Exchange Act. We will design our disclosure controls and procedures to provide reasonable assurance that information we must disclose in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple errors or mistakes. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be detected.

We may not pay any dividends on the ADSs.

For the years ended December 31, 2023, 2022 and 2021 and up to the date of this report, we did not declare or pay any dividends. We cannot guarantee when, if, or in what form, dividends will be paid on the ADSs following the listing. A declaration of dividends must be proposed by our board of directors and will be based on, and limited by, various factors, including our business and financial performance, capital and regulatory requirements and general business conditions. Furthermore, we may not have sufficient profits to make dividend distributions to our shareholders in the future, even if our financial statements prepared in accordance with IFRS indicate that our operations have been profitable.

Securities analysts may not publish favorable research or reports about our business or may publish no information at all, which could cause our share price or trading volume to decline.

If a trading market for our ADSs develops, the trading market will be influenced to some extent by the research and reports that industry or financial analysts publish about us and our business. We do not control these analysts. As a newly public company, we may be slow to attract research coverage and the analysts who publish information about our ADSs will have had relatively little experience with us or our industry, which could affect their ability to accurately forecast our results and could make it more likely that we fail to meet their estimates. In the event we obtain securities or industry analyst coverage, if any of the analysts who cover us provide inaccurate or unfavorable research or issue an adverse opinion regarding our share price, our share price could decline. If one or more of these analysts cease coverage of us or fail to publish reports covering us regularly, we could lose visibility in the market, which in turn could cause our share price or trading volume to decline and result in the loss of all or a part of your investment in us.

Investors may have difficulty enforcing judgments against us, our Directors and management.

We are incorporated under the laws of the BVI and all of our Directors and officers reside outside the United States. Moreover, many of these persons do not have significant assets in the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon these persons, or to recover against us or them on judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws. Even if you are successful in bringing an action of this kind, the laws of the BVI could render you unable to enforce a judgment against our assets or the assets of our Directors and officers.

There is uncertainty as to whether the courts of the BVI would (i) recognize or enforce judgments of U.S. courts obtained against us or our Directors or officers predicated upon the civil liability provisions of the securities laws of the U.S. or any state in the U.S. or (ii) entertain original actions brought in the BVI against us or our Directors or officers predicated upon the securities laws of the U.S. or any state in the U.S.

The U.S. and the BVI do not have a treatment providing for reciprocal recognition and enforcement of judgments of courts of the U.S. in civil and commercial matters and that a final judgment for the payment of money rendered by any general or state court in the U.S. based on civil liability, whether or not predicated solely upon the U.S. federal securities laws would not be enforceable in the BVI. A final and conclusive judgment obtained in U.S. federal or state courts under which a sum of money is payable as compensatory damages (i.e., not being a sum claimed by a revenue authority for taxes or other charges of a similar nature by a governmental authority, or in respect of a fine or penalty or multiple or punitive damages) may be the subject of an action on a debt in the court of the BVI under the common law doctrine of obligation. Furthermore, it is uncertain that BVI courts would: (1) recognize or enforce judgments of U.S. courts obtained in actions against us or our Directors or officers predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) entertain original actions brought against us or other persons predicated upon the Securities Act.

You may have more difficulty protecting your interests than you would as a shareholder of a U.S. corporation.

Our corporate affairs are governed by the provisions of our memorandum and articles of association, as amended and restated from time to time, and by the provisions of applicable BVI law. The rights of shareholders and the fiduciary responsibilities of our Directors and officers under BVI law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the U.S., and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

These rights and responsibilities are to a large extent governed by the BVI Act and the common law of the BVI. The common law of the BVI is derived in part from judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. In addition, BVI law does not make a distinction between public and private companies and some of the protections and safeguards (such as statutory pre-emption rights, save to the extent expressly provided for in the memorandum and articles of association) that investors may expect to find in relation to a public company are not provided for under BVI law.

There may be less publicly available information about us than is regularly published by or about U.S. issuers. Also, the BVI regulations governing the securities of BVI companies may not be as extensive as those in effect in the U.S., and the BVI law and regulations regarding corporate governance matters may not be as protective of minority shareholders as state corporation laws in the U.S. Therefore, you may have more difficulty protecting your interests in connection with actions taken by our Directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the U.S.

The laws of BVI may provide less protections for minority shareholders than those under U.S. law, so minority shareholders will not have the same options for recourse in comparison to the United States if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of the BVI, there is limited statutory protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protections under BVI statutory law are derivative actions, actions brought by one or more shareholders for relief from unfair prejudice, oppression and unfair discrimination and/or to enforce the BVI Act or the memorandum and articles of association. Shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association, and are entitled to payment of the fair value of their respective shares upon dissenting from certain enumerated corporate transactions.

There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law since the common law of the BVI is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority of the board of directors. However, every shareholder is entitled to seek to have the affairs of the company conducted properly according to the law and the constitutional documents of the company. As such, if those who control the company have persistently disregarded the requirements of company law or the provisions of the company’s memorandum and articles of association, then the courts may grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) where the company has not complied with provisions requiring approval of a special or extraordinary majority of shareholders; (iii) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; or (iv) acts that constitute fraud on the minority where the wrongdoers control the company.

These rights may be more limited than the rights afforded to minority shareholders under the laws of states in the United States.

Other than as set forth in the BVI Act, shareholders of BVI companies like us have no general rights under BVI law to inspect corporate records or to obtain copies of lists of shareholders of these companies. Our Directors have the discretion to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders, other than as set forth in the BVI Act. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.

As a result of all of the above, our public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

We are a foreign private issuer and, as a result, will not be subject to U.S. proxy rules and will be subject to more lenient and less frequent Exchange Act reporting obligations than a U.S. issuer.

We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules thereunder. Therefore, our shareholders may not know on a timely basis when our officers, directors and principal shareholders purchase or sell our shares. In addition, foreign private issuers are not required to file their annual report on Form 20-F until one hundred twenty (120) days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within seventy-five (75) days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time-consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain and maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.

As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.

As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq rules that allow us to follow our home country’s law for certain governance matters. Certain corporate governance practices in our home country, the BVI, may differ significantly from Nasdaq corporate governance listing standards. Currently, we do not plan to rely on some home country practices with respect to our corporate governance. However, if we choose to follow home country practices in the future, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers.

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs.

A non-U.S. corporation will be a PFIC for any taxable year if either (i) at least 75% of its gross income for such year consists of certain types of “passive” income; or (ii) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income, or the asset test. Based on our current and expected income and assets, we do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion or that the IRS would not successfully challenge our position. Fluctuations in the market price of our ADSs may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test may be determined by reference to the market price of our ADSs. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in the IPO. If we were to be or become a PFIC for any taxable year during which a U.S. Holder holds our ADSs, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder.

We may not be able to pay any dividends on our ADSs in the future due to BVI law.

Under BVI law, we may only pay dividends to our shareholders if the value of our assets exceeds our liabilities and we are able to pay our debts as they become due. We cannot give any assurance that we will declare dividends of any amounts, at any rate, or at all in the future. Future dividends, if any, will be at the discretion of our board of directors, and will depend upon our results of operations, cash flows, financial condition, payment to us of cash dividends by our subsidiaries, capital needs, future prospects and other factors that our Directors may deem appropriate.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ADSs are directly or indirectly held by residents of the United States and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq rules. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.

We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements.

We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from requirements applicable to other public companies that are not emerging growth companies, including, most significantly, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 for so long as we remain an emerging growth company. As a result, if we elect not to comply with such auditor attestation requirements, our investors may not have access to certain information they may deem important.

The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. We do not plan to opt out of such exemptions afforded to an emerging growth company. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective data.

We may amend the deposit agreement without consent from holders of ADSs and, if such holders disagree with our amendments, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying Ordinary Shares.

We may agree with the depositary to amend the deposit agreement without consent from holders of ADSs. If an amendment increases fees to be charged to ADS holders or prejudices a substantial existing right of ADS holders, it will not become effective until 30 days after the depositary notifies ADS holders of the amendment. At the time an amendment becomes effective, ADS holders are considered, by continuing to hold their ADSs, to have agreed to the amendment and to be bound by the amended deposit agreement. If holders of ADSs do not agree with an amendment to the deposit agreement, their choices will be limited to selling the ADSs or cancelling and withdrawing the underlying Ordinary Shares. No assurance can be given that a sale of ADSs could be made at a price satisfactory to the holder in such circumstances.

Holders of ADSs may be subject to limitations on transfer of their ADSs.

ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer, or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

4.A. History and Development of the Company

With more than 15 years of experience in forest land operation, our Group has become a diversified enterprise integrating the production and sales of a range of wood products, including logs, decking, flooring, sawn timber, recycled charcoal, synthesized charcoal, machine-made charcoal and essential oils. Our Group has a supply chain throughout South America, Africa and Europe, owning natural forest concessions and cutting rights for the exploitation of timbers of forests in Peru which covered an area of approximately 615,333 hectares and two wood processing facilities in Peru as of December, 2023. Among them, our Peru base was established in 2016 and has 114 employees as of December 31, 2023.

With Mr. Hok Pan Se becoming our principal shareholder in June 2016, he pursued his vision of developing our Group into a vertically-integrated forestry company by acquiring more new forests with a view to reducing the impact of our business from market fluctuations on raw materials.

In January 2017, we acquired our first wood processing facility in Peru and expanded our product category and started selling decking which are ready-to-use products directly sold to end customers, as compared to our flooring products sold before 2017 which required reprocessing before they can be used.

In June 2020, we acquired a second wood processing facility in Peru with equipment and hardware located in the largest distribution area of wood products in Peru, which contributed substantial growth of our business. To better utilize the biological resources of our Forests, we introduced essential oils as our new product in November 2020 which are refined from the timber in our Forests and commenced the production and export of essential oils to our customers.

Our Corporate Structure

The following diagram illustrates our corporate structure as of the date of this prospectus and after giving effect to this offering (assuming the underwriters do not exercise the over-allotment options).

All of the entities held by our Group below are direct or indirect subsidiaries of our Company.

Notes:

Our Subsidiaries

Branching from our corporate structure above, our subsidiaries as of the date of this prospectus are set forth in the table below.

4.B. Business Overview

BUSINESS

Overview

We are a global leading vertically-integrated forestry company headquartered in Macau that focuses on FSC business operations. Our operations cover both up-stream forest management and harvesting, and down-stream wood-processing and distribution. We offer a broad line of products, including logs, decking, flooring, sawn timber, recycled charcoal, synthesized charcoal, machine-made charcoal and essential oils, primarily through our sales network in Europe, South Asia, South America, North America and China.

Our Group owns concession rights of forests in Peru which covered an area of approximately 615,333 hectares as of December 31, 2023. As of December 31, 2023, approximately 14.21% and 3.48% of our Forests are covered by Cumaru and Estoraque, respectively. Cumaru and Estoraque are valuable hardwood timber which produce strong and durable wood that are well suited for high value markets. In particular, Cumaru is commonly used for producing flooring, decking and other construction materials, while Estoraque is commonly used for producing flooring and furniture.

Our Competitive Strengths

We believe the following strengths have contributed to our success:

Large, sustainable and high-quality forest resources base.

We have a large, sustainable and high-quality forest resource base consisting of forests covering a gross area of approximately 615,333 hectares through the acquisition of concession rights, with existing remaining ownership terms ranging from 3 to 20 years, and each of the concession rights is renewable for a total term of 20 years.

Our major timber species is Cumaru (Dipteryx spp.) and Estoraque (Myroxylon Balsamum). Cumaru and Estoraque are valuable hardwood timber which produce strong and durable wood that are well suited for high value markets. In particular, Cumaru is commonly used for producing flooring, decking and other construction materials, while Estoraque is commonly used for producing flooring and furniture. As of December 31, 2023, approximately 14.21% and 3.48% of our Forests are covered by Cumaru and Estoraque, respectively.

Sustainable, socially responsible and environmentally friendly FSC-certified forest management system.

Our standard of forestry operations was recognized by the FSC, an independent accreditation body that is dedicated to promoting responsible and sustainable forest management. We are one of the few forestry companies that have successfully implemented FSC-certified operations, including forest management, harvesting and manufacturing of wood products. We have a professional FSC forest management team, the key members of which have an average of over 8 years of experience in FSC forest management. Grupo Maderero Amaz S.A.C., a subsidiary of our Group, first obtained FSC CoC certification in 2016. As at the date of this report, five subsidiaries of our Group (including Choi Chon Investment Company Limited, E&T Forestal S.A.C., Grupo Maderero Amaz S.A.C., Nuevo San Martin S.A.C. and Latinoamerican Forest S.A.C) have obtained FSC CoC certifications.

With the growing public concern about environmental protection, consumers are more willing to pay a premium to buy “green” products that are certified by reputable accreditation bodies or ecolabel organizations. As such, products certified by the FSC, one of the world’s most trusted accreditation bodies, have received wide acceptance across the world, especially in the United States and Europe. Revenue generated from sales of FSC-certified products amounting to approximately $4.7 million, $11.2 million and $9.9 million for years ended December 31, 2023, 2022 and 2021, respectively, which accounted for approximately 18.4%, 20.3% and 20.7% of our revenue for the respective periods.

Our vertically-integrated business model enables us to achieve operational efficiency and better quality control.

We believe that we are one of the few forestry companies that are vertically-integrated from purchasing timber, harvesting, manufacturing to distribution. The integration of upstream harvesting and downstream processing allows us to more effectively control the cost and quality of our products and to better satisfy our customers’ requirements.

Unlike many other timber processing companies who have to source all raw materials from suppliers, we are able to capture the benefit of our own log harvesting business to secure a stable supply of logs. We are also able to lower the overall operation cost as we could avoid issues such as price increase in raw materials from upstream suppliers.

We also believe that such vertically-integrated model enhances our operational efficiency and quality control. We have established a comprehensive quality control system throughout the process. By conducting quality checks on raw materials and work-in-progress, we are able to identify defects at the early stages of production, which not only improves our operational efficiency but also helps us to maintain high quality of our products.

Furthermore, our vertically-integrated operations combined with our sales network and design expertise significantly enhance our ability to be more responsive to changes in consumer preferences. In addition, we believe that our expertise and technical knowledge enable us to offer practical advice to our customers in terms of material selection and technical specifications for optimizing product features and lowering costs. Our involvement in the design and development of our products allows us to secure continuing orders from customers.

Light-asset FSC business operations.

During the years ended December 31, 2023, 2022 and 2021, we signed strategic cooperation agreement and purchased live wood from local forest owners in Peru for harvesting and managing the forests on our own. Before the timber is harvested, we would be responsible for implementing FSC forest management and obtaining FSC certification for these forests. As of December 31, 2023, we managed approximately 112,600 hectares of forests for local forest owners in Peru. We have also been in negotiation with some local forest owners in Peru regarding the possible FSC forest management collaboration. Such collaboration allows us to maintain a stable supply of logs for manufacture of FSC-certified products. We believe that our light-asset FSC business operations enable us to expand our forest resources without substantial capital expenditure and increase the profitability of our products.

Experienced management team with extensive industry knowledge.

Our chairman and Director, Mr. Hok Pan Se, has extensive experience in the wood industry. Mr. Se began his career in the flooring products industry in 1995 and has over 20 years of experience in the flooring products industry. Since 2007, Mr. Se has been a director and chairman of Nature Home Holding Company Limited, a company which was then listed on The Stock Exchange of Hong Kong Limited and the largest solid wood flooring companies in China in terms of sales volume from 2019 to 2021. As at the date of this report, Mr. Se also held the following prominent positions outside of our Group: member of the Standing Committee of the Gansu Provincial Committee of the Chinese People’s Political Consultative Conference (CPPCC), one of the draftsmen for the National Standard for Solid Wood Flooring in China, vice-chairman of Flooring Committee of China Timber Circulation Association, member of the China Association for Quality Inspection, member of the China Timber Standardization Technical Committee, honorary president of Macau General Association of Real Estate, vice president of The Industry and Commerce Association of Macau as well as adjunct professor at Nanjing Forestry University.

Through Mr. Se’s involvement, we have built a strong team of experienced professionals in operations, forest management, general management and financial management through years of operation. The key members of our management team (including our chief executive officer, Mr. Jianjun Zen) have an average of 10 years’ experience in the wood industry. Further, our head of forest engineer, Mr. Richard Elvis Reategui Guzman, has over 19 years of experience in FSC forest management and production. Their keen business insight developed from years of experience in the wood industry enables us to discover and grasp potential business opportunities more quickly.

Our Products

We sell a broad line of products, including logs, decking, flooring, sawn timber, recycled charcoal, synthesized charcoal, machine-made charcoal and essential oils. The table below sets out our revenue by product type during the years ended December 31, 2023, 2022 and 2021:

Customers

During the years ended December 31, 2023, 2022 and 2021, we sold our wood products principally to our customers located in China, Europe, South America, North America and Southeast Asia. The following table sets out our revenue by the location of our customers:

Pricing

Our Group has adopted a pricing policy largely based on production costs, transportation costs, profit margin and the market price of similar products, taking into account factors such as costs of major raw materials, in particular logs and flooring, the prices of which may fluctuate from time to time.

Sales and Marketing

We believe that based on our proven track record, our relationships with our customers, our extensive supply network, our reputation and our years of experience in the wood industry, we do not rely heavily on marketing and promotional activities. Our sales and marketing team is generally responsible for liaising and maintaining our relationships with customers and keeping abreast of market developments and potential business opportunities.

Competition

Competition in the international timber market will become more intense in the future. Environmental protection-related policies have been introduced one after another, and the number of countries restricting log exports has increased again, implying that the competition in the international seller’s timber market is bound to be more intense.

It is believed that there will still be a number of restrictions on the export trade of forest products in export markets in the near future and exports of forest products will continue to be hampered by trade obstacles like formaldehyde, tariffs, and double anti-barriers. To get around these obstacles, businesses will have to invest in third-party nations while also stepping up their R&D efforts to create more innovative and value-added products.

Seasonality

We are exposed to fluctuations in quarterly sales volumes due to seasonal factors. These seasonal factors are common in the building products industry. Seasonal changes in levels of building activity affect our building products businesses, which are dependent on housing, repair and remodeling activities and light commercial construction activities. We typically report lower sales in the first and fourth quarters due to the impact of poor weather on the construction market, and we generally have higher sales in the second and third quarters, reflecting an increase in construction due to more favorable weather conditions. In addition, the sales volumes and selling price of decking would generally increase a few months before the summer holiday and Christmas holiday, i.e. from February to May and from October to December. There would also be a surge in demand for flooring products in the second and third quarters of each year.

Properties

Our headquarters are located at Avenida da Amizade no. 1287, Chong Fok Centro Comercial, 13 E Macau S.A.R. The following table sets forth the location, use and size of our owned and leased facilities as of December 31, 2023:

Intellectual Property

As of December 31, 2023, we registered the following trademark(s) in various jurisdiction:

Trademark

Registration number

Name of registrant

Class

Place/ organization of registration

Date of registration

Expiry date

304974670

Jumbo Sources Holdings Limited

4, 19, 20 35

Hong Kong

June 27, 2019

June 26, 2029

304854006

Jumbo Sources Holdings Limited

4, 19, 20, 35

Hong Kong

March 12, 2019

March 11, 2029

304853999

Jumbo Sources Holdings Limited

4, 19, 20, 35

Hong Kong

March 12, 2019

March 11, 2029

304848391

Jumbo Sources Holdings Limited

4, 19, 20

Hong Kong

March 6, 2019

March 5, 2029

304672909

Jumbo Sources Holdings Limited

4, 19, 20, 35

Hong Kong

September 18, 2018

September 17, 2028

104238

Jumbo Sources Holdings Limited

4, 19, 20

Organisation Africaine de Propriété Intellectuelle

September 27, 2018

September 27, 2028

104237

Jumbo Sources Holdings Limited

35, 44

Organisation Africaine de Propriété Intellectuelle

September 27, 2018

September 27, 2028

1951226

Jumbo Sources Holdings Limited

35

Mexico

September 18, 2018

September 18, 2028

1951224

Jumbo Sources Holdings Limited

20

Mexico

September 18, 2018

September 18, 2028

1951222

Jumbo Sources Holdings Limited

19

Mexico

September 18, 2018

September 18, 2028

1951221

Jumbo Sources Holdings Limited

4

Mexico

September 18, 2018

September 18, 2028

3951071

Jumbo Sources Holdings Limited

2, 19, 20, 35

India

September 20, 2018

September 20, 2028

32721353

Jumbo Sources Holdings Limited

4

PRC

April 28, 2019

April 27, 2029

32719850

Jumbo Sources Holdings Limited

44

PRC

April 28, 2019

April 27, 2029

32706736

Jumbo Sources Holdings Limited

19

PRC

April 14, 2019

April 13, 2029

32724193

Jumbo Sources Holdings Limited

20

PRC

June 21, 2019

June 20, 2029

32724208

Jumbo Sources Holdings Limited

29

PRC

June 21, 2019

June 20, 2029

32700983

Jumbo Sources Holdings Limited

35

PRC

June 28, 2019

June 27, 2029

194542337

Jumbo Sources Holdings Limited

19

France

April 11, 2019

April 11, 2029

193432336

Jumbo Sources Holdings Limited

19

France

April 11, 2019

April 11, 2029

184484355

Jumbo Sources Holdings Limited

4, 19, 20, 35

France

September 20, 2018

September 20, 2028

018092356

Jumbo Sources Holdings Limited

4, 19, 20, 35

Europe

July 9, 2019

July 9, 2029

018050158

Jumbo Sources Holdings Limited

19

Europe

April 10, 2019

April 10, 2029

018048861

Jumbo Sources Holdings Limited

19

Europe

April 10, 2019

April 10, 2029

6290204

Jumbo Sources Holdings Limited

4, 19, 35

U.S.

March 9, 2021

March 9, 2031

6290203

Jumbo Sources Holdings Limited

4, 19, 35

U.S.

March 9, 2021

March 9, 2031

00290961

Jumbo Sources Holdings Limited

20

Peru

February 14, 2020

February 14, 2030

00290960

Jumbo Sources Holdings Limited

19

Peru

February 14, 2020

February 14, 2030

00290959

Jumbo Sources Holdings Limited

4

Peru

February 14, 2020

February 14, 2030

00284584

Jumbo Sources Holdings Limited

20

Peru

September 27, 2019

September 27, 2029

00284583

Jumbo Sources Holdings Limited

19

Peru

September 27, 2019

September 27, 2029

00284582

Jumbo Sources Holdings Limited

4

Peru

September 27, 2019

September 27, 2029

001184164

Jumbo Sources Holdings Limited

35

Peru

September 27, 2019

September 27, 2029

00284103

Jumbo Sources Holdings Limited

20

Peru

September 27, 2019

September 27, 2029

111766

Jumbo Sources Holdings Limited

4, 19, 20

Gabon

November 11, 2019

November 11, 2029

111765

Jumbo Sources Holdings Limited

4, 19, 20

Gabon

November 11, 2019

November 11, 2029

As of December 31, 2023, we registered the following domain name:

During the years ended December 31, 2021 and 2022 and 2023, we were not involved in any proceedings with regard to, and we did not receive notice of any claim of, infringement of any intellectual property rights that may be threatened or pending in which we may be involved either as a claimant or respondent which would have a material impact on our business, financial conditions or results of operations.

Legal and Regulatory Compliance

During the years ended December 31, 2021, 2022 and 2023, we obtained the certificates that are required and material for our business and operations, which demonstrates our commitment to sustainable forest management. Further, we have complied in all material aspects with the relevant laws and regulations and there was no incident relating to our material certificates that are material to our business and operations which constitutes non-compliance during the years ended December 31, 2021. 2022 and 2023. The following table sets out the details of the material certificates held by our Group as of December 31, 2023:

REGULATIONS

This section sets forth a summary of the most significant rules and regulations that affect our business activities in Peru, France and the PRC.

Overview of the Laws and Regulations Relating to Our Business and Operations in Peru

The following sets forth a summary of the major laws and regulations applicable to our business in relation to forestry business in Peru.

Regulations relating to forestry operation

In Peru the forestry regulations are published at the national (Congress of the Republic, Executive Branch, ministries), regional and local (municipal) levels. Resolutions and circulars intended for administrations may complete this regulatory system.

Provisions with a national scope are integrated in:

The legislation relating to forest exploitation is relatively complex given the numerous regulations that coexist and apply under specific criteria (e.g., forest zoning, the kind of forest, the surface area of the cut to be carried out, the presence or absence of native and rural communities, etc.).

The Peruvian forestry regulator (“OSINFOR”) is the entity responsible for supervising and controlling the sustainable use and conservation of forest and wildlife resources.

Public forests are state-owned. Therefore, the rights of exploitation, logging, disposal, and use (including but not limited to the fruits and products of their natural resources) can only be granted in favor of private parties through the process of public auction of concession agreements, by the forestry regulations.

Once a concession is granted, the concessionaire must pay economic compensation in favor of the Peruvian government for the right of use granted over the forest. Said compensation is calculated on the basis of payment per area and/or payment for the exploitation value of the natural resource.

Lastly, the right of use granted in favor of the concessionaire shall be duly secured by a guarantee of faithful compliance, which must be valid during the entirety of the concession period. The guarantees deemed suitable by the forestry regulations are (i) letter of guarantee or guarantee policy issued by an entity authorized by the Peruvian financial regulator, (ii) cash deposit in an account owned by the grantor, or (iii) real guarantee over a movable asset or real state property, which cannot fall on assets that already constitute a guarantee in favor of third parties.

Regulations on Environmental Matters

According to the National System of Environmental Impact Assessment Act approved by Law No. 27446, and its Regulations enacted by Supreme Decree No. 019-2009-MINAM, the execution of projects may not be started, and no national, sectorial, regional or local authority may approve them if they do not previously have an environmental certification contained in a resolution issued by the competent authority. According to the magnitude of the negative impact, they are classified as: (i) Category I for low-impact activities requiring an Environmental Impact Declaration (“DIA”); (ii) Category II for moderate-impact activities requiring a semi-detailed Environmental Impact Assessment (“EIAsd”); or (iii) Category III for high-impact activities requiring a detailed Environmental Impact Assessment (“EIAd”).

The environmental obligations are set within the Environmental Act, environmental management instruments (Environmental Impact Assessment, among others) or in the orders issued by the authority in charge of environmental control.

The owner is responsible for the proper management of the environmental emission, effluents, noise, vibrations and solid waste generated as a result of the processes and operations at its facilities, as well as, for any damage to the environment caused.

Lastly, the Agency for Environmental Assessment and Enforcement (“OEFA”) is a specialized public and technical agency, registered with the Ministry of Environment, responsible for the environmental control of commitments of environmental management instruments, environmental law and administrative measures. OEFA has many regulations about classification and scale of fines and might impose administrative measures such as suspension of activities if there is potential or real damage to the environment or human health.

Regulations Relating to Dividend Distributions

According to the General Companies Act, companies duly incorporated under Peruvian law may pay dividends only if their supreme body (i.e. the General Shareholders Meeting) approves the distribution of up to 100% of their accumulated profit (after payment of income tax).

Peruvian regulations require to set aside as legal reserve at least 10% of the company after-tax profit, until the legal reserve equals 20% of the shareholders’ equity.

Additionally, according to Article 40 of the General Companies Act, in order to distribute dividends, profits must be determined in accordance with the individual financial statements of the company duly approved by the general shareholders’ meeting of the company.

Finally, it must be considered that dividends distributions are levied with a 5% tax in Peru.

Regulations Relating to Foreign Investments and Foreign Exchange Control

The official currency of Peru is the SOL. The country has a free-floating exchange rate regime, with the central bank occasionally intervening only for purposes of inflation control. There are no restrictions or limitations on the number of bank accounts in foreign currency or the remittance of funds abroad that an individual or legal entity may make.

According to Supreme Decree No. 150-2007-EF foreign investments made by non-domiciled individuals and/or legal entities must be channeled through (i) companies of the Peruvian financial system or (ii) non-domiciled banking or financial companies. Thus, the transfer of funds from foreign territories (i.e. USA or offshore) to Peru should be exercisable without any significant strain that could otherwise render the operation unviable.

As consequence of the aforementioned, the financial relations between Peruvian and foreign individuals are free due to the lack of exchange control or strain currency regulations.

Regulations Relating to Labor

Peruvian labor regime is a sum of specific regulations that regulate the hiring, labor conditions and benefits and extinction of the labor contract, among others. This regulation is complemented by collective agreements – signed with labor unions – and/or individual agreements, signed directly with the employee.

Among the most important regulation of the private sector, we have regulations that govern the minimum wage, compensation for time of service, legal bonus, paid leave, weekly rest, maximum working time and overtime, profit sharing, family allowance, and contributions and taxes levied on the remuneration of employees.

Regulations Relating to Foreign Trade

According to the General Customs Act, approved by Legislative Decree No. 1053, and its regulations, the Peruvian Tax Authority (“SUNAT”) is responsible for controlling the entry or exit and transportation of goods inside the Peruvian customs territory.

The General Customs Act and its regulations govern customs infractions and their respective sanctions, which are classified as fines and administrative sanctions: (i) suspension; (ii) cancellation; and (iii) disablement. It is essential to mention that SUNAT has the power to apply the sanctions objectively or subjectively.

Peruvian companies must obtain a valid single taxpayers’ registration number (“RUC”) before they can carry out trade operations, such as import and export. The primary documents required by the administration for the definitive export of goods out of the country are as follows:

On April 28, 2009, Peru executed a free trade agreement (“FTA”) with the PCR, which entered into force since March 1, 2010. Customs affairs and trade facilitation are covered in such agreement, helping Peruvian products enter the Chinese market under more competitive conditions by eliminating and/or reducing tariffs applicable to certain goods.

Tax legal regime applicable to forestry in general, and companies performing forestry activities in certain areas of the Amazon

Pursuant to the Fourteenth Complementary Final Rule of Law No. 29763, starting in 2022, any person carrying out forestry activities may enjoy of the preferential income tax regime set forth in Law No. 31110 for agricultural companies. The applicable rates which companies engaged in those activities may be subject to are the following:

The amount of the tax unit is set by the Peruvian government on a yearly basis. In 2022, it equates S/ 4,600.

Pursuant to that rule, companies performing forestry activities may also enjoy of an accelerated depreciation rate of 20% on investments in infrastructure works destined to forestry management and exploitation. This benefit shall be available until 2025, unless extended.

Without prejudice to the former, companies located in the departments of Loreto and Madre de Dios, and in the districts of Iparia and Masisea of the Coronel Portillo province, and in the provinces of Atalaya and Purus of the department of Ucayali, may enjoy of a 5% preferential income tax rate so long as they carry out forest extraction activities. This benefit is set to expire in 2048.

Overview of the Laws and Regulations Relating to Our Business and Operations in France

The following sets forth a summary of the major laws and regulations applicable to our business in relation to forestry business in France.

Regulations Relating to Forestry Operation

In the field of forestry, regulations are published at the national (Council of State, ministries), regional and departmental (prefectures) or communal (town councils) level. Their scope of application is therefore broad. Circulars intended for administrations may complete this regulatory system.

The provisions with a national scope are integrated in:

Concerning public forests, it is necessary to mention the National Book of Forestry Prescriptions (CNPEF), which is mandatory for all those involved in public forests - service providers or clients purchasing wood - for forestry operations. This booklet replaces the National Forestry Regulations (RNEF) for all new agreements signed from 2020 onwards and lists all the applicable requirements in terms of environmental preservation, protection of forest stands, safety, the conduct of the operation and details the responsibilities of the operator and the repair of damage.

The legislation relating to forest exploitation is relatively complex from the point of view of both the owner of the parcel and the operator, given the numerous rules that coexist and apply under specific criteria (e.g. the size of the property, the nature of the stand, the surface area of the cut to be carried out, the presence or absence of a document or directive of forest management, etc.).

It is noteworthy that the activity of logging is not subject, as such, to the obtaining by the operator of a specific license of general scope. Instead, any logging on public domain is subject to obtaining a logging permit issued by the National Forestry Organization (under the supervision of the Ministry of Agriculture and the Ministry of the Environment) for a particular cut / parcel. With respect to logging within a private forest, it is the responsibility of the forest owner, depending on the situation, either to set up a Simple Management Plan approved by the Regional Center of Forest Ownership (CRPF), or to obtain a prior administrative authorization (from the prefecture or from the town council) in order to enable harvesting on his property.

In addition to the legal provisions, there are a number of standards:

A standard only becomes mandatory if a regulatory text refers to it. In the other cases, it is simply a technical specification of voluntary application. As mentioned in the “Business” section above, our French subsidiary, PARQUET NATURE (FRANCE), holds a certificate of conformity issued by the PEFC. This certificate establishes that our subsidiary meets the requirements for PEFC Chain of Custody according to several standards within the scope of round woods and sawn woods – Physical Separation Method.

Lastly, there are prescriptions fixed by the general sales clause, in the case of purchase of standing timber from a forest owner. These clauses impose, for example, the respect of the infrastructures and timber of the remaining stand. They are not of a regulatory nature but contractual between the seller (forest owner or his representative) and the buyer (forest operator).

Regulations Relating to Foreign Investments and Foreign Exchange Control

Financial relations between France and foreign countries are free. As an exception, in a limited number of sectors related to national defense or likely to jeopardize public order and activities that are essential to guaranteeing the country’s interests, Article L. 151-3 of the Monetary and Financial Code requires prior authorization for foreign investments.

Foreign investments in France by non-residents must be reported to the French Treasury under certain circumstances. In accordance with Article R152-3 of the Monetary and Financial Code, if a non-resident acquires 10% or more of the equity or voting rights in a resident company, or if foreign-held equity or voting rights in a company rise above the 10% threshold, a return must be filed by a non-resident (for statistical reasons) with the Banque de France if the amount of the transactions exceeds EUR 15 million.

Lastly, a foreign investment is subject to authorization under the IEF procedure if three conditions are cumulatively met: condition relating to the source of the investment; condition relating to the nature of the planned transaction; condition relating to the nature of the target company’s activity, such as aerospace, civil protection, cybersecurity, artificial intelligence, robotics, some data centers, some semiconductors. If one of these conditions is not met, the investment is not subject to authorization. These criteria are provided for in the Monetary and Financial Code.

There are no exchange control or currency regulations.

Regulations Relating to Labor

Employment relationships in France are mainly regulated by:

Employment contracts must be drawn up for each specific job category, according to employment legislation and collective agreements in force. Statutory rights including notice period, minimum salaries, severance payment etc. are frequently enhanced by national industry sector collective bargaining agreements, which may apply simply on the basis of the company’s business activity and location.

The French social security system requires contributions from both employers and employees. Employees’ social security contributions are withheld from salary by the employer.

Staff representation

The workers in small and medium sized enterprises have the right to be represented by a collective body: the members of the “Comité Social et Economique”, who are elected by the employees. The CSE is mandatory for all enterprises with at least 11 employees. The numbers of the elects increase with the enterprise’s size.

Regulations Relating to Business Operation

Registration

Prior to the commencement of business operations in France, any company must be registered with the Trade and Companies Registrar (Registre du commerce et des sociétés) (RCS). Each establishment operated by any company must also be registered separately with the relevant Register of Commerce and Companies.

Reporting Requirements

Every French trading company, including French branches of foreign companies, must comply with accounting requirements and keep annual book accounts (balance sheet, profit and loss account, and, if required, management reports, minutes of the annual meeting regarding the approval of the accounts and allocation of profit), which must be filed with the Commercial and Companies Registry.

French law imposes beneficial ownership reporting requirements on all unlisted companies and foreign companies with a French branch. These companies must identify and disclose the identity of any individual who:

Statutory Auditors

An auditor must be appointed by commercial companies that exceed at least two of the three thresholds requiring the appointment of a statutory auditor (i.e. (i) turnover of 8 million Euros, (ii) total balance sheet of 4 million Euros and (iii) 50 employees).

Our French subsidiary, PARQUET NATURE (FRANCE), is subject to the obligation to appoint auditors, with which it is in compliance.

Regulations Relating to Personal Data Protection

Organizations processing personal data (which includes employee data, customer data, and business contact information) must comply with the General Data Protection Regulation (GDPR), which is applicable since May 25, 2018, and with the French Data Protection Act of January 6, 1978, as modified in June 2018.

Organizations are also encouraged to appoint a Data Protection Officer we will oversee several missions to assist them.

An independent administrative authority is responsible for monitoring compliance with the legislation and has the power to impose sanctions, namely the Commission nationale de l’informatique et des libertés (CNIL).

Regulations Relating to Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF)

Beginning in 2016, France took several important steps to strengthen its approach to anti-money laundering. These steps included incorporating EU Directives into the country’s laws.

On December 1, 2016, France transposed the Fourth EU Directive on anti-money laundering (AMLD4) by Order no 2020-115 of 12 February 2020.

Provisions relating to the fight against AML/CFT are found primarily in the Penal Code and the Monetary and Financial Code (CMF).

The CMF imposes the following main obligations on financial institutions and other designated businesses concerning AML/CTF requirements:

The Intelligence Processing and Action against Illicit Financial Networks Unit (“TRACFIN”) is the designated financial intelligence unit and the national reporting authority for collecting, analyzing, and enriching information reported by, inter alia, financial institutions and other businesses subject to AML requirement. The designated businesses subject to AML requirements are listed under Article L. 561-2 of the Monetary and Financial Code. Amongst the non-financial entities subject to AML requirements include real estate agents, accountants, auditors, auction sellers, notaries, gambling and betting operators, sports agents, art and antiques dealers and lawyers.

Aside from the above-mentioned specific requirements, all companies and economic interest groups registered in France, all foreign commercial companies with a branch in France and all other legal entities registered in France are required to file at the Trade and Companies Registry a document identifying their beneficial owners, and the type of control over the legal entity such owners exercise.

Our French subsidiary, PARQUET NATURE (FRANCE) is not deemed to be a reporting institution. Nevertheless, we are required to comply with the provisions relating to the fight against AML/CFT.

Regulations Relating to Intellectual Property

French law on intellectual property rights is the result of national statutory and regulatory provisions, statutory provisions implementing international and multilateral agreements, and European regulations having direct effect in France as a Member State of the European Union.

In this respect, France is a party to the Paris Convention for the Protection of Industrial Property of 20 March 1883, which introduces key mechanisms, such as the priority right.

France is also a party to a number of special agreements. Some of these allow for an international filing of applications for registered intellectual property rights: for trademarks, the Madrid Agreement Concerning the International Registration of Marks of 14 April 1891 and the Madrid Protocol of 27 June 1989.

The implementation of these international rules and the articulation of French law and notably French intellectual property law with these international rules is codified with French national substantive law in the French Intellectual Property Code (CPI).

French law as codified in the CPI provides for specific provisions regarding several intellectual property rights, including trademarks. Trade secrets law is codified in the French Commerce Code.

Regulations Relating to the Commercial Relationships

In France, commercial relationships between professionals are mainly regulated by the Commercial Code.

This Code establishes the obligations to be respected by professionals in relationships between professionals (B2B relationships) at the several steps of the commercial relationships: negotiation, billing, payment.

During negotiations, the seller is required to communicate his general terms and conditions of sale to any business customer who requests them, however, the establishment of these general conditions of sale is not an obligation.

If general terms and conditions of sale are issued, some mandatory mentions must appear such as (the list is not exhaustive): terms of sale and payment, the elements for determining the price, such as the unit price scale and any price reductions.

The issuing of invoices is also regulated. Several mandatory mentions must appear on the invoice such as:

Other mentions are set out in the Commercial Code relating to the identification of the company (i.e.: registration number, registered office).

It should be noted that in addition to the rules of the Commercial Code on this topic, there are those of tax law.

The payment is also subject to regulations, this latter must respect the deadlines set out in the Commercial Code failure to do so may result in sanctions (i.e.: administrative fine, interest on arrears, fixed compensation for recovery costs).

Overview of the Laws and Regulations Relating to Our Business and Operations in China

Regulations Related to Foreign Investment

Investment activities in China by foreign investors are principally governed by the Catalog of Industries for Encouraging Foreign Investment (the “Encouraged Industries Catalog”) and the Special Management Measures (Negative List) for the Access of Foreign Investment (the “Negative List”), which were promulgated and are amended from time to time by the Ministry of Commerce (“MOFCOM”) and the National Development and Reform Commission (the “NDRC”), and together with the PRC Foreign Investment Law (the “FIL”), and their respective implementation rules and ancillary regulations. The Encouraged Industries Catalog and the Negative List lay out the basic framework for foreign investment in China, classifying businesses into three categories in terms of the level of participation permitted to foreign investment: “encouraged”, “restricted” and “prohibited.” Industries not listed in the Encouraged Industries Catalog are generally deemed as falling into a fourth category of “permitted” industries unless specifically restricted by other PRC laws.

On October 26, 2022, MOFCOM and the NDRC released the Encouraged Industries Catalogue (2022 Version), which became effective on January 1, 2023, to replace the then existing Encouraged Industries Catalog. On December 27, 2021, MOFCOM and the NDRC released Negative List (2021 Version), which became effective on January 1, 2022, to replace the then existing Negative List. The Negative List (2021 Version) sets forth the industries in which foreign investments are restricted or prohibited. Industries that are not listed in the Negative List (2021 Version) are generally permitted to foreign investment unless otherwise specifically restricted by other PRC rules and regulations.

On March 15, 2019, the National People’s Congress (the “NPC”) promulgated the FIL, which became effective on January 1, 2020 and replaced the main body of laws and regulations then governing foreign investment in China. Pursuant to the FIL, “foreign investments” refer to investment activities conducted by foreign investors directly or indirectly in China, which include any of the following circumstances: (1) foreign investors setting up foreign-invested enterprises in China solely or jointly with other investors, (2) foreign investors obtaining shares, equity interests, interests in property or other similar rights and interests of enterprises within China, (3) foreign investors investing in new projects in China solely or jointly with other investors, and (4) investment by other means as specified in laws, administrative regulations, or as stipulated by the State Council.

According to the FIL, foreign investment shall enjoy pre-entry national treatment, except for those foreign invested entities that operate in industries deemed to be either “restricted” or “prohibited” in the Negative List. The FIL provides that foreign invested entities operating in “restricted” or “prohibited” industries will require entry clearance and other approvals.

On December 26, 2019, the State Council promulgated the Implementing Rules of Foreign Investment Law, which became effective on January 1, 2020. The implementation rules further clarified that the state encourages and promotes foreign investment, protects the lawful rights and interests of foreign investors, regulates foreign investment administration, continues to optimize foreign investment environment, and advances a higher-level of openness.

On December 30, 2019, MOFCOM and the State Administration for Market Regulation (the “SAMR”) jointly promulgated the Measures for Information Reporting on Foreign Investment, which became effective on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment, where a foreign investor carries out investment activities in China directly or indirectly, the foreign investor or the foreign-invested enterprise shall submit information relating to the investment to the competent commerce department.

Regulations Related to Foreign Exchange

General Administration of Foreign Exchange

According to the Regulations on the Control of Foreign Exchange, which were promulgated by the State Council on January 29, 1996, came into effect on April 1, 1996, and were amended on January 14, 1997, and August 5, 2008, payments for transactions that take place within the PRC must be made in RMB. RMB is convertible into other currencies for current account items, such as trade-related receipts and payments and payment of interest and dividends. The conversion of RMB into other currencies and remittance of the converted foreign currency outside the PRC for capital account items, such as direct equity investments, loans and repatriation of investment, requires the prior approval from the SAFE or its local office.

SAFE Circular No. 59

Pursuant to the Circular of the SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment, promulgated by SAFE on November 19, 2012, which became effective on December 17, 2012, and was further amended on May 4, 2015, October 10, 2018 and December 30, 2019, approval is not required for opening a foreign exchange account and depositing foreign exchange into the accounts relating to the direct investments. SAFE Circular No. 59 also simplified foreign exchange-related registration required for the foreign investors to acquire the equity interests of Chinese companies and further improve the administration on foreign exchange settlement for FIEs.

SAFE Circular No. 13

Pursuant to the Circular on Further Simplifying and Improving the Foreign Currency Management Policy on Direct Investment, effective from June 1, 2015, and was further amended on December 30, 2019, which cancels the administrative approvals of foreign exchange registration of direct domestic investment and direct overseas investment and simplifies the procedure of foreign exchange-related registration, the investors shall register with banks for direct domestic investment and direct overseas investment.

SAFE Circular No. 19

The Notice of the State Administration of Foreign Exchange on Reforming the Mode of Management of Settlement of Foreign Exchange Capital of Foreign-Funded Enterprises, or the SAFE Circular No.19, which was promulgated by the SAFE on March 30, 2015, and became effective on June 1, 2015, and was further amended on December 30, 2019, provides that a foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital in its capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to the SAFE Circular No.19, for the time being, FIEs are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign- invested enterprise shall truthfully use its capital for its own operational purposes within the scope of business; where an ordinary foreign- invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.

Based on the foregoing, when setting up a new foreign-invested enterprise, the foreign invested enterprise shall register with the bank located at its registered place after obtaining the business license, and if there is any change in capital or other changes relating to the basic information of the foreign-invested enterprise, including without limitation any increase in its registered capital or total investment, the foreign invested enterprise shall register such changes with the bank located at its registered place after obtaining the approval from or completing the filing with competent authorities. Pursuant to the relevant foreign exchange laws and regulations, the above-mentioned foreign exchange registration with the banks will typically take less than four weeks upon the acceptance of the registration application. If we intend to provide funding to our WFOE through capital injection at or after their establishment, we shall register the establishment of and any follow-on capital increase in our wholly foreign owned subsidiaries with the State Administration for Industry and Commerce or its local counterparts, file such and register such with the local banks for the foreign exchange related matters.

Offshore Investment

Under the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, issued by the SAFE and effective on July 4, 2014, PRC residents are required to register with the local SAFE branch prior to the establishment or control of an offshore special purpose vehicle, or SPV, which is defined as offshore enterprises directly established or indirectly controlled by PRC residents for offshore equity financing of the enterprise assets or interests they hold in China. An amendment to registration or subsequent filing with the local SAFE branch by such PRC resident is also required if there is any change in basic information of the offshore company or any material change with respect to the capital of the offshore company. At the same time, the SAFE has issued the Operation Guidance for the Issues Concerning Foreign Exchange Administration over Round-trip Investment regarding the procedures for SAFE registration under the SAFE Circular 37, which became effective on July 4, 2014, as an attachment of Circular 37. On February 13, 2015, SAFE promulgated the SAFE Circular No. 13, effective from June 1, 2015, which further amended SAFE Circular 37 by requiring domestic residents to register with qualified banks rather than SAFE or its local branches in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.

Under the relevant rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in bans on the foreign exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliates, and may also subject relevant PRC residents to penalties under PRC foreign exchange administration regulations. In addition, the failure of the Chinese resident shareholders to complete Circular 37 registration may subject each of the shareholders to fines of less than RMB50,000. Mr. Hok Pan Se, our director and controlling shareholder, who is a permanent resident of Macau, is not required to apply for the registration. We cannot assure you that each of our Chinese resident shareholders has completed or will complete the registration process as required by Circular 37.

Regulations Related to Dividend Distributions

The principal laws and regulations regulating the dividend distribution of dividends by foreign-invested enterprises in China include the PRC Company Law and the FIL. The PRC company law was recently amended on December 29, 2023 and will come into force on July 1, 2024. Under the current regulatory regime in China, foreign-invested enterprises in China may pay dividends only out of their accumulated profit, if any, determined in accordance with PRC accounting standards and regulations. A PRC company, including foreign-invested enterprise, is required to set aside as general reserves at least 10% of its after-tax profit, until the cumulative amount of such reserves reaches 50% of its registered capital unless the provisions of laws regarding foreign investment otherwise provided, and shall not distribute any profits until any losses from prior fiscal years have been offset. Profits retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.

Regulations on Intellectual Property Rights

Regulations on Trademarks

According to the current Chinese trademark law and regulations, a trademark which has been approved and registered by the trademark office is a registered trademark, including a trademark of goods, services, collective trademark and certification trademark. The trademark registrant shall enjoy the exclusive right to use the trademark and the protections afforded by law. The trademark law also specifies the scope of registered trademarks, procedures for registration of trademarks and the rights and obligations of trademark owners. As of the date of this report, we have completed trademark registration of six trademarks in China and own the exclusive right to use such trademark.

Regulations on Domain Names

The Ministry of Industry and Information Technology of the PRC, or the MIIT, promulgated the Measures on Administration of Internet Domain Names, or the Domain Name Measures, on August 24, 2017, which took effect on November 1, 2017 and replaced the Administrative Measures on China Internet Domain Name promulgated by the MIIT on November 5, 2004. According to the Domain Name Measures, the MIIT is in charge of the administration of PRC internet domain names. The domain name registration follows a first-to-file principle. Applicants for registration of domain names shall provide true, accurate and complete information of their identities to the domain name registration service institutions. The applicant will become the holder of such domain names upon completion of the registration procedure.

Regulations on Employment and Social Welfare

Labor Contract Law

The Labor Contract Law of the PRC, or the Labor Contract Law, which was promulgated on June 29, 2007 and amended on December 28, 2012, is primarily aimed at regulating the rights and obligations of employers and employees, including the establishment, performance and termination of such relationship. Pursuant to the Labor Contract Law, labor contracts shall be concluded in writing if labor relationships are to be or have been established between employers and the employees. Employers are prohibited from forcing employees to work above certain time limit and employers shall pay employees for overtime work in accordance with certain national regulations. In addition, employee wages shall be no lower than local standards on minimum wages and shall be paid to employees timely.

Social Insurance and Housing Fund

Under the Social Insurance Law of the PRC that was promulgated by the SCNPC on October 28, 2010, and came into force as of July 1, 2011, and most recently amended on December 29, 2018, together with other laws and regulations, employers are required to pay basic pension insurance, unemployment insurance, basic medical insurance, employment injury insurance, maternity insurance, and other social insurance for its employees at specified percentages of the salaries of the employees, up to a maximum amount specified by the local government regulations from time to time. When an employer fails to pay social insurance premiums in full, relevant social insurance collection agency shall order it to make up for any shortfall within a prescribed time limit, and may impose a late payment fee at the rate of 0.05% per day of the outstanding amount from the due date. If such employer still fails to make up for the shortfalls within the prescribed time limit, the relevant administrative authorities shall impose a fine of one to three times the outstanding amount upon such employer.

In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in April 3, 1999 and recently amended in March 24, 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. Employer and employee are also required to pay and deposit housing funds, with an amount no less than 5% of the monthly average salary of the employee in the preceding year in full and on time.

Regulations on Tax

Enterprise Income Tax

On March 16, 2007, the National People’s Congress promulgated the PRC Enterprise Income Tax Law, which was amended on February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council enacted the Regulations for the Implementation of the Enterprise Income Tax Law, which became effective on January 1, 2008 and was amended on April 23, 2019. Under the Enterprise Income Tax Law and the relevant implementing regulations, both resident enterprises and non-resident enterprises are subject to tax in China. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but are actually or in effect controlled from within China. Non-resident enterprises are defined as enterprises that are organized under the laws of foreign countries and whose actual management is conducted outside China, but have established institutions or premises in China, or have no such established institutions or premises but have income generated from inside China. Under the Enterprise Income Tax Law and relevant implementing regulations, a uniform corporate income tax rate of 25% is applied. However, if non-resident enterprises have not formed permanent establishments or premises in China, or if they have formed permanent establishments or premises in China but there is no actual relationship between the relevant income derived in China and the established institutions or premises set up by them, withholding income tax is set at the rate of 10% with respect to their income sourced from inside the PRC.

Withholding Income Tax

The Enterprise Income Tax Law and its implementation rules provide that since January 1, 2008, an income tax withholding rate of 10% will normally apply to dividends declared to non-PRC resident investors that do not have an establishment or place of business in China, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within China.

Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent PRC tax authority to have met the relevant conditions and requirements under this arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives from a PRC resident enterprise may be reduced to 5%. However, based on the Circular on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties issued on February 20, 2009, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Pursuant to the Circular on Several Questions regarding the “Beneficial Owner” in Tax Treaties, which was issued on February 3, 2018 by SAT and became effective on April 1, 2018, when determining the applicant’s status as the “beneficial owner” regarding tax treatment in connection with dividends, interest, or royalties in the tax treaties, several factors, including, without limitation, whether the applicant is obligated to pay more than 50% of his or her income in twelve months to residents in a third country or region, whether the business operated by the applicant constitutes the actual business activities, and whether the counterparty country or region to the tax treaties does not levy any tax or grant any tax exemption on relevant incomes or levy tax at an extremely low rate, will be taken into account, and such factors will be analyzed according to the actual circumstances of the specific cases.

Value-Added Tax

The PRC Provisional Regulations on Value-Added Tax were promulgated by the State Council on December 13, 1993, became effective on January 1, 1994, and were subsequently amended from time to time. The Detailed Rules for the Implementation of the PRC Provisional Regulations on Value-Added Tax (2011 Revision) were promulgated by the Ministry of Finance on December 25, 1993 and subsequently amended in 2008 and 2011. On November 19, 2017, the State Council promulgated the Decisions on Abolishing the PRC Provisional Regulations on Business Tax and Amending the PRC Provisional Regulations on Value-Added Tax. Pursuant to these regulations, rules and decisions, all enterprises and individuals engaged in sale of goods, provision of processing, repair, and replacement services, sales of services, intangible assets, real property, and the importation of goods within the PRC are value-added tax, or VAT, taxpayers. On March 20, 2019, the Ministry of Finance, the State Administration of Taxation, or SAT, and the General Administration of Customs jointly issued the Announcement on Relevant Policies on Deepening the Reform of Value-Added Tax. Pursuant to this announcement, the generally applicable VAT rates are simplified as 13%, 9%, 6%, and 0%, which became effective on April 1, 2019, and the VAT rate applicable to small-scale taxpayers is 3%. If a small-scale taxpayer’s total monthly sales amount does not exceed RMB100 thousand and its quarterly sales volume does not exceed RMB300 thousand, the VAT will be exempted.

Tax on Indirect Transfer

On February 3, 2015, SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non PRC Resident Enterprises, or Bulletin 7. Pursuant to Bulletin 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be recharacterized and treated as a direct transfer of PRC taxable assets if such arrangement does not have a reasonable commercial purpose and was established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” in the transaction arrangement, features to be taken into consideration include, inter alia, whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if its income is mainly derived from China; and whether the offshore enterprise and its subsidiaries directly or indirectly holding PRC taxable assets have a real commercial nature which is evidenced by their actual function and risk exposure. Pursuant to Bulletin 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Bulletin 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares are acquired on a public stock exchange. On October 17, 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding of Non- resident Enterprise Income Tax at Source, or Bulletin 37, which was amended by the Announcement of the State Administration of Taxation on Revising Certain Taxation Normative Documents issued on June 15, 2018 by SAT. Bulletin 37 further elaborates the relevant implemental rules regarding the calculation, reporting, and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of Bulletin 7. Bulletin 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, are involved.

Regulations Related to Securities Offering and Listing Overseas

On February 17, 2023, the CSRC published the Overseas Listing Measures, which became effective on March 31, 2023. Pursuant to these Measures, PRC domestic companies that directly or indirectly offer or list their securities in an overseas market are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. The identification of indirect overseas offering and listing by a domestic enterprise shall follow the principle of substance over form, where an issuer falls under both of the following conditions, it shall be deemed as indirect overseas offering and listing by a domestic enterprise, if:(i) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by domestic companies, and (ii) the main parts of the issuer’s business activities are conducted in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in the Chinese mainland. If a PRC domestic company fails to complete the filing procedure or conceals any material fact or falsifies any major content in its filing documents, such domestic company may be subject to penalties or administrative actions, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to penalties, such as warnings and fines.

Regulation on Data Protection and Cybersecurity

Personal Information Protection Law

According to the Personal Information Protection Law of PRC, which came into force on November 1, 2021, no organization or individual may illegally collect, use, process, or transmit any personal information of another person, or illegally deal in, provide, or disclose any personal information of another person. Any personal information processor to provide personal information abroad shall meet certain conditions and take necessary measure to ensure that the activities carried out by overseas recipients on such personal information shall meet the same standards of protection provided in this Law.

Cybersecurity Law

According to Cybersecurity Law of the People’s Republic of China, which came into force on June 1, 2017, the network operators shall neither collect personal information unrelated to the service they provide, collect or use personal information in violation of the PRC laws and regulations, disclose, distort or damage personal information they collect, nor provide such information to others without the agreement of the person whose information is collected except on certain circumstances provided in this Law.

Data Security Law

According to Data Security Law of the People’s Republic of China, which came into force on September 1, 2021, the government shall establish a classified and graded data protection system to protect the data security. Any organization or individual collecting data shall adopt lawful and proper methods and shall not steal data or obtain them by other illegal means.

4.C. Organizational Structure

The following diagram illustrates our corporate structure as at April 25, 2024.

4.D. Property, plant and equipment

We do not own any property and we rent the following leased properties from independent third parties for our operations:

None.

You should read the following discussion and analysis of the Group’s financial condition and results of operations in conjunction with the Group’s consolidated financial statements and the related notes included elsewhere in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The Group’s actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — 3.D. Risk Factors” or in other parts of this annual report.

5.A. Operating Results

Business Overview

We are a holding company incorporated as an exempted company under the laws of the BVI. As a holding company with no material operations of our own, we conduct our substantial operations mainly in Peru, France, Hong Kong and Macau, through our Operating Subsidiaries.

We are a vertically-integrated forestry company which focuses on FSC business operations, with facilities located in Peru. We produce a range of products, including logs, decking, flooring, sawn timber, recycled charcoal, synthesized charcoal, machine-made charcoal and essential oils. Our Group owns natural forest concessions and cutting rights for the exploitation of timbers on parcels of land in Peru which covered an area of approximately 615,333 hectares. We also work with local forest owners in Peru and engage in timber auctions in France for supply of logs. We are committed to sustainable management of forests, efficient use of resources, continuous development of new products, and providing high-quality products to our customers consistently. Our goal is to become a leading player in the wood industry and provide sustainable and high-quality wood products at an affordable price to our customers.

We commenced our FSC business operations in 2016, when Grupo Maderero Amaz S.A.C., a subsidiary of our Group, first obtained FSC CoC certification and began to sell FSC-certified products. As at the date of this report, five subsidiaries of our Group (including Choi Chon Investment Company Limited, E&T Forestal S.A.C., Grupo Maderero Amaz S.A.C., Nuevo San Martin S.A.C. and Latinoamerican Forest S.A.C) have obtained FSC CoC certifications. We also have built a professional forest management team to implement FSC forest management. Our forest management team is led by our head of forest engineer who is qualified to carry out FSC forest management and the key members of our team have an average of over 8 years of experience in FSC forest management. According to the industry report issued by Frost & Sullivan in October 2022, FSC-certified products can be sold at a premium of around 5% to 15% over non-FSC-certified products.

Our products and services provide significant value for consumers, through our “NATU” brand. We also seek to maximize consumers’ access to our products and services through competitive pricing and regular evaluations of our pricing arrangements and contracts with our distributors.

Our customers include importers, retailers and processors located in China, Peru, France, Hong Kong, Luxembourg, Belgium, the United States and South Asia, and we expect to expand our existing markets in Europe and North America by establishing an agency system, as well as expand into new geographic markets, such as the United Arab Emirates, Australia and Korea, where we believe there is significant market demand for decking.

Macroeconomic Environment

Coronavirus (COVID-19) Update

The outbreak of COVID-19, which was declared a pandemic by the World Health Organization in March 2020, has created significant volatility, uncertainty and disruption in the global economy.

In January 2020, the Chinese government issued a series of policies to prevent the spread of COVID-19. The Chinese government has shown signs of relaxing its COVID-19 policies. For instance, the Chinese government has eased the border restrictions by reopening certain border crossing points between mainland China and Hong Kong to travelers since January 8, 2023. On March 15, 2020, Peru announced a nationwide lockdown due to the pandemic, which was lifted in June of the same year. After that, various pandemic prevention measures have been introduced in various countries and regions around the world.

With regard to our production base in Peru, during the lockdown period, production in all of our factories was suspended for around three months, many businesses ceased to operate and shops were closed, and all government departments (including, among others, the forestry bureau and tax bureau) did not work normally, which hindered our business operations in terms of production, delivery as well as raw materials procurement. The pandemic and lockdown measures also raised concerns over health and safety among the workers and led to changes in their mentality, which resulted in instability in personnel and high turnover rate, in turn affecting the normal work progress in our production base. Furthermore, the resulting inflation, which significantly raised diesel prices, electricity fees as well as employee base salary, had an impact on our costs of operation. To mitigate the inflationary pressures, we have adjusted prices to our customers to reflect changes in our operating costs. Other control measures imposed as a response to the pandemic also led to delay in the development of various parts of the forests, resulting in a period of supply shortage and rising costs of raw materials for our business operations.

With regard to our sales, COVID-19 related lockdown and other control measures imposed in other countries which form part of the overseas market for our products had and may continue to have an impact on our international exports. For instance, the Chinese market will not be able to receive delivery of our products during the period of lockdown, and consumers’ demand for wooden floors will decline, which will significantly affect the quantity and price of flooring materials we sell in China. In addition, as the price of sea freight has increased by 300% as compared with that before the pandemic, this has led to higher overall costs for our customers. The shortage in supply of cargo containers, reduction in shipping frequency and longer shipping period have also affected the shipment and delivery of our products to a certain extent. Additionally, the pandemic has resulted in the shutdown of factory production, rising costs, delays in transportation and delivery, and shortage in supply of raw materials, which raised the price of wood products in the whole market. At the same time, due to the impact of the pandemic on the global economy, market consumption was weak, resulting in a backlog of goods, which in turn affected the number of orders placed by our customers.

In the second half of 2022, COVID-19 has subsided and many countries lifted entirely its epidemic prevention measures in the first quarter of 2023. Now, this far-reaching epidemic can be regarded as over. During the years ended December 31, 2023, 2022 and 2021, COVID-19 has had a limited impact on the Company’s operations.

Russia-Ukraine Conflict

Due to the Russian-Ukrainian war, the conflicts in the Middle East and the weakening global economic growth momentum, there has been a decline in consumer demand for wood. In light of the changing market conditions, we have downsized the operations in Peru and underwent a cost control and reduction exercise to make its operations competitively efficient and cost effective whilst seeking new profitable growth opportunities.

Recent Developments

In September 2023, the Company completed its IPO of 750,000 ordinary shares represented by ADSs at a price of $9 per ADS. In October 2023, the underwriter for the IPO exercised its over-allotment option in part to purchase 85,868 ADSs. The total gross proceeds received from the IPO, including proceeds from the exercise of the over-allotment option, was $7.5 million. The ADSs began trading on September 12, 2023 on The Nasdaq Capital Market under the ticker symbol “NWGL”.

In October 2023, an aggregate of 20,475,377 ordinary shares was issued to the convertible bond holders of the Company.

Key Factors that Affect Operating Results

We believe the following key factors may affect our financial condition and results of operations:

Results of Operations

The following provides a summary of our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021: