FLONIC HI-TEC BHD (Company No.: T) (Incorporated in Malaysia under the Companies Act, 1965)

Transcription

1 THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the course of action you should take, please consult your stockbroker, bank manager, solicitor, accountant or other professional adviser immediately. Bursa Malaysia Securities Berhad ( Bursa Securities ) takes no responsibility for the contents of this circular to shareholders ( Circular ), makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Circular. Bursa Securities has not perused this Circular prior to its issuance. This Circular has been reviewed and approved by M&A Securities Sdn Bhd, who is the Adviser to Flonic Hi-Tec Bhd ( Flonic or Company ) for the Proposals (defined herein). (I) (II) FLONIC HI-TEC BHD (Company No.: T) (Incorporated in Malaysia under the Companies Act, 1965) CIRCULAR TO SHAREHOLDERS IN RELATION TO THE PROPOSED REDUCTION OF FLONIC S EXISTING ISSUED AND PAID-UP SHARE CAPITAL FROM RM34,994,493 COMPRISING 349,944,931 ORDINARY SHARES OF RM0.10 EACH IN FLONIC TO RM17,497, COMPRISING 349,944,931 ORDINARY SHARES OF RM0.05 EACH IN FLONIC VIA THE CANCELLATION OF RM0.05 FROM THE PAR VALUE OF EACH EXISTING ORDINARY SHARE OF RM0.10 EACH IN FLONIC PURSUANT TO SECTION 64 OF THE COMPANIES ACT, 1965 ( PROPOSED PAR VALUE REDUCTION ); PROPOSED VARIATION TO THE UTILISATION OF LISTING PROCEEDS FROM THE COMPANY S RIGHTS ISSUE WITH WARRANTS COMPLETED ON 22 JUNE 2012 ( PROPOSED VARIATION TO THE UTILISATION OF PROCEEDS ); AND (III) PROPOSED AMENDMENT TO THE MEMORANDUM OF ASSOCIATION OF THE COMPANY FOR THE PROPOSED PAR VALUE REDUCTION ( PROPOSED AMENDMENT ). (COLLECTIVELY, THE PROPOSALS ) AND NOTICE OF EXTRAORDINARY GENERAL MEETING Adviser M& A M&A SECURITIES SDN BHD (15017-H) (A Wholly-Owned Subsidiary of Insas Berhad) (A Participating Organisation of Bursa Malaysia Securities Berhad) The Notice of the Extraordinary General Meeting ( EGM ) of Flonic for the Proposals to be held at Conference 1, Vivatel Kuala Lumpur, 85, Jalan Loke Yew, Kuala Lumpur on Friday, 26 July 2013 at 10:30 a.m. or immediately following the conclusion or adjournment (as the case may be) of the Ninth Annual General Meeting of Flonic, which will be held at the same venue and on the same day at 10:00 a.m., whichever is later, together with the Form of Proxy, are enclosed with this Circular. Shareholders are advised to refer to the Notice of EGM and the Form of Proxy which are enclosed. The Form of Proxy should be deposited at the Company s Registered Office at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights 50490, Kuala Lumpur, not later than forty-eight (48) hours before the time set for holding the EGM or at any adjournment thereof. The lodging of the Form of Proxy will not preclude you from attending and voting in person at the meeting should you subsequently wish to do so. Last date and time for lodging the Form of Proxy : Wednesday, 24 July 2013 at 10:30 a.m. Date and time for the EGM : Friday, 26 July 2013 at 10:30 a.m. or immediately following the conclusion or adjournment (as the case may be) of the Ninth Annual General Meeting of Flonic, which will be held at the same venue and on the same day at 10:00 a.m., whichever is later This Circular is dated 3 July 2013

2 DEFINITIONS Unless where the context otherwise requires, the following definitions shall apply throughout this Circular and the accompanying appendices: 2012/2017 Warrants : 139,963,254 outstanding warrants 2012/2017 in issue in Flonic issued pursuant to Deed Poll in relation to the Rights Issue with Warrants, which are convertible into 139,963,254 new ordinary shares of RM0.10 each in Flonic as at the LPD Act : Companies Act, 1965 of Malaysia as amended from time to time and any re-enactment thereof AGM : Annual General Meeting Board : Board of Directors of Flonic Bursa Securities : Bursa Malaysia Securities Berhad Circular : This circular to shareholders of Flonic dated 3 July 2013 in relation to the Proposals Court : High Court of Malaya Deed Poll : The deed poll dated 11 May 2012 governing the 2012/2017 Warrants EGM : Extraordinary general meeting EPS : Earnings per share Flonic or the Company : Flonic Hi-Tec Bhd Flonic Group or the Group : Flonic and its subsidiaries, collectively Flonic Shares or Shares : Ordinary share(s) of RM0.05 each in Flonic after the Proposed Par Value Reduction FPE : Financial period ended FYE : Financial year ended Jiwa : Jiwa Holdings Sdn Bhd Jiwa Acquisition : Acquisition of 300,000 Jiwa Shares, representing 30% equity interest in Jiwa by Flonic for the purchase consideration of RM3.75 million. The Jiwa Acquisition was completed on 30 April 2013 Jiwa Group : Jiwa and its subsidiaries, collectively Jiwa Shares : Ordinary shares of RM1.00 each in Jiwa Listing Requirement : ACE Market Listing Requirements of Bursa Securities, as amended from time to time LPD : 28 June 2013, being the latest practicable date prior to the date of printing of this Circular ii

3 DEFINITIONS (CONT D) Maximum Scenario : Assuming full exercise of 2012/2017 Warrants into new ordinary shares of RM0.10 each in Flonic on or prior to the effective date of the Proposed Par Value Reduction Minimum Scenario : Assuming none of the 2012/2017 Warrants are exercised into new ordinary shares of RM0.10 each in Flonic on or prior to the effective date of the Proposed Par Value Reduction NA : Net assets M&A Securities : M&A Securities Sdn Bhd Proposals : Proposed Par Value Reduction, Proposed Variation to the Utilisation of Proceeds and Proposed Amendment, collectively Proposed Amendment : Proposed amendment to the Memorandum of Association of Flonic for the Proposed Par Value Reduction Proposed Par Value Reduction : Proposed reduction of the Company s existing issued and paid-up share capital comprising ordinary shares of RM0.10 each in Flonic credited as fully paid-up via the cancellation of RM0.05 from the par value of each existing ordinary share of RM0.10 in Flonic pursuant to Section 64 of the Act Proposed Variation to the Utilisation of Proceeds : Proposed variation to the utilisation of listing proceeds from Rights Issue with Warrants Rights Issue with Warrants : Renounceable rights issue involving the issuance of 209,944,931 new ordinary shares of RM0.10 each in Flonic at an issue price of RM0.10 per share together with 139,963, /2017 Warrants. The Rights Issue with Warrants was completed on 22 June 2012 Rights Issue Proceeds : The total gross proceeds of RM20.99 million raised from the Rights Issue with Warrants RM and sen : Ringgit Malaysia and sen, respectively For the purpose of this Circular, reference to a time of day shall be a reference to Malaysian time. In this Circular, words referring to the singular shall, where applicable, include the plural and vice versa, and words referring to the masculine gender shall, where applicable, include the feminine and neuter genders and vice versa. References to persons shall include a company or a corporation. The rest of this page has been intentionally left blank iii

4 TABLE OF CONTENTS LETTER TO THE SHAREHOLDERS OF FLONIC ON THE PROPOSALS 1. INTRODUCTION Page 1 2. DETAILS OF THE PROPOSALS 2 3. RATIONALE FOR THE PROPOSALS 4. EFFECTS OF THE PROPOSALS 5. APPROVALS REQUIRED 6. OUTSTANDING PROPOSALS ANNOUNCED BUT PENDING IMPLEMENTATION 7. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS 8. DIRECTORS RECOMMENDATION 9. OTHER MATTERS 10. EGM 11. FURTHER INFORMATION APPENDICES I II DETAILS OF THE PROPOSED AMENDMENT FURTHER INFORMATION NOTICE OF EGM FORM OF PROXY ENCLOSED ENCLOSED The rest of this page has been intentionally left blank iv

5 FLONIC HI-TEC BHD (Company No.: T) (Incorporated in Malaysia under the Companies Act, 1965) Registered Office: Level 7, Menara Milenium Jalan Damanlela Pusat Bandar Damansara Damansara Heights Kuala Lumpur 3 July 2013 Board of Directors Chua Wye Man (Chairman/Executive Director) Lee Kok Wah (Independent Non-Executive Director) Rozita Binti Harun (Independent Non-Executive Director) Ng Yaw Long (Independent Non-Executive Director) To: The Shareholders of Flonic Hi-Tec Bhd Dear Sir / Madam, PROPOSED PAR VALUE REDUCTION; PROPOSED VARIATION TO THE UTILISATION OF PROCEEDS; AND PROPOSED AMENDMENT 1. INTRODUCTION On 21 June 2013, M&A Securities had, on behalf of the Board, announced that Flonic proposes to undertake the following proposals: (i) (ii) (iii) Proposed Par Value Reduction; Proposed Variation to the Utilisation of Proceeds; and Proposed Amendment. Further details of the Proposals are set out in the ensuing sections. The purpose of this Circular is to provide you with the relevant information on the Proposals and to accordingly seek your approval for the resolutions pertaining to the same to be tabled at the Company s forthcoming EGM. The notice of EGM together with the Form of Proxy are enclosed in this Circular. SHAREHOLDERS OF FLONIC ARE ADVISED TO READ AND CONSIDER CAREFULLY THE ENTIRE CONTENTS OF THIS CIRCULAR BEFORE VOTING ON THE RESOLUTIONS TO GIVE EFFECT TO THE PROPOSALS AT THE FORTHCOMING EGM. 1

6 2. DETAILS OF THE PROPOSALS 2.1 Proposed Par Value Reduction Flonic proposes to reduce its existing issued and paid-up share capital comprising ordinary shares of RM0.10 each in Flonic credited as fully paid-up via the cancellation of RM0.05 from the par value of each existing ordinary share of RM0.10 in Flonic pursuant to Section 64 of the Act. As at the LPD, the existing issued and paid-up share capital of Flonic is RM34,994,493 comprising 349,944,931 ordinary shares of RM0.10 each credited as fully paid-up. In the event any of the existing 139,963, /2017 Warrants are exercised into new Flonic shares and the corresponding new Flonic shares are credited into the securities accounts of the holders of 2012/2017 Warrants on or prior to the effective date of the Proposed Par Value Reduction, the new Flonic shares arising therefrom shall also be subjected to the Proposed Par Value Reduction. Based on the existing issued and paid-up share capital of Flonic, upon completion of the Proposed Par Value Reduction, the issued and paid-up share capital of Flonic will be reduced to RM17,497, comprising 349,944,931 Flonic Shares of RM0.05 each credited as fully paid-up. The reduction of RM0.05 in par value will give rise to a credit of RM17,497, from the Proposed Par Value Reduction which will be utilised to set-off against the accumulated losses of the Company. The excess after such set-off shall be transferred to the capital reserve of the Company, as illustrated below and based on the following scenarios: Audited as at 31 January 2013 Unaudited as at 30 April 2013 Minimum Scenario Maximum Scenario Minimum Scenario Maximum Scenario Group level (RM 000) (RM 000) (RM 000) (RM 000) Accumulated losses (16,984) (16,984) (17,596) (17,596) Less: Credit arising from the 17,497 24,495 17,497 24,495 Proposed Par Value Reduction Resultant capital reserve / (Accumulated losses) * 513 ^ 7,511 * (99) ^ 6,899 Audited as at 31 January 2013 Unaudited as at 30 April 2013 Minimum Scenario Maximum Scenario Minimum Scenario Maximum Scenario Company level (RM 000) (RM 000) (RM 000) (RM 000) Accumulated losses (12,235) (12,235) (11,994) (11,994) Less: Credit arising from the 17,497 24,495 17,497 24,495 Proposed Par Value Reduction Resultant capital reserve / (Accumulated losses) * 5,262 ^ 12,260 * 5,503 ^ 12,501 2

7 Notes: * Before deducting estimated expenses in relation to the Proposals of RM0.12 million. ^ Before deducting estimated expenses in relation to the Proposals of RM0.12 million and the gain arising from the exercise of the Warrants amounting to RM0.611 million. Upon the effective date of the Proposed Par value Reduction, the par value of each ordinary share in Flonic will be reduced from RM0.10 to RM0.05 per share. The Proposed Par Value Reduction will not result in any adjustment to the share price of the Company or the number of shares held by shareholders. 2.2 Proposed Variation to the Utilisation of Proceeds In conjunction with the Rights Issue with Warrants completed on 22 June 2012, the Company had raised the Rights Issue Proceeds of RM20.99 million. From the Rights Issue Proceeds raised, RM6.00 million was allocated for the overseas expansion plan in relation to the Company s precision cleaning system business. However, as a result of the recent global economic slowdown which resulted in a decrease in the revenue from its precision cleaning system business, the Board had on 28 February 2013 obtained its shareholders approval to diversify its core activities to include project management, interior fit out, manufacturing and trading in wood furniture. This diversification plan was implemented via the Jiwa Acquisition. Under the terms of the Jiwa Acquisition, Flonic also has the option to acquire an additional 21% equity interest in Jiwa. The Jiwa Group was effectively classified as subsidiaries of Flonic on 30 April In view that the Company has completed the Jiwa Acquisition and no longer has the intention to continue with its overseas expansion plan for its precision cleaning business, the Flonic Group proposes to advance the unutilised portion allocated for the overseas expansion plan to the Jiwa Group as working capital. The advance of RM4.946 million by Flonic to the Jiwa Group shall be for a period of up to two (2) years and shall be subject to an annual interest rate of 8.0% per annum. The interest payable to Flonic by the Jiwa Group shall be financed via the Jiwa Group s internally generated funds. Details of the Proposed Variation to the Utilisation of Proceeds are as follows: Details Rights Issue Proceeds RM Actual Utilisation * RM Proposed Variation RM Revised utilisation RM ( 000) ( 000) ( 000) ( 000) Working capital requirements 11,787 11,787-11,787 Repayment of advances 2,607 2,607-2,607 Overseas expansion 6,000 1,054 (4,946) 1,054 Estimated expenses Advance to the Jiwa Group as working capital - - 4,946 4,946 Total 20,994 16,048-20,994 Note: * Based on the unaudited consolidated financial statements of the Flonic Group for the three (3) months financial period ended 30 April

8 The total proceeds of RM4,946,000 to be advanced to Jiwa shall be utilised as follows : Details Working capital for the existing operations of the Jiwa Group comprising the following: RM ( 000) Timeframe of Utilisation (i) Labour salaries and benefits 1,500 Within 12 months (ii) Working capital for the on-going and future projects* to be undertaken by the Jiwa Group including but not limited to the purchase of raw materials and payment to sub-contractors 2,846 Within 24 months Capital expenditure for the existing operations of the Jiwa Group comprising the following: (i) Purchase of new manufacturing machinery and equipment for the production of wood furniture by the Jiwa Group. These include the following: Within 6 months (a) one (1) unit of wood cutting machine (b) one (1) unit of wood sawing machine (c) one (1) unit of wood bending machine (d) one (1) unit of forklift (ii) Purchase of office equipment for the Jiwa Group s operations involving project management, design and mechanical and engineering services. These include the following: Within 6 months (iii) (a) two (2) units of hosting servers (b) ten (10) units of computers (c) one (1) unit of IBusiness System (business management system) (d) two (2) units of Autodesk 3D Max (design software) (e) two (2) units of V-Ray for 3D (design software) (f) two (2) units of ZWCAD Professional (design software) Comprises payment for maintenance of machinery and equipment and/or purchase of replacement machinery/equipment parts used in the Jiwa Group s production operations Within 12 months 4,946 4

9 Note: * The on-going and future projects that the Jiwa Group are involved in are as follows: Name of project Location Area of work Hotel Royal Kuala Lumpur Carpentry and renovation works and supply of loose furniture Estimated Remaining Project Value (RM 000) Estimated Period 9,000 June 2012 to December 2013 Laguna 2 Apartments Lumut, Perak Design and build for interior design works 6,600 June to October 2013 KLIA 2 Food Court Sepang, Selangor Renovation and fit-out works 4,100 July to September Eleven (Clean Up Program) Kuala Lumpur Mechanical and engineering clean up works 4,000 August to December 2013 Total 23,700 As the proceeds amounting to RM4,946,000 is proposed to be advanced to the Jiwa Group, an overview of the Interior Design Industry in Malaysia, the primary industry in which the Jiwa Group is involved in, is set out below Overview and prospects of the Interior Design Industry in Malaysia There remains ample room for growth in the Malaysian interior design industry, as demand for interior design services is anticipated to increase in tandem with the overall expansion of the property market as well as the increasing awareness and interests in the benefits of interior designs among property owners and property development companies. The Jiwa Group is well positioned to capitalise on the growth opportunities in the Malaysian interior design industry. In the commercial and leisure property segments, demand for interior design services is anticipated to be healthy as good designs are able to assist to attract more businesses, especially among hotels, shopping complexes and restaurants. Interior design services are also anticipated to increase in the healthcare industry, as interior designers will be needed to make these facilities as comfortable and homelike as possible for patients. (Source: Management of Flonic) 2.3 Proposed Amendment The Proposed Amendment entails the amendment to the Memorandum of Association of Flonic to facilitate the reduction in the par value of the shares in Flonic from RM0.10 per share to RM0.05 per share resulting from the Proposed Par Value Reduction. Please refer to Appendix I of this Circular for further details of the Proposed Amendment. 5

10 3. RATIONALE FOR THE PROPOSALS 3.1 Proposed Par Value Reduction The Proposed Par Value Reduction is intended to strengthen the financial position of the Flonic Group by setting off the accumulated losses against the credit arising from the Proposed Par Value Reduction. As at the LPD, the closing price of Flonic shares was RM0.08, which is at a discount of 20.00% to the existing par value of RM0.10 each per Flonic share. The current market price of Flonic shares is therefore not conducive for Flonic to embark on any fund raising exercise and/or corporate exercises involving issuance of new shares. Accordingly, the Proposed Par Value Reduction will provide the Company with greater flexibility to raise funds and to implement future corporate proposals which entail the issuance of new shares. The Company had on 28 February 2013 obtained its shareholders approval to diversify its core business to include project management, interior fit out, manufacturing and trading in wood furniture, which was implemented via the Jiwa Acquisition. The Board is of the view that as part of its ongoing turnaround and diversification efforts and for Flonic to start afresh, it is imperative that the accumulated losses be significantly reduced or eliminated. The resulting reduction of the accumulated losses will be more reflective of the fundamentals of the restructured Flonic Group and meets its objective to attain a stronger financial position moving forward and facilitate capital distributions in the future such as bonus issues and dividend payments. 3.2 Proposed Variation to the Utilisation of Proceeds With the completion of the Jiwa Acquisition and the recent global economic slowdown which had resulted in a decrease of revenue from its precision cleaning system business, the Board had resolved to reallocate the unutilised funds raised from the Rights Issue with Warrants as working capital for the Jiwa Group. Upon completion of the injection of additional working capital to the Jiwa Group, it will be able to take up additional projects which will improve its profitability and thereby benefiting the Flonic Group. 3.3 Proposed Amendment The Proposed Amendment is intended to facilitate the implementation of the Proposed Par Value Reduction. 6

11 4. EFFECTS OF THE PROPOSALS 4.1 Share Capital The effect of the Proposals on the issued and paid-up share capital of Flonic is set out below: Par Minimum Scenario Maximum Scenario Value No. of Flonic No. of Flonic RM shares RM shares RM ( 000) ( 000) ( 000) ( 000) Authorised share capital Existing as at the LPD ,000, ,000 1,000, ,000 After Proposed Par Value Reduction ,000, ,000 2,000, ,000 Issued and paid-up share capital Existing as at the LPD ,945 34, ,945 34,995 To be issued pursuant to full ,963 13,996 exercise of 2012/2017 Warrants 349,945 34, ,908 48,991 To be cancelled pursuant to the (0.05) - (17,497) - (24,496) Proposed Par Value Reduction Resultant issued and paid-up share capital ,945 17, ,908 24,495 The Proposed Variation to the Utilisation of Proceeds and Proposed Amendment will not have any effect on the issued and paid-up share capital of Flonic. 4.2 Substantial Shareholders Shareholdings The Proposals will not have any effect on the shareholdings of the substantial shareholders of the Flonic Group. 4.3 NA and Gearing Based on the audited consolidated financial statements of the Flonic Group as at 31 January 2013, the proforma effect of the Proposed Par Value Reduction on the NA and gearing of the Flonic Group are set out below: Minimum Scenario As at 31 January After the Proposed 2013 Par Value (Audited) Reduction (RM 000) (RM 000) Share capital 34,994 17,497 Share premium Warrants reserve Capital reserve - * 393 Foreign exchange translation reserve Merger deficit (2,575) (2,575) Accumulated losses (16,984) - Shareholders funds / NA 16,288 16,168 No. of Flonic shares ( 000) 349, ,945 7

12 As at 31 January After the Proposed 2013 Par Value (Audited) Reduction (RM 000) (RM 000) NA per Flonic share (RM) Total borrowings - - Gearing (times) - - Note: * After deducting estimated expenses in relation to the Proposals of RM120,000. Maximum Scenario (I) (II) As at 31 January 2013 (Audited) After the full exercise of 2012/2017 Warrants # After (I) and the Proposed Par Value Reduction (RM 000) (RM 000) (RM 000) Share capital 34,994 48,991 24,495 Share premium Warrants reserve Capital reserve - - * 8,003 Foreign exchange translation reserve Merger deficit (2,575) (2,575) (2,575) Accumulated losses (16,984) (16,373) - Shareholders funds / NA 16,288 30,285 30,165 No. of Flonic shares ( 000) 349, , ,908 NA per Flonic share (RM) Total borrowings Gearing (times) Notes: * After deducting estimated expenses in relation to the Proposals of RM120,000. # Based on the exercise price of RM0.10 per 2012/2017 Warrant. The Proposed Variation to the Utilisation of Proceeds and Proposed Amendment will not have any effect on the NA and gearing of the Flonic Group. 4.4 Earnings and EPS The Proposed Variation to the Utilisation of Proceeds are expected to be earnings accretive and will contribute positively to the future earnings of the Flonic Group and consequently its EPS. The Proposed Par Value Reduction and Proposed Amendment will have no effect on the earnings and EPS. 8

13 4.5 Dividend The Proposals are not expected to affect the dividend policy of the Company as future dividend payable by the Company would be dependent on inter-alia, the future profitability and cashflow position of the Flonic Group. 4.6 Convertible Securities As at the LPD, the Company has 139,963,254 outstanding 2012/2017 Warrants which are convertible into 139,963,254 ordinary shares of RM0.10 each in Flonic, with an exercise price of RM0.10 per Flonic share. Consequent to the Proposed Par Value Reduction, the exercise price of the 2012/2017 Warrants (which are not exercised on or prior to the effective date of the Proposed Par Value Reduction) may be adjusted in accordance with the Deed Poll, the details which will be finalised at a later date. A notification to the holders of 2012/2017 Warrants, which sets out the relevant adjustment to the exercise price of the 2012/2017 Warrants, will be issued by the Company after its finalisation and after the effective date of the Proposed Par Value Reduction. Save for the 2012/2017 Warrants, the Company does not have any convertible securities. 5. APPROVALS REQUIRED The Proposals are subject to and conditional upon approvals from, amongst others, the following: (i) (ii) (iii) the shareholders of Flonic at the forthcoming EGM to be held for the Proposals; the confirmation of the Court approving the Proposed Par Value Reduction pursuant to Section 64 of the Act; and other relevant authorities, if required. The Proposed Par Value Reduction and Proposed Amendment are inter-conditional upon each other and not conditional upon the Proposed Variation to the Utilisation of Proceeds or any other corporate exercise, if any. The Proposed Variation to the Utilisation of Proceeds is not conditional upon the Proposed Par Value Reduction and Proposed Amendment or any other corporate exercise, if any. 6. OUTSTANDING PROPOSALS ANNOUNCED BUT PENDING IMPLEMENTATION As at the LPD, save for the Proposals, the Company does not have any other corporate exercises which have been announced but pending implementation. 7. DIRECTORS AND MAJOR SHAREHOLDERS INTERESTS None of the Directors or major shareholders of Flonic or persons connected to the Directors and/or major shareholders of Flonic have any interest, direct or indirect, in the Proposals. 9

14 8. DIRECTORS RECOMMENDATION The Board, after having considered all aspects of the Proposals, is of the opinion that the Proposals are fair and reasonable and are in the best interest of the Flonic Group. Accordingly, the Board recommends that you vote in favour of the resolutions in relation to the Proposals to be tabled at the forthcoming EGM. 9. OTHER MATTERS 9.1 Estimated Timeframe for Completion Barring any unforeseen circumstances, the Proposals are expected to be completed in the 3rd quarter of The tentative timetable for the implementation of the Proposals is as follows: 9.2 Adviser Date Events 26 July 2013 EGM to obtain shareholders approval for the Proposals Mid August 2013 Confirmation obtained from the Court for the Proposed Par Value Reduction End August 2013 Completion of the Proposals M&A Securities has been appointed as the Adviser to Flonic for the Proposals. 9.3 Historical Share Prices The monthly highest and lowest prices of Flonic shares as traded on Bursa Securities for the past twelve (12) months are as follows: High RM Low RM 2012 July August September October November December January February March April May June The last transacted price of Flonic shares on 20 June 2013 being the date immediately prior to the announcement of the Proposals on 21 June 2013 was RM0.075 per Flonic share. The last transacted price of Flonic shares on the LPD was RM0.080 per Flonic share. (Source: M&A Securities) 10

15 10. EGM An EGM, the notice of which is enclosed together with this Circular, will be held on Friday, 26 July 2013 at 10:30 a.m. or immediately following the conclusion or adjournment (as the case may be) of the Ninth Annual General Meeting of Flonic, which will be held at the same venue and on the same day at 10:00 a.m., whichever is later, for the purpose of considering and, if thought fit, passing the resolutions so as to give effect to the Proposals. If you are unable to attend and vote in person at the EGM, you may complete and return the relevant Form of Proxy in accordance with the instructions printed thereon as soon as possible and in any event so as to arrive at the Company s Registered Office at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur, not later than forty-eight (48) hours before the date and time fixed for the EGM. The lodging of the Form of Proxy will not, however, preclude you from attending the EGM and voting in person should you subsequently wish to do so. 11. FURTHER INFORMATION The shareholders of Flonic are requested to refer to the attached appendices for further information. Yours faithfully, For and on behalf of, FLONIC HI-TEC BHD CHUA WYE MAN Chairman / Executive Director 11

16 APPENDIX I DETAILS OF THE PROPOSED AMENDMENT The existing clause in the Company s Memorandum of Association is proposed to be amended by deleting in its entirety and substituting thereof with the following:- Clause/ No. Existing Clause Amended Clause 6 The share capital of the Company is Ringgit Malaysia One Hundred Million (RM100,000,000.00) divided into One Billion (1,000,000,000) ordinary shares of RM0.10 each. The shares in the original or any increased capital may be divided into several classes and there may be attached hereto respectively any preferential, deferred or other special rights, privileges, conditions or restrictions as to dividends, capital, voting or otherwise. The authorised share capital of the Company is RM100,000, (Ringgit Malaysia One Hundred Million) only divided into Two Billion (2,000,000,000) ordinary shares of RM0.05 each. The shares in the original or any increased capital may be divided into several classes and there may be attached thereto respectively any preferential, deferred or other special rights, privileges, conditions or restrictions as to dividend, capital, voting or otherwise. The rest of this page has been intentionally left blank 12

17 APPENDIX II FURTHER INFORMATION 1. DIRECTORS' RESPONSIBILITY STATEMENT This Circular has been seen and approved by the Board who individually and collectively accept full responsibility for the accuracy of the information given in this Circular and confirms that, after making all enquiries as were reasonable in the circumstances and to the best of their knowledge and belief, there are no other facts, the omission of which would make any statement contained herein false and misleading. 2. CONSENT AND CONFLICT OF INTEREST Consent M&A Securities has given and has not subsequently withdrawn its written consent to the inclusion in this Circular of its name and all references thereon in the form and context in which they appear. Conflict of Interest M&A Securities is not aware of any existing conflict of interest nor of any circumstances which would or is likely to give rise to a possible conflict of interest by virtue of their roles as the Adviser to Flonic for the Proposals. 3. MATERIAL COMMITMENTS AND CONTINGENT LIABILITIES Save as disclosed below, as at the LPD, the Directors of the Company are not aware of any material commitments and/or contingent liabilities incurred or known to be incurred by the Flonic Group which will have an impact on its profits or net assets upon becoming enforceable: As at the LPD RM 000 Operating lease commitment for the lease of property, plant and equipment 915 Capital commitment for the acquisition of property by Jiwa 4,136 Total 5, MATERIAL CONTRACTS Save as disclosed below, as at the LPD, neither Flonic nor its subsidiaries have entered into any contracts which are or may be material, not being contracts entered into in the ordinary course of business, during the past two (2) years preceding the date of this Circular: (i) the conditional share sale agreement dated 7 January 2013 entered into between Flonic and Harris Hans Chua and Roy Thean Chong Yew (collectively, the Vendors ), in relation to the acquisition of 300,000 ordinary shares of RM1.00 each in Jiwa, representing 30% equity interest in Jiwa by Flonic for the purchase consideration of RM3,750,000 ( SSA ). The acquisition was completed on 30 April

18 (ii) (iii) the option agreement dated 7 January 2013 entered into between Flonic and the Vendors for the option to purchase an additional 210,000 Jiwa Shares representing 21% equity interest in Jiwa from the Vendors at the purchase consideration of RM2,625,000 within twelve (12) months from the completion date of the SSA. This option agreement is subsisting. the shareholders agreement dated 7 January 2013 entered into between Flonic, the Vendors and Jiwa, for the following purposes: (a) (b) to set out the responsibilities and obligations of the parties as shareholders of Jiwa; and to record the terms and conditions governing the structure and organisation of the Jiwa and the parties respective rights and obligations. The shareholders agreement was effective upon completion of the SSA. (iv) (v) option agreement dated 4 October 2012 entered into between OSA (M) Sdn Bhd ( OSA ) and Jiwa, where Jiwa was granted the right but not the obligation to purchase an office lot bearing an address of No. 10.1, Level 10, Menara One Mont Kiara, No.1, Jalan Kiara, Mont Kiara, Kuala Lumpur during the period commencing 1 June 2012 and ending on 31 May 2014 ( Purchase Option Period ) at RM4.5 million ( Purchase Price ). The option agreement also provides that Jiwa shall pay to OSA an amount of RM28, per month, during the Purchase Option Period the amount of which shall be applied towards the Purchase Price as earnest deposit. In the event the option to purchase is not exercised during the Purchase Option Period, OSA shall return 50% of the amount paid to it pursuant to the option agreement. This option agreement was exercised by Jiwa on 30 April 2013 via the execution of the sale and purchase agreement set out in Item (v) below. sale and purchase agreement dated 30 April 2013 entered into between OSA and Jiwa for the purchase of an office lot bearing an address of No. 10.1, Level 10, Menara One Mont Kiara, No.1, Jalan Kiara, Mont Kiara, Kuala Lumpur by Jiwa from OSA for the total purchase consideration of RM4.5 million. This agreement is pending completion. 5. MATERIAL LITIGATION As at the LPD, the Flonic Group is not engaged in any litigation, claims or arbitration, either as plaintiff or defendant, which may have a material effect on the financial position of the Flonic Group and the Board has no knowledge of any proceedings, pending or threatened, against the Flonic Group or of any fact which is likely to give rise to any proceeding which may materially and adversely affect the business or financial position of the Flonic Group. 14

19 6. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the following documents are available for inspection at the Registered Office of the Company at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, 50490, Kuala Lumpur during normal business hours from the date of this Circular up to and including the date of the EGM: (i) Memorandum and Articles of Association of Flonic; (ii) The audited consolidated financial statements of Flonic for the past two (2) FYE 31 January 2012 and 2013; (iii) The latest unaudited consolidated financial statements of Flonic for the three (3) months FPE 30 April 2013; (iv) (v) The letter of consent referred to in paragraph 2 above; and The material contracts referred to in paragraph 4 above. 15

20 FLONIC HI-TEC BHD (Company No.: T) (Incorporated in Malaysia under the Companies Act, 1965) NOTICE OF EXTRAORDINARY GENERAL MEETING NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of Flonic Hi-Tec Bhd will be held at Conference 1, Vivatel Kuala Lumpur, 85, Jalan Loke Yew, Kuala Lumpur on Friday, 26 July 2013 at 10:30 a.m. or immediately following the conclusion or adjournment (as the case may be) of the Ninth Annual General Meeting of Flonic, which will be held at the same venue and on the same day at 10:00 a.m., whichever is later, for the purpose of considering and if thought fit to pass the following resolutions, with or without any amendments: SPECIAL RESOLUTION NO. 1: - PROPOSED REDUCTION OF FLONIC S EXISTING ISSUED AND PAID-UP SHARE CAPITAL FROM RM34,994,493 COMPRISING 349,944,931 ORDINARY SHARES OF RM0.10 EACH IN FLONIC TO RM17,497, COMPRISING 349,944,931 ORDINARY SHARES OF RM0.05 EACH IN FLONIC VIA THE CANCELLATION OF RM0.05 FROM THE PAR VALUE OF EACH EXISTING ORDINARY SHARE OF RM0.10 EACH IN FLONIC PURSUANT TO SECTION 64 OF THE COMPANIES ACT, 1965 THAT subject to the confirmation of the High Court of Malaya ( Court ) pursuant to Section 64 of the Companies Act, 1965 and the passing of the Special Resolution No. 2 below, approval be and is hereby given to the Company to reduce its issued and paid-up share capital from RM34,994,493 comprising 349,944,931 ordinary shares of RM0.10 each in Flonic to RM17,497, comprising 349,944,931 ordinary shares of RM0.05 each in Flonic through the cancellation of RM0.05 from the existing par value of RM0.10 of each Flonic share ( Proposed Par Value Reduction ); THAT the credit arising from the Proposed Par Value Reduction be used to set off against the accumulated losses of the Company and the remaining balance (if any) will be credited to the capital reserves of the Company which may be utilised in such manner as the Board of Directors of Flonic deems fit and as permitted by relevant and applicable laws; AND THAT authority be and is hereby given to the Directors of Company to do all such deeds, acts and things and execute, sign and deliver all documents for and on behalf of the Company as they may consider necessary or expedient to finalise, implement and give effect to the Proposed Par Value Reduction with full power to assent to any conditions, modifications, variations as may be imposed or permitted by the relevant authorities/parties and/or the Court. ORDINARY RESOLUTION: - PROPOSED VARIATION TO THE UTILISATION OF LISTING PROCEEDS FROM THE COMPANY S RIGHTS ISSUE WITH WARRANTS COMPLETED ON 22 JUNE 2012 THAT approval be and is hereby given to the Board of Directors to utilise RM4,946,000 from the proceeds from the Rights Issue with Warrants completed on 22 June 2012 to be advanced to Jiwa Holdings Sdn Bhd or its subsidiary companies for purpose as set out in Section 2.2 of the circular to shareholders dated 3 July 2013 ( Proposed Variation to the Utilisation of Proceeds ).

21 AND THAT the Board of Directors be and is hereby authorised with full power to make any modifications, variations and / or amendments in any manner as may be in the best interest of the Company or as may be required by the relevant authority / authorities to give effect to the Proposed Variation to the Utilisation of Proceeds and to take all such steps as they may deem necessary or expedient in the best interests of the Company to implement, finalise and give full effect to the Proposed Variation to the Utilisation of Proceeds. SPECIAL RESOLUTION NO. 2 - PROPOSED AMENDMENT TO THE MEMORANDUM OF ASSOCIATION OF THE COMPANY FOR THE PROPOSED PAR VALUE REDUCTION THAT, subject to the passing of Special Resolution No. 1, the Memorandum of Association of the Company be amended in the manner set out in Appendix I of the circular to shareholders dated 3 July 2013 ( Proposed Amendment ); AND THAT the Board of Directors be and is hereby authorised with full power to make any modifications, variations and / or amendments in any manner as may be in the best interest of the Company or as may be required by the relevant authority / authorities to give effect to the Proposed Amendment and to take all such steps as they may deem necessary or expedient in the best interests of the Company to implement, finalise and give full effect to the Proposed Amendment. By Order of the Board CHUA SIEW CHUAN (MAICSA ) CHIN MUN YEE (MAICSA ) Company Secretaries 3 July 2013 Kuala Lumpur Notes: 1. In respect of deposited securities, only members whose names appear in the Record of Depositors on 19 July 2013 ( General Meeting Record of Depositors ) shall be eligible to attend the Meeting. 2. A member entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(a),(b),(c) and (d) of the Companies Act, 1965 shall not apply to the Company. There shall be no restriction as to the qualification of the proxy. A proxy appointed to attend and vote at the Meeting shall have the same rights as the member to speak at the Meeting. 3. Where a member appoints two (2) or more proxies, the appointment shall be invalid unless he or she specifies the proportion of his or her holdings to be represented by each proxy. 4. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised. 5. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account ( omnibus account ), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. 6. The instrument appointing a proxy must be deposited at the Company's Registered Office at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur not less than 48 hours before the time for holding the Meeting or at any adjournment thereof.

22 FLONIC HI-TEC BHD (Company No.: T) (Incorporated in Malaysia) FORM OF PROXY No. of shares held CDS account no. I/We.NRIC No./Company No..... (FULL NAME IN BLOCK LETTERS) of.... (FULL ADDRESS) being a *member/members of FLONIC HI-TEC BHD (Company No.: T) ( Company ), hereby appoint... NRIC No.. (FULL NAME IN BLOCK LETTERS) of (FULL ADDRESS) or failing *him/her NRIC No.. (FULL NAME IN BLOCK LETTERS) of.... (FULL ADDRESS) or failing him/her, the Chairman of the meeting as my/our proxy to vote for me/us and on my/our behalf at the Extraordinary General Meeting of the Company to be held at Conference 1, Vivatel Kuala Lumpur, 85, Jalan Loke Yew, Kuala Lumpur on Friday, 26 July 2013 at 10:30 a.m. or immediately following the conclusion or adjournment (as the case may be) of the Ninth Annual General Meeting of Flonic, which will be held at the same venue and on the same day at 10:00 a.m., whichever is later. The proxy is to vote in the manner indicated below, with an X in the appropriate spaces. If no specific direction as to voting is given, the proxy will vote or abstain from voting at his/her discretion. SPECIAL RESOLUTION NO. 1: ORDINARY RESOLUTION: SPECIAL RESOLUTION NO. 2: PROPOSED PAR VALUE REDUCTION PROPOSED VARIATION TO THE UTILISATION OF PROCEEDS PROPOSED AMENDMENT TO THE MEMORANDUM OF ASSOCIATION OF THE COMPANY FOR AGAINST Signed this day of 2013 For appointment of two proxies, percentage of shareholdings to be represented by the proxies No. of shares Percentage Proxy 1 Proxy 2 Signature(s)/Common Seal of Member(s) Total 100% Notes: 1. In respect of deposited securities, only members whose names appear in the Record of Depositors on 19 July 2013 ( General Meeting Record of Depositors ) shall be eligible to attend the Meeting.

23 2. A member entitled to attend and vote at the Meeting is entitled to appoint more than two (2) proxies to attend and vote in his stead. A proxy may but need not be a member of the Company and a member may appoint any person to be his proxy without limitation and the provisions of Section 149(1)(a),(b),(c) and (d) of the Companies Act, 1965 shall not apply to the Company. There shall be no restriction as to the qualification of the proxy. A proxy appointed to attend and vote at the Meeting shall have the same rights as the member to speak at the Meeting. 3. Where a member appoints two (2) or more proxies, the appointment shall be invalid unless he or she specifies the proportion of his or her holdings to be represented by each proxy. 4. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of an officer or attorney duly authorised. 5. Where a member of the Company is an exempt authorised nominee which holds ordinary shares in the Company for multiple beneficial owners in one securities account ( omnibus account ), there is no limit to the number of proxies which the exempt authorised nominee may appoint in respect of each omnibus account it holds. 6. The instrument appointing a proxy must be deposited at the Company's Registered Office at Level 7, Menara Milenium, Jalan Damanlela, Pusat Bandar Damansara, Damansara Heights, Kuala Lumpur not less than 48 hours before the time for holding the Meeting or at any adjournment thereof.

24 Fold this flap for sealing Then fold here AFFIX STAMP THE COMPANY SECRETARY FLONIC HI-TEC BHD (Company No.: T) c/o Securities Services (Holdings) Sdn Bhd Level 7, Menara Milenium Jalan Damanlela Pusat Bandar Damansara Damansara Heights Kuala Lumpur 1 st fold here