Medlive Technology Co., Ltd. — Audit Report / Information 2005

Apr 27, 2007

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GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 廣東科龍電器股份有限公司

(a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 0921)

ANNOUNCEMENT ON CORRECTION OF MATERIAL ACCOUNTING ERRORS

This announcement is made in accordance with Rule 13.09(2) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”).

I. Statements of the board of directors (the “Board”) and the management of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) in respect of the nature and reason of correction

The Company has regained control Jiangxi Kelon Industrial Development Co., Ltd. (“Jiangxi Kelon”), a subsidiary of the Company, in 2006 and, thereafter, the assets and accounts of Jiangxi Kelon have been cleared up. The provisions for the impairment of inventories, fixed assets and construction in progress of Jiangxi Kelon have been made accordingly. In addition, the Company also cleared up its internal cash flow and completed the corresponding adjustments and rectifications. As such, the Company has corrected the above material accounting errors when preparing the financial statements for previous year that are comparable to this year.

II. Effects of correction on the Company’s financial conditions and operating results and rectified financial data

The specific items for adjustment are as follows:

Adjusted itemNon-operating expenses accruedbut not recognizedInflated costs from principal activitiesManagement fees accrued but not recognizedTotal	Effect on netprofits for 2005(8,136,360.44)–(15,785,669.85)(23,922,030.29)	Unit: RMBEffect onundistributedprofits as at thebeginning of 2005–17,236,029.67(11,538.515.85)5,697,513.82

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The Board and the management of the Company hereby set out details on the above adjustments as follows:

1. Non-operating expenses accrued but not recognized

In 2005, certain equipment and construction in progress of Jiangxi Kelon, a subsidiary of the Company, had no value in use. However, as the new management of the Company had no control over Jiangxi Kelon in 2005, an investigation in 2006 showed that there was the provision for fixed assets and construction in progress accrued but not recognized in total of RMB8,136,360.44, of which, the provision for the construction in progress accrued but not recognized and that for the fixed assets accrued but not recognized amounted RMB4,825,635.98 and RMB3,310,724.46 respectively.

As a result of the effect of the above-mentioned accounting errors on the financial statements for 2005, a downward adjustment of RMB8,136,360.44 was made to the net profit of 2005.

1. Inflated costs from principal activities

An investigation in 2006 into the previous years’ accounts of the Company revealed that as a result of default in current accounts for internal sales and financial auditing during previous years, the total inflated costs from principal activities amounted to RMB17,236,029.67 in 2004 and previous years, among which the inflated costs from principal activities for air-conditioning products and refrigerators were RMB10,194,418.60 and RMB7,952,178.76 with the deflated amount for other products of RMB910,567.69.

The above accounting errors resulted in the upward adjustments of RMB17,236,029.67 in the undistributed profit at the beginning of the year of 2005.

1. Management fees accrued but no recognized

Since the new management of the Company had no control over Jiangxi Kelon in 2005 as mentioned above, an investigation in 2006 into the assets of Jiangxi Kelon showed that certain raw materials of Jiangxi Kelon had no value in use in 2005. However, the provision for the inventory obsolescence accrued but not recognized amounted to RMB15,785,669.85 in aggregate, resulting in the management costs accrued but not recognized of RMB15,785,6609.85.

The above accounting error resulted in the downward adjustments of RMB15,785,669.85 in the net profit for the year, in the 2005 financial statements.

Due to default in auditing for current accounts of the Company in previous years, which led to the discrepancy between auditing for intra-group transactions, after the investigation, an overstatement of receivables from the intra-group transactions was found, which resulted in a loss accrued but not recognized of RMB6,846,142.10 for 2004 and previous years. Meanwhile, after the investigations on “Greencool Companies and the Specified Thrid Parties”, including Hefei Weixi (合肥市維希 ), Jiangxi Kesheng (江西科盛 ), Guangdong Greencool (廣東格林柯爾 ) and Wuhan Changrong Appliance (武漢長榮 電器 ), an overstatement of the receivables of RMB7,049,900 was found, which resulted in a loss accrued but not recognized of RMB7,049,900 for 2004 and previous years. In addition, the investigation found that the overprovision for Board expenses of Guangdong Zhujiang Refrigerators Company Limited (廣東珠江冰箱有限公司 ), a subsidiary of the Company, of RMB2,357,526.25 resulted in an overstated management fees of RMB2,357,526.25 in 2004.

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The above accounting errors resulted in the downward adjustments of RMB11,538,515.85 in the undistributed profit at the beginning of the year in the 2005 financial statements.

III. Revised audited annual financial statements, relevant notes to the revised audited annual financial statements and the name of the accountants issuing the auditors’ report

After the correction of the accounting errors in the 2006 financial report as mentioned above, Shenzhen Dahua Tiancheng Certified Public Accountants completed an audit on the revised 2005 financial report and issued a qualified opinion as well as the “Specific Explanatory Statement in Relation to the Correction of the Material Accounting Errors of Guangdong Kelon Electrical Holdings Company Limited”. For details of the full text of the revised 2005 and 2006 financial indicators and the audit opinions, please refer to the Company’s Annual Report and its Summary as disclosed on the website (www.cninfo.com.cn) (the “Website”), the “Securities Times” and “China Securities Journal” in the People’s Republic of China (“PRC”) and “China Daily” and “Hong Kong Commercial Daily” in Hong Kong on the same day, and in relation to the notes to the relevant financial statements please refer to the relevant disclosure on the Website as well as the “Securities Times” and “China Securities Journal” in the PRC.

On 20 April 2007, the 2007 third meeting of the sixth Board of the Company was convened at which the corrections to the material accounting errors mentioned above were considered and approved.

Suspension of Trading in H Shares

At the request of the Company, trading in H Shares of the Company was suspended with effect from 10:00 a.m. on 16 June 2005 until further notice.

By order of the Board Guangdong Kelon Electrical Holdings Company Limited Chairman Tang Ye Guo

As at the date of this announcement, the Company’s executive directors are Mr. Tang Ye Guo, Mr. Yang Yun Duo, Mr. Wang Shi Lei, Ms. Yu Shu Min, Mr. Lin Lan and Mr. Xiao Jian Lin; and the Company’s independent non-executive directors are Mr. Zhang Sheng Ping, Mr. Lu Qing and Mr. Cheung Yui Kai, Warren.

Foshan City, Guangdong, the PRC, 26 April 2007

“Please also refer to the published version of this announcement in China Daily”

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