Medlive Technology Co., Ltd. — Interim / Quarterly Report 2002

Oct 29, 2002

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement.

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)

ANNOUNCEMENT ON RESULTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2002

This announcement is made in accordance with paragraph 2(2) of the Listing Agreement.

Important: The board of directors (the “Board”) of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) warrants that the information in this report is accurate and not misleading and does not contain any material omission. The Board is jointly and severally responsible for the truthfulness and completeness of the contents of this report.

These quarterly results of the Company are prepared in accordance with the relevant PRC accounting principles and have not been audited.

1. COMPANY PROFILE

1. Stock Exchanges on which Shenzhen Stock Exchange, The Stock shares are listed : Exchange of Hong Kong Limited Domestic A Shares Stock ST Kelon Hong Kong H Shares Abbreviation : Stock Abbreviation : Kelon Electrical Domestic A Shares Stock Code : 000921 Hong Kong H Shares Stock Code : 921

2. Legal representative of Mr. Gu Chu Jun the Company : Secretary of the Board : Mr Liu Cong Meng, Mr Li Chi Sing Representative of securities Mr Zhong Liang related affairs : Correspondence address : Board of Directors Secretarial Department, Guangdong Kelon Electrical Holdings Company Limited, No. 8, Ronggang Road, Ronggui, Shunde, Guangdong Province, the People’s Republic of China (the “PRC”). Telephone : (0765) 8362570 Fax : (0765) 8361055 Email : sec@kelon.com

1

3. Principal financial statistics and indicators:

Unit: RMB

	At the beginning	At the end
	of the reporting	of the reporting
Item	period	period
Shareholders’ equity	2,402,616,534	2,540,029,505
Net assets per share	2.42	2.56
Adjusted net assets per share	2.21	2.23
		Unit: RMB
Item	January	– September 2002
Net profit		133,712,905
* Net profit deducted by extraordinary profit (loss)		137,914,392
Return on net assets		5.26%
Earnings per share		0.13
Net assets per share		2.56
The items and amounts deducted in computing the net profit deducted by extraordinary profit
(loss) include:
Item		Amount
Non-operating income		6,381,855
Non-operating expense		-2,213,942
Equity investment difference		-9,975,000
Interest received from related party		1,605,600
Total amount of extraordinary profit (loss)		-4,201,487

2. CHANGES IN SHARE CAPITAL AND SHAREHOLDINGS OF SUBSTANTIAL SHAREHOLDERS

1. As at 2 June 2002, three years have lapsed since the issue of the Company’s A shares to the public and accordingly, application could be made for the listing of the domestic employee shares of the Company. The domestic employee shares of the Company were listed on the Shenzhen Stock Exchange on 18 July 2002 (for details, please refer to announcements published in “中國 證券報 ”, “證券時報 ”, “Hong Kong Economic Journal” and “The Standard” on 15 July 2002). Prior to the listing of the domestic employee shares, the share capital structure of Company is as follows:

2

Class of shares

Number of shares

I. Unlisted shares 1. PRC domestic legal person shares 2. Domestic employee shares II. Listed shares 1. Domestic shares listed in the PRC (A Shares) 2. Overseas shares listed outside the PRC (H Shares) III. Total number of shares	337,915,755 84,501,000 110,000,000 459,589,808
	992,006,563

After listing of the domestic employee shares, the share capital structure of Company is as follows:

Class of shares	Class of shares	Number of shares
I.	Unlisted shares
	1. PRC domestic legal person shares	337,915,755
	Total number of unlisted shares	337,915,755
II.	Listed shares
	1. Domestic shares listed in the PRC (A Shares)	194,501,000
	2. Overseas shares listed outside the PRC (H Shares)	459,589,808
	Total number of listed shares	654,090,808
III.	Total number of shares	992,006,563

1. The Company has 78,309 shareholders in total at the end of the reporting period.

2. As at 30 September 2002, the shareholdings of the top ten shareholders of the Company were as follows:

		Number of Shares	Increase (decrease)	Percentage
		held at the end	of shareholdings	holdings
	Name of	of the reporting	during the reporting	in the total
**Number **	Shareholders	period	period (+/-)	share capital (%)	Class
1	Greencool Enterprise Development	204,775,755	0	20.64	Legal person Shares
	Company Limited
2	Shunde Economic Consultancy Company	68,666,667	0	6.92	Legal person Shares
3	The Hongkong and Shanghai Banking	63,489,286	-3,335,441	6.40	H Shares
	Corporation Ltd.
4	Shunde Xin Hong Enterprise Company Limited	57,436,439	0	5.79	Legal person Shares
5	Bank of China (Hong Kong) Limited	39,379,000	-1,785,000	3.97	H Shares
6	Shenyin Wanguo Securities (H.K.) Limited	31,111,000	+31,111,000	3.14	H Shares
7	Hang Seng Bank Ltd.	21,640,000	+1,494,000	2.18	H Shares
8	Citibank N.A.	18,393,552	-3,380,500	1.85	H Shares
9	First Shanghai Securities Limited	16,430,000	+16,430,000	1.66	H Shares
10	Guotai Junan Securities (Hong Kong) Limited	16,298,000	-4,282,000	1.64	H Shares

3

Descriptions of shareholding connections among the top 10 shareholders:

• (1) None of the top ten shareholders has any connection with any of the others.

• (2) During the reporting period, no shares held by any shareholder, who holds 5% or more legal person shares, were subject to any charges, freezing orders or other arrangements.

• During the reporting period, there is no movement in the shares held by the directors, supervisors and senior management of the Company.

3. REVIEW OF OPERATIONS AND PROSPECTS

1. Operation of the Company during the reporting period:

The Company is one of the largest household appliances manufacturers in the PRC, mainly concentrating in the development, manufacturing and sales of refrigerators and air-conditioners both within and outside the PRC. “Kelon” and “Rongsheng” are the two brands marketed under the refrigerator division while “Kelon” and “Huabao” are the brands marketed under the airconditioner division. Both the refrigerator and the air-conditioner divisions are playing a leading role in the respective markets.

(1) Business Review:

During the reporting period, continuous intense competition was found in the respective electrical appliances markets. Under the direction of Mr. Gu Chu Jun, the Chairman of the Company, the Company insisted to adopt the “Technologically Led and Profitability Driven” operating approach and followed the concept of profit realization as the core and top priority. The Company marketed the world’s first children refrigerator line under the brandname of Rongsheng’s Ai Bao Bei “愛寶貝 ” while the Independent Multicycling Refrigerator (IMCR) “分立多循環 ” refrigerator and the Shuang Xiao Wang“雙效王 ” vair-conditioner continue to be the major drive of the future development of the Company. During the reporting period, sales of air-conditioners increased by 57.3% while sales of refrigerators increased by 4.5% as compared to the corresponding reporting period in last year.

At the same time as marketing new products, the Company continues to implement the “Project of Perfection” on stringent quality control and outlook design. This has secured the Company to perform well during the reporting period and established a strong foundation for the Company to become an international major refrigerating electrical home appliances manufacturer.

During the reporting period, the Company realized a profit from core businesses of RMB329,630,000 and a net profit of RMB21,030,000.

2. Progress of investment items during the reporting period

The Company has not made any major investments during the reporting period.

4

3. Operational results and financial results for the reporting period

(1) Operational Results:

UNIT: RMB0’000

	JANUARY-	JANUARY-	% OF
ITEM	SEPTEMBER,	SEPTEMBER,	INCREASE/
	2002	2001	DECREASE
Revenue from core businesses	372,226	377,653	-1.44%
Profit from core businesses	104,679	83,813	24.90%
Net Profit	13,371	-9,473	241.15%

Note : Reasons for the changes:

• a. The increase in profit from core business was primarily due to the enhancement of product profitability as a result of lower cost, increased sales of value-added products and improvement in the structure of product mix.

• b. The increase in net profit was due to increased profit from core businesses and decreased expenses for the reporting period.

UNIT: RMB0’000

	JANUARY-	JANUARY-	JANUARY-	JANUARY-	% OF
	SEPTEMBER,			JUNE,	INCREASE/
		2002		2002	DECREASE
		% of total		% of total
ITEM	Amount	profit	Amount	profit
Total Profit	13,603	–	11,562	–	–
Profit from core businesses	104,679	769.53	71,716	620.27	24.06
Profit from other businesses	1,057	7.77	1,037	8.97	-13.38
Expenditures	91,831	675.08	61,158	528.96	27.62
Earnings from investments	-719	-5.29	-428	-3.70	-42.97
Income from subsidies	–	–	–	–	–
Non-operational net balance	417	3.07	395	3.42	-10.23

Notes : Main reasons for the changes in this reporting period in comparison with the previous reporting period are as follows:

1. The increase in profit from core businesses as a percentage of total profit for this reporting period in comparison with the previous reporting period is caused by the increase in expenditures as a percentage of total profit and the decrease in profit from other businesses as a percentage of total profit during the reporting period.

2. The decrease in profit from other businesses as a percentage of total profit for this reporting period in comparison with the previous reporting period is mainly caused by the smaller growth rate in profit from other businesses than the growth rate in total profit during the reporting period.

3. The increase in expenditures as a percentage of total profit for this reporting period in comparison with the previous reporting period is caused by the increase of the rate of expenditures during the reporting period.

4. The decrease in earnings from investment as a percentage of total profit for this reporting period is caused by the greater rate of decrease in earnings from investment as compared to the growth rate in total profit during the reporting period.

5

1. The decrease in non-operational net balance as a percentage of total profit for this reporting period is caused by the increase in non-operational expenses.

2. There is no material seasonal income and expenses nor material extraordinary profit and loss during the reporting period.

(2) Financial Results

				Unit:	RMB 0’000
ITEM		31 December		30 September	Increase/
		2001 % of		2002 % of	Decrease
	Amount	total assets	Amount	total assets	(%)
Total assets	652,696	–	735,187	–	–
Currency Capital	77,819	11.92	113,280	15.41	29.28
Accounts receivable	22,090	3.38	19,295	2.620	-22.49
Inventory	122,584	18.78	166,904	22.70	20.87

Notes : The main reasons for the changes are as follows:

  1. The increase in the proportion of currency capital to total assets for this report period as compared with the beginning of the year is mainly due to improvement in financial status of the Company and more favourable payment terms are offered by the suppliers to the Company.

  2. The decrease in the proportion of accounts receivable to total assets for this reporting period as compared with the beginning of the year is mainly due to the increase in the recovery rate of accounts receivable, so that the turnover rate of accounts receivable continue to improve.

  3. The increase in proportion of inventory to total assets for this reporting period as compared with the beginning of the year is mainly due to the development of new products which in turn led to increase in stock.

• (3) Contingent events and events after the reporting period:

• a) During the reporting period, there was no material litigation or arbitration.

• b) During the reporting period, there was no material guarantees given.

• c) During the reporting period, there was no major events after the balance sheet date.

(4) Others

1. On 28 July 2002, the Company appointed Deloittee Touche Tohmatsu and 德勤華永會計 師事務所 as the Company’s auditors in Hong Kong and in the PRC, respectively. For details, please refer to “中國證券報”, “證券時報 ”, “Hong Kong Economic Journal” and “ The Standard” on 30 July 2002.

2. The Company formed an Audit Committee on 16 August 2002. For details, please refer to “中國證券報 ”, “證券時報 ”, “Hong Kong Economic Journal” and “The Standard” on 19 August 2002.

6

• (5) An explanation by the Company’s management in relation to matters concerning the audit opinions of last year

The Company has given its explanation in respect of the audit opinion issued by its former auditors, Arthur Andersen. Hua Qiang, on the 2001 financial report (Auditors’ Report) of the Company and the review report issued by its present auditors, Deloitte Touche Tohmatsu, on the interim financial results of the Company for the six months ended 30 June 2002, and wishes to further explain as follows:

1. The former auditors were not able to form an opinion on the Company’s ability to continue as a going concern due to the second consecutive year of loss recorded by the Company, which amounted to a net current debt of RMB180,000,000 at the end of 2001. As the Company is able to turn loss into profit, it recorded profits of approximately RMB105,000,000 for the six months ended 30 June 2002 and net current assets of approximately RMB58,000,000 as at 30 June 2002 (both calculated in accordance with the International Accounting Standard). The Board expressed a positive opinion to the Company carrying on as a going concern. The management of the Company is optimistic with regard to the operating environment in the foreseeable future and the present auditors have no objection to this view.

2. As most of the directors and senior management responsible for the Company’s operation in 2001 had resigned, the former auditors were not able to obtain representations and assurances from the previous management to confirm that all material transactions in 2001 were accurately recorded and fully disclosed. Although the present management endeavoured to ensure that all material transactions were recorded and fully disclosed and was willing to make such representations and assurances, the former auditors were unable to form an opinion because the present management was not responsible for the operations in 2001 and hence could not accept such representations and assurances. Accordingly, the present auditors are unable to form an opinion on whether the consolidated assets as at 31 December 2001 is true and accurate. However, up to the date hereof, no material transactions that are unrecorded or undisclosed have been found by the Company.

3. In 2001, the company seal of one of the Company’s subsidiaries was mistakenly used, and as a result the Company had to repay a debt of RMB210,000,000 for and on behalf of Guangdong Kelon (Rongsheng) Group Company Limited (“GKG”). Based on this incident, the former auditors indicated that they could not ascertain the contingent or real liabilities caused by this incident. The present management has increased its control and management over the use of the company seal of all companies and has also implemented in earlier stages various policies including:

4. (a) the present management has conducted a financial audit of all existing guarantees made by the Group;

5. (b) the present management has demanded the officers in the financial management department to review all guarantees and loans made with external parties to ensure that the records are complete; and

6. (c) the present management has checked with the relevant banks and financial institutions. Up to the date hereof, no abovementioned liabilities have been discovered.

The present auditors did not raise any concerns in this respect.

7

1. Since the Company has made valuation on its fixed assets in the past, the former auditors requested the Company to make regular valuation on its fixed assets in accordance with the International Accounting Standards. However, the valuer retained by the Company was unable to prepare a valuation report on time, and accordingly the Company’s former auditors were unable to form an opinion on the ground that the International Accounting Standards were not complied with. The valuation report on fixed assets was completed in May 2002. Further, the management has used an estimate as a basis to forecast the discounted cash flow of certain assets. The discounted cash flow appears to be able to have positive contribution to the Group and, as such, no provision has been made. However, having considered the operating results and the rapid changing market condition in the past two years, the former auditors were unable to determine whether the discounted cash flow forecast was appropriate, and were not able to form an opinion as to a reasonable net value of such assets. In view of the fact that most of the assumptions used in the discounted cash flow forecast analysis can be realised so far, the net operating cash flow of the Company for the six months ended 30 June 2002 amounted to approximately RMB500 million and having considered the operation performance of the Company, the Board is positive about the analysis on the discounted cash flow prepared by the Company, and accordingly no further provisions would need to be made in respect of the value of such assets. However, the present auditors were unable to form an opinion on whether adjustments have to be made to some of the above assets.

2. The present management team noted that a contract was signed at the end of 2000 with advertising agents relating to the advertisements which they would handle for and on behalf of the Company in 2001 with an aggregate value of RMB160,000,000. After consulting the previous management team and on the basis of the terms of the contract, and a representation made by the previous management team and in accordance with the conservative policy in accounting standards, the advertising fees were included in the accrual and other payable balance. The former and the present auditors are of the opinion that there is insufficient evidence to support that the advertising services had been performed in 2001 and therefore is not able to form an opinion. Up to the date hereof, an approximate sum of RMB80,000,000 has been paid, and payment for the balance is suspended due to the lack of evidence supporting the performance of the related advertising services. At present the management is seeking more evidence to support such expenses.

3. At the end of 2001, accounts receivable from GKG amounted to RMB862,000,000. The present management believes that the chance of recovery of such amount is very high. Nevertheless, the management has, in accordance with the conservative policy in accounting standards, made a 20% provision amounting to approximately RMB172,000,000. The former and the present auditors were unable to assess whether the provision is adequate and whether any reclassification may be required to reflect the timing of the ultimate settlement. The Company is currently negotiating with GKG on the method and timing of settlement of the outstanding balance, but no formal agreement is finalised.

4. Long term receivables for 2001 include an approximate sum of RMB58,000,000 to be collected from the Employee Union of the Company. No provision has been made on this amount as the present management believes that the total amount can be collected. An approximate sum of RMB6,500,000 has already been collected at the end of June 2002. As the former and the present auditors were unable to assess the collectibility of the above amount, they reserved their opinions in respect of this matter. At present, the Company is negotiating with the Employee Union on the method of settlement of the amount.

8

• (6) Under the direction of its new management, the Company has followed a right operating concept and implemented a correct operating approach. As at the date hereof, the Company has achieved outstanding operating results. As reflected by a preliminary evaluation undertaken by the Company, it will turn loss into profit in the 2002 results. The Company believes that all shareholders will be rewarded with promising results in the year 2002 and the Company will take a strong step to become an international major refrigerating electrical home appliances manufacturer.

4. FINANCIAL REPORT (UNAUDITED)

1. Financial Statements

• 1) Balance Sheet

Summary of Consolidated Balance Sheets

Unit: RMB0’000

		BY END OF			BY END OF
	BY START	REPORTING		BY START	REPORTING
ITEM	OF YEAR	PERIOD	ITEM	OF YEAR	PERIOD
Current assets	356,926	445,330	Current liabilities	375,176	438,991
Long-term investment	25,989	18,742	Long-term liabilities	14,645	19,571
Fixed net asset value	208,898	205,589	Monority interest	22,613	22,622
Intangible assets and			Shareholders’ equity	240,262	254,003
other assets	60,883	65,526
Total asset value	652,696	735,187	Total liabilities and	652,696	735,187
			owner’s equity

Summary of Consolidated Profit and Loss Statement

Unit: RMB0’000

	July -	January -
ITEM	September 2002	September 2002
Revenue from core businesses	117,175	372,226
Profit from core businesses	32,963	104,679
Profit from other businesses	19	1,057
Expenditure for the reporting period	30,673	91,831
Revenue from investment	-290	-719
Non-operational net balance	22	417
Tax rebate	-34	246
Net profit	2,103	13,371

2. Notes to Financial Statements:

• (1) No substantial change has been made in accounting policy, auditor evaluation and financial report of the Company in the reporting period, as compared to the Annual Report.

• (2) As disclosed in the section “Subsequent Event” of the interim report, six subsidiaries, namely Kelon Advertising Company, Shunde Kelon Household Electrical Appliance Limited, Wangao Import & Export Co. Ltd., Shunde Huaao Electrical Company Limited, 廣東科龍冷櫃有限 公司 and江西科龍實業發展有限公司 have been included in the consolidated statements for the current reporting period.

9

• (3) No substantial difference has occurred in accounting policy and financial report of the Company in the reporting period.

• (4) The Company does not have any subsidiary which ought to be included in the financial statements but has been excluded.

5. DOCUMENTS AVAILABLE FOR INSPECTION

1. A copy of the Third Quarterly Report signed by the Chairman; and

2. A copy of the financial statements (including the income statement and the balance sheet) signed and stamped by the legal representative, financial supervisor and the accounting authority officer.

Guangdong Kelon Electrical Holdings Company Limited Legal Representative Gu Chu Jun

Shunde, Guangdong, the PRC, 28 October, 2002

“Please also refer to the published version of this announcement in South China Morning Post”

10