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

Sep 27, 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

The Board of the Company announces that the Auditors and the Audit Committee, respectively, completed a full review of the Company’s interim report for the six months ended 30 June 2002.

Reference is made to the announcement of Guangdong Kelon Electrical Holdings Company Limited (the “Company”) dated 28 August 2002. The board of directors (the “Board”) of the Company announces that the Company’s auditors (the “Auditors”) completed its review of the Company’s interim report for the six months ended 30 June 2002 (the “Interim Report”). A copy of the Auditors’ independent review report will be incorporated into the Interim Report and despatched to shareholders of the Company on or before 30 September 2002. The audit committee of the Company (the “Audit Committee”) has also completed its review of the Interim Report and it did not have any objections to the points stated by the Auditors in its independent review report.

Extracts from the Auditors’ independent review report are set out below:

“The scope of the review was limited as set out below:

1. The previous auditors explained in their auditors’ report on the financial statements for the year ended 31 December 2001 that they were unable to obtain reasonable representations and assurances on which they could rely for the purposes of their audit and there were no satisfactory audit procedures that they could perform to obtain reasonable assurance that all material transactions were properly recorded and completely disclosed. Against this background, we were unable to conclude as to whether the net assets of the Group as at 31 December 2001 were free from material misstatement. Any adjustments to the opening net assets of the Group would affect the net profit of the Group for the six months ended 30 June 2002. Also, the comparative figures at 31 December 2001 shown in the condensed consolidated balance sheet and in the condensed consolidated income statement for the six months ended 30 June 2001 may not be comparable with the figures for the current period.

2. Included in the trade and other receivables in the condensed consolidated balance sheet as at 30 June 2002 is an amount of RMB862,045,000 due from Guangdong Kelon (Rongsheng) Group Company Limited, the former major shareholder of the Company, in respect of which an allowance of RMB172,409,000 has been made. We were unable to obtain sufficient reliable financial information to assess the appropriateness of the allowance made.

3. Included in the condensed consolidated balance sheet as at 30 June 2002 are investments in associates of approximately RMB288 million (31 December 2001: RMB284 million) which comprise share of net assets of approximately RMB131 million; goodwill of approximately RMB114 million; and amounts due from associates of approximately RMB43 million. We were unable to obtain sufficient reliable financial information to assess whether any adjustment for share of net assets, impairment loss for goodwill or allowance for amounts due from associates is required.

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1. Included in the trade and other payables in the condensed consolidated balance sheet as at 31 December 2001 and as at 30 June 2002 are accruals for advertising fees amounting to RMB160 million and RMB80 million respectively. These accruals relate to advertising services which the previous directors represented had been provided to the Group in 2001. However, we are unable to obtain sufficient evidence to support that the related advertising services have been performed. In addition, we were unable to obtain documentary evidence to substantiate the validity of the payment of RMB80 million made in the current period.

2. Included in the long-term amounts due from related companies on the condensed consolidated balance sheet as at 30 June 2002 is a receivable from the Employee Union of the Company of approximately RMB52 million. However, we were unable to obtain sufficient evidence concerning the financial position of the Employee Union to assess whether any allowance should be made in respect of this amount.

Modified review conclusion arising from limitations of review scope:

On the basis of our review which does not constitute an audit, with the exception of the possible adjustments that might have been determined to be necessary had the above limitations not existed, we are not aware of any material modifications that should be made to the interim financial report for the six months ended 30 June 2002.”

Response by the Company to the independent review report of the Auditors and the views of the Audit Committee

Set out below is the Company’s response to the views of the Auditors as set out in its report after reviewing the Interim Report:

1. Due to the fact that the financial results of the Company changed from loss to profit, the earnings for the six months ended 30 June 2002 amounted to approximately RMB105 million (calculated based on the International Accounting Standards) and the net current assets on 30 June 2002 reached approximately RMB58 million (calculated based on the International Accounting Standards). The Board expressed a positive opinion to the Company carrying on as a going concern. The management of the Company is optimistic with regards to the operating environment’s foreseeable future and the Auditors have no objection to this view.

2. Since the Company has made valuation on its fixed assets in the past, the previous 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 previous 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 previous 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 the 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.

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1. The limits to the scope of review as set out in paragraphs 2, 3, 4 and 5 of the section headed “Limits to the scope of review” in the independent review report are issues outstanding from 2001, which have been explained and followed up in the Company’s annual report of 2001 and its interim report of 2002. As there have been no material changes or developments since then, those issues are not further discussed herein.

By the order of the Board Guangdong Kelon Electrical Holdings Company Limited Gu Chu Jun Chairman

Shunde, Guangdong, the PRC, 27 September 2002

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

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