Medlive Technology Co., Ltd. — Interim / Quarterly Report 2007

Apr 30, 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)

2007 FIRST QUARTERLY REPORT

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IMPORTANT NOTICE

• 1.1 The board of directors (the “Board”) of the Company, supervisory committee, directors, supervisors and senior management of the Company warrant that there are no false representations and misleading statements contained in, or material omission from, this report and jointly and severally accept responsibility for the truthfulness, accuracy and completeness of the content of this report.

• 1.2 No director, supervisor and senior management member has expressed any disagreement or any inability to provide a guarantee on the truthfulness, accuracy and completeness of the content of this first quarterly report.

• 1.3 All directors attended the Board meeting.

• 1.4 The financial statement in this 2007 first quarterly report are unaudited.

• 1.5 Mr. Tang Ye Guo, person-in-charge of the Company, Ms. Liu Chun Xin person-in-charge of the accounting matters and Mr. Dai Zu Mian, person-in-charge of the accounting department, warrant the accuracy and completeness of the contents of the financial statement of this quarterly report.

• 1.6 The full version of the balance sheet, profit and loss account and cashflow statement was disclosed in the designated web-site of the Shenzhen Stock Exchange:

http://www.cninfo.com.cn/default.htm

• 1.7 This announcemetn is made pursuant to Rule 13.09(2) of the Rules Governing the Listing of Securites on The Stock Exchange of Hong Kong Limited.

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2 BASIC INFORMATION OF THE COMPANY

2.1 Major accounting data and financial indicators

				Increase/decrease
At the end of the			At the end of last	over the end of
	reporting period		financial year	last financial year
				(%)
Total Assets*	5,056,727,843.64		4,566,576,943.15	10.73%
Shareholders’ equity		(942,940,026.32)	(968,289,248.23)	N/A
Net assets per share		(0.9505)	(0.9761)	N/A
				Increase/decrease
			Beginning of	over corresponding
			the year to the end	period of
			of the reporting period	the last year
				(%)
Net cashflow from operating	activities*		(44,312,220.22)	N/A
Net cashflow from operating
activities per share			(0.0447)	N/A
			Beginning of the	Increase/decrease
			year to the end of	over the end of the
Reporting Period			the reporting period	last financial year
				(%)
Net profit*		21,069,323.16	21,069,323.16	N/A
Earnings per share – Basic		0.02	0.02	N/A
Earnings per share – Diluted		0.02	0.02	N/A
Return on net assets**		N/A	N/A	N/A
Return on net assets after
extraordinary profit
and loss items**		N/A	N/A	N/A
			Amounts from the beginning
			of	the year to the end of
Extraordinary profit and loss items				the reporting period
Non-operating income				65,138,010.34
Less: Non-operating expenses				1,595,021.65
Total loss and profit of extraordinary items				63,542,988.69

• The financial data are consolidated financial data.

• ** Since the net assets of the Company at the end of the reporting period is a negative figure, all calculations of return on net assets are not applicable.

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2.2 Table of total number of shareholders at the end of the reporting period and the shareholdings of the top ten shareholders not subject to selling restrictions

Unit: shares

Total number of shareholders at the end of the reporting period

52,991

The shareholdings of the top ten shareholders not subject to selling restrictions

	Shareholdings
	at the end of
Name of Shareholder (in full name)	the period	Class
Shenyin Wanguo Securities (H.K.) Ltd.	54,851,000	H shares
The Hong Kong and Shanghai Banking	51,092,925	H shares
Corporation Limited
Bank of China (Hong Kong) Limited	49,132,000	H shares
Guotai Junan Securities (Hong Kong) Limited	40,965,000	H shares
HSBC Nominees ( Hong Kong) Limited	40,106,904	H shares
First Shanghai Securities Limited	25,868,000	H shares
Hang Seng Securities Limited	20,235,000	H shares
Standard Chartered Bank (Hong Kong) Limited	9,554,500	H shares
BOCI Securities Limited	7,831,000	H shares
Sun Hung Kai Investment Services Limited	7,770,000	H shares

3 SIGNIFICANT EVENTS

3.1 Details and reasons for changes of the principal accounting statement items and financial indicators and the reasons therefor

Applicable Not applicable

			Increase/
	31 March	31 December	decrease
Items	2007	2006	in amount	Changes
				(%)
Bills receivable	136,366,406.98	77,317,440.80	59,048,966.18	76.37%
Accounts receivable	708,216,025.54	374,911,284.04	333,304,741.50	88.90%
Prepayments	119,736,576.41	81,980,665.92	37,755,910.49	46.05%
			Increase/
	January-	January-	decrease
Items	March 2007	March 2006	in amount	Changes
				(%)
Net non-operating
income and expense	65,138,010.34	2,338,051.12	62,799,959.22	2,686.00%

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Explanations:

1. During the reporting period, the main products of the Company gradually reached their peak seasons, the accounts receivables and bills receivable increased by 88.90% and 76.37%, respectively. Meanwhile, as a result of the increase in purchase of raw materials, the prepayments in materials have also increased by 46.05% as compared with the beginning of the reporting period.

2. During the reporting period, the subsidiaries of the Company in Hong Kong disposed of two properties in Hong Kong with an aggregate profit of RMB58,000,000.

3.2 Analysis and explanation of progress and impact of major events and solutions

Applicable Not applicable

• 3.2.1 The auditor’s report issued by Shenzhen Dahua Tiangcheng Certified Public Accountants for the company’s annual report 2006 contained a qualified opinion. The explanations to the qualified auditors’ opinion in details are as follows:

Reserved Matter 1: “As described in Notes 6.3, 6.4, and 7 to the financial statements, a series of related parties’ transactions and unusual cash flows occurred between the Company and its former largest shareholder, Guangdong Greencool Enterprise Development Limited and its related parties (the “Greencool Companies”) during the period from October 2001 to July 2005. In addition, the Greencool Companies, through certain specified third party companies such as Tianjin Lixin Commercial Trading Development Company Limited, involved in a series of unsual cash flows with the Company in the same period. Such transactions and unusual cash flows as well as the suspected fund embezzlement have been reported to the relevant authority, and are pending for judgement. Such reported matters involve the accounts receivables and payables between the Company and the Greencool Companies as well as the specified third party companies mentioned above. As at 31 December 2006, the balance of the accounts receivables of the Company from the Greencool Companies and the above specified third party companies amounted to RMB651 million. The Company has made a provision of RMB364 million in respect of the accounts receivables from Greencool Companies and the above specified third party companies. We were unable to adopt appropriate audit procedures to obtain sufficient and appropriate audit evidence to ascertain whether the estimated provision for bad debts is reasonable and the assessment and calculation of the receivables is reasonable.

As the Company and its former single largest shareholder, Guangdong Greencool Enterprise Development Company Limited, and its related parties or through its third party companies had a series of related parties’ transactions and irregular cash inflow/outflow during the period from 2001 to 2005. The aforesaid transactions, irregular cash inflow/outflow and suspected funds embezzlement have been formally investigated by relevant authorities. As at 31 December 2006, the balance of the accounts receivables of the Company from Greencool Companies and the aforesaid specified third party companies amounted to RMB651,000,000.

Since the court has not yet made its judgment, the Company can only estimate, based on the available information about the cases at present, the recoverable amount of accounts receivables due from Greencool Companies and specified third party companies. The bases of the estimate include: the information regarding the properties of Greencool Companies sealed and frozen by the Court as applied by the Company, and the initial analysis report on the aforesaid fund embezzlement prepared by the lawyer of the Company. As analyzed by the lawyer, the properties of Greencool Companies available for settlement amounted to approximately RMB1,000,000,000, and the total claim amount against Greencool Companies by the creditors to the court amounted to approximately RMB2,400,000,000. The amount claimed by the Company for the fund embezzlement of Greencool Companies amounted to RMB792,000,000. There is possibility that the credit balance be settled based on the proportion of property to the debts. Based on the estimated settlement proportion, and that the case is still in the progress, the court has not yet acknowledged the amount of the Company’s claim of the debts, the Board of the Company estimated the recoverable amount and made a provision of RMB364,000,000 for bad debts.

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Meanwhile, the law firm to this case declared that, apart from the case handled by them, they cannot guarantee the accuracy of the information and data related to other relevant cases nor the results of those cases Further, whether the relevant subsidiaries of the Company are qualified to participate in the property appropriation of Greencool Companies is dependent on the decision of the Court.

The Board considers that the provision for bad debts is an accounting estimate. The handling method of this accounts receivable does not contravene any relevant requirements of the Accounting System for Business Enterprises, and since there is no material difference between the level of judgment on the recoverability of the accounts receivables made in 2006 and that in 2005, the qualified opinions to this item will not affect the impartiality on the preparation of the income statement for the year ended 2006.

After the court has made its judgment and the settlement proportion, the Company will, pursuant to the determined recoverable proportion, adjust retrospectively the 2005 financial statements (balance sheet and income statement), and the relevant items in the balance sheet as at 31 December 2006. The Company has taken measures to sequestrate the properties of Greencool Companies which are available for settlement. The Company will also pay attention to the progress of the case and make its best efforts to ensure its rights as a creditor.

Reserved Matter 2: As described in Note 6.26 “Revenues and Costs of Principal Operations” to the financial statements, in 2005 the Company adopted a method of calculating the inventory at year-end based on the result of stock take at year-end and weighted purchase unit prices, upon which the costs of principal operations in 2005 was back-calculated. Even though such method will not have any impact on the audit of the balance of inventory by the end of 2005, however, due to unreliability of the control system prior to 2005, we were unable to perform satisfactory audit procedures to determine whether the cost of principal operations back-calculated all attributable to 2005. In our audit on the income statement in 2005, we have expressed a qualified opinion on the cost of principal operations. In the year 2006, the management of the Company could not take appropriate measures to rectify such accounting error and make retrospective adjustments to the cost of the principal operations in 2005. The reserved matters above will not impose any impact on the acknowledgment of the income statement of 2006 and the cash flow statement of 2006.

Note: this is a reserved matter on the cost of principal operations in 2005. The Company was unable to make retrospective adjustments for the cost of principal operations in 2005 due to the restrictions of conditions; however, the calculation and audit of the costs of principal operations in 2006 resumed normal as the Company made improvement in its stock control system and costs calculation and audit system. Such reserved matter will have no impact on the income statement of 2006 and the cash flow statement of 2006.

3.2.2 Funds tied up for non-operational uses and settlement progress

By the end of the reporting period, the Company’s funds in the aggregate sum of RMB689,219,900 were tied up for non-operational uses by its former substantial shareholder and its subsidiaries, certain third parties and other connected parties, of which, an aggregate amount of RMB650,694,100 was tied up by the former substantial shareholder Guangdong Greencool Enterprise Development Company Limited and its connected companies (the “Greencool companies”) and certain third parties, and an aggregate amount of RMB38,525,800 was tied up by other connected parties.

Up to date, the Company has filed 21 litigations with a total claim amount of RMB792 million, and has taken confiscating, freezing or preserving measures over the valuable properties of Greencool companies and Gu Chu Jun to the largest extent. By the end of the reporting period, the Company has taken confiscating measure over 12 assets and has taken assets preserving measure over 13 accounts.

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3.2.3 Material litigations and arbitrations of the Company

Up to date, the Company and its subsidiaries have involved in a total of 65 litigations with a total claim amount of RMB1,080,595,200 and lands of 629,003.22 square metres.

Among the above-mentioned litigations, the Company and its subsidiaries were acting as plaintiffs in 28 litigations with a total claim amount of RMB819,090,800, while they were acting as defendants in 37 litigations involving total claim amount of RMB261,504,400 and lands of 629,003.22 square metres.

The Company will pay close attention to the progress of these litigations, proactively communicate with the relevant authorities, and make greatest efforts to protect the Company’s interest.

3.3 Implementation of the undertakings made by the Company, shareholders and the actual controllers

Applicable Not applicable

Qingdao Hisense Air-Conditioning Company Limited (“Hisense Air-Conditioning”), the former holder of non-freely transferable shares, initiated the share reform on 19 December 2006 and the share reform was completed on 29 March 2007.

As the controlling shareholder of the Company, Hisense Air-Conditioning, the former holder of the non-freely transferable shares, will fulfill the following undertakings apart from the statutory undertakings:

1. Special undertakings by the controlling shareholder - undertaking on lock-up period

Hisense Air-Conditioning, the controlling shareholder of the Company, undertakes that:

The non-freely transferable shares originally held by it will not be listed for trading within 36 months from the date of the implementation of the share reform scheme.

2. Special undertakings by the controlling shareholder - Undertaking on restructuring and additional donated share

Hisense Air-Conditioning, the controlling shareholder of the Company undertakes that:

Upon the completion of the consideration arrangement under the share reform of Kelon Electrical, it will conduct an assets restructuring in Kelon Electrical through subscripton of shares of the Company and injection of the relevant assets of the White Goods business of Hisense Group into Kelon Electrical, with an aim to strength Kelon Electrical as the core enterprise of Hisense Group’s White Goods business and to be one of the most competitive enterprises in the industry, both domestically and internationally.

The White Goods business of Hisense Group intended to be injected under this asset restructuring includes:

• (1) The manufacturing business of air-conditioners and its assets, namely the current business and assets of Hisense Air-Conditioning (including 海信空調平度工廠 (Hisense Air-Conditioning Ping Du Plant) and 51% shareholdings in 海信（浙 江）空調有限公司 (Hisense (Zhejiang) Air-conditioning Company Limited held by Hisense Air-Conditioning);

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• (2) The manufacturing business of refrigerators and its assets, namely the 55% shareholdings in 海信（北京）電器有限公司 (Hisense (Beijing) Electrical Appliances Company Limited) (including the 60% shareholdings in 海信（南京） 電器有限公司 (Hisense (Nanjing) Electrical Appliances Company Limited) held by 海信（北京）電器有限公司 (Hisense (Beijing) Electrical Appliances Company Limited)) held by Hisense Electrical Company Limited, the subsidiary of Hisense Group;

• (3) The marketing business and sales channels of Hisense Group’s domestic appliances, namely the marketing business and sales channels for refrigerators and airconditioners of Qingdao Hisense Marketing Company Limited, the subsidiary of Hisense Group.

If the said assets restructuring fails to be completed as scheduled or the operating results of Kelon Electrical after the assets restructuring still fail to meet the target, it will give additional shares to all the holders of listed A shares and its directors, supervisors and senior management who held the listed A shares of the Company without any sales restriction and whose names appear in the shares register on the day for registration of the additionally issued shares.

1. The triggering conditions for additional donated shares:

2. A: Within 12 months commencing from the date of the resumption of trading of the A shares of Kelon Electrical on the Shenzhen Stock Exchange after the completion of consideration arrangement made to the holders of listed A shares by holders of non-freely transferable shares of Kelon Electrical, the assets restructuring process regarding the injection of the related assets (or shareholdings) of the White Goods business of Hisense Group into Kelon Electrical has not completed.

The criteria to confirm the completion of assets restructuring process is: the completion of all transfer registration (including asset, shareholding, debts and liabilities) procedures for injection of the related assets (or shareholdings) of the White Goods business of Hisense Group into Kelon Electrical.

• B: The earnings per share of Kelon Electrical is lower than 0.08 Yuan in the next accounting year (the year of 200E) after the completion of the said assets restructuring of Kelon Electrical made by Hisense Air-Conditioning .

The net profit of Kelon Electrical in the accounting year of 200E shall be determined according to the auditing result pursuant to the corporate accounting standards in the PRC and Rules of Accounting for Enterprise applicable for domestic enterprises at that time.

• C: In the accounting year of 200E, Kelon Electrical is issued with an annual auditing report without “standard unqualified opinion”.

• D: Kelon Electrical did not issue the year 200E annual report within the specific period.

Whenever any of the afore-mentioned A, B, C and D conditions occurs (the earliest shall be applicable), Hisense Air-Conditioning shall donate additional share once, and this undertaking shall be terminated upon the completion of this additional donated shares.

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1. The number of additional donated share: 9,725,050 A shares of Kelon Electrical, representing 0.5 additional donated share per 10 shares on the basis of the total listed A shares of 194,501,000 shares of the Company prior to the implementation of the share reform scheme. In the event that the Company donates shares, transfers to share capital or reduces its shares during this period, the number of donated shares shall, on the basis of 9,725,050 shares, be increased or decreased in the same proportion.

2. Timing for additional donated share: If condition A or D for additional donated share is triggered, the Board will implement the additional donated share undertaking by the undertaker within 20 working days commencing from the date when the condition for additional donated share is triggered; if condition B or C for additional donated share is triggered, the Board will implement the additional donated share undertaking by the undertaker within 20 working days after the issue of the annual report for the accounting year of 200E.

3. The receivers of the additional donated shares: Upon the conditions for additional donated share being triggered, all holders of listed A shares and the directors, supervisors and senior management of the Company which held the listed A shares of the Company without sales condition and whose names appear in the shares register on the day for registration of the additionally issued shares.

4. The implementation guarantee for the additional donated share undertaking: Hisense Air-Conditioning undertakes that: upon the implementation of the share reform scheme of the Company, it will apply for the temporary custody of the portion of additional donated share, representing 9,725,050 shares in the Shenzhen branch of the China Securities Depository & Clearing Corporation until the issue of the Company’s annual report for the year of 200E and the expiration of the undertaking.

3. Special undertakings by the controlling shareholder - advance undertakings

Undertakings by Hisense Air-Conditioning, the Company’s controlling shareholder:

As SEC and Dong Heng Development, both being the holders of the Company’s nonfreely transferable shares, did not explicitly express that they would involve in the share reform, Hisense Air-Conditioning will advance the number of shares under the consideration arrangement offered by SEC and Dong Heng Development for their participation in the share reform, i.e. 4,742,863 shares and 486,044 shares respectively. Subsequently, they should repay the shares advanced by Hisense Air-Conditioning or obtain its consent if the shares held by SEC and Dong Heng Development become listed.

On 29 March 2007, Hisense Air-Conditioning has implement its the “Advance Undertakings” in the course of the implementation of the share reform Scheme of the Company and completed relevant procedures in the Shenzhen branch of the China Securities Depository & Clearing Corporation in accordance with the “Trading Restriction Undertakings”. Meanwhile, the Company has also applied for the temporary custody of the portion of additional donated share, representing 9,725,050 shares in accordance with the “Restructuring and Additional Donated Share Undertakings” upon the expiry of the undertaking. As at the date of this report, the Company is still in the process of restructuring.

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• 3.4 Loss forecast or alert of significant change in the accumulated net profit for the period from the beginning of the financial year to the end of the next reporting period as compared with the corresponding period in the previous year and the explanation thereof

Applicable Not applicable

As a result of the optimization of product mix and further implementation of a high-end strategy, the products quality has been improved significantly with remarkable improvement in profitability. It is expected that the Company will make profit in the first half year of 2007.

• 3.5 Explanation of the reason for differences between shareholders’ equity at the beginning of 2007 stated in the balance sheet of this quarterly report and the shareholders’ equity at the beginning of 2007 stated in the “Table of Reconciliation on differences between shareholders’ equity arising from the new and old accounting standards”:

Applicable Not applicable

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 Tang Ye Guo Chairman

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, 27 April 2007

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

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