PDF《广东科龙电器股份有限公司》

1 GUANGDONG KELON ELECTRICAL HOLDINGS COMPANY LIMITED 广东科龙电器股份有限公司(A joint stock limited company incorporated in the People'

s Republic of China with limited liability) (Stock Code: 0921) ANNOUNCEMENT IN RELATION TO ADMINISTRATIVE SANCTIONS IMPOSED BY THE CHINA SECURITIES AND REGULATORY COMMISSION Reference is made to the announcement of Guangdong Kelon Electrical Holdings Company Limited (the Company ) dated

20 October

2005 in relation to the receipt by the Company of an Advance Notice of Administrative Penalty (行政处罚事先通知书) from the China Securities Regulatory Commission (the CSRC ) on

17 October 2005, in which the Company also confirmed that it has not received any official document from the CSRC in this regard.

The Company would like to inform its shareholders that the Company received a Notice of Decision on Administrative Sanction CSRC (Zheng Jian Fa Zi [2006] No.16) on

4 July 2006, which is summarised as follows (all amounts referred to below are denominated in Renminbi): I. INSTANCES OF BREACH Investigation results show the following instances of breach, including the use of false records and substantial omissions from the annual reports for 2002,

2003 and

2004 as disclosed by the Company: A. From

2002 to 2004, the Company prepared false financial reports by overstating revenue from principal operations, understating provision for bad debts and understating damages for legal proceedings , resulting in an overstated profit of RMB119,963,100, RMB118,470,500 and RMB148,759,100 respectively, in the

2002 annual report, the

2003 annual report and the

2004 annual report. (1) From

2002 to 2004, the Company overstated its revenue and profits from principal operations by issuing invoices for goods which had not yet been sold and by selling invoices and recognising the proceeds of such sales as income. 1. In the

2002 annual report, revenue was overstated in the amount of RMB403,305,400 and profit was overstated in the amount of RMB119,963,100;

2. In the

2003 annual report, revenue was overstated in the amount of RMB304,838,600 and profit was overstated in the amount of RMB89,350,600;

and 3. In the

2004 annual report, revenue was overstated in the amount of RMB512,702,900 and profit was overstated in the amount of RMB120,420,500. (2) From

2003 to 2004, the Company overstated the profit in its annual report by pretending to have sold scrap materials to Zhuhai Defa Air-Conditioner Parts Company Ltd. (珠海德发空调配件有 限公司) and Zhuhai Jiangjia Coolant Facility Company Ltd (珠海隆加制冷设备有限公司). 1. In the

2003 annual report, profit was overstated by RMB20,025,200;

and 2. In the

2004 annual report, profit was overstated by RMB28,338,600.

2 (3) The Company inflated its profits in the annual report through the under-provision for bad debts in

2003 The Company consolidated and made an aging analysis between the balance of accounts receivables due from Guangzhou City Zhuhai District Tengyau Electrical Appliances Co., Ltd. (广州市海珠 区腾遥电器有限公司) in an amount of RMB1,221,400 and the balance of account receivables due from Dongguan City Fumen Supply Yuehua Household Appliances Co., Ltd. (东莞市虎门供 销社粤华家电公司) of RMB-4,721,000 for the year ended 2003, and under-provided for bad debts of accounts receivable due from Guangzhou City Zhuhai District Tengyau Electrical Appliances Co., Ltd. of RMB1,221,400. The Company consolidated and made an aging analysis between the balance of accounts receivable due from Shenzhen City Xinchuyuan Electrical Appliances Co., Ltd. (深圳市新楚源电器有限公司) of RMB4,764,600 and the balance of accounts receivable due from Dianbaixian Shuidong Yuandong Household Appliances Plaza (电白县水东 远东家电商场)of RMB511,900 for the year ended 2003, where mistakes were made in categorising some of the ages of debts, resulting in the under-provision for accounts receivable due from Shenzhen City Xinchuyuan Electrical Appliances Co., Ltd. of RMB701,400. The Company classified all the accounts receivable due from Shunde City Longyong Metals Jiaodian Co., Ltd. (顺德市龙涌五金交电有限公司) which are over one year old as less than three months old, resulting in the under-provision for bad debts of RMB2,629,700. The Company classified all the balances of accounts receivable due from Daqing Seawave Materials Trading Company (大庆 海浪物资贸易公司) as less than three months old, resulting in the under-provision for bad debts of RMB603,000. The conducts mentioned above resulted in the inflation of profits of RMB5,155,500 in the

2003 annual report of the Company. (4) The Company inflated its profits in the annual report through the under-calculation of litigation damages in

2003 From

10 December to

16 December 2003, the Intermediate People'

s Court of Foshan City made a series of final judgments in respect of contractual disputes between the Company and certain of its employees, ordering the Company to pay living allowances and litigation costs, etc, of RMB3,939,200 in total to

227 employees. The Company failed to record such amount into the profit and loss account in 2003. The conducts mentioned above resulted in the inflation of profits of RMB3,939,200. (B) There are material misstatements in the cash flow statements in

2003 annual report of the Company In 2003, the Company arranged the sales and purchase of products among the Company and its subsidiaries and issued banker'

s acceptances and trade acceptances based on this trading background so as to sell to banks for immediate payment and thus obtained a large amount of cash. The cash flow statements of the Company did not truly reflect the aforesaid cash flows. As calculated, in the cash flow statements in the

2003 annual report of the Company, cash from borrowings was understated by RMB3,025,500,000, cash paid to service debts was understated by RMB2,135,730,000 and net cash flow from operating activities was overstated by RMB889,760,000. (C) During

2002 to 2004, the Company did not disclose material events such as the change of accounting policies and connected transactions* with connected parties* such as joint investment and purchase of goods etc. (1) The change of accounting policy on maintenance deposit was not disclosed in

2002 annual report of the Company

3 In September 2002, the Company changed its accounting policy on maintenance deposit. The Company did not disclose the content, reason and effect of the change of account policy in the

2002 annual report. (2) The Company did not perform its obligations of reporting and announcement regarding the material event that Guangdong Greencool Enterprise Development Company Limited (formerly known as Shunde Greencool Enterprise Development Company Limited, hereafter referred to as Guangdong Greencool) (广东格林柯尔企业发展有限公司(原顺德格林柯尔企业发展有限公 司,以下简称广东格林柯尔)) had held shares of the Company. The Company also did not disclose this material event in

2004 annual report. On

11 October 2004, Guangdong Greencool, Gu Chujun, Greencool procurement center (Shenzhen) Limited (hereafter referred to as Shenzhen Greeencool) (格林柯尔采购中心 (深圳) 有限公司 (以下简称深圳格林柯尔)) and Agricultural Bank of China Luohu branch (hereafter referred to as Luohu Agricultural Bank) (中国农业银行深圳罗湖支行(以下简称罗湖农行)) signed a Maximum Amount Guarantee Agreement and Supplementary Agreement, which specify that Guangdong Greencool shall provide guarantee for Shenzhen Greencool'

s debts due to the bank with maximum amount of RMB260,000,000. Within the guarantee period specified by the agreements, Guangdong Greeencool promised not to pledge or transfer its holdings of 26.43% shares of the Company to any third party or conduct any other disposal with this holdings;

in case the agreements were disobeyed, Shenzhen Greencool shall increase its deposit ratio for unsettled banker'

s acceptances and unsettled letters of credit to 100%. Based on the above promise, the deposit ratio charged by Luohu Agricultural ........