Christine International : SUPPLEMENTAL ANNOUNCEMENT TO THE ANNUAL REPORT 2019 OF THE COMPANY

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CHRISTINE INTERNATIONAL HOLDINGS LIMITED

克莉絲汀國際控股有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1210)

SUPPLEMENTAL ANNOUNCEMENT TO

THE ANNUAL REPORT 2019 OF THE COMPANY

Reference is made to the annual report 2019 (the "2019 Annual Report") of Christine International Holdings Limited (the "Company", together with its subsidiaries, collectively, the "Group") published by the Company on 28 May 2020.

The board (the "Board") of directors (the "Directors") of the Company would like to provide certain additional and update information in relation to the 2019 Annual Report.

BASIS FOR DISCLAIMER OF OPINION

The then auditor of the Company, being RSM Hong Kong ("RSM") issued a disclaimer of opinion (the "Audit Modification(s)") on the 2019 Annual Report in relation to: (1) material uncertainties relating to going concern; and (2) opening balances and corresponding figures. For details, please refer to pages 83 to 85 of the 2019 Annual Report.

Audit Modification - Going Concern

On page 73 of the Annual Report (being the Corporate Governance Report), it was stated that "There are no material uncertainties relating to events or circumstances which would significantly cast doubt over the Company's ability to operate as a going concern."

The Board would like to clarify that the statement should read as "Save and except the events and circumstances as highlighted in the section headed "Material Uncertainties Relating to Going Concern" included in the independent auditor's report enclosed in pages 84 to 85 of this annual report and note 2 of the notes to the consolidated financial statements enclosed in pages 95 to 98 of this annual report, there are no material uncertainties relating to events or circumstances which would significantly cast doubt over the Company's ability to operate as a going concern."

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The above clarification does not affect other information contained in the Annual Report 2019 and save as disclosed above, all other information in the Annual Report 2019 remains unchanged.

As disclosed in the 2019 Annual Report, RSM noted that the Group incurred a net loss of approximately RMB224.3 million during the year ended 31 December 2019 ("FY2019"), and as of 31 December 2019, the Group had net current liabilities of approximately RMB443.7 million. The Group's current borrowings and lease liabilities amounted to approximately RMB36.0 million and approximately RMB59.7 million respectively while its cash and cash equivalents amounted to approximately RMB74.9 million only. After considering, among others, the conditions above and the Directors' basis for preparing the consolidated financial statements on a going concern basis, RSM was of the view that significant uncertainties existed as to whether the management (the "Management") of the Group would be able to achieve its plans and measures as set out below.

Notwithstanding the Group's performance in FY2019, the consolidated financial statements have been prepared on a going concern basis as the Directors have given careful consideration to the impact of the current and anticipated future liquidity of the Group and were satisfied that:

1. The banking facilities from the Group's bankers for its working capital requirements for the next twelve months would be available as and when required, having regard to the following:
2. 1. Negotiations for external financing, including but not limited to, obtain further bank facilities.
   2. Negotiation with the banks for the restructure of repayment schedules of the existing bank borrowings so as to extend the repayment due date for one year and extend the existing bank facilities for one more year.
3. The Group would be able to complete the disposal of land use right and buildings in Nanjing, which requires executing a definitive agreement with the potential buyers and obtaining the necessary approvals from the shareholders; and
4. The Group would be able to implement operational plans to control costs and generate sufficient operating cash flows to meet its current and future obligations. Relevant actions include collection of outstanding receivables, utilization of the capacity of the production plants, and closure of loss-making retail outlets.

The Company was in the course of implementing the above measures to improve financial position and cashflow of the Group. The Management was, and as at the date of this announcement, are still of the view that the above measures will be effective.

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The Directors had reviewed the Group's cash flow projections prepared by the management that covered a period of not less than 12 months from 31 December 2019. Having taken into account the above-mentioned plans and measures, the Directors were of the opinion that the Group would have sufficient working capital to finance its operations and to meet its financial obligations as and when they fall due within the next twelve months from the date of the consolidated statement of financial position. Accordingly, the consolidated financial statements have been prepared on a going concern basis.

The Directors have explained the above plans to RSM that the Group is able to operate as a going concern and will be able to have sufficient working capital in the next twelve months from 31 December 2019 after taking into consideration of the factors in Note 2 to the consolidated financial statements in the 2019 Annual Report.

Despite the evidences and explanations provided to RSM in relation to the Group's ability of going concern, RSM still regarded that due to the uncertainty of the Group's ability to maintain adequate future cash flows, it was unable to ascertain whether the assumptions made by the Directors in preparing the consolidated financial statements on a going concern basis were proper and appropriate.

The Directors have used their best endeavour to provide information and has explained the situation of the Group to RSM. In view of the financial performance of the Group in FY2019 and the uncertainty of marcroeconomic environment in 2020 due to the outbreak of COVID-19, the Directors understood the view of RSM.

The audit committee of the Board (the "Audit Committee") understands the Audit Modification on going concern raised by RSM and has discussed it with the Management and RSM. The Audit Committee shared the same view with the Management.

Actions to be taken to address the going concern

Reference is made to the 2019 Annual Report, which disclosed the proposed measures to be taken in FY2019 (the "2019 Planned Measures") to address the going concern issue of the Group. In FY2019 and FY2020, the Group has actively implemented measures as follows:

1. Addition of new financing and negotiation with financial institutions to extend the existing financing

Currently, the Group is still in negotiation with banks and financial institutions.

In early August 2020, the Company applied for loans of RMB10 million and RMB20 million from Bank A and Bank B respectively, which will involve pledges on the properties of the Group. The application materials have been submitted to the banks and so far have been processed smoothly. Upon completion of the review by the banks, it is expected that the loan from Bank A will be advanced as soon as by end of September 2020, while it is currently expected that the loan from Bank B will be advanced by end of October 2020. In addition, the Company is undergoing negotiations to obtain facilities from other banks.

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1. Disposal of the property in Nanjing

As disclosed in the announcement of the Company dated 21 August 2020, the Company intends to sell the property in Nanjing for RMB80 million, and will enter into the formal sale and purchase agreement upon obtaining shareholder's approval.

(iii) Cost control measures

Various cost control measures have already been implemented by the Group, including closure of loss-making stores, centralizing the office of the Group and leasing out unused office spaces of the Group, simplification of human resources structure, refinement and control on costs related to productions and distributions.

In the first half of 2020 ("1H2020"), the Company has taken active measures to close 78 retail-outlets, as a result of which, the selling and distribution expenses decreased by approximately RMB64,403,000 or 34.7% from approximately RMB185,363,000 for the corresponding period in 2019 to approximately RMB120,960,000 in 1H2020. In particular, the rental expenses reduced by approximately RMB5,408,000 due to closure of retail outlets, the annual salary expenses decreased by approximately RMB24,579,000 due to staff downsizing, and the utilities and packaging expenses also lowered accordingly by approximately RMB3,356,000 and RMB2,686,000, respectively. In addition, the depreciation decreased by approximately RMB9,074,000 due to a decrease in depreciation of the leased assets which related to closure of retail outlets. The Company has also actively refined and controlled various costs related to the production and distributions.

1. Adjustments in marketing and sale strategies by shifting the focus more on bulk-purchases instead of retail purchases

Besides cost-cutting measures, the Group has also adjusted its marketing strategies since 1H2020. In essence, the Group has shifted its focus from concentrating on retail purchases to bulk-purchases.

With the implementation of this marketing strategies, the Board expects that improvements on the financial performance of the Group would be seen during the Mid-Autumn Festival in the second half of 2020.

Since the Mid-Autumn Festival in 2020 is comparatively later than previous years, the Mid- Autumn Festival effect is expected to begin to appear in September 2020. As at the date of this announcement, the Group has already begun the pre-sale of Mid-Autumn Festival gift certificates in late August 2020. According to previous sales experience, the Mid-Autumn Festival is the peak of sales throughout the year.

To the understanding of the Board and the Audit Committee, the most crucial reasons for the Audit Modification in relation to going concern are the poor performance of the Group during FY2019 and their concern on the cashflow of the Group during the year ending 31 December 2020 ("FY2020").

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The view of the Management and the Audit Committee

The Management believes that, the measures as stated above are adequate and effective to address the Audit Modification on going concern.

The Management and the Audit Committee will communicate with the new auditors of the Group (now vacant) (the "Auditors") once appointed on the above measures, and whether the Audit Modification on going concern could be addressed and removed in FY2020. The Management and the Audit Committee believe that if the above measures are indeed proved to be implemented properly and effectively in FY2020 and if the Company could provide sufficient audit evidence to the Auditor to support that there will be sufficient working capital for the Group in the next twelve months from 31 December 2020, the Audit Modification on going concern may be removed in FY2020, given that there is no adverse change of the financial position, operations and investments of the Group.

Audit Modification - Opening Balance

The consolidated financial statements of the Group for the year ended 31 December 2018 ("FY2018") were audited by Deloitte Touche Tohmatsu ("Deloitte"), the predecessor of RSM, who expressed a qualified opinion on those financial statements in the annual report 2018 of the Company (the "2018 Annual Report") published on 29 April 2019. As set out in the independent auditors' report enclosed in the 2018 Annual Report, Deloitte was unable to satisfy themselves about the recoverability of processing prepayments of RMB22,029,000 and deposits paid of RMB11,741,000 to a related party and any provision in respect of these balances would reduce the net assets of the Group as at 31 December 2018 and increase the Group's net loss for FY2018.

These amounts were fully provided for FY2019 in the 2019 Annual Report. As Deloitte was unable to obtain sufficient appropriate audit evidence regarding the recoverability of processing prepayments and deposits paid to a related party as at 31 December 2018, any adjustments to the allowance for impairment losses on these opening balances that might have been found necessary would have an effect on the Group's net assets as at 31 December 2018 and its results for FY2019.

The above allowance for impartment represented an allowance of impairment losses of processing prepayments and deposits due from a related company, being Shanghai Yi Pin Xuan Foodstuff Co., Ltd ("Yi Pin Xuan"). Since Yi Pin Xuan was during the process of deregistration, the Management and Audit Committee agreed with RSM that there was a lack of audit evidence about the recoverability.

As the impairment has been fully made in FY2019, the Board expects that the Audit Modification in relation to the above matter will only affect the comparative figures in the Company's 2020 consolidated financial statements (income statement) only, and will not affect the FY2020 figures.

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Update on the appointment of the Auditors

At the annual general meeting of the Company held on 30 June 2020, the resolution proposed for the appointment of RSM as Auditors was not approved. Since then, the Board has been in discussions with several accounting firms in Hong Kong for their engagement as the auditors of the Group. However, up to the date hereof, the Board has not yet confirmed such appointment. It is the target of the Board to appoint the Auditors by end of November 2020.

Upon engagement of the new Auditors, the Board, the Audit Committee and the Management will maintain close communication with the Auditors. It is the target of the Board to remove the Audit Modifications and to justify the appropriateness of the going concern assumption in the auditors' report for FY2020. With the measures proposed and based on the improvements observed by the Board so far, the Board and the Audit Committee are optimistic on such removal and justification.

By Order of the Board

Christine International Holdings Limited

Chun Bin Xu

Chairman

Shanghai, the PRC, 18 September 2020

As at the date of this announcement, the executive Directors are Mr. Chun Bin Xu (Chairman), Mr. Yong Ning Zhu, Mr. Ming-Tien Lin, Mr. I-Sheng Chan and Mr. Chien-Li Tseng; the non-executive Directors are Mr. Dun-Ching Hung, Mr. Chi-Ming Chou; and the independent non-executive Directors are Dr. Yong Jun Tang, Mr. Hang Sheng Ye, Ms. Hong Xue and Ms. Xiao Yan Xu.

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