hong kong exchanges and clearing ltd
TRANSCRIPT
2ANNUAL REPORT 2001
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CORPORATE INFORMATION
DIRECTORSExecutive:
Evans C Lowe (Chairman and Chief Executive Officer)
Irene W Y So
Philip T Y Poon
Eric C Lowe
Nelson H F Chan
David K C Lung
Non-Executive:
Mart Bakal
Independent Non-Executive:
Alan G Thompson
Henry H W Lai
PRINCIPAL BANKERS
Liu Chong Hing Bank Limited
Bank of China
The Hongkong and Shanghai Banking Corporation Limited
Hang Seng Bank
AUDITORS
Li, Tang, Chen & Co.
SOLICITORSRichards Butler
Woo, Kwan, Lee & Lo
P. C. Woo & Co.
COMPANY SECRETARYPeter Lee Yip Wah
REGISTRARS AND TRANSFER OFFICE
Central Registration Hong Kong Limited
19th Floor, Hopewell Centre
183 Queen’s Road East
Hong Kong
REGISTERED OFFICE AND PRINCIPAL PLACE OF BUSINESS
37A Floor, Bank of China Tower
1 Garden Road
Hong Kong
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CHAIRMAN’S STATEMENT
Mansion House Group Limited (“the Company”) and its subsidiaries (collectively “the Group”) have, in 2001,
encountered difficulties in implementing its strategy with respect to its line of business: a decrease in the
turnover of the local securities market has severely affected the commission income of the securities subsidiary.
The development of the Corporate Finance subsidiary would require a substantial amount of capital commitment
in place. In addition, the current income produced by the Asset Management subsidiary is insufficient for the
subsidiary to expand its scope of operations.
Nevertheless, the Group remained focus on the rapid development in China’s financial and direct investments.
The Group will continue to commit a substantial amount of resources in its major subsidiaries to enhance their
ability to implement the strategies. As mentioned, it has become apparent that the revenue from current
operations would be insufficient in generating the income needed for these plans. Therefore it would be
prudent to invite strategic investors who share the Group’s view in its expansion plans. They would not only
strengthen the profile of the Group, but also provide the necessary capital to achieve that goal. Meanwhile the
processes to achieve the goals are ongoing. Once these goals have been realized, they would be able to add
value to the shareholders as well as the Group’s reputation and business as a prominent local investment house.
BUSINESS REVIEW AND LOOKING FORWARDBrokerage
In the year 2001 the value of transactions of the Group’s brokerage subsidiary decreased 60% from last year.
The fragile local economy continued to experience deflation and the investors’ confidence haven’t been fully
restored due to pressure in earnings on major property companies and banks. The terrorist attack on 11th
September 2001 in New York City has a profound global impact on the economy as well as all major equity
markets. Furthermore, Hong Kong faces stiff competition from China as China enters the World Trade Organization.
A substantial amount of capital investment is anticipated to be diverted to major cities such as Shanghai and
Beijing. The combined effects of all of the above have caused a decrease in the turnover of the market.
As for the Group, AMS/3 has been fully implemented and transition was smooth. The clients of the Group are
now able to access directly to the exchange via the Internet Trading system or our experienced Account
Executives. The goal for the brokerage’s future remains to be on the increase in accessibility and efficiency of
different markets through Internet (including China), and on the service enhancements to our customers.
Corporate Finance
Mansion House International Limited has continued to provide advisory ser vices to our clients in Hong Kong and
PRC region, on a retainer and success fee basis. Throughout the year, we have been actively pursuing investment
management business in China by engaging strategic alliance with several renowned financial institutions of
different regions. In addition, we have entered the Business Cooperation Agreement with Chongqing International
Trust & Investment Corporation of Chongqing Municipal for establishing sino-foreign joint venture on investment
management services, and for establishing Investment Company in Hong Kong. For Shanghai, we have been
discussing with renowned Securities Company for forming strategic alliance to capture the enormous capital
market opportunities therein. Mansion House International Limited shall continue to endeavor its best effort to
strengthen its presence in China in view of the high yet stable return in the long run.
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CHAIRMAN’S STATEMENT
Asset Management
Our subsidiary, Mansion House Investment Management Services Limited, is actively pursuing business cooperation
opportunities with our different partners in the fund management area apart from managing the existing Hong
Kong authorized unit trust. One such initiative is the discretionary asset management service offered to our high
net-worth clients. Our goal for the fund management subsidiary is to develop a strong fund management
company with our partners so that we will be well positioned when China officially opens the door for equity
fund management.
Real Estate
Phase Five of the property project in Guangzhou was completed and the sales were satisfactory. Preliminary
work on the final phase (Phase Six) has commenced and that building and construction should begin shortly
after proposed designs have be finalized.
PROSPECT FOR 2002
After the downturn followed the September 11th attack, the United States Congress have signed one of the
biggest aid/relief/war packages to help the victims as well as to pay for the military campaign that followed
shortly after the attack. These packages have essentially jump-started the economy and created spending
through an injection of funds into the economy. Under such a low interest rate environment the United States
economy should be on its pace for recovery. As for China, more foreign investment will flow to China and the
need for companies to further raise capital will increase. In addition, the proposed QDII and QFII scheme
currently under consideration by the China Securities Regulatory Commission (CSRC) would further enhance
trading for both Hong Kong and China exchanges.
However, the property sector will continue to be sluggish due to an abundance of supply in the market. The
potential homebuyers remain skeptical about the value of real estate as an investment. Salary cuts and the
threat of unemployment have made flat purchases via mortgage even slower. The prudent decision of the Chief
Executive to postpone the abolishment of minimum commission for brokerage houses has given more time for
the industry to consolidate and encourage mergers. However, it is anticipated that the minimum commission
scheme will finally be abolished and that a period initially where pressure to lower commissions will decrease the
revenue of the brokerage subsidiary.
Therefore, in 2002 our focus remains intact: our cooperation with various institutions on different business
ventures in China. The Company will seek to further develop these connections with each of the Group’s major
subsidiary so that the full potential of the Group can be realized.
ACKNOWLEDGEMENT
On behalf of the Board, I would like to thank our staff for their hard work and dedication to the Group for this
past year, which was a very difficult year indeed. We would continue to improve and work hard as an appreciation
for our shareholders and customers.
By Order of the Board
Evans C Lowe
Chairman and Chief Executive Officer
Hong Kong, 25th April 2002
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BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
EXECUTIVE DIRECTORS
Evans C Lowe – Chairman and Chief Executive Officer
Mr Lowe, aged 68, is the founder of the Mansion House Group, and has been involved in the securities industry
in North America and Hong Kong for over 39 years. He directed the public listing of the Group in 1987. Under
the leadership of Mr Lowe, the Group has become a prominent brokerage house in Hong Kong.
Irene W Y So – Executive Director
Ms So, aged 51, is the head of the Group’s Hong Kong equities broking operations, takes an active role in sales
and is a dealing director of the stockbroking subsidiary of the Group, Mansion House Securities (F.E.) Limited.
She has 28 years experience in the securities industry and as a founding member of the Mansion House team,
she is pivotal in promoting the Group’s standing in the stockbroking community in Hong Kong. She serves as a
member of the Supervisory Committee of The Chinese Gold and Silver Exchange Society in Hong Kong.
Philip T Y Poon – Executive Director
Mr Poon, aged 62, is responsible for Group’s activities in China which currently include real estate developments.
After a successful career with Bank of America and Richardson Securities of Canada, he became a founding
member of the Mansion House team, bringing many years of experience in financial services and banking to the
Group.
Eric C Lowe – Executive Director
Mr Lowe, aged 36, joined the Group in 1990 after completing his Bachelor of Science degree at the University
of San Francisco. He is currently a director of State Street Mansion House Investment Management Services
Limited, Mansion House Investment Management Services Limited, Mansion House Global Advisors Limited and
MHS Futures Limited. His main responsibility is the development of the Group’s asset management and futures
activities. Mr Eric C Lowe is the elder son of the Chairman, Mr Evans C Lowe.
Nelson H F Chan – Executive Director
Mr. Chan, aged 53, is the managing director of Mansion House International Limited, which involves in the
strategic planning/management and corporate finance area for the Group. Besides identifying and evaluating
different business opportunities, he is also leading his team to plan and manage varieties of strategic and
investment projects. Mr. Chan has over 29 years’ experience in listed corporations and the investment banking
industry. He had been instrumental in various major transactions such as acquisition of Ka Wah Bank by CITIC,
establishing the network of ING Bank in PRC and set up the ING Beijing Fund which was listed in Hong Kong.
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BIOGRAPHICAL DETAILS OF DIRECTORS AND SENIOR MANAGEMENT
David K C Lung – Executive Director
Mr Lung, aged 63, was appointed director in January 1991. He has been an entrepreneur since 1979 as founder
of two commercial operations in Hong Kong. He is also a recognized expert in geomancy.
NON-EXECUTIVE DIRECTOR
Mart Bakal
Mr. Bakal, aged 51, was appointed director in 2001. He has been an entrepreneurial investment banker and
equity investor skilled in managing complex business issues with broad U.S. and international expertise. In 1991,
he founded Crimson Capital Corporation which is an international investment banking and consulting firm
specializing in emerging markets. Under his Chairmanship, the firm has since advised many government
organizations and over 600 companies. Mr. Bakal was a Partner at Drexel Burnham Lambert and a Senior V ice
President at Bear Stearns in New York. He has been on the Faculty of the Harvard Graduate School of Business.
INDEPENDENT NON-EXECUTIVE DIRECTORS
Alan G Thompson
Mr. Thompson, aged 74, was appointed director in 1986, and has been a director of the Group since its public
listing. He was formerly the chairman of the Vancouver Stock Exchange and Investment Dealer’s Association of
Canada, and has been a senior executive of a number of major Canadian investment dealers. Mr. Thompson
currently resides in Vancouver, Canada and is a director of a number of listed companies in Canada.
Henry H W Lai
Mr. Lai, aged 45, was appointed an independent non-executive director of the Company in June, 2001. He is a
partner of Messrs, P.C. Woo & Co., a firm of solicitors and notaries in Hong Kong, and has been practising in the
legal field for more than twenty years. Graduated from the University of Hong Kong with a Bachelor of Law
degree, Mr. Lai was admitted as a solicitor in Hong Kong, England and Wales and the State of Victoria,
Australia. Mr. Lai is a Notary Public in Hong Kong. He also serves on the boards of other listed companies as an
independent non-executive director.
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MANAGEMENT DISCUSSION AND ANALYSIS
REVIEW OF OPERATION AND RESULTS
In 2001, the Group recorded a consolidated value of transaction of HK$5,483 million (2000: HK$13,666 million)
representing a decrease of 60%. Loss before taxation was HK$53,645 million compared to HK$102,109 million
in 2000. The net loss per share was HK cents 15.14 for the year compared to HK cents 28.93 in 2000.
The consolidated turnover of the Group for the year was down at HK$57,173,508, compared to HK$89,922,287
in the previous year.
After extraordinary items the Group reported a loss of HK$56,490,153 as compared to a loss of HK$102,129,386
after extraordinary items in the previous year.
The net loss can be attributed primarily due to the significant decline in the brokerage revenue and the increase
in the amount of cost of the sale of Phase Five of Wanhua Garden Project.
LIQUIDITY AND FINANCIAL RESOURCESThe Group has principally financed itself from funds on operations and banking facilities provided by its principal
bankers. Such banking facilities are secured by listed securities.
As at 31 December 2001, the total shareholders’s equity of the Group was HK$3.8 million compared to HK$59.7
million in 2000.
The Group’s short term bank loans and overdrafts are primarily obtained from domestic banks. In 2001, the
Group repaid short term bank loans of HK$606,036 .
CAPITAL STRUCTUREDuring the year 2001, no movement of share capital was noted. The Company will increase its authorized share
capital from HK$90 million to HK$400 million by the creation of 1,550 million additional shares at HK$0.20
each for future capital injection from mainly the new investor, China United Telecom Limited, and Mr. Evans C
Lowe.
The total cash proceeds of HK$30 million received from the new investor will be used for the repayment of
those unsecured loans and the provision of the necessary working capital to achieve the Group’s goals.
EMPLOYEESAs at 31 December 2001, the Group employed 58 staff including 32 registered staff. Remuneration is reviewed
annually and a discretionary bonus is declared on the performance of the staff. Also, a new share option scheme
will be adopted by the Group to the directors and employees.
GEARING RATIOIn 2001, the Group’s gearing ratio was 989% as compared with 125% in 2000. The increase in the gearing ratio
was due to the significant decrease in the revenue earned which had dampen impact on the shareholders’
equity. The gearing ratio is calculated by dividing the total of bank borrowing, finance lease and hire purchase
by shareholders’ equity.
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MANAGEMENT DISCUSSION AND ANALYSIS
EXPOSURES TO FLUCTUATIONS IN EXCHANGE RATES AND MARKET PRICESThe Group is exposed to foreign cur rency risk as a result of its foreign cur rency denominated clients’ segregated
funds by its subsidiary, to a limited extent, cash and cash equivalents denominated in foreign currencies. The
Group had no foreign currency hedging activity in 2001.
The Group is exposed to market risk of the securities shares as a result of its stock borrowing arrangement made
with a third party during the year. The Group has utilized the shares which are pledged to banks to obtain
banking facilities.
CONTINGENT LIABILITIES
As at the balance sheet date, the Company has given guarantees to banks in respect of banking facilities
granted by the banks to subsidiaries to the extent of HK$80,000,000 (2000: HK$20,000,000).
During the year, one of the Group’s subsidiary entered into an agreement with Seastar Properties Limited. The
agreement stated that if the subsidiary fails to complete the real estate projects or sells its interest in the real
estate project, the subsidiary has to pay liquidated damages of HK$6 million (2000: HK$Nil) to Seastar Properties
Limited.
BANK LOANS AND OVERDRAFTS AND CHARGE ON GROUP’S ASSETS
As at 31st December 2001, the Group’s bank loans and overdrafts amounted to HK$37,545,340 (2000:
HK$73,135,156), are secured by:
Clients’ securities with a total market value of approximately HK$31,308,223 (2000: Clients and the Group’s
securities of HK$162,797,661) were pledged to banks to secure loans and overdraft facilities granted to the
Group.
The Group’s leasehold properties have been pledged in favour of a bank to secure a loan granted to the Group
to the extent of HK$5,000,000 and interest (2000: HK$5,000,000 and interest).
Certain portion of the property held for development has been mortgaged to a bank in The People’s Republic of
China for loans granted to a subsidiary in the amount of HK$28,380,000 (2000: HK$12,605,042).
OTHER MATTERSLooking forward to Year 2002, the directors believe that it will be another difficult year for the Group. They
foresee that the cash flow from operation cannot generate sufficient working capital purposes and to meet the
repayments of loans and other liabilities as they fall due.
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MANAGEMENT DISCUSSION AND ANALYSIS
Thus, the Group has invited a strategic investor, China United Telecom Limited, who share the Group’s view in its
expansion plans. China United Telecom Limited, will not only strengthen the profile of the Group, but also
provide the necessary capital to achieve that goal. On 20th April 2002, the Group had entered into a loan
agreement with China United Telecom Limited of total HK$20 million being lent to the Group. It is intended that
the loan will be repaid from the proceeds of the subscription with China United Telecom Limited who will hold
about 50.5% of the enlarged issue share capital of the Company in future. All these arrangements are subject
to certain limitations set forth in the annual report.
The Group firmly believes that these arrangements would enable the Group to continue as a going concern and
meets it working capital and financing requirements for the foreseeable time. And the new investor would be
able to add value to the shareholders as well as the Group’s reputation and business as a prominent local
investment house.
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REPORT OF THE DIRECTORS
The directors present their annual report together with the audited financial statements for the year ended 31st
December, 2001.
PRINCIPAL ACTIVITIESThe principal activities of the Group are securities, futures, bullion and share trading, underwriting, fund
management, share margin financing and property development.
SUBSIDIARIES
Particulars of the subsidiaries of the Company are set out in note 16 on the financial statements.
ASSOCIATES
Particulars of the associates of the Company and the Group are set out in note 17 on the financial statements.
ACCOUNTS
The results of the Group for the year ended 31st December, 2001 and the state of affairs of the Group and of
the Company at that date are set out in the financial statements on pages 17 to 65.
DIVIDENDS
The directors do not recommend the payment of a dividend for the year ended 31st December, 2001.
MAJOR CUSTOMERS
The five largest customers of the Group accounted for less than 30% of the Group’s turnover of the year.
None of the above five largest customers holds more than a 5% equity interest in the Company.
Save as disclosed above, neither the directors, their associates, nor those shareholders which to the knowledge
of the directors own more than 5% of the Company’s share capital had any interest in the five largest customers.
FIXED ASSETS
During the year, the Group acquired fixed assets of approximately HK$1.4 million which comprised mainly
computers and leasehold improvements.
Details of the movements of fixed assets during the year are set out in note 15 on the financial statements.
BORROWINGS AND INTEREST CAPITALISED
Details of the Group’s bank borrowings are set out in note 26 on the financial statements. No interest was
capitalised by the Group during the year.
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REPORT OF THE DIRECTORS
PROVIDENT FUNDThe Group has established a defined contribution scheme for its employees. The assets of the scheme are held
separately from those of the Group in an independently administered fund.
DIRECTORS
The directors during the year and up to the date of this report were:
Executive directors
Mr. Evans Carrera Lowe (Chairman and Chief Executive Officer)
Ms. Irene Wai Yin So
Mr. Philip Tai Yip Poon
Mr. Eric Carrera Lowe
Mr. Nelson Hing Fung Chan
Mr. David King Chuen Lung
Mr. Danny Tak Tim Chan (Resigned on 4th September, 2001)
Non-executive director
Mr. Mart Bakal (Appointed on 14th August, 2001)
Independent non-executive directors
Mr. Alan George Thompson
Mr. Henry Hin Wing Lai (Appointed on 8th June, 2001)
Messrs. Evans Carrera Lowe and Philip Tai Yip Poon, retire by rotation pursuant to article 103 of the Company’s
articles of association and, being eligible, offer themselves for re-election.
Messrs. Mart Bakal and Henry Hin Wing Lai, retire pursuant to article 94 of the Company’s articles of association
and being eligible, offer themselves for re-election.
Mr. Alan George Thompson, the independent non-executive director, was re-appointed for a two-year term
expiring on 31st December, 2002 upon the expiration of his appointment on 31st December, 2000. Mr. Henry
Hin Wing Lai was appointed as an independent non-executive director on 8th June, 2001 for a one-year term
expiring on 7th June, 2002.
SHARE CAPITAL
Movements of employee share options and share capital of the Company during the year are set out in note 30
on the financial statements.
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REPORT OF THE DIRECTORS
RESERVES
Movements in the reserves of the Company and the Group during the year are set out in note 31 on the
financial statements.
DISTRIBUTABLE RESERVESAt 31st December, 2001, the Company did not have any reserves available for cash distribution. However, the
Company’s share premium account may be distributed in the form of fully-paid bonus shares.
GROUP FINANCIAL SUMMARYResults, assets and liabilities of the Group for the last five years are summarised on page 66 to 67.
INTEREST IN CONTRACTSNo contracts of significance to which the Company or its subsidiaries were a party and in which a director of the
Company had a material interest subsisted at the end of the year or at any time during the year.
As disclosed in note 2(a) on the financial statements, Mr. Evans Carrera Lowe, a major shareholder and director
of the Company, is one of the parties to the Subscription Agreement which constitutes a connected transaction
subsequent to the balance sheet date.
DIRECTORS’ INTEREST IN THE SHARE CAPITAL OF THE COMPANY AND ITS SUBSIDIARIESAs at 31st December, 2001, the interests of the directors and chief executive of the Company in the share
capital of the Company and its associated corporations, within the meaning of the Securities (Disclosure of
Interests) Ordinance (“SDI Ordinance”), as recorded in the register required to be kept under section 29(1) of
the SDI Ordinance were as follows:
Number of ordinary shares held
Personal Corporate
Name of director interests interests Total
Mr. Evans Carrera Lowe 28,643,027 64,205,947* 92,848,974
Ms. Irene Wai Yin So 8,809,567 – 8,809,567
Mr. Philip Tai Yip Poon 3,608,163 – 3,608,163
Mr. Eric Carrera Lowe 156,218 – 156,218
Mr. Alan George Thompson 698,779 – 698,779
* These shares are held through Global Source Company Limited, Supreme Grass Limited and Lowe Holdings
Company Limited Inc., all of which are companies beneficially owned by Mr. Evans Carrera Lowe.
Save as disclosed above and other than certain nominee shares in the subsidiaries held by Messrs. Evans Carrera
Lowe, Philip Tai Yip Poon and Ms. Irene Wai Yin So in trust for the Company, the directors, chief executive or
any of their associates did not have other interests in any shares of the Company or any of its associated
corporations as defined under the SDI Ordinance as at 31st December, 2001.
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REPORT OF THE DIRECTORS
SUBSTANTIAL SHAREHOLDERS’ INTERESTSAs at 31st December, 2001, the register of substantial shareholders maintained under section 16(1) of the SDI
Ordinance shows that, other than the interest disclosed above in respect of Mr. Evans Carrera Lowe, the
Company has not been notified of any other interests representing 10% or more of the Company’s issued share
capital.
DIRECTORS’ INTEREST IN COMPETING BUSINESSESPursuant to paragraph 8.10 of the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock
Exchange of Hong Kong Limited (the “Stock Exchange”), the Company discloses that during the year and up to
the date of this report, no directors held interests and/or directorships in companies engaged in similar business
as the Group in Hong Kong and The People’s Republic of China.
ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES
Details of the share options granted to directors which remained outstanding at 31st December, 2001 are as
follows:
Number
of shares Subscription
Date issuable price per share
of options under (subject to Options
Name of director granted Options adjustment) exercise period
HK$
Mr. Eric Carrera Lowe 18/06/1997 100,000 1.22 18/06/1998 to 17/06/2002
13/01/1999 200,000 0.49 13/07/2001 to 12/07/2004
Mr. Philip Tai Yip Poon 13/01/1999 300,000 0.49 13/07/1999 to 12/07/2004
13/01/1999 300,000 0.49 13/07/2001 to 12/07/2004
Mr. Evans Carrera Lowe 13/01/1999 1,700,000 0.49 13/07/1999 to 12/07/2004
13/01/1999 1,700,000 0.49 13/07/2001 to 12/07/2004
Ms. Irene Wai Yin So 13/01/1999 1,000,000 0.49 13/07/1999 to 12/07/2004
13/01/1999 1,000,000 0.49 13/07/2001 to 12/07/2004
Mr. Nelson Hing Fung Chan 01/03/2001 1,000,000 0.38 01/09/2001 to 31/08/2006
7,300,000
During the year, there are no share options exercised by the directors. The 300,000 share options held by Mr.
Danny Tak T im Chan lapsed during the year upon his resignation as a director of the Company.
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REPORT OF THE DIRECTORS
ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES (continued)The directors consider it inappropriate to value the options granted as the market price of the Company’s shares
as at 31st December, 2001 was below the subscription prices in respect of all the options granted. Any valuation
based on assumption would not be meaningful.
Except for the above, at no time during the year was the Company or its subsidiaries a party to any arrangements
in which the directors or chief executive or their spouses or children under 18 years of age were granted any
right or options to subscribe for shares or debentures in the Company or its associated corporations.
BIOGRAPHICAL DETAILS OF DIRECTORS
Brief biographical details in respect of the directors of the Company are set out on pages 5 to 6.
MANAGEMENT CONTRACTS
None of the directors has a service contract with the Company or any of its subsidiaries which does not expire or
is not determinable by the Company within one year without payment of compensation (other than statutory
compensation).
PURCHASE, SALE OR REDEMPTION OF SHARES
During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the listed
securities of the Company.
CODE OF BEST PRACTICE
A non-executive director of the Company was not appointed for a specific term but is subject to retirement by
rotation in a specific period in accordance with the Company’s Articles of Association. Save as disclosed above,
the Company has complied with the Code of Best Practice as set out in Appendix 14 of the Listing Rules on the
Stock Exchange throughout the year covered by the annual report.
DISCLOSURE PURSUANT TO PRACTICE NOTE 19 OF THE LISTING RULESAs at 31st December, 2001, the Group recorded an amount after provision of HK$4,862,089, HK$2,841,961
and HK$5,105,534 due from Dynamic Assets Limited, Pharmatech Management Limited and Noblesse Ventures
Inc., which constituted approximately 127.59%, 74.58% and 133.98% of the Group’s consolidated net assets
at 31st December, 2001. The amounts due result from share margin loans. The amounts due are partly secured
and interest is charged at 1% over Hong Kong prime rate.
As disclosed in note 2(a) on the financial statements, Mr. Evans Carrera Lowe, a major shareholder of the
Company, has made an equitable charge and a deposit of 92,848,974 ordinary shares beneficially owned by him
subsequent to the balance sheet date.
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REPORT OF THE DIRECTORS
AUDIT COMMITTEEThe Stock Exchange has revised its Code of Best Practice (Appendix 14 to the Listing Rules) to require every
listed company to establish an Audit Committee with written terms of reference dealing clearly with its authority
and duties. The Company has set up its Audit Committee on 18th September, 1998 with written terms of
reference in accordance with the requirements of the Stock Exchange and such committee comprises of two
independent non-executive directors of the Company, Mr. Alan George Thompson and Mr. Henry Hin Wing Lai
and a non-executive director of the Company, Mr. Mart Bakal. The Audit Committee acts in an advisory capacity
and makes recommendations to the board. The Audit Committee met in late-April, 2002 to review the Group’s
2001 final results before they were tabled to the Board for approval.
AUDITORS
Messrs. Li, Tang, Chen & Co. retire, and being eligible, offer themselves for re-appointment.
On behalf of the Board
Evans Carrera Lowe
Chairman
Hong Kong, 25th April, 2002
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REPORT OF THE AUDITORS
TO THE SHAREHOLDERS OF
MANSION HOUSE GROUP LIMITED(incorporated in Hong Kong with limited liability)
We have audited the financial statements on pages 17 to 65 which have been prepared in accordance withaccounting principles generally accepted in Hong Kong.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Companies Ordinance requires the directors to prepare financial statements which give a true and fair view.In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting
policies are selected and applied consistently.
It is our responsibility to form an independent opinion, based on our audit, on those statements and to reportour opinion to you.
BASIS OF OPINIONWe conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society
of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of the significant estimates and judgments
made by the directors in the preparation of the financial statements, and of whether the accounting policies areappropriate to the Company’s and the Group’s circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether thefinancial statements are free from material misstatement. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements. We believe that our audit provides areasonable basis for our opinion.
Fundamental uncertainty: going concernIn forming our opinion, we have considered the adequacy of the disclosures made in the financial statements
concerning the adoption of the going concern basis for the preparation of the financial statements. As explainedin note 2(a) on the financial statements, the financial statements have been prepared on a going concern basis,
the validity of which is dependent on the successful outcome of the proposed capital injection into the Group bya new investor and an existing major shareholder of the Group and the agreement with its major creditors to
extend the repayment dates of certain loans and accounts payable and the successful conclusion of variousinitiatives to secure new sources of funding. The financial statements do not include any adjustments that would
result from the failure to achieve the aforementioned. We consider that appropriate disclosures have been madeand our opinion is not qualified in this respect.
OPINIONIn our opinion the financial statements give a true and fair view of the state of the affairs of the Company and
the Group as at 31st December, 2001 and of the Group’s loss and cash flows for the year then ended and havebeen properly prepared in accordance with the Companies Ordinance.
Li, Tang, Chen & Co.
Certified Public Accountants
Hong Kong, 25th April, 2002
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CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31st December, 2001
2001 2000
Note HK$ HK$
Value of transactions 5(a) 5,482,703,213 13,665,877,463
Turnover 5(b) 57,173,508 89,922,287
Cost of sales (25,597,995) (16,073,146)
Gross profit 31,575,513 73,849,141
Amortization and estimated irrecoverable
amount on real estate project costs written back 4,697,017 –
Gain on disposal of interest in associates – 4,407,084
Amount due from an associate written back/(written off) 468,000 (468,000)
Other revenues 5(c) 2,286,924 3,470,152
Administrative expenses (45,791,483) (57,612,275)
Other operating expenses (5,672,450) (14,947,941)
Impairment loss on investment securities (920,773) (51,429,227)
Shortfall of insurance claim relating to litigation settled
in 2001 including legal costs (6,758,110) (7,600,000)
Provision for doubtful loans and bad debts (21,259,501) (38,454,424)
Loss from operations 6 (41,374,863) (88,785,490)
Finance costs 7 (11,490,465) (13,269,141)
Share of losses of associates (779,212) (55,061)
Loss before taxation (53,644,540) (102,109,692)
Taxation 11(a) (2,437,381) (19,694)
Loss after taxation (56,081,921) (102,129,386)
Minority interest (408,232) –
Loss attributable to shareholders (56,490,153) (102,129,386)
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CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31st December, 2001
2001 2000
Note HK$ HK$
Loss attributable to shareholders retained by:
Company and subsidiaries (55,710,941) (102,074,682)
Associates (779,212) (54,704)
(56,490,153) (102,129,386)
Dividends – –
Basic loss per share 13(a) (15.14 cents) (28.93 cents)
The notes on pages 26 to 65 form an integral part of these financial statements.
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CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSESFor the year ended 31st December, 2001
2001 2000
Note HK$ HK$
Exchange differences on translation of the
financial statements of foreign entities 31 916,902 4,082,407
(Deficit)/surplus on the revaluation of trading rights
in the Hong Kong Futures Exchange Limited and
The Stock Exchange of Hong Kong Limited 31 (350,000) 8,850,000
Gains not recognised in the consolidated
profit and loss account 566,902 12,932,407
Loss for the year attributable to shareholders (56,490,153) (102,129,386)
Total recognised losses (55,923,251) (89,196,979)
The notes on pages 26 to 65 form an integral part of these financial statements.
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CONSOLIDATED BALANCE SHEETAs at 31st December, 2001
2001 2000
Note HK$ HK$
NON-CURRENT ASSETS
Fixed assets 15(a) 12,136,253 13,535,053
Interest in associates 17 695,664 1,107,010
Investment securities 4(i)(i) & 18 51,500 1,011,889
Other assets 20 13,615,773 14,140,773
26,499,190 29,794,725------------------ ------------------
CURRENT ASSETS
Property held for development 21 108,532,849 97,734,332
Loans receivable 19 & 36(a) 4,500,000 13,408,775
Accounts receivable 22 40,962,755 101,602,788
Debtors and prepayments 3,412,511 3,406,239
Trading securities 4(i)(ii) & 23 – 1,276,934
Taxation recoverable 11(c) 429,742 2,095,884
Cash and cash equivalents 24 100,582,513 94,072,147
258,420,370 313,597,099------------------ ------------------
CURRENT LIABILITIES
Bank loans and overdrafts 26 33,839,503 68,729,405
Amount due to directors 25 2,702,014 990,000
Accounts payable 27 136,862,333 95,530,884
Loans payable 28
– Directors 5,717,611 –
– Others 65,670,131 78,907,248
Sundry creditors and accruals 30,498,416 33,772,422
Current portion of obligation under finance lease 29 134,841 1,187,223
Taxation payable 1,375,809 –
276,800,658 279,117,182------------------ ------------------
NET CURRENT (LIABILITIES)/ASSETS (18,380,288) 34,479,917------------------ ------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 8,118,902 64,274,642------------------ ------------------
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CONSOLIDATED BALANCE SHEETAs at 31st December, 2001
2001 2000
Note HK$ HK$
NON-CURRENT LIABILITIES
Bank loans 26 3,705,837 4,405,751
Obligation under finance lease 29 – 134,841
3,705,837 4,540,592------------------ ------------------
MINORITY INTEREST 602,266 –------------------ ------------------
NET ASSETS 3,810,799 59,734,050
CAPITAL AND RESERVES
Share capital 30 74,633,896 74,633,896
Reserves 31 (70,823,097) (14,899,846)
3,810,799 59,734,050
The financial statements on pages 17 to 65 were approved and authorised for issue by the board of directors on
25th April, 2002.
Evans Carrera Lowe Irene Wai Yin So
Director Director
The notes on pages 26 to 65 form an integral part of these financial statements.
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BALANCE SHEETAs at 31st December, 2001
2001 2000
Note HK$ HK$
NON-CURRENT ASSETS
Fixed assets 15(b) 2,806,017 3,855,807
Interest in subsidiaries 16 107,782,550 88,307,051
Interest in associates 17 800,688 702,210
Investment securities 4(i)(i) & 18 – 920,773
Other assets 20 2,035,000 2,035,000
113,424,255 95,820,841------------------ ------------------
CURRENT ASSETS
Debtors and prepayments 716,145 913,642
Trading securities 4(i)(ii) & 23 – 1,145,634
Cash and cash equivalents 24 475,277 336,620
1,191,422 2,395,896------------------ ------------------
CURRENT LIABILITIES
Bank loans and overdrafts 26 5,838,288 5,761,708
Amount due to directors 25 2,702,014 990,000
Obligation under finance lease 29 – 886,396
Accounts payable 27 34,110,415 –
Loans payable 28
– Directors 5,717,611 –
– Others 65,670,131 78,907,248
Sundry creditors and accruals 9,908,733 8,685,307
123,947,192 95,230,659------------------ ------------------
NET CURRENT LIABILITIES (122,755,770) (92,834,763)------------------ ------------------
NET (LIABILITIES)/ASSETS (9,331,515) 2,986,078
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BALANCE SHEETAs at 31st December, 2001
2001 2000
Note HK$ HK$
CAPITAL AND RESERVES
Share capital 30 74,633,896 74,633,896
Reserves 31 (83,965,411) (71,647,818)
(9,331,515) 2,986,078
The financial statements on pages 17 to 65 were approved and authorised for issue by the board of directors on
25th April, 2002.
Evans Carrera Lowe Irene Wai Yin So
Director Director
The notes on pages 26 to 65 form an integral part of these financial statements.
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CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31st December, 2001
2001 2000
Note HK$ HK$
NET CASH INFLOW/(OUTFLOW) FROM OPERATING
ACTIVITIES 35(a) 54,613,310 (63,562,364)------------------ ------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (11,395,032) (13,104,083)Interest element of finance lease rental payments (95,433) (165,058 )
Interest received 280,538 602,797Dividends received from investment securities 29,569 65,961
Dividend paid to minority shareholder of a subsidiary – (722,647 )
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE (11,180,358) (13,323,030)------------------ ------------------
TAXATION
Hong Kong profits tax paid (100,686) (772,617 )The People’s Republic of China tax paid (576,433) (3,211,652)
Hong Kong profits tax refunded 1,288,579 –
NET TAX REFUNDED/(PAID) 611,460 (3,984,269)------------------ ------------------
INVESTING ACTIVITIES
Purchase of fixed assets (1,437,562) (3,797,903)
Refund/(payment) of deposits with the stockand futures exchanges 175,000 (175,000 )
Proceeds from disposal of fixed assets 178,820 560
Repayment from loans receivable – 8,015,658Advance from/(repayment to) an associate 100,134 (1,072,813)
Advance to an associate – (468,000 )Proceeds from disposal of interest in associates – 2,328,953
Purchase of investment securities – (50,000)Proceeds from disposal of investment securities 32,567 6,295,424
NET CASH (OUTFLOW)/INFLOW FROM
INVESTING ACTIVITIES (951,041) 11,076,879------------------ ------------------
NET CASH INFLOW/(OUTFLOW) BEFORE
FINANCING CARRIED FORWARD 43,093,371 (69,792,784)------------------ ------------------
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CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31st December, 2001
2001 2000
Note HK$ HK$
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING
BROUGHT FORWARD 43,093,371 (69,792,784)------------------ ------------------
FINANCING
Proceeds on issue of share capital – 11,035,452Cash contribution by a minority shareholder 35(b) 194,034 –
Capital element of finance lease rental payments 35(b) (1,187,223) (1,117,742)Bank loan obtained 35(b) – 5,000,000
Repayment of bank loans 35(b) (606,036) (1,893,486)
NET CASH (OUTFLOW)/INFLOW FROM FINANCING (1,599,225) 13,024,224------------------ ------------------
INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS 41,494,146 (56,768,560)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR 25,724,974 82,493,534
CASH AND CASH EQUIVALENTS AT ENDOF THE YEAR 67,219,120 25,724,974
ANALYSIS OF BALANCES OF CASHAND CASH EQUIVALENTS
Deposits with financial institutions 93,027,067 82,337,579
Cash and bank balances 7,555,446 11,734,568Bank loans and overdrafts 35(d) (33,363,393) (68,347,173)
67,219,120 25,724,974
The notes on pages 26 to 65 form an integral part of these financial statements.
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NOTES ON THE FINANCIAL STATEMENTS
1. CORPORATE INFORMATIONThe nature of operations of the Group and its principal activities have not changed during the year and
consisted of securities, futures, bullion and share trading, underwriting, fund management, share margin
financing and property development.
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
(a) During the year the Group and the Company incurred a loss of HK$56,490,153 and HK$12,317,593
respectively at 31st December, 2001 and its current liabilities exceeded its current assets by
HK$18,380,288 and HK$122,755,770 respectively.
The directors believe that 2002 will be another difficult year for the Group. They foresee that the
cash flow from operations may not be sufficient for working capital purposes and to meet the
repayments of loans and other liabilities as they fall due.
Notwithstanding this, the directors have prepared the financial statements on a going concern basis,
having regard to the following:
(i) On 20th April, 2002, the Company had entered into a loan agreement with a new investor
which has agreed to lend to the Company a sum of HK$20 million of which HK$15 million
was advanced to the Company on that date. The remaining balance of HK$5 million will be
advanced to the Company, if necessary, upon receipt by the new investor of a drawdown
notice served by the Company. The loan will be secured by an equitable charge and a deposit
of 92,848,974 ordinary shares beneficially owned by Mr. Evans Carrera Lowe (“Mr. Lowe”), an
existing major shareholder of the Company, with the Company’s solicitors. Interest is charged
at prime lending rate in Hong Kong plus 1% per annum and payable in arrears on 31st July,
2002 or on completion of the Subscription Agreement, whichever is the later, or such other
date as may be agreed between the Company and the new investor. It is intended that the
loan will be repaid from the proceeds of the subscription as detailed in (ii) below.
The Company has entered into a deed of indemnity and undertaking with Mr. Lowe pursuant
to which, subject to the approval of the shareholders at an extraordinary general meeting,
should the 92,848,974 ordinary shares deposited with the Company’s solicitors as security for
the loan be released by the Company’s solicitors to the new investor as a result of an event of
default of the loan, the Company will (subject to shareholders’ consent) issue and allot the
same number of ordinary shares to Mr. Lowe.
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NOTES ON THE FINANCIAL STATEMENTS
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)(ii) Also on 20th April, 2002, the Company had entered into a Subscription Agreement with the
new investor and Mr. Lowe pursuant to which the Company has agreed to allot and issue to
the new investor to subscribe for 148,125,000 ordinary shares at par value of HK$0.20 per
share. Pursuant to the subscription, three bonus ordinary share’s will be issued with every
subscription ordinary share. Mr. Lowe will exchange the shareholder’s loan of approximately
HK$9.9 million due from the Company for new subscription ordinary shares on the same
terms. Upon completion, the new investor will hold 592,500,000 ordinary shares, representing
50.5% of the enlarged issued share capital of the Company. Mr. Lowe, including his existing
shareholding, will hold 290,348,974 ordinary shares, representing approximately 24.8% of
the enlarged issued share capital of the Company.
The effective subscription price of the shares to be issued under the Subscription Agreement is
HK$0.05 which is ar rived at after arms length negotiations between the Company, the new
investor and Mr. Lowe.
The Subscription Agreement is conditional upon, among others,
(i) The approval by the shareholders at an extraordinary general meeting of (i) the
Subscription Agreement; (ii) the issue of subscription ordinary shares (iii) the issue of
bonus ordinary shares; and (iv) any other transactions contemplated under the
Subscription Agreement that require shareholders’ approval under the Listing Rules of
The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) or the Takeovers
Code;
(ii) The Stock Exchange granting or agreeing to grant approval for the listing and a permission
to deal in the subscription ordinary shares and the bonus ordinary shares;
(iii) The Securities and Futures Commission granting the new investor, Mr. Lowe and parties
acting in concert with them a waiver from any obligation under Rule 26 of the Takeovers
Code to make a mandatory general offer for all the shares not already owned by the
new investor, Mr. Lowe and their respective concert parties. The new investor has stated
that it will not waive this condition;
(iv) The written consent or approval of any applicable governmental or regulatory body to
the completion of transaction contemplated by the Subscription Agreement required as
a result of any members of the Group being registered pursuant to the provisions of any
Ordinance in Hong Kong; and
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NOTES ON THE FINANCIAL STATEMENTS
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)(v) The approval by the shareholders at an extraordinary general meeting of an increase in
the authorised share capital of the Company from HK$90 million to HK$400 million by
the creation of 1,550 million additional new ordinary shares of par value of HK$0.20
each and the adoption of a new Articles of Association of the Company.
In the event that any of the above conditions are not satisfied or waived on or before 31st
July, 2002 or such later date as may be agreed in writing between the parties to the Subscription
Agreement, the Subscription Agreement shall cease and none of the parties thereto shall have
any obligations or liabilities under the Subscription Agreement, save for any antecedent breaches
of the terms of the Subscription Agreement.
It is also intended that the new investor be granted a two-year option by the Company to
subscribe in cash for up to 150,000,000 new ordinary shares and Mr. Lowe will be granted a
similar option over 50,000,000 new ordinary shares. The exercise price will be at par value of
HK$0.20 per share. As no bonus ordinary shares will be issued with any ordinary shares to be
issued under such options, the option price of HK$0.20 compares with an effective issue price
under the Subscription Agreement of HK$0.05.
As Mr. Lowe is one of the parties to the Subscription Agreement, the Subscription Agreement
constitutes a connected transaction of the Company and is subject to the approval of the
shareholders at an extraordinary general meeting.
(iii) Included in year-end loans and accounts payable at 31st December, 2001, the Group had third
party unsecured loans payable of HK$65,670,131 and accounts payable of HK$34,110,415
currently under negotiation for renewal of the repayment dates of some of the amounts that
were due subsequent to the balance sheet date. The directors are confident that the Group’s
creditors will agree to extend the repayment dates and continue to grant adequate facilities to
the Group for the foreseeable future.
The directors are confident that these various initiatives will be successful and will enable the Group
to continue as a going concern and meets its working capital and financing requirements for the
foreseeable future. On this basis, the directors consider that it is appropriate to prepare the financial
statements on a going concern basis. The financial statements however do not include any
adjustments, for example to reclassify non-current assets as current assets, non-current liabilities as
current liabilities, reduce the value of all assets to their recoverable amounts and provide for any
future liabilities which might arise, that would result if these initiatives are not successful or
insufficient.
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NOTES ON THE FINANCIAL STATEMENTS
2. BASIS OF PREPARATION OF FINANCIAL STATEMENTS (continued)(b) These financial statements have been prepared in accordance with Hong Kong Statements of Standard
Accounting Practice and accounting principles generally accepted in Hong Kong. They have been
prepared under the historical cost convention, modified with respect to the measurement of
investment securities and certain other assets.
3. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICEIn the current year, the Group has adopted, for the first time, the following revised and new Statements of
Standard Accounting Practice (“SSAPs”) issued by the Hong Kong Society of Accountants:
SSAP 9 (Revised) Events after the balance sheet date
SSAP 10 (Revised) Accounting for investments in associates
SSAP 14 (Revised) Leases
SSAP 17 (Revised) Property, plant and equipment
SSAP 26 Segment reporting
SSAP 28 Provisions, contingent liabilities and contingent assets
SSAP 29 Intangible assets
SSAP 31 Impairment of assets
SSAP 32 Consolidated financial statements and accounting for investment in subsidiaries
These revised and new SSAPs have introduced additional and revised disclosure requirements which have
been adopted in these financial statements. Comparative disclosures for the prior year have been restated
in order to achieve a consistent presentation.
In addition, the adoption of these new and revised SSAPs has resulted in the following changes to the
Group’s accounting policies that have affected the amounts reported for the current or prior periods.
Leases
Disclosures for all of the Group’s and the Company’s leasing arrangements have been modified so as to
comply with the requirements of SSAP 14 (Revised) “Leases”. Comparative amounts have been restated in
order to achieve a consistent presentation.
Impairment
At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication that those assets have suffered an impairment loss. If the
recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of
the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately,
unless the relevant asset is carried at a revalued amount under another SSAP, in which case the impairment
loss is treated as a revaluation decrease under that SSAP.
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NOTES ON THE FINANCIAL STATEMENTS
3. ADOPTION OF STATEMENTS OF STANDARD ACCOUNTING PRACTICE (continued)Impairment (continued)
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset
in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant
asset is carried at a revalued amount under another SSAP, in which case the reversal of the impairment
loss is treated as a revaluation increase under that SSAP.
4. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of consolidation:
The Group financial statements incorporate the financial statements of Mansion House Group Limited
and all its subsidiaries made up to 31st December, 2001 and include the Group’s share of the post-
acquisition results of associates.
(b) Subsidiaries:
A subsidiary is a company in which the Group has a long-term equity interest of more than 50% of
the issued capital held. Investments in subsidiaries are stated at cost less any identified impairment
loss.
(c) Associates:
An associate is a company, not being a subsidiary or a jointly controlled entity, in which the Group
has a long term interest of not less than 20% of the equity voting rights and over which it is in a
position to exercise significant influence.
The Group’s share of the post-acquisition results of associates is included in the consolidated profit
and loss account. The Group’s investments in associates are stated in the consolidated balance sheet
at the Group’s share of net assets/(liabilities) under the equity method of accounting less any
identified impairment loss.
The results of associates are included in the Company’s profit and loss account to the extent of
dividends received. The investments in associates in the Company’s balance sheet are stated at cost
less any identified impairment loss.
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NOTES ON THE FINANCIAL STATEMENTS
4. PRINCIPAL ACCOUNTING POLICIES (continued)(d) Property held for development:
Property held for development intended for sale is classified under current assets and stated at the
lower of cost and net realisable value. Cost includes land cost, development expenditure, professional
fees, financing and other expenses incurred incidental to the development. Net realisable value is
determined by reference to professional valuations or directors’ estimates based on prevailing market
conditions.
(e) Goodwill on consolidation:
Goodwill arising on consolidation represents the excess of the cost of the acquisition over the
Group’s share of the fair value of the identifiable assets and liabilities acquired. In respect of
subsidiaries:
(i) For acquisitions before 1st January, 2001, positive goodwill is eliminated against reserves.
(ii) For acquisitions on or after 1st January, 2001, positive goodwill is amortised to the consolidated
profit and loss account on a straight-line basis over its estimated useful life. Positive goodwill
is stated in consolidated balance sheet at cost less any accumulated amortisation and any
impairment losses.
(iii) On disposal of a subsidiary, any attributable amount of purchased goodwill not previously
amortised through the consolidated profit and loss account or which has previously been
dealt with as a movement on group reserves is included in the calculation of the profit or loss
on disposal.
(f) Real estate project costs:
Real estate project costs are amortised according to the stage of completion of the property. Real
estate project costs relating to property held for development is included in the consolidated balance
sheet under “property held for development” net of amortisation to date and any write off for
anticipated irrecoverable amounts.
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NOTES ON THE FINANCIAL STATEMENTS
4. PRINCIPAL ACCOUNTING POLICIES (continued)(g) Depreciation on fixed assets:
Depreciation is calculated to write off the cost of fixed assets over their estimated useful lives on a
straight line basis at the following rates:
Leasehold properties 2% per annum
Motor vehicles 20% per annum
Computers 20% per annum
Office equipment and furnitures 20% – 33 1/3% per annum
Leasehold improvements 20% – 33 1/3% per annum
(h) Assets held under leases:
(i) Finance leases:
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group
other than legal title, are accounted for as finance leases. At the inception of a finance lease,
the cost of the asset is capitalised at the present value of the minimum lease payments and
recorded together with the obligation, excluding the interest element, to reflect the purchase
and financing. Assets held under capitalised finance leases are included in fixed assets and
depreciated over the estimated useful lives of the assets. The finance costs of such leases are
charged to the profit and loss account so as to produce a constant periodic rate of charge
over the lease term.
(ii) Operating leases:
Leases where substantially all the rewards and risks of ownership of assets, other than legal
title, remain with the leasing company are accounted for as operating leases. Rentals applicable
to such operating leases are charged to the profit and loss account on a straight line basis
over the lease term.
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4. PRINCIPAL ACCOUNTING POLICIES (continued)(i) Investments:
(i) Investment securities:
Investment securities comprised of listed and unlisted equity securities are stated at cost less
any identified impairment loss.
The carrying amounts of individual investments are reviewed at each balance sheet date to
assess whether the fair values have declined below the carrying amounts. When a decline
other than temporary has occurred, the carrying amount of such securities will be reduced to
its fair value. The amount of the reduction is recognised as an expense in the profit and loss
account.
(ii) Trading securities:
Trading securities comprised of listed equity securities are carried at fair value. At each balance
sheet date, the net unrealised gains or losses arising from the changes in fair value of trading
securities are recognised in the profit and loss account. Profits or losses on disposal of trading
securities representing the difference between the net sales proceeds and the carrying amounts,
are recognised in the profit and loss account as they arise.
(j) Deferred taxation:
Deferred taxation is calculated under the liability method in respect of the taxation effect arising
from all timing differences which are expected with reasonable probability to crystallise in the
foreseeable future.
(k) Translation of foreign currencies:
(i) Foreign currency transactions during the year are translated into Hong Kong dollars at the
applicable rates of exchange ruling on the transaction dates. Monetary assets and liabilities
denominated in foreign currencies are translated into Hong Kong dollars at the applicable
market rates of exchange ruling at the balance sheet date. Differences on foreign currency
translation are dealt with in the profit and loss account.
(ii) For the purposes of consolidating the financial statements of foreign subsidiaries, their assets
and liabilities and revenue items are translated at the closing exchange rates. The exchange
differences arising on consolidation are dealt with through the exchange fluctuation reserve.
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4. PRINCIPAL ACCOUNTING POLICIES (continued)
(l) Revenue recognition:
(i) Brokerage and commission income recognised in the financial statements represents brokerage
income accrued on all broking transactions traded on or before 31st December.
(ii) Net realised profit on securities trading is recognised upon execution of a sale/purchase trading
order.
(iii) Interest income is recognised on a time proportion basis.
(iv) Dividend income is recognised when the shareholders’ right to receive payment has been
established.
(v) Management, handling and consultancy fees are recognised at the time when the services are
rendered.
(vi) Gain on disposal of interest in associates is recognised when the sales contract become
unconditional.
(vii) When properties are developed for sale, revenue is recognised on the execution of a purchase
and sales agreement or when the relevant occupation permit is issued by the relevant building
authority, whichever is the later.
(viii) Amortization and estimated irrecoverable amount on real estate project costs written back is
recognised on the excess of amortization made in prior years upon revised estimation made at
the balance sheet date.
(m) Capitalisation of borrowing costs:
Borrowing costs directly attributable to property held for development, i.e. asset that necessarily
takes a substantial period of time to get ready for its intended sale, are capitalised as part of the
cost of the asset. Capitalisation of such borrowing costs ceases when the asset is substantially ready
for its intended sale. The capitalisation rate is based on the interest rate applicable to specific
borrowings.
(n) Provident fund:
The Group maintains a defined contribution scheme for its employees, the assets of which are held
separately from those of the Group in an independently administered fund. Contributions for each
year are based on a percentage of the eligible employees’ salaries and are charged to the profit and
loss account as they become payable.
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4. PRINCIPAL ACCOUNTING POLICIES (continued)(o) Related parties:
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party, or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or common
significant influence. Related parties may be individuals or entities.
(p) Cash equivalents:
Cash equivalents are short-term, highly liquid investments which are readily convertible into known
amounts of cash without notice and which were within three months of maturity when acquired.
For the purpose of the cash flow statement, cash equivalents would also include advances from
banks repayable within three months from the date of the advance.
(q) Segment reporting:
A segment is a distinguishable component of the Group that is engaged either in providing products
or services (business segment), or in providing products or services within a particular economic
environment (geographical segment), which is subject to risks and rewards that are different from
those of other segments.
In accordance with the Group’s internal financial reporting, the Group has chosen geographical
segment information as the primary reporting format.
Segment revenue, expenses, results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis to that segment. For example,
segment assets may include property under development, accounts receivable and property, plant
and equipment. Segment revenue, expenses, assets, and liabilities are determined before intra-
group balances and intra-group transactions are eliminated as part of the consolidation process,
except to the extent that such intra-group balances and transactions are between group enterprises
within a single segment. Inter- segment pricing is based on similar terms as those available to other
external parties.
Segment capital expenditure is the total cost incurred during the period to acquire segment assets
(both tangible and intangible) that are expected to be used for more than one period.
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5. VALUE OF TRANSACTIONS/TURNOVER AND REVENUE(a) Value of transactions represents the aggregate gross value of transactions in equities and foreign
exchange.
(b) Turnover for the year amounted to HK$57,173,508 (2000: HK$89,922,287) comprising mainly of
net commissions and brokerage, underwriting commission, dividends and interest earned, management
and handling fees received and consultancy fees income, net realised profit on securities trading and
gross proceeds from sales of properties.
(c) The Group’s turnover and revenues for the year arose from the following activities:
2001 2000
HK$ HK$
Brokerage and commission income 13,235,638 32,441,663
Dividend income from investment securities 29,569 65,961
Interest income 4,467,921 12,584,484
Management and handling fees received 528,449 674,764
Consultancy fee income 647,198 –
Net realised profit on securities trading 294,098 27,970,723
Gross proceeds from sales of properties 37,970,635 16,184,692
Turnover 57,173,508 89,922,287------------------ ------------------
Provision for bad debts written back 167,604 17,760
Exchange gain 143,990 554,794
Sundry income 1,975,330 2,897,598
Other revenues 2,286,924 3,470,152------------------ ------------------
Total revenues for the year 59,460,432 93,392,439
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6. LOSS FROM OPERATIONSLoss from operations is arrived at after charging the following:
2001 2000
HK$ HK$
Staff costs 24,684,305 33,622,204
Operating lease rentals
– land and buildings 3,814,429 1,188,791
Amortization and write off of estimated
irrecoverable amount on real estate
project costs – 11,855,781
Depreciation
– owned fixed assets 2,024,047 1,748,158
– leased fixed assets 217,536 477,473
Unrealised loss on trading securities – 588,257
Consultancy fees 1,674,767 1,214,259
Auditors’ remuneration 644,591 523,470
Loss on disposal and write off of fixed assets 419,841 59,907
7. FINANCE COSTS
2001 2000
HK$ HK$
Interest on bank loans, overdrafts and other
loans repayable within five years 11,395,032 13,104,083
Interest on obligation under finance lease 95,433 165,058
11,490,465 13,269,141
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8. DIRECTORS’ EMOLUMENTS2001 2000
HK$ HK$
Fees
– executive 120,000 109,945
– non-executive 155,333 40,000
Basic salaries, housing allowances, other allowances
and benefits in kind 6,414,834 7,406,768
Provident fund contributions 56,181 –
Discretionary bonuses and/or performance-related bonuses 300,000 –
Compensation for loss of office – –
Inducement for joining the Group – –
7,046,348 7,556,713
None of the director waived or agreed to waive his emolument in respect of the year ended 31st
December, 2001 and 2000.
The emoluments of the directors fell within the following bands:
Number of directors
HK$ 2001 2000
Nil – 1,000,000 7 5
1,000,001 – 1,500,000 1 1
1,500,001 – 2,000,000 2 1
2,000,001 – 2,500,000 – 1
10 8
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9. MANAGEMENT EMOLUMENTSOf the Group’s five highest paid individuals, all (2000: four) are directors whose remuneration has been
disclosed in note 8. The aggregate of the emoluments in respect of the other one individual in 2000 is as
follows:
2001 2000
HK$ HK$
Basic salaries, housing allowances, other
allowances and benefits in kind – 627,750
Provident fund contribution – –
Discretionary bonuses and/or
performance-related bonus – –
Compensation for loss of office – –
Inducement for joining the group – –
– 627,750
10. PROVIDENT FUND
The net contribution charged to the profit and loss account for 2001 was HK$260,718 (2000: HK$223,162).
Any forfeited employer contributions in respect of employees who leave the scheme prior to such
contributions vesting fully will be used by the Group to reduce contributions. The forfeited contributions
utilised by the Group in 2001 amounted to HK$266,346 (2000: HK$469,518).
11. TAXATION
(a) Taxation in the consolidated profit and loss account represents:
2001 2000
HK$ HK$
Hong Kong profits tax
– current year – (1,966)
– over/(under)provision in respect of prior years 44,987 (17,371)
Tax in The People’s Republic of China (2,482,368) –
Share of tax on results of associates – (357)
(2,437,381) (19,694)
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11. TAXATION (continued)No provision for Hong Kong profits tax has been made in the financial statements as the Group
incurred a loss for the year (2000: 16% on estimated assessable profits).
Tax in The People’s Republic of China represents enterprise income tax which is provided on profits
from operations deemed to arise in The People’s Republic of China at 33% (2000: 33%).
(b) The potential tax benefits of the Group of HK$31,999,035 (2000: HK$24,262,004) and of the
Company of HK$13,234,245 (2000: HK$9,857,795) arising from the losses carried forward as at the
balance sheet date have not been recognised in these financial statements.
Other than the above, there was no other significant amount of unprovided deferred taxation in
respect of the Group and the Company at the balance sheet date.
(c) Taxation recoverable represents the excess of provisional profits tax paid over the estimated tax
liabilities.
12. LOSS ATTRIBUTABLE TO SHAREHOLDERS
Of the loss attributable to shareholders, HK$12,317,593 (2000: HK$119,275,347) has been dealt with in
the financial statements of the Company.
13. LOSS PER SHARE
(a) Basic loss per share:
The calculation of basic loss per share is based on the loss after taxation and minority interest of
HK$56,490,153 (2000: HK$102,129,386) and the weighted average number of 373,169,481 (2000:
353,023,743) shares in issue during the year.
(b) Diluted loss per share:
Diluted loss per share is not presented as the effect of dilution, on the assumption that all outstanding
share options were to be exercised, is insignificant.
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14. SEGMENT REPORTINGThe Group comprises the following major geographical segment:
The People’s Inter-segment
Hong Kong SAR Republic of China elimination Consolidated
2001 2000 2001 2000 2001 2000 2001 2000
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
External segment revenue 19,202,873 73,737,595 37,970,635 16,184,692 – – 57,173,508 89,922,287
Segment result (20,365,161 ) 4,483,052 7,460,682 4,683,109 – – (12,904,479 ) 9,166,161
Unallocated operating income
and expenses (28,470,384 ) (97,951,651 )
Loss fr om operations (41,374,863 ) (88,785,490 )
Finance costs (11,490,465 ) (13,269,141 )
Share of losses of associates (779,212 ) (55,061 )
Taxation (2,437,381 ) (19,694 )
Minority interest (408,232 ) –
Loss attributable to shar eholders (56,490,153 ) (102,129,386 )
Depreciation for the year 2,153,606 2,050,513 87,977 175,118 2,241,583 2,225,631
Amortisation and estimated
ir recoverable amount on
real estate project costs
(written back)/written off – – (4,697,017 ) 11,855,781 (4,697,017 ) 11,855,781
Segment assets 149,950,612 229,018,952 138,103,574 119,484,917 (3,134,626 ) (5,112,045 ) 284,919,560 343,391,824
Total assets 284,919,560 343,391,824
Segment liabilities 241,337,357 251,597,638 42,303,764 37,172,181 (3,134,626 ) (5,112,045 ) 280,506,495 283,657,774
Total liabilities 280,506,495 283,657,774
Capital expenditures incurred
during the year 1,437,562 5,530,816 – – 1,437,562 5,530,816
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15. FIXED ASSETS(a) The Group
Leasehold Office
properties held equipment Leasehold
in Hong Kong Motor vehicles Computers and furnitures improvements Total
HK$ HK$ HK$ HK$ HK$ HK$
Cost
At 31st December, 2000 7,491,505 2,779,091 6,099,898 4,878,296 1,686,926 22,935,716
Additions – – 456,260 167,589 813,713 1,437,562
Disposals – (4,484 ) (168,843) (423,697) (863,748) (1,460,772)
Exchange adjustments – 10,126 – 2,860 7 12,993
At 31st December, 2001 7,491,505 2,784,733 6,387,315 4,625,048 1,636,898 22,925,499----- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Accumulated depreciation
At 31st December, 2000 885,275 1,778,132 1,623,109 3,619,496 1,494,651 9,400,663
Charge for the year 149,830 305,513 1,200,153 397,910 188,177 2,241,583
Amount written back – – (34,994) (204,630) (622,487) (862,111)
Exchange adjustments – 6,244 – 2,860 7 9,111
At 31st December, 2001 1,035,105 2,089,889 2,788,268 3,815,636 1,060,348 10,789,246----- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Net book value
At 31st December, 2001 6,456,400 694,844 3,599,047 809,412 576,550 12,136,253
At 31st December, 2000 6,606,230 1,000,959 4,476,789 1,258,800 192,275 13,535,053
At 31st December, 2001, the aggregate net book value of the Group’s fixed assets held under
finance leases amounted to HK$543,841 (2000: HK$2,234,353).
The leasehold properties held in Hong Kong are deemed to be held under medium-term leases.
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15. FIXED ASSETS (continued)(b) The Company
Office
equipment Leasehold
Motor vehicles Computers and furnitures improvements Total
HK$ HK$ HK$ HK$ HK$
Cost
At 31st December, 2000 922,348 5,053,566 2,205,070 42,600 8,223,584
Additions – – 33,726 14,250 47,976
Disposals – (154,075) (9,030) – (163,105)
At 31st December, 2001 922,348 4,899,491 2,229,766 56,850 8,108,455-------------- -------------- -------------- -------------- --------------
Accumulated depreciation
At 31st December, 2000 922,348 1,255,202 2,161,513 28,714 4,367,777
Charge for the year – 929,575 28,297 10,420 968,292
Amount written back – (30,815) (2,816) – (33,631)
At 31st December, 2001 922,348 2,153,962 2,186,994 39,134 5,302,438-------------- -------------- -------------- -------------- --------------
Net book value
At 31st December, 2001 – 2,745,529 42,772 17,716 2,806,017
At 31st December, 2000 – 3,798,364 43,557 13,886 3,855,807
At 31st December, 2001, the aggregate net book value of the Company’s fixed assets held under
finance leases amounted to HK$Nil (2000: HK$1,472,976).
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16. INTEREST IN SUBSIDIARIES2001 2000
HK$ HK$
Unlisted shares, at cost 42,008,843 42,008,843
Amounts due from subsidiaries 167,636,224 161,685,705
209,645,067 203,694,548
Impairment loss (86,408,002) (75,556,461)
123,237,065 128,138,087
Amounts due to subsidiaries (15,454,515) (39,831,036)
107,782,550 88,307,051
Amounts due from/(to) subsidiaries are unsecured and have no fixed terms for repayment. Certain amounts
bear interest at commercial lending rates.
Details of the subsidiaries are as follows:
% of shareholding held
Place of at 31st December, 2001
incorporation Issued/registered By the By the Class of
Name of company and operation and paid up capital Group Company shares held Principal activities
Mansion House Securities (F.E.) Hong Kong 30,000,000 shares 100 100 Ordinary Securities broking and
Limited of HK$1 each margin financing
Mansion House Investment Hong Kong 1,000,000 shares 100 100 Ordinary Unit trust management
Management Services Limited of HK$1 each
Mansion House Securities Bahamas 1,000 shares of 100 100 Ordinary Inter national investment
(Overseas) Limited B$1 each projects
Mansion House (Nominees) Hong Kong 2 shares of HK$1 each 100 100 Ordinary Nominee services and
Limited investment holding
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16. INTEREST IN SUBSIDIARIES (continued)% of shareholding held
Place of at 31st December, 2001
incorporation Issued/registered By the By the Class of
Name of company and operation and paid up capital Group Company shares held Principal activities
*Mansion House Bullion Hong Kong Nil 100 100 N/A Bullion dealer
Company
Mansion House International Hong Kong 5,000,000 shares 100 100 Ordinary Provision of investment
Limited of HK$1 each consultancy and
corporate
advisory services
MHS Futures Limited Hong Kong 6,000,000 shares 100 100 Ordinary Commodities and
of HK$1 each financial futures
broking
Mansion House Bullion Hong Kong 2 shares of HK$1 each 100 100 Ordinary Dormant
Company Limited
Mansion House Global Advisors Hong Kong 2 shares of HK$1 each 100 100 Ordinary Provision of investment
Limited consultancy services
Mansion House Real Estate Hong Kong 2 shares of HK$1 each 100 100 Ordinary Provision of property
Limited agency services and
real estate investment
Mansion House Capital Limited Hong Kong 1,000 shares of 100 100 Ordinary Dormant
HK$1 each
Mansion House (China) Limited Hong Kong 2 shares of HK$1 each 100 100 Ordinary Dormant
Double Deal Limited Hong Kong 2 shares of HK$1 each 100 100 Ordinary Property investment
Guangdong Wanhua Real Estate The People’s RMB77,893,400 92 – N/A Property development
Development Company Limited Republic of
China
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16. INTEREST IN SUBSIDIARIES (continued)% of shareholding held
Place of at 31st December, 2001
incorporation Issued/registered By the By the Class of
Name of company and operation and paid up capital Group Company shares held Principal activities
Mansion House (U.S.A.) LLC United States US$30,000 100 – N/A Dormant
of America
Petaluma Management Limited British Vir gin 1 share of US$1 each 100 100 N/A Securities investment
Islands
Winica Consultants Limited Hong Kong 2 shares of HK$1 each 100 100 Ordinary Dormant
E-House Limited Hong Kong 2 shares of HK$1 each 100 – Ordinary Dormant
Global Firm Holdings Limited British Vir gin 1 share of US$1 each 100 – N/A Investment holding
Islands
MH Topgoal Financial Advisory Macau MOP500,000 60 – Ordinary Dormant
Limited
* Wholly-owned unincorporated business registered in Hong Kong.
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17. INTEREST IN ASSOCIATESThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Unlisted shares, at cost – – 2,468,000 2,000,000
Impairment loss – – (1,159,991) (890,603)
– – 1,308,009 1,109,397
Share of net assets other
than goodwill 1,202,985 1,514,197 – –
1,202,985 1,514,197 1,308,009 1,109,397
Amount due to an associate (507,321) (407,187) (507,321) (407,187)
695,664 1,107,010 800,688 702,210
Amount due to an associate is unsecured and has no fixed terms for repayment. Interest is charged at
commercial lending rate.
Particulars of the associates are as follows:
% of shareholding held
Place of at 31st December, 2001
incorporation Attributable Owned Owned by Class of
Name of company and operation to the Group directly subsidiary shares held Principal activities
Goctic Mansion House Investment Hong Kong 50 50 – Ordinary Provision of investment
Management Limited advisory services
State Str eet Mansion House Hong Kong 50 50 – Ordinary Dormant
Investment Management
Services Limited
The Group’s share of the post-acquisition losses of the associates at the balance sheet date was
HK$1,265,015 (2000: HK$485,803).
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18. INVESTMENT SECURITIESThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Unlisted equity investments,
at cost 52,401,500 52,401,500 52,350,000 52,350,000
Impairment loss (52,350,000) (51,429,227) (52,350,000) (51,429,227)
51,500 972,273 – 920,773--------------- --------------- --------------- ---------------
Listed equity investments in
Hong Kong, at cost – 39,616 – –--------------- --------------- --------------- ---------------
51,500 1,011,889 – 920,773
Market value of listed equity
investments – 33,701 – –
19. LOANS RECEIVABLE
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Loans receivable 85,408,775 85,408,775 – –
Less: Provision for doubtful loans (80,908,775) (72,000,000) – –
4,500,000 13,408,775 – –
The loans which were rescheduled in 1999 are partially secured and bear interest at prime rate plus 1%
and are repayable by 14 equal installments payable semi-annually with the last installment due in May,
2006. The loans were in default since 2000 and the Group is in the process of demanding the loans.
Therefore, the loans are classified as current assets.
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20. OTHER ASSETS(i) Other assets comprise statutory deposits and directors’ valuation of trading rights in respect of
securities and commodities dealings and are held for long term purposes. The trading rights in the
futures and stock exchanges and the memberships of gold and silver exchanges of the Group have
been revalued by the directors by reference to market values at 31st December, 2001 at a total
valuation HK$10,553,773 (2000: HK$10,903,773). The deficit on revaluation of HK$350,000 during
the year has been debited (2000: surplus on revaluation of HK$8,850,000 credited) to assets
revaluation reserve.
(ii) The carrying amount of the trading rights and membership stated in (i) above that would have been
included in the financial statements had the revalued intangible assets been car ried under the
benchmark treatment as required by SSAP 29 “Intangible Assets” is HK$6,571 (2000: HK$7,059).
Such assets have been revalued annually by the alternative method in accordance with SSAP 29 and
therefore no amortisation is required.
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21. PROPERTY HELD FOR DEVELOPMENTParticulars of the property held for development at the balance sheet date are as follows:
Total Percentage of
original Gross sale- interest
site area able floor attributable Stage of Estimated date
Location sq.m. Use area sq.m. to the Group completion of completion
Lot Nos. 15 and 19 Xin Kong Road 68,445 Residential and 365 92% Completed N/A
South, Xi Jiao Village, Haizhu commercial
District, Guangzhou, Guangdong complex
Province, The People’s Republic for remaining
of China. portion of
Phase 1
Residential, 2,134 92% Completed N/A
commercial and
carport complex for
remaining portion
of Phase 2
Remaining portion 3,268 92% Completed N/A
of Phase 3
Remaining portion 1,849 92% Completed N/A
of Phase 4
Phase 5 22,138 92% Completed N/A
Phase 6 42,013 92% Site clearance N/A
completed
An independent valuation of the property held for development and intended for sale, made on 24th
April, 2002 by S. H. Ng & Co., Ltd., a chartered surveyor, on open market basis as at 31st December, 2001
amounts to HK$119,100,000 (2000: HK$115,000,000 as at 31st March, 2001)
The property held for development is held under medium-term lease for the commercial complex and
long-term lease for residential units.
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22. ACCOUNTS RECEIVABLEThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Brokers and dealers:
– Hong Kong 882,975 11,861,757 – –
– Foreign 305,072 246,304 – –
Clients 21,217,143 89,494,727 – –
Others 18,557,565 – – –
40,962,755 101,602,788 – –
The aged analysis of accounts receivable is as follows:
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Less than one month 25,922,002 22,823,011 – –
Over one month but less
than three months 1,718,722 33,816,497 – –
Over three months 13,322,031 44,963,280 – –
40,962,755 101,602,788 – –
The settlement terms of accounts receivable arising from the ordinary course of business of dealing in
securities are two days after trade date, and accounts receivable arising from the ordinary course of
business of dealing in futures contracts are one day after trade date.
Included in accounts receivable-clients are loans to share margin clients which are secured by clients’
pledged securities, repayable on demand and bear interest at commercial rates.
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23. TRADING SECURITIESThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Equity securities listed in
– Hong Kong – 763,492 – 632,192
– Overseas – 513,442 – 513,442
– 1,276,934 – 1,145,634
Market value – 1,276,934 – 1,145,634
24. CASH AND CASH EQUIVALENTS
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Deposits with financial institutions 93,027,067 82,337,579 – –
Cash and bank balances 7,555,446 11,734,568 475,277 336,620
100,582,513 94,072,147 475,277 336,620
Deposits with financial institutions at the balance sheet date included HK$90,510,644 (2000:
HK$78,828,953) which were specifically designated as clients’ segregated funds by its subsidiaries.
25. AMOUNT DUE TO DIRECTORSThis represents interest free advances which are unsecured and have no fixed terms of repayment.
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26. BANK LOANS AND OVERDRAFTSThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Bank loans 26,896,593 18,730,435 – –
Bank overdrafts 10,648,747 54,404,721 5,838,288 5,761,708
37,545,340 73,135,156 5,838,288 5,761,708
Portion due within one year
classified as current liabilities (33,839,503) (68,729,405) (5,838,288) (5,761,708)
Long term portion 3,705,837 4,405,751 – –
The long term portion of
bank loans are repayable
within a period of:
More than one year but
not exceeding two years 634,813 560,223 – –
More than two years but
not exceeding five years 1,904,439 1,847,470 – –
More than five years 1,166,585 1,998,058 – –
3,705,837 4,405,751 – –
Clients’ securities with a total market value of approximately HK$31,308,223 (2000: Client’s and the
Group’s securities of HK$162,797,661) at the balance sheet date were pledged to banks to secure loans
and overdraft facilities granted to the Group.
The Group’s leasehold properties have been pledged in favour of a bank to secure a loan granted to the
Group to the extent of HK$5,000,000 and interest (2000: HK$5,000,000 and interest).
Certain portion of the property held for development has been mortgaged to a bank in The People’s
Republic of China for loans granted to a subsidiary in the amount of HK$28,380,000 (2000:
HK$12,605,042).
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NOTES ON THE FINANCIAL STATEMENTS
27. ACCOUNTS PAYABLEThe Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Brokers and dealers:
– Hong Kong 295,600 8,705,549 – –
– Foreign 2,464 1,234,709 – –
Clients 130,758,558 84,854,921 – –
Amounts due to directors for
transactions in securities 1,887,055 735,705 – –
Others 3,918,656 – 34,110,415 –
136,862,333 95,530,884 34,110,415 –
Clients payable are unsecured and bear interest at rates ranging from approximately 0.1% to 3.9% per
annum.
The aged analysis of accounts payable is as follows:
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Less than one month 126,984,733 9,752,593 3,276,295 –
Over one month but less than
three months 166,336 78,802,621 30,663,300 –
Over three months 9,711,264 6,975,670 170,820 –
136,862,333 95,530,884 34,110,415 –
28. LOANS PAYABLE
Loans payable which are unsecured, bear interest at rates ranging from approximately 3% to 12% per
annum and are repayable within one month from the balance sheet date. These loans were either repaid
or roll-overed subsequent to the balance sheet date. Total third party and directors’ loans payable amounts
to approximately HK$50 million and HK$11.8 million respectively at the date the financial statements
were approved and authorised for issue by the board of directors.
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29. OBLIGATION UNDER FINANCE LEASECommitments under finance lease at the balance sheet date were as follows:
The Gr oup The Company
Present value Present valueMinimum of minimum Minimum of minimum
lease payments lease payments lease payments lease payments2001 2000 2001 2000 2001 2000 2001 2000
HK$ HK$ HK$ HK$ HK$ HK$ HK$ HK$
Amounts payable within one year 138,361 1,282,656 134,841 1,187,223 – 950,580 – 886,396Amounts payable in the second
to fifth years inclusive – 138,361 – 134,841 – – – –
Total minimum lease payments 138,361 1,421,017 134,841 1,322,064 – 950,580 – 886,396
Future finance charges (3,520) (98,953 ) – – – (64,184) – –
Present value of minimumlease payments 134,841 1,322,064 134,841 1,322,064 – 886,396 – 886,396
Current portion of obligationunder finance lease (134,841 ) (1,187,223 ) – (886,396 )
Long-term portion of obligation
under finance lease – 134,841 – –
It is the Group’s policy to lease certain of its motor vehicles and computers under finance leases. The
average lease term is 3 years. The average effective borrowing rate is 11.8%. Interest rates are fixed at thecontract date. All leases are on a fixed repayment basis and no arrangements have been entered into for
contingent rental payments.
30. SHARE CAPITAL2001 2000
HK$ HK$
(a) Authorised
450,000,000 ordinary shares of HK$0.20 each 90,000,000 90,000,000
(b) Issued and fully paid
373,169,481 ordinary shares of HK$0.20 each 74,633,896 74,633,896
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30. SHARE CAPITAL (continued)(c) Employee share option scheme
Under the Group’s employee share option scheme, the directors may grant options to any eligible
employees of the Group including directors of the Company and its subsidiaries to subscribe for
shares in the Company.
During the year, the movement in the number of options outstanding under the aforesaid share
option scheme was as follows:
Number of shares granted
under the share option scheme
Balance as at 31st December, 2000 8,650,000
Granted during the year 3,000,000
Cancelled during the year (2,270,000)
Balance as at 31st December, 2001 9,380,000
At 31st December, 2001, details of the outstanding share options granted are as follows:
Subscription price
Share options per share
Option exercise period granted (subject to adjustment) Granted to
HK$
18.06.1998 to 17.06.2002 100,000 1.22 A Director
18.06.1998 to 17.06.2002 100,000 1.22 An Employee
13.07.2001 to 12.07.2004 3,200,000 0.49 Directors
13.07.1999 to 12.07.2004 3,000,000 0.49 Directors
11.07.2001 to 10.07.2004 460,000 0.49 Employees
11.07.1999 to 10.07.2004 20,000 0.49 An Employee
01.09.2001 to 31.08.2006 1,500,000 0.38 An Employee
01.09.2001 to 31.08.2006 1,000,000 0.38 A Director
9,380,000
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31. RESERVESThe Group The Company
2001 2000 2001 2000HK$ HK$ HK$ HK$
Share premium account:Balance brought forward 117,521,960 65,598,508 117,521,960 65,598,508Premium on issue of shares – 51,923,452 – 51,923,452
Balance carried forward 117,521,960 117,521,960 117,521,960 117,521,960--------------- --------------- --------------- ---------------
Capital redemption reserve:Balance brought forward and
carried forward 1,035,200 1,035,200 1,035,200 1,035,200--------------- --------------- --------------- ---------------
Accumulated deficit:Balance brought forward (143,766,189) (41,636,803) (190,204,978) (70,929,631)Loss for the year (56,490,153) (102,129,386) (12,317,593) (119,275,347)
Balance carried forward (200,256,342) (143,766,189) (202,522,571) (190,204,978)--------------- --------------- --------------- ---------------
Assets revaluation reserve:Balance brought forward 8,850,000 13,999,997 – –Release upon disposal of shares on
the Hong Kong Exchanges andClearing Limited – (13,999,997) – –
(Deficit)/surplus on revaluation oftrading rights in the Hong KongFutures Exchange Limited andThe Stock Exchange of HongKong Limited (350,000) 8,850,000 – –
Balance carried forward 8,500,000 8,850,000 – –--------------- --------------- --------------- ---------------
Exchange fluctuation reserve:Balance brought forward 1,459,183 (2,623,224) – –Exchange differences arising from
translation of the financialstatements of overseassubsidiaries 916,902 4,082,407 – –
Balance carried forward 2,376,085 1,459,183 – –--------------- --------------- --------------- ---------------
Total reserves (70,823,097) (14,899,846) (83,965,411) (71,647,818)
Losses accumulated in:Company and subsidiaries (198,991,327) (143,280,386)Associates (1,265,015) (485,803)
(200,256,342) (143,766,189)
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NOTES ON THE FINANCIAL STATEMENTS
32. CONTINGENT LIABILITIES(a) As at the balance sheet date, the Company has given guarantees to banks in respect of banking
facilities granted by the banks to subsidiaries to the extent of HK$80,000,000 (2000: HK$20,000,000).
(b) During the year, one of the Group’s subsidiary entered into an agreement with Seastar Properties
Limited (“Seastar”), the project consultant for the real estate development in The People’s Republic
of China, which requires that in the event the subsidiary fails to complete the real estate project or
sells its interest in the real estate project, the subsidiary has to pay liquidated damages of
HK$6,000,000 (2000: HK$Nil) to Seastar.
33. OPERATING LEASE COMMITMENTS
The Group leases certain of its office properties under operating lease arrangements. Leases for properties
are negotiated for terms of approximately two years.
As at the balance sheet date, the total commitments for minimum lease payments under non-cancellable
operating leases in respect of land and buildings which fall due are as follows:
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Within one year 3,633,409 3,665,987 542,169 533,943
In the second to fifth year inclusive 2,525,533 5,856,774 406,628 948,798
6,158,942 9,522,761 948,797 1,482,741
34. CAPITAL COMMITMENTS
The Group The Company
2001 2000 2001 2000
HK$ HK$ HK$ HK$
Capital expenditures
contracted but not provided
for in the financial statements – 45,790 – –
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35. NOTES TO THE CASH FLOW STATEMENT(a) Reconciliation of loss before taxation to net cash inflow/(outflow) from operating activities
2001 2000
HK$ HK$
Loss before taxation (53,644,540) (102,109,692)
Gain on disposal of interest in associates – (4,407,084)
Amortisation and estimated irrecoverable amount
on real estate project cost written back (4,697,017) –
Impairment loss on investment securities 920,773 51,429,227
Amount due from an associate (written back)/written off (468,000) 468,000
Provision for shortfall of insurance claim relating
to litigation settled in 2001 including legal costs 2,300,000 7,600,000
Provision for doubtful loans and bad debts 21,259,501 38,454,424
Share of losses of associates 779,212 55,061
Depreciation 2,241,583 2,225,631
Loss/(profit) on disposal of investment securities 7,049 (246,502)
Investment securities written off – 263
Loss on disposal and write off of fixed assets 419,841 59,907
Club membership written off – 300,000
Cost of exchange memberships in respect of securities
and commodities dealings disposed of – 1,342,008
Dividend income from investment securities (29,569) (65,961)
Interest expenses 11,490,465 13,269,141
Interest received (280,538) (602,797)
Exchange differences arising on consolidation 906,130 4,241,589
Increase in property held for development (6,101,500) (23,921,413)
Decrease in accounts receivable 48,289,307 83,609,972
(Increase)/decrease in sundry debtors and prepayments (6,272) 2,232,727
Decrease in trading securities 1,276,934 840,426
Increase/(decrease) in accounts payable 41,331,449 (114,651,054)
Increase/(decrease) in loans payable
– Directors 5,717,611 –
– Others (13,237,117) (20,816,962)
Decrease in sundry creditors and accruals (5,574,006) (3,859,275)
Increase in amount due to directors 1,712,014 990,000
Net cash inflow/(outflow) from operating activities 54,613,310 (63,562,364)
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NOTES ON THE FINANCIAL STATEMENTS
35. NOTES TO THE CASH FLOW STATEMENT (continued)(b) Analysis of changes in financing during the year
Share capital Obligation
(including under Minority
share premium) finance lease Bank loans interest
HK$ HK$ HK$ HK$
Balance at 1st January, 2000 128,770,404 706,893 1,681,469 –
Cash inflow from financing – – 5,000,000 –
Inception of finance lease – 1,732,913 – –
Repayment during the year – (1,117,742) (1,893,486) –
Share allotment in settlement
of acquisition of investment
securities 52,350,000 – – –
Share allotment during the year 11,035,452 – – –
Balance at 31st December, 2000 192,155,856 1,322,064 4,787,983 –
Cash inflow from financing – – – 194,034
Share of profit during the year – – – 408,232
Repayment during the year – (1,187,223) (606,036) –
Balance at 31st December, 2001 192,155,856 134,841 4,181,947 602,266
(c) Major non-cash transactions
During the year, the Group increased its investment cost in an associate, State Street Mansion House
Investment Management Services Limited, by HK$468,000, which was settled by capitalization of an
interest free loan advanced to that associate in order to maintain its 50% shareholding in the
associate.
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35. NOTES TO THE CASH FLOW STATEMENT (continued)(d) Reconciliation of the balances of cash and cash equivalents in respect of short term bank
loans and overdrafts
2001 2000
HK$ HK$
Bank loans and overdrafts 33,839,503 68,729,405
Bank loans over three months to maturity (476,110) (382,232)
Bank loans and overdrafts within three months to maturity 33,363,393 68,347,173
(e) Summary of the effects of dissolution of a subsidiary
2001 2000
HK$ HK$
Net assets disposed of:
Amount due from ultimate holding company – 5,416,621
Discharged by:
Elimination against group accumulated deficit – 5,416,621
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NOTES ON THE FINANCIAL STATEMENTS
36. RELATED PARTY TRANSACTIONSDuring the year, the Group had the following material transactions with related parties:-
(a) The Group has granted on 20th October, 1998 the following related-party loans to enable the
borrowers to reduce their margin accounts in prudent levels. These loans are approved by shareholders
in the extraordinary general meeting held on 23rd July, 1999 as required by the Listing Rules of The
Stock Exchange of Hong Kong Limited.
Borrower: Dynamic Assets Limited and Noblesse Ventures Inc.
Pharmatech Management Limited
Relationship: Companies controlled by Company controlled by
Mr. So Shu Ching, Jason, Ms. Sheila So Wai Kwan,
brother of a director, sister of a director, Ms.
Ms. Irene Wai Yin So Irene Wai Yin So
Lender: A wholly owned subsidiary, A wholly owned subsidiary,
Mansion House Capital Limited Mansion House Capital Limited
Terms of the loan:
– interest rate Prime rate plus 1% Prime rate plus 1%
– security Partially secured by marketable Partially secured by marketable
securities and unlisted shares securities and unlisted shares
– repayment terms By 14 equal instalments payable By 14 equal instalments payable
semi-annually with the last semi-annually with the last
instalment due in May, 2006 instalment due in May, 2006
Balance at 31.12.2001 HK$77,934,917 HK$ 7,473,858
Balance at 31.12.2000 HK$77,934,917 HK$ 7,473,858
A total provision of HK$80,908,775 (2000: HK$72,000,000) has been made against these related-
party loans.
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36. RELATED PARTY TRANSACTIONS (continued)(b) The Group has also provided margin financing to the following related parties:
Borrower: Mr. So Shu Ching, Jason and Noblesse Ventures Inc.
companies controlled by him
Relationship: Brother of a director, Company controlled by
Ms. Irene Wai Yin So Ms. Sheila So Wai Kwan,
sister of a director,
Ms. Irene Wai Yin So
Lender: A wholly owned subsidiary, A wholly owned subsidiary,
Mansion House Securities Mansion House Securities
(F.E.) Limited (F.E.) Limited
Terms of the loan:
– interest rate Prime rate plus 1% Prime rate plus 1%
– security Marketable securities Marketable securities
Balance at 31.12.2001 HK$ 8,273,947 HK$10,795,784
Balance at 31.12.2000 HK$14,882,866 HK$25,851,951
Provision at 31.12.2001 HK$ 4,676,116 HK$ 6,123,884
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NOTES ON THE FINANCIAL STATEMENTS
36. RELATED PARTY TRANSACTIONS (continued)(c) The Group received commission income for securities transactions from related parties as follows:
2001 2000
HK$ HK$
Directors
– Mr. Evans Carrera Lowe 22,502 111,022
– Others 44,787 93,956
Related parties to the directors:
Pharmatech Management Limited 4,600 –
Dynamic Assets Limited 10,678 –
Supreme Grass Limited 3,428 17,021
Noblesse Ventures Inc. 40,496 753
126,491 222,752
(d) The Group accrued interest income from related parties as follows:
2001 2000
HK$ HK$
Related parties to the directors:
Noblesse Ventures Inc. – 1,401,377
Pharmatech Management Limited – 1,357,468
Dynamic Assets Limited – 2,275,150
– 5,033,995
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36. RELATED PARTY TRANSACTIONS (continued)(e) As detailed in note 2(a) on the financial statements, Mr. Evans Carrera Lowe, a substantial shareholder
of the Company, is one of the parties to the Subscription Agreement which constitutes a connected
transaction and is subject to the approval of the shareholders at an extraordinary general meeting.
In the opinion of the directors, the above-mentioned transactions were conducted on normal commercial
terms.
37. POST BALANCE SHEET EVENTSOther than as disclosed in note 2(a) on the financial statements, one of the Group’s subsidiaries has
disposed of one of its trading rights to an independent party at a consideration of HK$2,500,000,
resulting to no gain or loss to the Group.
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GROUP FINANCIAL SUMMARY
GROUP PROFIT AND LOSS ACCOUNT
1997 1998 1999 2000 2001
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Turnover 229,769 184,601 164,525 89,922 57,174
Profit/(loss) from ordinary activities 72,236 (50,017) (31,663) (102,055) (52,865)
Share of losses of associates (44) (1,006) (1,986) (55) (779)
Profit/(loss) before taxation 72,192 (51,023) (33,649) (102,110) (53,644)
Taxation (12,675) (8,952) (4,900) (20) (2,438)
Profit/(loss) after taxation 59,517 (59,975) (38,549) (102,130) (56,082)
Minority interest (3,273) 736 (685) – (408)
Profit/(loss) for the year 56,244 (59,239) (39,234) (102,130) (56,490)
Retained profits/(accumulated
deficit) brought forward 13,334 57,457 (2,402) (41,636) (143,766)
69,578 (1,782) (41,636) (143,766) (200,256)
Nominal value of shares repurchased (40) (158) – – –
Premium on shares repurchased (161) (462) – – –
Dividends (11,920) – – – –
Retained profits/(accumulated
deficit) carried forward 57,457 (2,402) (41,636) (143,766) (200,256)
Basic earnings/(loss) per share (cents) 19.12 (20.02) (12.99) (28.93) (15.14)
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GROUP FINANCIAL SUMMARY
GROUP BALANCE SHEET
1997 1998 1999 2000 2001
HK$’000 HK$’000 HK$’000 HK$’000 HK$’000
Fixed assets 11,009 9,959 10,269 13,535 12,136
Interest in associates 2,897 1,843 (1,985) 1,107 696
Investment securities 30,992 19,484 6,090 1,012 51
Loans receivable – – 39,051 – –
Other assets 23,367 22,533 20,758 14,141 13,616
Net current assets/(liabilities) 130,005 82,208 27,557 34,480 (18,380)
Non-current liabilities (2,653) (1,937) (1,509) (4,541) (3,706)
195,617 134,090 100,231 59,734 4,413
Share capital 59,330 59,172 63,172 74,634 74,634
Share premium 59,782 59,782 65,599 117,522 117,522
Reserves 70,955 13,628 (29,225) (132,422) (188,345)
Shareholders’ funds 190,067 132,582 99,546 59,734 3,811
Minority interest 5,550 1,508 685 – 602
195,617 134,090 100,231 59,734 4,413
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NOTICE OF ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Annual General Meeting of the shareholders of the Company will be held
at Chater Room II, Lower Ground Level 1, The Ritz-Carlton Hotel, 3 Connaught Road Central, Hong Kong on
Thursday, the 27th of June, 2002 at 9:00 a.m. for the following purposes:
1. To receive and consider the audited financial statements and the reports of the directors and auditors for
the year ended 31st December 2001.
2. To elect directors and to fix the fees of the directors.
3. To re-appoint auditors and to authorise the directors to fix their remuneration.
By Order of the Board
Peter Lee Yip Wah
Secretary
Hong Kong, 26th April 2002
Notes:
(1) A member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies
to attend and, on a poll, vote instead of him. A proxy need not be a member of the Company.
(2) To be valid, a form of proxy together with the power of attorney or other authority (if any) under which it is
signed or a notarially certified copy of that power or authority must be lodged at the Company’s registered
office at 37A Bank of China Tower, 1 Garden Road, Hong Kong not less than 48 hours before the time
appointed for holding the meeting or any adjourned meeting.