Hong Kong Exchanges and Clearing Ltd

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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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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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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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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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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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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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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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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)



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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



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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



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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



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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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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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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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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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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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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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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




*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




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


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:


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


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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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:


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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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:


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


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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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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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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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.

Documents

Hong Kong Exchanges and Clearing Ltd