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Yau Lee Holdings Limited

Notes to the Financial Statements
31st March, 1999
(Amounts expressed in Hong Kong dollars unless otherwise stated)


Note: [10] [11] [12] [13] [14] [15] [16] [17] [18] [19]

(10) INVESTMENT PROPERTIES

Investment properties represent residential flats located in Hong Kong which were owned by the Group as at year end for investment purposes. No depreciation has been provided on the investment properties as the unexpired lease term is more than 20 years. This treatment is in accordance with the Statement of Standard Accounting Practice Number 13 "Accounting for Investment Properties" issued by the Hong Kong Society of Accountants.

During the year, the Group disposed of an investment property at a consideration of approximately $7,295,000, which resulted in a loss on disposal of approximately $3,880,000. The remaining investment properties in Hong Kong which are held under medium-term lease were revalued on an open market value basis by Chesterton Petty Limited, an independent company of professional valuers, as at 31st March, 1999 at an amount of approximately $21,600,000 (1998 - $30,025,000). The deficit on revaluation of investment properties of $8,425,000 has been charged to the consolidated profit and loss account as an exceptional item (see Note 5).


(11) DEFERRED EXPENDITURES

Development costs of the Group represent expenditures incurred to develop and improve construction methods for a particular type of construction project and construction related computer software.

Pre-operating expenditures represent costs incurred during the start-up period to set up the semi-precast factory in Shenzhen, mainland China.

                                         1999                   1998
                         -----------------------------------  ------
                         Development  Pre-operating
                               costs   expenditures    Total   Total
                               $'000          $'000    $'000   $'000

Cost
Balance, beginning of year     4,837              -    4,837   4,500
Additions                        141          5,016    5,157     337
                              ------         ------   ------  ------
Balance, end of year           4,978          5,016    9,994   4,837
                              ------         ------   ------  ------
Accumulated amortisation
Balance, beginning of year     3,750              -    3,750   3,000

Amortisation for the year        750            418    1,168     750
                              ------         ------   ------  ------
Balance, end of year           4,500            418    4,918   3,750
                              ------         ------   ------  ------
Net book value
Balance, end of year             478          4,598    5,076   1,087
                              ======         ======   ======  ======
Balance, beginning of year     1,087              -    1,087   1,500
                              ======         ======   ======  ======

(12) LOANS TO EMPLOYEES

The Group has provided housing loans to certain employees. The repayment period ranges from 2 to 12 years with interest at prime rate minus 1 per cent, depending on the terms of the individual loan agreements. Amounts due within one year of approximately $70,000 (1998 - $400,000) are included in prepayments, deposits and other receivables.


(13) INTERESTS IN SUBSIDIARIES

(a) Interests in subsidiaries in the accounts of the Company as at 31st March, 1999 comprise:

                                                         1999       1998
                                                        $'000      $'000

Unlisted shares, at cost                               51,575     51,575
Capital contributed to a subsidiary                   224,500    224,500
                                                      -------    -------
                                                      276,075    276,075
                                                      =======    =======

The Directors are of the opinion that there is no permanent diminution in the value of interests in subsidiaries as at 31st March, 1999.

(b) Particulars of principal subsidiaries as at 31st March, 1999 are:

                                                            Issued and                                   % of issued ordinary     Group
Name of                      Place of          Place of     fully paid       Principal                  share capital held by     equity
company                      incorporation     operation    share capital    activities                Company    Subsidiaries    interest

Australian Development       Australia         Australia    A$2              Investment holding        -          100%            100%
  Holdings Pty. Limited

Bellaglade Company           Hong Kong         Hong Kong    $2               Property holding          -          100%            100%
  Limited

Century Score                Hong Kong         Hong Kong    $2               Investment in real        -          100%            100%
  Investment Limited                                                           estate properties

Chapman Engineering          Hong Kong         Hong Kong    $100             Building services         -          60%             60%
  Consultant Company                                                           engineering
  Limited                                                                      consultant

City Fine Pty. Limited       Australia         Australia    A$2              Property development      -          100%            100%

First Smart Investment       Hong Kong         Hong Kong    $2               Investment in real        -          100%            100%
  Limited                                                                      estate properties

Global Winner                Hong Kong         Hong Kong    $2               Investment in real        -          100%            100%
  Investment Limited                                                           estate properties

Hero Leader Investment       Hong Kong         Hong Kong    $2               Investment in real        -          100%            100%
  Limited                                                                      estate properties

Koshen Engineering           Hong Kong         Hong Kong    $10,000          Provision of design,      -          100%            60%
  Limited                                                                      consulting and
                                                                               project management
                                                                               services

Lucky Fame Investment        Hong Kong         Hong Kong    $2               Investment in real        -          100%            100%
  Limited                                                                      estate properties

Ming Hop Company             Hong Kong         Hong Kong    $500,000         Sourcing of               -          100%            100%
  Limited                                                                      construction materials
                                                                               and execution
                                                                               of plumbing work

Nanjing Autocon              Mainland          Mainland     US$500,000       Development and           -          100%            100%
  Technology Company           China             China                         sales of construction
  Limited                                                                      equipment and
                                                                               computer control
                                                                               software

Nanjing Nanda VH             Mainland          Mainland     Rmb1,500,000     Development and           -          70%             70%
  Software Intelligence        China             China                         sales of computer
  Company Limited                                                              control software

Right Motive Limited         Hong Kong         Hong Kong    $6,000           Property holding          -          100%            100%
                                                                               and letting

Solid Star Company           Hong Kong         Hong Kong    $2               Property holding          -          100%            100%
  Limited

Trendplot Investments        Hong Kong         Hong Kong    $2               Provision of              -          100%            100%
  Limited                                                                      management services

Yau Lee Building             Hong Kong         Hong Kong    $100,000         Building construction,    -          100%            100%
  Construction and                                                             maintenance and
  Decoration Company                                                           decoration
  Limited

Yau Lee Construction         Hong Kong         Hong Kong    $39,300,000      Building construction     -          100%            100%
  Company Limited ("YLC")

Yau Lee Construction         Hong Kong         Hong Kong    $2               Sales of building         -          100%            100%
  Materials &                                                                  materials and
  Technology Limited                                                           precast products

Yau Lee Environmental        Hong Kong         Hong Kong    $2               Investment holding        -          100%            100%
  Development Limited

Yau Lee (Environmental       The British       Hong Kong    US$10,000        Investment holding        -          100%            100%
  Industries) Company          Virgin Islands
  Limited

Yau Lee Investment           The Cook          Hong Kong    US$100           Investment holding        100%       -               100%
  Limited                      Islands

Yau Lee Technology           The British       Hong Kong    US$1             Investment holding        -          100%            100%
  Limited                      Virgin Islands                                  and trading of
                                                                               construction
                                                                               equipment and
                                                                               computer control
                                                                               software

Yau Lee Wah Concrete         Hong Kong         Hong Kong    $10,000,000      Sales of precast          -          100%            100%
  Precast Products                                                             products
  Company Limited

Yau Lee Wah Concrete         Mainland          Mainland     Rmb39,076,066    Manufacture of            -          100%            100%
  Precast Products             China             China                         precast products
  (Shenzhen) Company
  Limited

Yau Sing Building            Hong Kong         Hong Kong    $500,000         Investment holding        -          63%             63%
  Materials Company
  Limited


(14) INTERESTS IN ASSOCIATED COMPANIES

(a) Interests in associated companies comprise:

                                         1999               1998
                                        Group  Company     Group  Company
                                        $'000    $'000     $'000    $'000
                                                                 (Note 28)

Listed investment                       15,960       -     11,022       -
Unlisted investment                      6,040       -      6,959       -
                                       ------- -------    ------- -------
Group's share of attributable
  net assets of associated companies    22,000       -     17,981       -

Amounts due from associated
  companies                             52,985  20,698     53,091  20,610

Amounts due to associated
  companies                            (10,975)   (808)   (11,015)   (856)
                                       ------- -------    ------- -------
                                        64,010  19,890     60,057  19,754
                                       ======= =======    ======= =======

The market value of the Group's interest in an associated company listed in Hong Kong as at 31st March, 1999 was approximately $9.5 million (1998 - $13.2million).

(b) Particulars of principal associated companies as at 31st March, 1999 are:

                                                                                                           % of issued ordinary
                                                           Issued and                                     share capital held by      Group
                              Place of        Place of     fully paid       Principal                                   Associated   equity
Name of Company               incorporation   operation    share capital    activities                  Subsidiaries    company      interest

Bestlink Shipping             Hong Kong       Hong Kong    $100             Provision of shipping       -               100%         30%
  Limited                                                                     transportation services

Bonland Investment            Hong Kong       Hong Kong    $100             Investment holding          30%             -            30%
  Limited

Bonjoy Company Limited        Hong Kong       Hong Kong    $100             Provision of shipping       -               100%         30%
                                                                              transportation services
                                                                              and investment holding

China Project                 Australia       Australia    A$100            Business consulting &       50%             -            50%
  Connections Pty. Limited                                                    international business

Rich Fame Shipping            Hong Kong       Hong Kong    $100             Provision of shipping       -               100%         30%
  Limited                                                                     transportation services

Shun Cheong Holdings          Bermuda         Hong Kong    $32,504,160      Investment holding          15%             -            15%
  Limited ("Shun Cheong")

Shunde Yau Lee                Mainland        Mainland     US$1,707,714     Manufacture of building     52.7%           -            33.2%
  Building Components           China           China                         materials
  Company Limited
  ("Shunde Yau Lee")

Top Channel Holdings          Hong Kong       Hong Kong    $2,000,000       Sub-contracting of joinery  40%             -            40%
  Limited                                                                     work and trading of
                                                                              building materials

Yau Lee Development           Hong Kong       Hong Kong    $100             Property development        50%             -            50%
  Company Limited
  ("YLDC")

Yau Lee Property              Hong Kong       Hong Kong    $200             Investment holding          46%             -            46%
  Development (China)
  Company Limited

(c) The Company has an indirect interest of 25% in Fuli Building, a residential and commercial property project in Shunde in mainland China, which was jointly developed by YLDC and a Chinese party.

(d) One of the subsidiaries of the Group had a 52.7% interest in Shunde Yau Lee. Despite the controlling interest, the subsidiary has appointed the same number of members in the Board of Directors of Shunde Yau Lee as the other shareholder. Consequently, the Group does not have control over the operational and financial matters of Shunde Yau Lee. The Directors have indicated that the Group exercises significant influence over Shunde Yau Lee and as a result, this investment is accounted for using the equity basis of accounting.

(e) The Group has a 15% interest in Shun Cheong. The Directors are of the opinion that the Group exercises significant influence over the financial and operational matters of Shun Cheong and as a result, this investment is accounted for using the equity basis of accounting.

(f) The amounts with associated companies are unsecured, interest-free and have no fixed repayment terms.

(g) The Directors are of the opinion that there is no permanent diminution in the value of interests in associated companies as at 31st March, 1999.


(15) LONG-TERM INVESTMENTS

(a) Long-term investments comprise:

                                               1999              1998
                                           Group  Company    Group  Company
                                           $'000    $'000    $'000    $'000

Unlisted shares, at cost                     976        -      976        -
                                          ------   ------   ------   ------
Listed shares in Hong Kong, at cost        1,455        -    1,455        -
                                          ------   ------   ------   ------
                                           2,431        -    2,431        -
                                          ======   ======   ======   ======

The market value of the Group's investment in listed shares in Hong Kong as at 31st March, 1999 was approximately $464,000 (1998 - $720,000).

(b) In January 1995, one of the subsidiaries of the Group entered into an agreement with Nanjing FEAT Advanced Sciences and Technology Industry Corp. ("Nanjing FEAT") in mainland China to engage in the development and trading of environmental products. The Group has a 60% interest in Nanjing FEAT and has injected the agreed capital contribution of RMB1,000,000 as at year end.

The Directors are of the opinion that the Group has no control and does not exercise any influence over the operations of Nanjing FEAT and therefore, the investment is being accounted for using the cost method.

(c) The Directors are of the opinion that there is no permanent diminution in the value of these long-term investments as at 31st March, 1999.


(16) NET CURRENT ASSETS

                                              1999                   1998
                                         Group    Company       Group    Company
                                         $'000      $'000       $'000      $'000
                                                             (Note 28)

CURRENT ASSETS
Inventories (Note 22)                     8,586         -       2,712          -
Trade debtors (Note 23)                 273,377         -     472,362          -
Gross amount due from customers
  for contract work (Note 23)           340,471         -     362,570          -
Due from subsidiaries (Note 27(b))            -   213,053           -    157,741
Due from related parties (Note 27(b))         3         3           3          3
Prepayments, deposits and
  other receivables                      44,063       569      29,754        618
Prepaid tax                               3,743         -           -          -
Time deposits (Note 25)                 182,215     1,617     180,147     10,878
Cash and bank balances                   15,545       532      37,982        467
                                      --------- ---------   ---------  ---------
Total current assets                    868,003   215,774   1,085,530    169,707
                                      --------- ---------   ---------  ---------
CURRENT LIABILITIES
Payable to suppliers and
  subcontractors                        106,162         -     122,011          -
Bank overdrafts (Note 25)                72,720         -     133,803          -
Due to subsidiaries (Note 27(b))              -    23,664           -          -
Due to related parties (Note 27(b))       1,246         -       1,850          -
Provision for taxation                      272        47       8,310        297
Gross amount due to customers
  for contract work (Note 23)            51,915         -      24,923          -
Current portion of hire purchase
  obligations (Note 17)                  15,690         -      15,548          -
Accruals and other liabilities           77,766        98      87,422        287
Short-term bank loans (Note 25)         304,630         -     390,600          -
                                      --------- ---------   ---------  ---------
Total current liabilities               630,401    23,809     784,467        584
                                      --------- ---------   ---------  ---------
NET CURRENT ASSETS                      237,602   191,965     301,063    169,123
                                      ========= =========   =========  =========

(17) LONG-TERM LIABILITIES

                                              1999                  1998
                                        Group     Company     Group     Company
                                        $'000       $'000     $'000       $'000

Due to minority shareholders, net       3,491           -     2,514           -
Obligations under hire purchase
  contracts
  - Repayable within one year          15,690           -    15,548           -
  - Repayable in the second to
      fifth years                       5,852           -     9,659           -
                                      -------     -------   -------     -------
                                       21,542           -    25,207           -
Amounts due within one year
  included under current liabilities  (15,690)          -   (15,548)          -
                                      -------     -------   -------     -------
                                        5,852           -     9,659           -
Deferred taxation (Note 6(b))           8,559           -    15,382           -
                                      -------     -------   -------     -------
                                       17,902           -    27,555           -
                                      =======     =======   =======     =======

(18) SHARE CAPITAL

(a) Authorised:

                                                              1999       1998
                                                             $'000      $'000

4,000,000,000 shares of $0.05 each
  (1998 - 1,000,000,000 shares of $0.10 each)              200,000    100,000
                                                          ========   ========

On 30th July, 1998, following an ordinary resolution of the members, the authorised share capital of the Company was increased from $100,000,000 to $200,000,000 through the creation of an additional 1,000,000,000 new shares of $0.10 each.

On 29th October, 1998, by a special resolution of the members, the Company announced a sub-division of each authorised but unissued share of par value $0.10 each into two shares of par value $0.05 each. As a result, the authorised share capital became 4,000,000,000 shares of $0.05 each.

(b) Issued and fully paid:

                    1999                             1998
         Number of                        Number of
         shares of        Nominal         shares of        Nominal
        $0.05 each          value         $0.1 each          value
                            $'000                            $'000

     1,180,656,268         59,033       787,104,179         78,710
     =============  =============       ===========  =============

On 26th September, 1998, the Company announced a proposed rights issue (the "Rights Issue") of a minimum of 393,552,089 new shares (the "Rights Shares"), at $0.076 per Rights Share on the basis of one Rights Share for every two existing shares held by shareholders of the Company on 29th October, 1998.

On 3rd October, 1998, the Company announced a proposed capital reorganisation to reduce the par value of the existing issued shares from $0.10 each to $0.05 each by the cancellation of $0.05 against each fully paid up share. The effect of this transaction was to decrease the share capital by approximately $39,355,000 and increase the share premium by the same amount.

On 13th November, 1998, pursuant to the Rights Issue, 393,552,089 Rights Shares of $0.05 each were allotted. Together with the effect of the reduction in par value (see Note a), the share capital was reduced to $59,032,813. These shares rank pari passu with the existing shares.

(c) Share Option Scheme

Under the terms of the Share Option Scheme which became effective on 5th August, 1991, the Board of Directors of the Company may, at their absolute discretion, offer to any Director or employee of the Company or any of its subsidiaries options to subscribe for shares in the Company in accordance with the terms of the Share Option Scheme. The maximum number of shares in respect of which options may be granted under the Share Option Scheme is such number of shares, which, when aggregated with shares subject to any other similar scheme, represents 10% of the issued share capital of the Company from time to time. The Share Option Scheme remains in force for a period of 10 years.

On 25th August, 1997, pursuant to the Share Option Scheme, the employees and the Directors were granted options to subscribe for a total of 49,562,000 shares of $0.05 each in the Company. Subject to the adjustment as a result of any alteration in the capital structure of the Company, the subscription price will be the higher of 80% of the average closing price of the shares of the Company on The Stock Exchange of Hong Kong Limited on the five trading days immediately preceding the date of granting of the option and the nominal value of the shares. During the year, options for subscribe for 2,324,000 shares of $0.05 each granted to certain employees were forfeited by the Company pursuant to the terms of the Share Option Scheme. None of the granted options were exercised during the year.


(19) SHARE PREMIUM

The share premium represents the premium received on shares issued. Movements during the year were as follows:

                                            1999                 1998
                                       Group    Company     Group    Company
                                       $'000      $'000     $'000      $'000

Balance, beginning of year           339,443    339,443   339,443    339,443
Premium arising from Rights Issue
  (see Note 18(b))                    10,232     10,232         -          -
Direct expenses for Rights Issue      (4,054)    (4,054)        -          -
Effect of reduction in par value of
  share capital (see Note 18(b))      39,355     39,355         -          -
                                    --------   --------  --------   --------
Balance, end of year                 384,976    384,976   339,443    339,443
                                    ========   ========  ========   ========

Source: Yau Lee Holdings Limited
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