FIYTA Precision Technology Co., Ltd. — Annual Report 2004

Apr 8, 2004

Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

SHENZHEN FIYTA HOLDINGS LTD. 2003 ANNUAL REPORT (Summary)

§1 Important

1.1 The Board of Directors and all the directors of the Company hereby confirm that there are no important omissions, fictitious statements or serious misleading information carried in this report, and shall take all responsibilities, individually and/or jointly, for the truthfulness reality, accuracy and completion of the whole contents herein.This summary is cited from the full text of the annual report. An investor who wants to know the detail, should read the full text of the annual report. This annual report is prepared in both Chinese and English. Should there be any difference in understanding of the two versions, the Chinese version shall prevail.

1.2 No director has expressed that he/she is not sure for the truthfulness, accuracy or completeness of this annual report or has any different opinion on the same.

1.3 Mr. Wang Xinkuo, a director, was absent from the board meeting due to other work engagement.

1.4 Pricewaterhouse Coopers Zhongtian Certified Public Accountants produced a standard unqualified auditors’ report without any explanatory notice for the Company.

1.5 Mr. Wu Guangquan, the Chairman of the Board, Mr. Xu Dongsheng, the General Manager, Mr. Li Dehua, the Deputy General Manager and Chief Accountant, and Mr. Liu Biao, the Financial Manager hereby guarantee the accuracy and completeness of the financial report enclosed in this annual report. Except that the Financial Report (§9) of the English version is drawn up according to the Auditors' Report as prepared in accordance with International Financial Report Standards, all financial data are based on Chinese Accounting Standards.

§2 Company Information

2.1 Basic Information

Short form of the stock		FIYTA A , FIYTA B
Stock code		000026, 200026
Stock Exchange listed with		Shenzhen Stock Exchange
Registered Address		FIYTA Technology Building, Gaoxin Nanyi Road
Office Address:		FIYTA Building, 163 Zhenhua Rd., Shenzhen
Post Code		518031
Internet Website		http:// www. fiyta.com.cn
E-mail		szfiyta@public.szptt.net.cn

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

2.2 Communication Information

	Secretaryof the Board	SecurityAffairs Representative
Name	Hao Huiwen	Chen Zhuo
Address	FIYTA Building,163 Zhenhua Rd.,Shenzhen
Tel	0755-83217888-8218 83259702
Fax	0755-83348369
E-mail	security@fiyta.com.cn

§3 Financial Highlights

3.1 Accounting Data Summary

In RMB

	2003 (Report Year)	2002 (Previous Year)	Increase/decrease over the previous year (％)	2001
Income from principal business	228,133,082.00	219,492,686.00	3.94%	219,813,846.00
Totalprofit	5,708,012.00	-76,162,958.00	--	16,000,180.00
Netprofit	5,088,057.00	-78,173,441.00	--	11,322,807.00
Net profit, less nonrecurring gains/losses	-6,775,168.00	-77,958,917.00	--	3,751,042.00
	End of 2003 (end of report year)	End of 2002 (end of previous year)	Increase/decrease over end of previous year(％)	End of 2001
Total assets	572,847,496.00	566,681,393.00	1.09%	725,845,783.00
Shareholders’ interests (excluding the minority shareholders’)	515,456,362.00	510,368,305.00	1.00%	587,802,989.00
Net cash flow from operation activities	-11,746,162.00	23,354,487.00	-150.30%	64,028,448.00

3.2 Financial Data Summary

In RMB

			In	RMB
	2003 (Report Year)	2002 (Previous Year)	Increase/decrease over the previous year(％)	2001
Earning per share	0.02	-0.31	--	0.05
Earning per share (based on the new share capital in case of change in the share capital)	0.02	--	--	--
Net assets-income ratio	0.99%	-15.32%	--	1.93%
Net assets-income ratio based on the net profit less nonrecurring gains/losses	-1.31%	-15.27%	-108.57%	0.64%
Net cash flow arising from operation activities per share	-0.05	0.09	-150.30%	0.26
	End of 2003 (end of report year)	End of 2002	Increase/decrease over end of previousyear(％)	End of 2001
		(end of previous
		year)
Net assetsper share	2.07	2.05	1.00%	2.36
Net assets per share, after adjustment	2.03	1.98	3.21%	2.25

3.3 Differences between Domestic and International Accounting Standards

• √ applicable □ inapplicable

In RMB ‘000

	Domestic AccountingStandards	International AccountingStandards
Netprofit	5,088.00	6,132.00

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

Net profit audited by Pricewaterhouse Coopers Zhongtian Certified Public Accountants Co., Ltd.: 5,088.00

Note Ajustment for deferred tax assets 606.00 Ajustment on fair value for trading investments 438.00 Net profit audited by Pricewaterhouse Coopers China Limited: 6,132.00

§4 Changes in Share Capital and Particulars about Shareholders

4.1 Change in Shares

In Shares

4.1 Change in Shares			In Shares
	Before change	Increase/ Decrease (+ / -)as of theyear	After the change
1. Circulating Shares not Listed
Promoters’ shares	130,248,000	0	130,248,000
Including: domestic legal person shares	130,248,000	0	130,248,000
Total	130,248,000	0	130,248,000
2. Circulating Shares Listed
1) RMB ordinary shares	60,749,999	0	60,749,999
2) Foreign shares listed domestically	58,320,000	0	58,320,000
Total	119,069,999	0	119,069,999
3. Total shares	249,317,999	0	249,317,999

4.2 Top 10 shareholders and Shares Held by Top 10 Shareholders of Circulating Shares

Shares	Shares
Total shareholders ended the reportperiod							15,645
Shares Held byTop10 Shareholders
Shareholders (full names)	Increase/dec rease in the report year (shares)		Shares held at the year end	(％)	Types	Shares	Ownership of shareholders (state owned shareholder or foreign capital shareholder)
					(circulating/n on - circulating	pledged or frozen
CATIC SHENZHEN HOLDINGS LTDS.	0		130,248,000	52.24	non-circulati ng	0	Domestic legal person shares
Lin Zhihua	unknown		530,000	0.21	circulating	unknown	foreign capital shareholder
Wang Zihua	unknown		529,929	0.21	circulating	unknown	foreign capital shareholder
KO,LING HON	unknown		389,900	0.16	circulating	unknown	foreign capital shareholder
CHINA PINGAN INSURANCE (HK) CO., LTD.	unknown		384,960	0.15	circulating	unknown	foreign capital shareholder
Lin Hongbo	unknown		362,880	0.15	circulating	unknown	foreign capital shareholder
Yang Yuanzhou	unknown		285,900	0.11	circulating	unknown	foreign capital shareholder
JiangXi Ganyue ExpresswayCo.,Ltd.	unknown		275,800	0.11	circulating	unknown	Listed A shares
CHAN KEUNG	unknown		275,600	0.11	circulating	unknown	foreign capital shareholder
Huihang Shipping Co.	unknown		241,200	0.10	circulating	unknown	foreign capital shareholder
Description of relationshipor concerted			The shareholder holdingov		er 5% of the Company’s total share capital is CATIC

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary	Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary
actions between the top 10 shareholders.	SHENZHEN HOLDINGS LTD. and there was no change in its shareholding in the report year.Among the top ten shareholders, the Company has never found any business relations among them or they belong to the persons of concerted action as specified in the Measures on Listed Companies on Disclosing the ShareholdingInformation.

4.3 About the Controlling Shareholder and the Actual Controller

4.3.1 Change in the Controlling Shareholder and the Actual Controller

• applicable √ inapplicable

4.3 About the Controlling Shareholder and the Other Actual Controller(s)

About the controlling shareholder:

CATIC SHENZHEN HOLDINGS LTD. was founded in June, 1997, with total share capital: RMB 642 million, the legal representative: Wu Guangquan; principal businesses: Design, manufacture and sales of printed circuit board, LCD, mechanical and quartz timepieces. On the date of incorporation, the company issued 400 million domestic shares to CATIC Shenzhen Corporation, taking 62.31% of the total share capital. In 1997, the company successfully issued 242 million H-shares in Hong Kong, taking 37.69% of the total share capital. The company was listed with Hong Kong Stock Exchange in September, 1997.

Actual controller of the controlled shareholder

CATIC Shenzhen Corporation is a state enterprise founded in April, 1982, with the registered capital: RMB 80 million, and legal representative: Wu Guangquan; Principal businesses:Import and export of motor vehicles, equipment and machinery made within the Group.

§5 Directors, Supervisors and Senior Executives

5.1 Change in shares held by Directors, supervisors and senior executives

Name					Shares held	Shares held at year end	Reason of change
	Title	Sex	Age	Office Term	at year
					beginning
Wu Guangquan	Chairman of the Board	male	41	May 2003 to May 2006	0	0
Wang Xinkuo	Director	male	55	May 2003 to May 2006	0	0
Sui Yong	Director	male	45	May 2003 to May 2006	0	0
You Lei	Director	male	34	May 2003 to May 2006	0	0
Xu Dongsheng	Director and general manager	male	37	May 2003 to May 2006	0	0
Zhu Gensen	Director	male	55	May 2003 to May 2006	0	0
Cai Zheng	Independent Director	male	62	May 2003 to May 2006	0	0
Diao Weicheng	Independent Director	male	40	May 2003 to May 2006	0	0
Hua Xiaoning	Independent Director	male	40	May 2003 to May 2006	0	0
Shao Kexiong	Chairman of Supervisory Committee	male	53	May 2003 to May 2006	0	0
Zhang Songhua	Supervisor	male	50	May 2003 to May 2006	0	0
Hu Xinglong	Supervisor	male	39	May 2003 to May 2006	0	0

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

Lu Binqiang	Deputy General Manager	male	42	May 2003 to May 2006	48,210	48,210
Li Dehua	Deputy General Manager and Chief Accountant	male	43	May 2003 to May 2006	0	0
Li Bei	Deputy General Manager	male	48	May 2003 to May 2006	0	0
Fang Juan	Deputy General Manager	femal e	43	January 2004 to May 2006	0	0
Hao Huiwen	Secretary of the Board of Directors	male	35	May 2003 to May 2006	0	0

5.2. Engagement of Directors and Supervisors in the Shareholders

√ applicable □ inapplicable

√applicab	le□inapplicable	le□inapplicable
Names	Shareholders		Titles	Office term	Any remuneration or allowance? (Y/N)
Wu Quangquan	CATIC		Chairman of Board	May 2003 - May 2006	N
Wang Xinkuo	CATIC		Director	May 2003 - May 2006	N
Sui Yong	CATIC		Director	May 2003 - May 2006	N
You Lei	CATIC		Director & Secretary of the Board	May 2003 - May 2006	N
Xu Dongsheng	CATIC		Director	May 2003 - May 2006	Y
Shao Kexiong	CATIC		Chairman of the Supervisory Committee	May 2003 - May 2006	N
5.3 Annual Emolument to Directors,			Supervisors and Senior Executives In RMB ‘000
Total Annual Emolument			1,893.10
The total emolument to the three directors enjoying the highestpays(onlytwo)			523.70
The total emolument to the three senior executives enjoying the highestpays			730.70
Allowance to Independent Directors			30.0/person/year
Other Financial Interests to Independent Directors		Nil
Directors and supervisors who do not receive any pay or allowance from the Company		Mr. Wu Guangquan, the Chairman of the Board, Mr. Wang Xinkuo, Mr. Sui Yong and Mr. You Lei, three directors, and Mr. Shao Kexiong, the Chairman of the Supervisory Committee receive their remuneration from the Company’s shareholders instead of the Company.
Payintervals		Persons
RMB 300 thousand		1
RMB 200 –250 thousand		4
RMB 150-200 thousand		2
RMB 100 –150 thousand		2
Below RMB 30 thousand		3

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

§6 Report of the Board of Directors

6.I Overall Operation Discussion and Analysis

In 2003, the Company, based on the work principle of “Inspiring the morale, stimulating the confidence, making breakthrough with focus, Rising again after a fall” as determined at the year beginning, enhanced the research on the customers, took a positive attitude towards the sustained and intensified competition of the domestic timepiece industry, adjusted the Company’s industrial structure and resource deployment, increased investment in R & D and marketing, insisted on the top brand strategy and professional development, and concentrated resources for developing the principal business of timepiece. The specific details are summarized as follows:

1. FIYTA Watch The Company tided over the unfavorable impacts from intensified market competition and SARS, based on the research on the customers and the market, reinforced the brand promotion and advertisement, enthusiastically developed new products and adopted flexible promotion approaches. As a result, the sales falling trend stopped. In the report period, the Company realized sales of FIYTA watches amounting to RMB 107,962 thousand, a 12.28% growth over the previous year. In addition, the product honorably ranked “the first in sales among the products of the same kind in China” for successively nine years granted by the Industrial Information Statistics Center of the State Statistical Bureau.

In addition, in the report period, Guangdong Province, Shenzhen City and Futian District Governments rewarded RMB 3.8 million cash for honoring FIYTA being “China Top Brand Product” and “China Renowned Trademark”. The Company produced first pilot watches for fighter pilots of China Air Force. On October 15, 2003, China’s first spaceflight watch developed by the Company traveled in the universe together with Shenzhou-5 Manned Spacecraft and fulfilled successfully the mission. Therefore, FIYTA has become the third spaceflight watch following OMEAG and FORTIS made in Switzerland. This historical event shall greatly promote FIYTA Brand to be upgraded unceasingly.

The Company has further laid a sound foundation for sustainable and healthy development of the Company’s watch industry by enhancing the assets management, regulating work process, upgrading the front service quality and practicing overall training of the whole staff.

1. Harmony World Watches Center The Company enhanced the investment and management of the chain shops of Harmony World Watches Center, timely regulated the shop management throughout the country, and tried best to create a world top brand watches marketing platform. Ended the report period, the Company had opened 18 chain shops in different big and medium cities of the country. In the report period, the Company realized sales of top brand watches amounting to RMB 99,683 thousand, a 46.48% growth over the same period of the previous year; and realized a net profit amounting to RMB 1,908 thousand.

2. Property Operation In 2003, FIYTA Building adjusted tenants, from which, the Company realized a income amounting to RMB 14,768 thousand, a 11.45% growth over the previous year. It is predicted that after the Company moves into the newly constructed Hi-tech Building in 2004, the vacated property shall surely bring about more income to the Company.

3. Hi-tech Building FIYTA Hi-tech Industrial Building located in Shenzhen Hi-tech Park passed the completion examination on December 25, 2003. The indoor decoration is still going on. The investment invitation and project verification work is in process in an orderly way. It is predicted that the building shall contribute certain profit to the Company in 2004.

4. Industrial Restructuring According to the Company’s business plan at the beginning of the year with the principle of “tidying out the non-principal businesses and putting emphasis on the specialization strategy”, the Company has decided to remove some subsidiaries with bad operation situation and weak earning capacity. By the end of the report period, the Company had finished the disposal and transfer of three catering subsidiaries, namely Xi’an Fine Food and Entertainment City Co., Ltd. (restaurant business), Shenzhen Pengmen Restaurant Co., Ltd. and Shanghai Xianmen Restaurant Co., Ltd. The Company has completely withdrawn from the catering sector. In addition, the Company has also sorted out two industrial enterprises - Shenzhen Tianfu Electronics Co., Ltd. and Shenzhen Feitu New Technology Development Co.

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

This work shall be helpful to the Company in focusing on the principal business.

In the report period, the income form the principal businesses was RMB 228,133 thousand, a 3.94% growth over the same period of the previous year. The main reason is that the Company had wound-up and transferred its catering subsidiaries; as a result, the income from the catering sector was only 5,063 thousand, decreased by 31,134 thousand, or dropped by 86.01% over the same period of the previous year; while the income from the retail of top brand watches increased by RMB 31,632 thousand, or increased by 46.48% over the same period of the previous period. In comparison to the year 2002, as the overall disposal of the potential deficit-making assets caused big losses, the total profit realized in 2003 was RMB 5,708 and net profit was RMB 5,088 thousand. However, the increase of reserve provided for devaluation of partial subsidiaries caused the profit of the whole year lower than the amount ad disclosed in the 3[rd] quarter. In addition, the big increase of sales costs and overhead expenses arising form marketing and personnel training caused loss in operation profit and the net profit less the incidental losses/gains in the year 2003.

Affected by increase of the operation expenditures, the net cash flow arising from the business activities was RMB-11,746 thousand. Due to increase of earnings in the report period, the Company’s total assets at the end of the report period was RMB 572,847 thousand and shareholders’ equity was RMB 515,456 thousand which increased slightly by 1.09% and 1.00% respectively over the same period of the previous year.

6.2 Principal Businesses Classified Based on Sectors and Products

		In RMB ‘000	In RMB ‘000	In RMB ‘000	In RMB ‘000	In RMB ‘000
Based on sectors or products				Increase/decr ease Growth f i	Increase/decr ease of costs	Increase/decr ease of gross profit rate over the previous year (%)
	Income from	Costs of	Gross	o ncome	of principal
	principal business	principal business	interest rate (%)	from principal business over the previous year（％）	business over the previous year（％）
Industry	108,618.50	52,014.70	52.11	6.50	-5.81	13.65
Trading	99,683,30	80,726.30	19.02	46.48	41.17	19.09
Management of real estate	14,768.10	2,266.00	84.66	11.45	16.38	-0.76
Catering	5,063.20	2,439.40	51.82	-86.01	-85.63	-2.43
Incl.: related transactions	0.00	662.30	--	0.00	0.00	0.00
sales of FIYTA watches	107,961.90	56,796.50	47.39	12.28	-1.45	18.29
Sales of foreign top brand watches	92,839.60	76,678.10	17.41	63.36	58.89	15.38
Incl.: related transactions	0.00	0.00	--
Pricing principle for related transactions		based on fair market pricing
Necessity and continuance of related transactions		FIYTA Building received the management services from Shenzhen CATIC Property Management Co., Ltd., for which the Company paid RMB 662.30 thousand in the reportyear.

6.3 Principal Businesses Based on Regions

		In RMB‘000 thousand
Regions	principal business income	Increase/decrease of revenue from the principal businesses over the previousyear(%)
Northeast China	28,356.60	-33.24
North China	38,032.70	36.97
Northwest China	45,299.70	37.11
East China	19,770.40	34.72
Southwest China	11,308.50	2.54
East China	58,033.60	100.17

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

Total 200,801.50 31.25

6.4 Suppliers and Customers

			In RMB‘000
total procurement from the topfive suppliers	49,812.80	Proportion in total procurement	88.00%
total sales to the top five customers	28,187.00	Proportion in total sales	12.00%

6.5 Associates (applicable to the investment income taking over 10% of the net profit) □ applicable √ inapplicable

6.6 Big Change in the Principal Business or its Structure

√ applicable □ inapplicable

In the report period, there was some change in the principal business or its structure, and the earning capacity in the principal business in comparison with the previous report period. Firstly, the Company cleared up and transferred all the three restaurant subsidiaries and has completely withdrawn from the catering industry;

Secondly, with the expansion of sales income from Harmony World Watches Center, the income from the retail of timepieces increased to RMB 99,683 thousand, which took 43.70% of the total income from the principal business while it was only 31% last year.

Thirdly, according to the practical operation of the principal business, the Company has put the income from the property management into the income from the principal business for accounting instead of other businesses.

6.7 Big Change in the Earning Capacity (Gross Profit Rate) of the Principal Business over the Previous Year

□ applicable √ inapplicable

6.8 Reasons of Big Change in the Operation Result and Profit Composition over the Previous Year

√ applicable □ inapplicable

The Company disposed all the potential deficits-making assets in 2002. Additional reserve for devaluation of fixed assets was provided by RMB 78.25 thousand, which cause big deficits in the previous year. In the report year, the Company realized normal profit amounting to RMB 5.088 million.

million.
Items	Amount in the report year (RMB)	Amount in the same period of previous year (RMB)	Growth/ drop rate (%)	Causes of Change
Profit from principal business	88,698,251	85,310,072	3.97	It mainly due to some growth of income from principal businesses
Overheads	40,800,580	108,711,799	-62.47	It mainly due to increase of reserve for devaluation to RMB 78.25 million in the sameperiod of thepreviousyear.
Financial expenses	-553,273	1,195,168	-146.29	It is mainly due to decrease in interest payment for bank loans.
Non-operating income/ Expenses,net	-1,201,229	754,990	-259.11	It is mainly due to the preferential policy of canceling output VAT in Shenzhen.
Net profit	5,088,057	-78,173,441	106.51	It is mainly due to that the Company suffered loss from overall disposal of potential deficit-making elements in the same period of the previous year while the Company achieved normal profit-making thisyear.
Net increase/	-19,103,338	-226,463,876	91.56	It is mainly due recovery of short term
~~d~~ ~~f~~ ~~h~~				~~i~~ ~~t~~ ~~t b RMB 125~~ ~~illi~~

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Shenzhen Fiyta Holdgings	Shenzhen Fiyta Holdgings	Ltd.		2003 Annual Report, Summary
decrease of cash & cash equivalents				investment by RMB 125 million.

Reasons of Big Change in Overall Financial Position over the Previous Year √ applicable □ inapplicable

√applicable	□inapplic	able
Items	Amount in the report year (RMB)	Amount in the same period of previous year(RMB)	Growth/ drop rate (%)	Causes of Change
Short-term investment	54,879,747	131,121,176	-58.15	It is due to recovery of short term investment.
Accounts receivable	19,548,777	28,285,813	-30.89	It is mainly due to recovery of the accounts receivable and disposal of subsidiaries.
Deferred expenses	646,996	2,455,750	-73.65	It was mainly due to amortization of expenses in the reportperiod.
Long-term equity investment	4,885,000	7,684,188	-36.43	It is mainly due to that Shenzhen Harmony World Watches Center was put in the consolidated statements.
Construction in process	125,227,493	61,317,987	104.23	In the report period, RMB 63.96 million was invested in the hi-techpark.
Short-term Loan:	100,000	4,000,000	-97.50	It was mainly due to repayment of bank loans in the reportperiod.
Total assets	572,847,496	566,681,393	1.09	It was mainly due to that the Company earned profit amounting to RMB 5.088 million in the reportperiod.
Shareholders’ interests	515,456,362	510,368,305	1.00	It was mainly due to that the Company earned profit amounting to RMB 5.088 million in the reportperiod.

6.9 Notes to significant changes taken place in the production and operation environment, macro-policies, laws and regulations which have produced, are producing or shall produce material influence upon the Company’s financial position and operation results.

√ applicable □ inapplicable

1. Since implementation of CEPA between Mainland China and Hong Kong, timepieces made in Hong Kong can enjoy zero tariff treatment in the domestic market, which shall cause impact upon the timepiece industry of Mainland China. On the other hand, however, this policy shall also be favorable for the Company to make full use of the marketing platform of Harmony Top Brand Watches Chain Shops, enhance external exchange and cooperation, share the advantages of Hong Kong timepiece industry in terms of design, marketing and information and realize the Company’s operation strategy. Therefore, the impact from this policy upon the Company’s operation is quite limited.

2. Pursuant to the regulations of the state and Shenzhen concerning adjustment of tax policy, commencing January 1, 2003, the preferential policy on output VAT for the products made in Shenzhen Special Economic Zone was terminated, which has produced some impact upon the Company’s net profit. The net amount stated in the non-operating income of the Company’s subsidiaries resulted from the said preferential VAT policy on the output VAT in 2002 was RMB 4.95 million. The net profit impacted by termination of the said preferential VAT policy in the year 2003 is predicted to be RMB 6.46 million.

6.10 Realization of profit estimation

• applicable √ inapplicable

6.11. Fulfillment of Business Plan

□ applicable √ inapplicable

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

6.12. Application of the Proceeds Raised through Share Offering

√ applicable □ inapplicable

√applicable	□inapplicable	□inapplicable	□inapplicable	□inapplicable	□inapplicable
	In RMB ‘000
Total proceeds raised through share offering	209,718.00	Total proceeds used in the reportyear	77,525.00	Total proceeds accumulatively used	193,787.00
Committed projects	planned investment amount				compliance with planned progress and predicted earnings(Y/N)
		chane of	Actual	resulted
		g project (Y/N)	investment	revenue
establishment of chain shops of Harmony World Watches Center in China	112,000.00	Y	68,560.00	1,099.00	N
Construction of FIYTA Hi-tech Park	55,000.00	N	125,230.00	0.00	N
establishment of chain shops of Harmony World Watches Center in Southeast Asia	41,480.00	Y	0.00	0.00	N
Total	208,480.00	—	193,790.00	1,099.00	—
Note to failure to comply with the planned progress and earnings	(1) Ended the report period, 18 chain shops of Harmony World Watches Center had been set up in Shenzhen, Harbin, Urumqi, Wuhan, Datong, Changsha, Lanzhou, Kunming, Xi’an, Ningbo, Xuzhou, Qingdao, Shanghai, etc. with total investment of RMB 68,560 thousand; additional investment by RMB 13,570 thousand was made in the report period. In 2003, the Company realized a turnover amounting to RMB 99,683 thousand and net profit amounting to RMB 1,099 thousand. (2) Ended the report period, FIYTA Hi-tech BIndustrial Park had been completed and passed the acceptance inspection. At the moment, the indoor fitment is in process of preparation. In the report period, the Company made additional investment amounting to RMB 63,955 thousand, and the accumulated investment on this project is RMB 125,227 thousand. The building is going to be put into application in 2004. The year 2003 was the construction period and no investment yield would be produced.
Reason of Change and Change Procedures (based on specific projects)	(1) The Board of Directors has been insisting on the principle of taking the earning power as the priority in the past years and has focused its work on operation of the existing chain shops, decided to reduce the investment on construction of new chain shops of Harmony World Watches Center in China; on the other hand, with consideration of security in application of the proceeds and ensuring shareholders’ equity, the Board has decided to cancel the plan for investing construction of chain shops of Harmony World Watches Center in Southeast Asia. By contrast, FIYTA Hi-tech Industrial Park, another project in the investment plan with the proceeds raised through share offering besides the aforesaid two, enjoys a favorable location and promising development prospect. The Company has decided to make effective application of resources and increase the investment on this project. (2) The aforesaid investment improvement was reviewed and approved at the 9thmeeting of the 3rdBoard and the 5thmeeting of the 3rdSupervisory Committee dated April 16, 2002, and reviewed and approved by all the rights bearing votes at 2001 Shareholders’ General Meeting dated May 22, 2002. The public notice on the aforesaid information was published on Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn on the next day following the meeting.

Change of Projects √ applicable □ inapplicable

√applicable	□inapplicable
	In RMB ‘000
Total investment involved in the investment projects changed	84,720.00

－ 10 －

Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

Project after change	Originally committed projects	planned investment amount	Actual investment	resulted revenue	compliance with planned progress and predicted earnings(Y/N)
FIYTA Hi-tech Park	establishment of chain shops of Harmony World Watches Center in China	43,240.00	43,240.00	0.00	Y
FIYTA Hi-tech Park	establishment of chain shops of Harmony World Watches Center in Southeast Asia	41,480.00	26,987.00	0.00	Y
Total	—	84,720.00	70,227.00	0.00	—
Note to failure to comply with the planned progress and earnings	Ended the report period, FIYTA Hi-tech BIndustrial Park had been completed and passed the acceptance inspection. At the moment, the indoor fitment is in process of preparation. The building is going to be put into application in 2004. The year 2003 was the constructionperiod and no investmentyield would beproduced.

6.13. Investment with the Funds not Raised by Share Offering

□ applicable √ inapplicable

6.14 Explanation of the Board to the “Non-standard Opinion” Presented by the Certified Public Accountants

□ applicable √ inapplicable

6.15 Business Plan of New Year (if any)

√ applicable □ inapplicable

For 2004, the Company shall seize the opportunity of improving macro economy, positively meet the competition in the timepiece industry, insist on the work principle of “promoting development of the principal industry, enhancing brand promotion, constructing high-efficiency team and improving overall performances”, further concentrate the teamwork force, pool the wisdom and efforts of everyone, focus on the principal business with the two brands FIYTA and HARMONY, and improve the operating income and profit-making ability.

1. Attach importance on upgrading the value of FIYTA brand, reinforce the marketing and service network, make full use of the advantages of various serial products, represented by Spaceflight Watch, reinforce research and development of products, improve the sales information management system based on the distribution system.

2. Speed up the construction of HARMONY sales network, further optimize the network structure, strengthen the advantages of the region, practice big scale operation, further develop cooperation with top brands of Switzerland and leading brands and strengthen the international cooperation platform.

3. Reinforce the final construction and investment invitation work of FIYTA Hi-tech Park, take reasonable consideration of the short term and long term interests, timely regulate and optimize configuration of the resources of industrial projects, speed up development of the profit growth channels and construct the platform of sustainable development.

4. Enhance development of human resource and construction of corporate culture, introduce highly qualified personnel, continue to carry out whole-staff training program for the purpose of improving qualification of the whole staff.

Profit-making Prediction in the New Year (if any) □ applicable √ inapplicable

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

6.16 Profit Distribution or Converting Capital Public Reserve into Share Capital

As audited by Pricewaterhouse Coopers Zhongtian Certified Public Accountants according to the Chinese Accounting Standards (CAS) and Pricewaterhouse Coopers China Limited according to the International Accounting Standards (IAS), the Company’s net profit in the year 2003 was RMB 5,088,057 and RMB 6,132 thousand respectively . In accordance with the relevant provisions of the PRC Company Law and the Articles of Association, based on the net profit as audited and confirmed by Pricewaterhouse Coopers Zhongtian Certified Public Accountants for the year 2003 amounting to RMB 5,088,057, plus the undistributed profit at the year beginning amounting to RMB -61,264,720, the accumulative loss at the settlement was RMB 56,176,663. The Company has decided not to provide statutory surplus public reserve and the statutory public welfare fund, not to conduct profit distribution or convert the public reserve into share capital for the year 2003. This proposal is subject to the approval by 2003 Shareholders’ General Meeting.

§7 Important Events

7.1 Assets Acquisition □ applicable √ non-applicable

7.2 Sales of Assets √ applicable □ inapplicable

In RMB ‘000

counterpart and assets sold	Date of sale	Price	net profit contributed to the Company from the beginning of the report year to the date of sales	Gains/losses from the sales	Related transactio n (Y/N) (If yes, specify the pricing principle)
Transferring 66% equity in Shenzhen Tianfu Electronics Co., Ltd. to Shenzhen Zhongti Enterprise PlanningCo. Ltd.	Dec. 12, 2003	50.00	-81.50	-403.40	N
Transferring 91% equity in Shanghai Tianlin Xianmen Restaurant Co., Ltd. to Shaanxi Huayi Industry Co., Ltd., Jiang Wei, ZhangZhenda and Chen Jian	Aug. 26, 2003	2,300.00	-415.50	960.20	N
Transferring 99% equity in Shenzhen Pengmen Restaurant Co., Ltd. to Zhou Xiaogeng and Yu Haifeng	Apr. 30, 2003	500.00	-269.60	-183.20	N
Transferring restaurant business of Xi’an Fine Food and Entertainment City Co., Ltd. to Xi’an Tiangong Building Decoration Engineering Co.	May 28, 2003	2,300.00	0	0	N

Impact from acquisition, sales and the matters involved upon the continuity of the business and stability of the management of the Company

No impact was produced upon the continuity of the business and stability of the management of the Company

• 7.3. Material Guarantees

• applicable √ non-applicable

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Shenzhen Fiyta Holdging

port, Summary

7.4 Related Credits and Debts

• √ applicable □ inapplicable

√applicable□i	napplicable
			In RMB ‘000
Related Parties	Funds supplied to	the related parties	Funds supplied to the Company by the relatedparties
	Amount incurred	Balance	Amount incurred	Balance
Shenzhen Feiyu Artistic Timepiece Co.,Ltd.	0.00	5,472.50	0.00	0.00
Shenzhen Feitu New-Tech Development Co.	1,884.00	1,884.00	0.00	0.00
CATIC Shenzhen Corporation	0.00	1,500.00	0.00	0.00
Total	1,884.00	8,856.50	0.00	0.00

7.5 Assets Management on Commission

• √ applicable □ inapplicable

√applicable	□inapp	licable
				In RMB‘000
Mandatory	Amount	Term	Contractual earning	Actual earning	Amount recovered
Xinhua Trust & Investment Co., Ltd.	45,000.00	Oct. 8, 02 - Oct. 7, 03	3,600.00	3,600.00	48,600.00
Xinhua Trust & Investment Co., Ltd.	80,000.00	Nov. 1, 02 - Oct. 31,03	6,400.00	6,400.00	86,400.00
Total	125,000.00	—	10,000.00	10,000.00	135,000.00

7.6. Events of Commitment

• applicable √ inapplicable

7.7 Material Suits and Arbitration

• applicable √ inapplicable

7.8. Performance of Independent Directors

The Company has engaged three independent directors, taking one third of the members of the Board. In the report period, the independent directors exercised their powers authorized to them specified in the law and regulations of the state as well as the Articles of Association of the Company, brought their professional advantages into full play and expressed independent opinions on such significant events of the Company as replacing senior executives and important decision making which promoted the decisions and decision-making procedures of the Board more scientific and rational and protected the investors’, especially the public investors’ interests.

§8 Report of the Supervisory Committee

I. Work Summary

In the report year, the Supervisory Committee conducted supervision over the Company’s operation according to the law, the work of directors, managers and other senior executives, as well as financial inspection in accordance with the RPC Company Law, the PRC Securities Law and the Articles of Association of the Company.

2. In the report year, the Supervisory Committee had held three meetings

(1) The 1[st] meeting of the 4[th] Supervisory Committee was held on the 9[th] floor meeting room of FIYTA dated May 22, 2003.

The meeting elected Mr. Shao Kexiong Chairman of the Supervisory Committee. The

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

relevant public notice was published on Securities Times and Hong Kong Commercial Daily respectively on May 24, 2003.

(2) The 2[nd] meeting of the 4[th] Supervisory Committee was held on the 9[th] floor meeting room of FIYTA dated August 6, 2003.

The meeting reviewed and approved 2003 Semi-Annual Report and the Summary.The relevant public notice was published on Securities Times and Hong Kong Commercial Daily dated August 8 2003.

(3) The 3[rd] meeting of the 4[th] Supervisory Committee was held at the 3[rd] floor meeting room of FIYTA on November 20, 2003. The meeting reviewed and approved the Correction and Improvement Report based on the Routine Tour Inspections. The relevant public notice was published on Securities Times and Hong Kong Commercial Daily dated November 24, 2003.

1. Supervisors of the Supervisory Committee attended all the Board meetings held in 2003 as non-voting delegates, heard the relevant proposals and reports and learned the operation and significant decision-making process of the Company.

2. Supervisors of the Supervisory Committee also attended 2002 Shareholders’ General Meeting, addressed 2002 Work Report of the Supervisory Committee and expressed independent opinions on the Company’s production, operation, financial status and implementation of the duties of members of the Board and senior executives.

II. Independent Opinion of the Supervisory Committee

In 2003, the Supervisory Committee exercised fully the powers authorized according to the relevant laws and regulations of the state and the Articles of Association, conducted sustainable and effective supervisions over such issues as Company’s operation according to the law, work of the senior executives, application of the proceeds raised through share offering. Our independent opinions are summarized as follows:

1. The Board of Directors carried out the work carefully and with responsibility; decisions were made on scientific and reasonable ways. All the managerial systems were complete and implemented in a realistic way. The Board of Directors, the management and all the senior executives worked with due diligence, implemented resolutions of the Shareholders’ General Meeting and the Board meetings carefully, and never violated the laws and regulations of the state or the Articles of Association of the Company in implementing their duties and had done nothing harmful to the Company’s interest or the shareholders’ right and interest.

2. Both Pricewaterhouse Coopers Zhongtian Certified Public Accountants and Pricewaterhouse Coopers China Limited produced unqualified 2002 auditors’ report for the Company, which truly and objectively reflected the Company’s financial position and operation result of the year 2003.

3. In 2002, the Company adjusted the projects invested with the proceeds raised through share offering in 1997 by reducing the investment in Harmony Chain Shop Project by RMB 84,720 thousand and invested the amount to FIYTA Hi-tech Industrial Park Project. The aforesaid investment alteration was reviewed and approved at the 9[th] meeting of the 3[rd] Board and the 5[th] meeting of the 3[rd] Supervisory Committee, and reviewed and approved by all the rights bearing votes at 2001 Shareholders’

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

General Meeting. The application in 2003 complied with the relevant resolutions.

1. The Company carried out external transactions based on reasonable prices, had never been found involved in insider transaction. The related transactions were carried out in compliance with the legal procedures and the principle of market price, caused no harm to the minority shareholders’ equity or loss of the Company’s assets.

§ 9 Financial Report (attached hereafter)

9.3 Change in accounting policy, accounting estimation and way of accounting in comparison with the latest annual report

1. Change in the Accounting Policy.

Commencing July 1, 2003, the Company has been using the revised the Enterprise Accounting Standard – Post Balance Sheet Events. Before using the said standard, cash dividend was stated as liability when it was transferred out from shareholders’ interests during preparation of the profit distribution proposal by the Board of Directors. Since July 1, 2003, the cash dividend has been stated as liability during approval of the profit distribution proposal by the shareholders’ general meeting. The change in the accounting policy arising from use of the said standard is adjusted in a retroactive way. As a result, the undistributed profit amounting to RMB 12,465,900 as of December 31, 2001 was adjusted.

1. There was no change in the accounting estimation.

2. There was no change in the accounting methods.

3. 4 . Correction of Material Accounting Errors

In the report period, the Company found that the interest income amounting to MRB 2.3184 million from the fund deposited with the Financial Clearing Center of CATIC Shenzhen Corporation in 2002 exceeded the interest income from the 1-year term bank deposit by RMB 738,757 which was all used to offset the financial expenses of the very period instead of being stated in the capital public reserve. The Company has made correction of this accounting error and made retroactive adjustment of the relevant data in the report year. As a result of the said correction, the net loss as of the year 2002 increased by RMB 738,757 and the accumulative loss and the capital public reserve as of January 1, 2003 increased by RMB 738,757 after the retroactive adjustment.

9.4 Note to change in the consolidation range in comparison with the latest annual report.

1. In the report period, Shenzhen Feitu New-Tech Development Co., Shenzhen Pengmen Restaurant Co., Ltd., Shanghai Xianmen Restaurant Co., Ltd. and Shenzhen Tianfu Electronics Co., Ltd., four subsidiaries of the Company, were not consolidated due to liquidation or transfer;

2. In the report period, the Company controlled the financial and operation management of Shenzhen World Watches Center Co., Ltd. Therefore, commencing from the year 2003, this joint venture was consolidated as a subsidiary.

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary SHENZHEN FIYTA HOLDINGS LIMITED

(Joint stock limited company incorporated in the People’s Republic of China)

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

Notes Turnover 4 Cost of sales Gross profit Other operating income 7 Selling expenses Administrative expenses Gain on disposal of an associate Gain on sale of discontinuing operation 33 Loss on disposal of a subsidiary 34 Profit / (loss) from operations 5 Finance income /(costs) – net 8 Group profit / (loss) before tax Share of results of a joint venture before tax 15 Profit / (loss) before taxation Taxation (charge) / credit 9 Profit / (loss) after taxation Minority interests Net profit / (loss) for the year Dividends 28 Earnings / (loss) per share 10	2003 RMB’000 228,133 (139,435) 88,698 16,272 (57,173) (42,578) - 777 (403) 5,593 553 6,146 - 6,146 (859) 5,287 845 6,132 - RMB0.02	2002 RMB’000 219,493 (134,183)
		85,310 7,985 (56,046) (112,461) 650 - -
		(74,562) (456)
		(75,018) 319
		(74,699) 5,315
		(69,384) 382
		(69,002)
		12,466
		RMB(0.28)

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Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003

Notes ASSETS NON-CURRENT ASSETS Fixed assets 11 Investment properties 12 Construction in progress 13 Leasehold land payments 14 Investment in joint venture 15 Available-for-sale investments 16 Deferred tax assets 17 Other non-current assets Total non-current assets CURRENT ASSETS Inventories 18 Trade receivables 19 Due from related companies 20 Prepayments and other receivables 21 Trading investments 22 Designated deposits 23 Cash and cash equivalents Total current assets TOTAL ASSETS EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 24 Reserves 25 Accumulated losses Total shareholders’ equity MINORITY INTERESTS NON-CURRENT LIABILITIES Deferred income 26 CURRENT LIABILITIES Trade payables Staff welfare payable Tax payable Accruals and other current liabilities Short-term loans 27 Total current liabilities TOTAL EQUITY AND LIABILITIES	2003 RMB’000 40,142 16,492 125,227 16,464 - 4,885 16,731 2,507 222,448 152,649 19,549 1,500 33,984 4,314 51,004 117,527 380,527 602,975 249,318 305,627 (36,975) 517,970 7,273 3,000 34,505 18,677 311 21,139 100 74,732 602,975	2002 RMB’000
		45,725 17,534 61,318 16,925 2,799 4,885 16,125 2,904
		168,215
		118,230 28,286 4,049 32,212 6,121 125,000 111,302
		425,200
		593,415
		249,318 305,627 (43,107)
		511,838
		6,718
		-
		28,603 18,839 (359) 23,776 4,000
		74,859
		593,415

－ 17 －

Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED 31 DECEMBER 2003

At 1 January 2002 Dividends relating to 2001 Net loss for the year At 1 January 2003 Net profit for the year At 31 December 2003	Note 28	Share capital RMB’000 249,318 - - 249,318 - 249,318		Reserves	Sub-total RMB’000 305,627 - - 305,627 - 305,627	Retained earnings/ (accumulated losses) RMB’000 38,361 (12,466) (69,002) (43,107) 6,132 (36,975)	Total
			Capital reserve RMB’000 191,108 - - 191,108 - 191,108	Statutory reserves RMB’000 114,519 - - 114,519 - 114,519
							RMB’000 593,306 (12,466) (69,002)
							511,838 6,132
							517,970

－ 18 －

Shenzhen Fiyta Holdgings Ltd. 2003 Annual Report, Summary

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003

Notes Cash flows from operating activities Cash (used in ) / generated from operations 29 Interest paid Tax paid Net cash flows (used in) / from operating activities Cash flows from investing activities Purchases of fixed assets Additions to construction in progress Sales proceeds from disposals of fixed assets Proceeds from disposal of leasehold land payments Proceeds from sale of discontinuing operation 33 Disposal of subsidiaries, net of cash disposed 34 Disposal of an associate Dividends received from non-current investments Proceeds from sale of trading investments Purchase of trading investments Purchase of available-for-sale investments Investment income form designated deposit Increase of designated deposits Subsidiary in voluntary liquidation and not consolidated Interest received Government grants received Net cash flows from / (used in) investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Dividends paid to group shareholders Net cash flows used in financing activities Increase / (decrease) in cash and cash equivalents At start of year At end of year	2003 RMB’000 (11,010) - (795) (11,805) (8,048) (63,955) 1,327 - 2,800 22 - 138 2,690 - - 10,000 73,996 (842) 802 3,000 21,930 100 (4,000) - (3,900) 6,225 111,302 117,527	2002 RMB’000 33,069 (3,218) (3,643)
		26,208
		(4,768) (46,754) 1,807 6,402 - - 4,000 138 6,337 (7,677) (1,500) - (125,000) - 2,882 -
		(164,133)
		100,000 (170,000) (12,466)
		(82,466)
		(220,391) 331,693
		111,302

－ 19 －