FIYTA Precision Technology Co., Ltd. — Annual Report 2005

Apr 20, 2006

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

SHENZHEN FIYTA HOLDINGS LTD. 2005 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, 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 Baoying director, failed to be present at the Board meeting due to work requirement..

1.4 Both Pricewaterhouse Coopers Zhongtian Certified Public Accountants and PRICEWATERHOUSECOOPERS CHINA LTD 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.

1.6 Except that the Financial Report (§9.2) 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 S. Road 1, Nanshan District
Office Address:	20th Floor, FIYTA Technology Building, Gaoxin S. Road 1, Nanshan District
Post Code	518057
Internet Website	http:// www. fiyta.com.cn

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

E-mail szfiyta@public.szptt.net.cn

2.2 Communication Information

	Secretaryof the Board	Securities Affairs Representative
Name	Hao Huiwen	Chen Zhuo
Address	20th Floor, FIYTA TechnologyBuilding, Gaoxin S. Road 1, Nanshan District
Tel	0755－86013992 86013669
Fax	0755-83348369
E-mail	investor@fiyta.com.cn

§3 Financial Highlights

3.1 Accounting Data Summary

In RMB

Items	2005 (report year)	2004 (previous year)	Year-on-year increase/ decrease (%)	2003
Principal business income	341,504,786.91	278,246,963.00	22.73%	228,133,082
Total profit	18,563,592.41	3,523,936.00	426.79%	5,708,012
Net profit	16,006,999.87	1,907,880.00	738.99%	5,088,057
Net profit after deduction of non- recurring loss/gain	17,181,233.23	2,473,894.00	594.50%	-6,775,168
Net cash flows arising from operating activities	-14,006,618.19	-24,942,143.00	43.84%	-11,746,162
	End of 2005 (End of the report year)	End of 2004 (End of the previous year)	Year end -on-year end increase/ decrease (%)	End of 2003
Total assets	621,275,547.20	627,537,297.71	-1.00%	572,847,496
Shareholders’ equity (excluding minority equity)	533,371,239.36	517,364,239.49	3.09%	515,456,362

3.2 Financial Data Summary

In RMB

Items	2005 (report year)	2004 (previous year)	Year-on-year increase/ decrease (%)	2003
Earnings per share	0.064	0.008	738.99%	0.020
Net assets-income ratio	3.00%	0.37%	Decrease by2.63 percentage	0.99%
Net assets-income ratio based on the net profit after deducting non-recurring gains/ loss	3.22%	0.48%	Increase by 2.74 percentage	-1.31%

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

Net cash flows per share arising from operating activities	-0.056	-0.100	43.84%	-0.047
	End of 2005 (End of the report year)	End of 2004 (End of the previous year)	Year end -on-year end increase/ decrease (%)	End of 2003
Net assets per share	2.139	2.075	3.09%	2.067
Net assets per share after adjustment	2.087	2.030	2.81%	2.030

non-recurring gain/loss items

• √ applicable □ inapplicable

Non-recurring gain and loss items	Amount In RMB
Income from disposal of fixed assets	296,008.09
Carry-back of the reserves for devaluation provided in the previous years.	430,222.22
Losses from short term investments	-2,058,204.69
Non-operating revenue & expenditure	98,557.02
Amount affected by the income tax	59,184.00
Total	-1,174,233.36

3.3 Differences between Domestic and International Accounting Standards

√ applicable □ inapplicable

	In RMB ‘000	In RMB ‘000
	Domestic Accounting Standard (CAS)	International Accounting Standard (IAS)
Net profit	16,007	15,553
Note to the discrepancies	Net profit as audited by Yuehua Certified Public Accountants Co., Ltd. 16,007 Adjustment on provision for bad debt -454 Net profit audited by Morison International according to IAS. 15,553

§4 Changes in Share Capital and Particulars about Shareholders

4.1 Change in Shares

1 Change in Shares
			In Shares
	Before change	Increase/ Decrease (+ /-) as ofthe year	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
Including: senior executives’ shares	48,211	0	48,211
2) Foreign shares listed domestically	58,320,000	0	58,320,000

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

	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

Total shareholders ended the 20895 report period

Shares	Shares
Total shareholders ended the report period		20895
SharesHeld byTop10 Shareholders
Shareholders	Increase/De			Number of		Shareholding	Type		Shares pledged or frozen
	crease in the			shares held		proportion	(negotiable/non-ne
	year			at yearend		(%)	gotiable
CATIC SHENZHEN HOLDINGS LTDS.	0			130,248,0 00		52.24	Domestic legal person shares		0
Wu Minghong	unknown			815,300		0.33	Listed A shares		unknown
Zeng Ying	537,490			792,490		0.32	Listed B shares		unknown
CHAN KEUNG	5,900			774,883		0.31	Listed B shares		unknown
KUNG NGAI HIN	522,200			629,820		0.25	Listed B shares		unknown
Ou Yanping	49,157			500,458		0.20	Listed B shares		unknown
Zhang Jiansheng	unknown			457,400		0.18	Listed B shares		unknown
Lin Hongbo	0			362,880		0.15	Listed B shares		unknown
China Pingan Insurance (HK) Co., Ltd.	0			359,070		0.14	Listed B shares		unknown
Xue Peiming	0			336,800		0.14	Listed B shares		unknown
Shares held by the top ten shareholders
Shareholders (in full name)			Quantity of negotiable shares held at the end ofthe period					Types (A-, B- or H-shares, or others)
Wu Minghong					815,300			Negotiable A-shares
Zeng Ying					792,490			Negotiable B-shares
CHAN KEUNG					774,883			Negotiable B-shares
KUNG NGAI HIN					629,820			Negotiable B-shares
Ou Yanping					500,458			Negotiable B-shares
Zhang Jiansheng					457,400			Negotiable B-shares
Lin Hongbo					362,880			Negotiable B-shares
China Pingan Insurance (HK) Co., Ltd.					359,070			Negotiable B-shares
Xue Peiming					336,800			Negotiable B-shares
Lin Zhihua					305,700			Negotiable B-shares
Relationship/concerted action among the above shareholders					The Company has never found any business relations among the top ten shareholders 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

4.3.2 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.

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

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.

4.3.3 Diagram of the controlling relationship between the Company and actual controller

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CATIC Shenzhen Corporation
Holding 62.31%
CATIC SHENZHEN HOLDINGS LTDS.
Holding 52.24%
----- End of picture text -----

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SHENZHEN FIYTA HOLDINGS LTD.
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§5 Directors, Supervisors and Senior Executives

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

Name	Title	Sex	Age	Office Term	Numb er of shares held at year beginn ing	Numb er of share s held at year end	Re aso n of Ch an ge	Payme nt from the Compa ny(10 k yuan)	Payment from shareholder or other revlant parties
Wu Guangquan	Chairman of the Board	male	43	May, 2003 to May, 2006	0	0	—	0.00	YES
Lai Weixuan	Vice-Chairma n of the Board	male	41	May, 2004 to May, 2006	0	0	—	0.00	YES
Sui Yong	Director	male	47	May, 2003 to May, 2006	0	0	—	0.00	YES
Wang Baoying	Director	male	41	May, 2005 to May, 2006	0	0	—	0.00	YES
Xu Dongsheng	Director and General Manager	male	39	May, 2003 to May, 2006	0	0	—	57.00	NO
Zhu Gensen:	Director	male	57	May, 2003 to May, 2006	0	0	—	25.53	NO
Cai Zheng	Independent director	male	64	May, 2003 to May, 2006	0	0	—	3.00	NO
Hua Xiaoning	Independent director	male	42	May, 2003 to May, 2006	0	0	—	3.00	NO
Guo Wanda	Independent director	male	40	May, 2005 to May,	0	0	—	3.00	NO

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

				2006
Shao Kexiong:	Chairman of Supervisory Committee	male	55	May, 2003 to May, 2006	0	0	—	0.00	YES
Zhang Songhua:	Supervisor	male	52	May, 2003 to May, 2006	0	0	—	19.30	NO
Tang Boxue	Supervisor	male	44	Dec, 2005 to May, 2006	0	0	—	13.60	NO
Lu Binqiang:	Deputy General Manager	male	44	May, 2003 to May, 2006	48210	48210	-	31.30	NO
Li Dehua:	Deputy General Manager and Chief Accountant	male	45	May, 2003 to May, 2006	0	0	—	31.30	NO
Li Bei	Deputy General Manager	male	50	May, 2003 to May, 2006	0	0	—	31.30	NO
Fang Juan	Deputy General Manager	fem ale	46	Jan, 2004 to May, 2006	0	0	—	31.30	NO
Hao Huiwen:	Secretary of the Board	male	37	May, 2003 to May, 2006	0	0	—	25.53	NO
TotaL								275.16

§6 Report of the Board of Directors

6.I Overall Operation Discussion and Analysis

	6.I Overall Operation Discussion and Analysis	6.I Overall Operation Discussion and Analysis	6.I Overall Operation Discussion and Analysis	6.I Overall Operation Discussion and Analysis
	I. Operation Review FIYTA is a domestic renowned timepieces manufacturer and world well-known watches chain retailers. In the year 2005, the Company positively carried forward the strategic program of “Viola tricolor” and lead various businesses wit the brand strategy according to the Company’s guiding principle of “focusing on brand molding, intensifying teamwork, reinforcing system operation and increasing revenue and creating profit” and reinforced various managerial work. During the report period, the Company unceasingly improved and cohered the teamwork through information sharing, training reinforcement, business learning, etc. In addition, based on the Company’s practical conditions, the Company positively introduced and carried out “Balanced Score Card” and “Six Sigma” Management, devoted great efforts on 5 S management; developed innovative sales channels through development of self-owned brands and unceasingly deepened and developed professional cooperation both at home and abroad. In the report period, the Company achieved a quite good operation result in various businesses. FIYTA watches and Harmony Famous Brand Watches chain shops have realized brand operation development and earning power upgrading. Meanwhile, the property operation has also brought about and added profit to the Company.
	Items	2005	2004	Year-on-year
	Principal business income	341,504,786.91	278,246,963.00	~~I~~ ~~/D~~ ~~(%)~~ 22.73%
	Principal business profit	129,173,020.42	101,141,752.00	27.71%
	Total profit	18,563,592.41	3,523,936.00	426.79%
	Net profit	6 16,006,999.87	1,907,880.00	738.99%

	Shenzhen Fiyta Holdgings Ltd.	Shenzhen Fiyta Holdgings Ltd.	2005 Annual Report, Summary	2005 Annual Report, Summary
	Net profit	16,006,999.87	1,907,880.00	738.99%
	In the report period, the income from the principal businesses in the report period was RMB 341,505 thousand, a 22.73% growth over the same period of the previous year, which was mainly due to big growth in income from retails of famous brand watches and properties. The Company realized a total profit amounting to RMB 18,564 thousand and net profit amounting to RMB 16,007 thousand, growing respectively by 426.79% and 738.99% over the same period of the previous year, which was mainly due to big growth of earning power and income from the Company’s watch business and properties. At the end of the report period, the Company’s total assets was RMB 621,276 thousand and shareholders’ equity was RMB 533,371 thousand which respectively decreased by 1.00% and increased 3.09% over the same period of the previous year. 1. FIYTA watches In the report period, the Company, starting from the brand strategy, continuously enhanced the customer orientation, leaped from the misunderstanding of low level competition of home-made watches, devoted great efforts on carrying out integrated marketing and promotion by means of “Shenzhou Six Spacecraft” space flight watches and thus the brand identity has been further upgraded. Meanwhile, the Company exerted great efforts to push ahead the shift from price promotion to value promotion and achieved a good result by taking various measures in resolute implementation of the sales terminal: FIYTA watch, following the honorable title of “China Made Top Brand Watch” granted in 2002, was again granted the title of “China Made Top Brand Watch by the General Administration of Quality Supervision, Inspection and Quarantine of the People’s Republic of China in the report period. On October 12, 2005, the Company successfully developed work watch for astronauts of Shenzhou Six Spacecraft which accompanied Shenzhou Six Manned Spacecraft in the space. Through pile upon pile of tests, the watches successfully finished the task. They have further established the international position of FIYTA among the world three principal space flight watches, powerfully consolidated the brand identity of FIYTA watches in terms of leading technology and exquisite quality, which have endowed FIYTA Brand with lofty significance of representing the development level of the Chinese time keeping culture. Afterwards, National museum of China held a collection ceremony in Beijing, and permanently collected “FIYTA Space Flight Watch, China’s National Treasure of Timepiece” and “Limited Treasured Up Set of China’s National Treasure of Timepiece”. The Company further enhanced the coordinative efficiency improvement in development, production and sales of FIYTA watches, streamlined the research and development process, constructed and expanded the R & D design platform and improved the encouragement of the designers’ team. In 2005, the Company successfully held the Second “FIYTA Cup Watch Design Competition” and “China International Summit of Art, Watch and Design. The design competition collected 289 pieces of works for competition from 26 colleges and institutions both at home and abroad.Colani , aworld famous design master, Ding Shaoguang, a famous American visiting artist, Lasik, President of the Prospects Department of DaimlerChrysler AG, and other VIPs participated in prizes awarding and achieved extensive effect and good result. The Company took hold of the general trend towards medium and high grade and reinforced the development of medium and high price products and mechanical watches; continued to keep the leading position of technology in the timepiece field. The Company has been frequently involved in preparation and revision of the national timepiece standard and timepiece industrial standard. In terms of sales management, the Company focused on achievements orientation by means of work reporting of the managers and assessment of the salespersons, continuously made personnel adjustment, recruited personnel through various channels and improved the criteria of recruitments; The Company increased investment in key regions, improved the special counters and properties for terminal identity, and upgrade the terminal execution power by means of characteristic activities, such as enhancement of work plan of salespersons and shop patrol record, promotion of personalized services, communications with customers, etc., and realized information share by means of mobile phone message platform, current market price overview, communication with customers and special surveys, etc.; unceasingly carried out sales training management and effectively upgraded the capacity of terminal sales interception. In the first half year, the Company realized sales income amounting to RMB 117,804 thousand from FIYTA watches, a small drop over the same period of the previous year. However, as the

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

sales volume of medium and high grade watches increased by a big margin and the costs was brought under good control, the Company had not only fulfilled the preset profit earning objective but also further upgraded the brand competitiveness. In 2005, FIYTA Watch has been honorably rewarded as “No. 1 Product of the Same Kind in the National Market” issued by China Industrial Information Statistic Information Delivery Center of the State Bureau of Statistics successively for 11 years. The retail unit price of FIYTA watch also rose by a big margin.

2. Retail of Famous Brand Watches

In the report period, the Company enthusiastically expanded and optimized the Harmony famous watch sales network, insisted on the operation philosophy of “integrity, warmness, professional and standardization”, based on the conception of fanning out from point to area, enhancing regions, by taking the flagship shops in regions as leaders, putting forth effort to develop brand franchised shops and high grade chain shops and developing shops in shop in a proper way, and improved the identity and competitiveness by means of setting up new shops, optimizing the network, reforming the old shops, managing VIP customers, etc. Meanwhile, the Company unceasingly deepened the cooperation with the international brand. The Company has established direct cooperation with Rolex Group. Such top brand groups as Richemont, Swatch Group highly appraised the Company’s development and management and offered positive support to the Company; the global and Asia-Pacific presidents of 20 global eminent brands, including Raymond Weil, Girard-Perregaux, IWC, Ulysse Nardin, Omega, Longines, etc. paid visits to the Company in succession, which has not only further richened the resources for development of the Company, but also enhanced the influential force of Harmony Brand.

During the report period, Harmony World Watches Center newly established 5 high grade shops, including Xidan Shop in Beijing, Shanghai Omega Flagship Shop, Hangzhou Lixing Shop, Shanghai Longzhimeng Shop, etc. So far, there have been 41 chain shops in various big and medium shops throughout the country. In 2005, Harmony World Watches Center still kept rapid growth trend. The revenue from retail of famous watches amounted to RMB 180,271 thousand, a 39.45% growth over the same period of the previous year and net profit amounted to RMB 2,446 thousand, a 41.88% growth over the same period of the previous year.

3. Property Management

In the report period, FIYTA Technology Building located in Shenzhen Hi-tech Park and FIYTA Building located within Shenzhen Huaqiangbei Business Zone experienced a good operation status. The housing lease rate of both FIYTA Building and FIYTA Technology Building at the end of the report year was 100% and the total rental income in the report year amounted to RMB 41,132 thousand. In addition, the Company got excellent results in the assessments of the property management work of FIYTA Technology Building at the district, municipal and provincial levels.

II. Development Prospect

1. Development Trend of the Industry and the Future Competition Pattern

Over the years, with continuous improvement of China’s macro economy, people’s disposable income has been growing, which has created a consumption foundation for watch market; meanwhile, consumers’ demand of time keeping function of a watch, specially a medium or high grade watch is being weakened while the symbolic characteristic of a watch is more and more outstanding. A medium or high grade watch has progressively become a symbol of life quality and taste. Such good economic environment and consumption demand are helpful to support and consolidate the high and medium grate position of FIYTA watches and development of Harmony famous watch chain sales network.

2. Development Strategy and Operation Plan in 2006

In 2006, the Company shall intensify the cooperation, enhance communication and carry out work in a creative way according the guideline of “carrying through the company’s philosophy, improving the quality of manpower, reinforce brand integration and devote efforts to innovative development so as to upgrade the Company’s operation efficiency and profit-earning level. On the basis of steadily developing FIYTA Brad and keeping the biggest home-made watch market share position, the Company shall focus on enhancing fostering of high-grade band and starting establishment of fashionable brand. On the basis of consolidating and adjusting Harmony’s existing network points, continue to establish 6 to 10 new chain shops in key cities, unceasingly improve the economic beneficial result; on the basis of stablising the existing tenants of the property, reinforce the communication with the customers and control the operation risk in an

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

effective way.

2. Fund for Development Strategy and Application Plan

In 2006, the Company expects to invest RMB 90 million for expanding and newly setting up Harmony Famous Brand Watches chain shops. At present, the Company’s asset-liability ratio is quite low and the funds may be raised through short term loan from bank.

3. Risks in Connection with Strategic Operation Objectives

(1) The market competition of the timepiece industry the Company is engaged in is quite intense; the rising trend of sales of imported watches has been continuing; the scale of China-made watches is generally not big and majority of them has been in low level competition. With upgrading of the position of partial high-grade shopping centers, China-made watches have been progressively marginalized. Such products are involved in the risk of shrinkage in their sales channels.

Directing against such development trend, the Company has successfully leaped from the misunderstanding about China-made watches and promoted value based marketing through unceasingly upgrading the brand value and offering value added services satisfactory to the customers and improved FIYTA brand identify. The Company has consolidated the high and medium grade sales channels by using its own advantages, richened and developed the sales channels through Harmony Famous Brand Watches chain shops, Henglianda and other domestic business chain network, and participated in the competition of the domestic famous brand watch market.

(2) In order to comply with the rapid change of the market, the Company has to unceasingly weed through the old and bring forth the new. As a result, the expenses on R & D, promotion and inventories increased somewhat, which has also brought about the risk of the capital in occupancy of funds.

The Company has positively taken countermeasures, reinforced the survey on customers, made deepened analysis on customers’ demand improved the successfulness of the products by means of unfolding the quality functions; pushed ahead standardization of products, conducted centralized procurement and reduced the risks; enhanced the control over the service life cycle of products, established and improved the product withdrawal mechanism; adjusted and improved the sales management system, effectively improved the fund utilization efficiency and reduced the risk of business operation.

6.2 Principal Businesses Classified Based on Sectors and Products

In RMB 10‘thousand

Based on sectors or products				Increase/decr ease Growth f i	Increase/decr ease of costs of principal business over the previous year（％）	Increase/decr ease of gross profit rate over the previous year (%)
	Income from
			Gross	o ncome f iil
	principal	Costs of principal
			interest	rom prncpa bi
	business	business
			rate (%)	usness over the previous year（％）
Industry	12,010.22	5,835.00	51.42%	-1.26%	-9.07%	4.18%
Trading	18,027.09	14,185.23	21.31%	39.45%	34.69%	2.78%
Property management	4,113.17	892.00	78.31%	50.42%	59.92%	1.29%
Incl.: related transactions	－	－	－	－	－	－
Sales of FIYTA watches	11,780.40	6,186.76	47.48%	-3.07%	-3.56%	0.26%
Sales of foreign famous watches	18,027.09	14,185.23	21.31%	39.45%	34.69%	2.78%
Incl.: related transactions	－	－	－	－	－	－

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

6.3 Principal Businesses Based on Regions

		In RMB 10‘thousand
Regions	principal business income	Increase/decrease of revenue from the principal businesses over the previous year (%)
Northeast China	3,994.74	16.53%
North China	2,740.01	-6.42%
Northwest China	6,681.57	38.91%
East China	4,181.49	19.22%
Southwest China	1,267.13	-10.83%
South China	10,942.54	21.77%

6.4 Application of the Proceeds Raised through Share Offering

□ applicable √ inapplicable

6.5 Investment with the Funds not Raised by Share Offering

• √ applicable □ inapplicable In RMB 10‘thousand

Name of project	Investment	Process of project	Project benifit
Harmony Famous Brand Watches chain shop project	5,592.00	In the report period, Harmony Famous Brand Watches Center set up another 5 new chain shops. At the end of the year, there were altogether 41 chain shops through out medium and big cities in China.	244.6
Beijing Henglianda Timepiece Co., Ltd.	500.00	Shenzhen Harmony World Watches Center and Beijing Huntly Swiss Watch Co., Ltd. respectively contributed RMB 5 million taking 50% of the equity respectively and jointly set up Beijing Henglianda Timepieces Co., Ltd. Henglianda, with registered capital of RMB 10 million, was mainly engaged in contracting the timepieces zones of shopping centers throughout China to sell both imported and China-made watches.	-37.5
Total	6,092.00

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

□ applicable √ inapplicable

6.7 Profit Distribution or Converting Capital Public Reserve into Share Capital

As audited by Yuehua Certified Public Accountants Co., Ltd. according to the Chinese accounting Standards (CAS) and Morison International according to the International Accounting Standards (IAS), the Company’s net profit of the consolidated statement in the year 2005 was RMB 16,006,999.87 and RMB15,553 thousand respectively .

1. Profit Distribution

As the Company earned small net profit in the year 2005 which still has to be used to make up for the losses of previous years. Therefore, the Company has decided not to provide statutory surplus public reserve and the statutory public welfare fund, not to conduct profit distribution in cash/bonus shares or convert the public reserve into share capital for the year 2005.

1. Making up for Losses with Surplus Public Reserve

In accordance with the relevant provisions of the PRC Company Law and the Sources and Procedures for Making Up for Losses and Information Disclosure and based on the Company’s profit and practical conditions of business development, the Company plans to make up for the

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Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

losses with the retained surplus public reserve for the year 2005. As audited by Yuehua Certified Public Accountants, ended December 31, 2005, the Company’s consolidated net profit was RMB 16,006,999.87, plus the retained earnings at the year beginning amounting to RMB -54,268,783.68, the Company’s accumulative retained earnings was RMB -38,261,783.81; the parent company’s net profit was RMB 15,093,272.59, plus the retained earnings amounting to RMB -46,906,763.09 at the year beginning, the accumulative retained earnings amounted to RMB -31,813,490.50. The Company plans to use the surplus public reserve amounting to RMB 31,813,490.50 to make up for the retained earnings. After making up for the losses, the Company’s consolidated retained earnings shall be RMB -6,448,293.31 and the parent company’s retained earnings shall be RMB 0.

The independent directors of the Company approved the above proposal of the Board of Directors. In their opinion, the proposal complies with the Company’s actual development conditions; the proposal needs to be approved by 2005 Shareholders’ General Meeting.

The company is making profit in the report term but not yet have any dividend plan. √ applicable □ inapplicable

Provide reason for not undertaking Profit Distribution when Using and planning of retained the company is making profit during the report term profit As the Company’s net profit was small, and in addition, had The profit generated this term will to make up losses of previous years with the profit be used to cover previous losses. continuously.

§7 Important Events

7.1 Assets Acquisition

□ applicable √ inapplicable

7.2 Sales of Assets

□ applicable √ inapplicable

7.3. Material Guarantees

□ applicable √ inapplicable

7.4 Significant Related Transaction

7.4.1 Related Sales And Purchasing

√ applicable □ inapplicable

√applicab	le□inappl	icable	icable
Related Parties	Relationship with the Related Parties	Products sold and labor services provided to the related parties		Products purchased and labor services received from the related parties
Shenzhen CATIC Property Managemen t Co., Ltd.	A subsidiary of the Company’s actual controller	Amount in transaction	Proportion in the amount of the similar transactions	Amount in transaction	Proportion in the amount of the similar transactions
		－	－	RMB 2.7516 million	100％
Shenzhen Rainbow Supermark et Co., Ltd.	A subsidiary of the Company’s actual controller	－	－	RMB 0.9699 million	10％

7.4.2 Credits and Debts Interchange

• √ applicable □ inapplicable

Funds supplied to the related parties Funds supplied to the Company by the Related Parties related parties

In RMB ‘000

11

Shenzhen Fiyta Holdgings Ltd.	Shenzhen Fiyta Holdgings Ltd.		2005 Annual Report, Summary	2005 Annual Report, Summary
	Amountincurred	Balance	Amountincurred	Balance
CATIC Shenzhen Corporation	-150.00	0.00	0.00	0.00
Total	-150.00	0.00	0.00	0.00

7.5 Assets Management on Commission

□ applicable √ inapplicable

7.6. Events of Commitment

□ applicable √ inapplicable

7.7 Material Suits and Arbitration □ applicable √ inapplicable

§8 Report of the Supervisory Committee

I. Work Summary

1. 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, application of the proceeds raised through share offering and related transactions in accordance with the RPC Company Law and the Articles of Association of the Company.

2. In the report year, the Supervisory Committee held altogether two meetings.

(1) The 6[th] meeting of the Fourth Supervisory Committee was held on April 13, 2005. The meeting adopted the following resolutions:

① 2004 Work Report of the Supervisory Committee; ② Proposal on Regular Related Transactions in 2005; ③ 2004 Annual Report.

(2) The 7[th] meeting of the Fourth Supervisory Committee was held on August 8, 2005. The meeting reviewed and approved 2005 Semi-Annual Report and the Summary.

1. Supervisors of the Supervisory Committee attended all the Board meetings held in 2005 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 2004 Shareholders’ General Meeting, addressed 2004 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 2005, 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 and the work of the senior executives. Our independent opinions are summarized as follows:

1. The Board of Directors worked carefully with responsibility and the Company made decisions in a scientific and rational way. The Company had complete and sound internal control regulations and implemented these regulations in a practical way. Directors, the management and all 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 doing their duties and had done nothing harmful to the Company’s interests or the shareholders’ right and interests.

2. Both Yuehua Certified Public Accountants Co., Ltd. and Morison International produced a

12

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

standard and unqualified auditors’ report for the Company, which truly and objectively reflected the Company’s financial position and operation result of the year 2005.

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 without any harm to the minority shareholders’ equity or caused loss of the Company’s assets.

§ 9 Financial Report

9.1 Auditors’ Opinion Standard Unqualified Auditors’ Report

9.2 Financial Statement (attached hereafter)

9.3 In comparison with the latest annual report, there is no change in the accounting policy and accounting estimation or correction of accounting error in the report period.

9.4 There is no material accounting error in the report period.

9.5 In comparison with the latest annual report, there is one change in the consolidation range in the report period.

Xi’an Haomen Restaurants & Recreation Co., Ltd. stopped business activities before the end of 2003. It was not consolidated the Group’s consolidated statements commencing from 2005.

13

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

9.2 Financial Statement

CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005

Turnover Cost of sales Gross profit Other revenue Selling expenses Administrative expenses Other operating expenses Profit from operations Finance costs Profit before taxation Income tax Profit for the year Attributable to: Equity holders of the parent Minority interests Earnings per share Basic	Notes 6 6 7 9 11 12	2005 RMB’000 341,505 (212,332) 129,173 4,266 (59,041) (50,512) (4,720) 19,166 (1,056) 18,110 (2,712) 15,398 15,553 (155) 15,398 RMB0.062	2004 RMB’000 278,247 (177,105) 101,142 3,391 (55,225) (35,617) (10,282) 3,409 (323) 3,086 (2,818) 268 205 63 268 RMB0.001

14

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

CONSOLIDATED BALANCE SHEET

AT DECEMBER 31, 2005

ASSETS Non-currents assets Property, plant and equipment Investment properties Construction in progress Prepaid lease payments Available-for-sale investments Deferred tax assets Other non-current assets Current assets Inventories Trade receivables Bills receivable Other receivables and prepayments Amount due from an ultimate company Tax recoverable Financial assets at fair value through profit or loss Bank balances and cash Total assets	Notes 13 14 15 16 17 18 19 20 21 22 23	2005 RMB’000 77,182 181,174 135 15,081 10,386 15,466 1,554 300,978 233,861 27,205 550 32,551 - 1,403 4,949 47,711 348,230 649,208	2004 RMB’000 70,291 187,600 1,290 15,542 4,885 15,466 1,947
			297,021
			203,983 18,730 - 36,674 1,500 - 11,819 84,792
			357,498
			654,519

15

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

CONSOLIDATED BALANCE SHEET – (continued)

AT DECEMBER 31, 2005

EQUITY AND LIABILITIES CAPITAL AND RESERVES Registered capital Reserves Equity attributable to equity holders of the parent Minority interests Total equity Non-current liabilities Deferred income Current liabilities Trade payables Staff welfare payable Other payables and accruals Amount due to a related company Amount due to an invested company Tax payable Bank loan - secured Total liabilities Total assets less current liabilities	Notes 26 27 24 24 25	2005 RMB’000 249,318 284,410 533,728 7,503 541,231 3,000 28,992 18,820 24,641 215 12,309 - 20,000 104,977 107,977 649,208	2004 RMB’000 249,318 268,857 518,175 7,336 525,511 3,000 65,264 18,713 21,582 - - 449 20,000 126,008 129,008 654,519

16

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2005

Share capital RMB’000 Balance at December 31, 2003 249,318 Net profit for the year - Balance at December 31, 2004 249,318 Net profit for the year - Transfer from statutory reserve to accumulated losses - Balance at December 31, 2005 249,318	Capital reserves RMB’000 191,108 - 191,108 - 191,108	Statutory reserves RMB’000 114,519 - 114,519 - (31,813 ) 82,706	(Accumulated losses)/ Retained profits RMB’000 (36,975 ) 205 (36,770 ) 15,553 31,813 10,596	Total RMB’000 517,970 205
				518,175 15,553 -
				533,728

17

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2005

Cash flows from operating activities Profit before taxation Adjustment for: Amortisation of prepaid lease payments Amortisation of non-current assets Depreciation of investment properties Depreciation of property, plant and equipment Dividend income Gain on disposal of property, plant and equipment Gain on disposal of financial assets at fair value through profit or loss Fair value loss on financial assets at fair value through profit or loss Reversal of inventory obsolescence Investment income from designated deposits Interest paid Interest income Provision for impairment loss on available-for-sale investments Provision for obsolescent inventory Provision for doubtful debts Operating profit before working capital changes Increase in inventories (Increase)/Decrease in trade receivables Increase in bill receivable Decrease/(Increase) in other receivables and prepayments Decrease in amount due from a related company Increase in amount due to a related company (Decrease)/Increase in trade payables Increase in staff welfare payable Increase in other payables and accruals Increase in amount due to an invested company Decrease/(Increase) in financial assets at fair value through profit or loss Cash used in operations Interest paid Tax paid Net cash used in operating activities	2005 RMB’000 18,110 461 393 6,426 9,319 (110 ) (296 ) (1,104 ) 2,058 - - 1,056 (600 ) 5,539 1,538 420 43,210 (31,416 ) (9,663 ) (550 ) 4,891 1,500 215 (36,272 ) 107 3,059 12,309 5,916 (6,694 ) (1,056 ) (4,564 ) (12,314 )	2004 RMB’000 3,086 461 560 4,367 7,358 - (73) (258) 9,857 (3,386) (351) 323 (650) - - 443 21,737 (47,948) 716 - (2,569) - - 4,059 36 443 - (17,104) (40,630) (323) (1,415) (42,368)

18

Shenzhen Fiyta Holdgings Ltd. 2005 Annual Report, Summary

CONSOLIDATED CASH FLOW STATEMENT – (continued) FOR THE YEAR ENDED DECEMBER 31, 2005

Cash flows from investing activities Interest received Proceeds on disposal of property, plant and equipment Purchase of property, plant and equipment Acquisition of available-for-sale investments Dividend income from available-for-sale investments Investment income from designed deposit Payments for construction in progress Decrease in designated deposits Decrease in minority interests Net cash used in investing activities Cash flows from financing activities Proceeds from borrowings Repayments of borrowings Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Analysis of cash and cash equivalents at the end of the year Bank balances and cash	2005 RMB’000 600 1,546 (15,342 ) (11,040 ) 110 - (963 ) - 322 (24,767) 20,000 (20,000) - (37,081 ) 84,792 47,711 47,711	2004 RMB’000 650 1,002 (39,053) - - 351 (24,221) 51,004 - (10,267) 20,000 (100) 19,900 (32,735) 117,527 84,792 84,792

19