FIYTA Precision Technology Co., Ltd. — Interim / Quarterly Report 2005

Aug 10, 2005

SHENZHEN FIYTA HOLDINGS LTD.

2005 Semi-annual Financial Report

(Unaudited)

1

I. Accounting Statements

Balance Sheet

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2005 In RMB

Assets	Consolidated	Consolidated	Parent company:	Parent company:
	June 30, 2005	December 31, 2004	June 30, 2005	December 31, 2004
Current assets:
Monetary funds	51,080,916.18	84,791,535.00	41,996,753.57	74,420,417.00
Short-term investment	9,153,241.00	11,819,472.00	9,153,241.00	11,819,472.00
Dividend receivable				244,067.00
Accounts receivable	20,462,600.70	18,730,857.00	16,696,587.27	14,793,711.00
Other receivables	20,718,819.70	20,953,910.00	150,089,166.16	166,443,664.00
Account prepaid	1,257,008.75	2,771,912.00	1,062,838.67	60,000.00
Inventories:	215,433,607.79	203,983,820.00	67,486,385.58	68,598,064.00
Expenses to be apportioned	231,866.93	442,462.00	36,744.46	32,881.00
Total current assets	318,338,061.05	343,493,968.00	286,521,716.71	336,412,276.00
Long-term investment
Long-term equity investment	5,885,000.00	4,885,000.00	41,852,796.18	37,356,110.00
Fixed assets:
Fixed assets, cost	320,115,291.49	318,124,295.00	289,479,761.59	289,242,773.00
Less: Accumulative depreciation	60,883,514.42	56,045,908.00	47,296,917.74	42,887,401.00
Fixed assets, net	259,231,777.07	262,078,387.00	242,182,843.85	246,355,372.00
Less: Provision for devaluation of fixed assets	2,860,323.09	2,860,323.00	2,600,000.00	2,600,000.00
Fixed assets, net	256,371,453.98	259,218,064.00	239,582,843.85	243,755,372.00
Construction-in-progr ess	1,592,635.64	1,290,242.00	1,592,635.64	1,290,242.00
Total fixed assets	257,964,089.62	260,508,306.00	241,175,479.49	245,045,614.00
Intangible assets and other assets
Intangible assets	16,472,735.13	16,703,082.00	16,472,735.13	16,703,082.00
Long-term expenses to be apportioned	7,202,927.78	1,946,941.00	2,979,794.46	1,880,008.00
Total intangible assets and other assets	23,675,662.91	18,650,023.00	19,452,529.59	18,583,090.00
Total assets	605,862,813.58	627,537,297.00	589,002,521.97	637,397,090.00

2

Balance Sheet (Cont’d)

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2005 In RMB

Liabilities & shareholders’ equity	Consolidated	Consolidated	Parent company:	Parent company:
	June 30, 2005	December 31, 2004	June 30, 2005	December 31, 2004
Liabilities
Current liabilities
Short-term Loan	20,000,000.00	20,000,000.00	20,000,000.00	20,000,000.00
Accounts payable	37,113,807.85	65,263,798.00	6,527,655.35	63,800,416.00
Advance receipts	699,290.40	684,171.00		156,330.00
Salaries payable	259,147.00	334,386.00	184,974.30	22,822.00
Welfares payable	2,708,185.72	2,764,845.00	1,981,270.67	2,267,505.00
Dividend payable
Taxes payable	-8,247,034.50	-8,892,246.00	2,466,533.36	2,266,790.00
Other payables	19,149,191.27	19,046,627.00	32,239,701.42	28,361,609.00
Other accounts due	29,414.30	9,434.00	15,782.46	3,491.00
Expenses allotted in advance	1,170,138.80	625,713.00	12,725.20	153,885.00
Total current liabilities	72,882,140.84	99,836,728.00	63,428,642.76	117,032,848.00
Long-term liabilities
Special accounts payable	3,000,000.00	3,000,000.00	3,000,000.00	3,000,000.00
Total long-term liabilities	3,000,000.00	3,000,000.00	3,000,000.00	3,000,000.00
Total liabilities	68,497,865.83	102,836,728.00	66,428,642.76	120,032,848.00
Minority shareholders’ equity:	7,406,793.53	7,336,327.00
Shareholders’ equity
Share capital	249,317,999.00	249,317,999.00	249,317,999.00	249,317,999.00
Capital public reserve	191,847,232.65	191,847,234.00	191,847,232.65	191,847,234.00
Surplus public reserve	130,467,791.52	130,467,792.00	130,467,791.52	130,467,792.00
Incl.: public welfare fund	25,036,994.11	25,036,994.00	25,036,994.11	25,036,994.00
Retained profit	-49,059,143.96	-54,268,783.00	-49,059,143.96	-54,268,783.00
Total Shareholders’ Equity	522,573,879.21	517,364,242.00	522,573,879.21	517,364,242.00
Total shareholders’ equity and liabilities	605,862,813.58	627,537,297.00	589,002,521.97	637,397,090.00

3

Statement of Profit and Profit Distribution

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. Jan to Jun, 2005 In RMB

Items	Consolidated	Consolidated	Parent	company
	Jan - Jun, 05	Jan - Jun, 04	Jan - Jun, 05	Jan - Jun, 04
Principal business income	160,156,032.82	134,155,051.11	72,863,280.09	73,331,187.24
Less: Costs of principal business	101,325,518.66	83,653,395.26	38,055,541.39	44,133,099.10
Taxes and surcharges of principal business	1,465,583.32	758,541.14	1,309,719.27	509,764.23
Principal business profit	57,364,930.84	49,743,114.71	33,498,019.43	28,688,323.91
Plus: Profit from other businesses	295,669.51	1,162,293.14	-239,357.32	561,270.08
Less: Operation costs	25,032,769.21	27,380,170.96	16,341,024.44	21,977,901.35
Overheads	23,208,250.09	19,936,829.79	12,748,855.98	12,124,234.73
Financial expenses	502,556.44	-200,585.98	282,645.75	-272,629.83
Operating profit	8,917,024.61	3,788,993.08	3,886,135.94	-4,579,912.26
Plus: Investment income	-2,648,072.04	-2,440,618.45	1,848,614.14	4,986,884.11
Subsidy income
Non-operating income	112,315.21	1,165,442.60	81,357.33	1,162,917.00
Less: Non-operating expenses	36,637.58	27,150.73	6,468.37	8,388.12
Total profit	6,344,630.20	2,486,666.50	5,809,639.04	1,561,500.73
Less: Income tax	1,064,534.63	923,771.36	600,000.00	-1,394.41
Minority shareholders’ equity:	70,456.53
Net profit	5,209,639.04	1,562,895.14	5,209,639.04	1,562,895.14
Add: Retained earnings at year beginning	-54,268,783.00	-56,176,663.00	-54,268,783.00	-56,176,663.00
Profit available for distribution	-49,059,143.96	-54,613,767.86	-49,059,143.96	-54,613,767.86
Less: Allotting statutory surplus public reserve
Allotting statutory public welfare fund
Profit available for distribution to the investors	-49,059,143.96	-54,613,767.86	-49,059,143.96	-54,613,767.86
Less: Dividends of common shares payable
Retained earnings	-49,059,143.96	-54,613,767.86	-49,059,143.96	-54,613,767.86

4

Cash Flow Statement

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. Jan. to Jun, 05 In RMB

Items	Consolidated	Parent company
I. Net cash flows arising from operating activities
Cash received from sales of goods and supply of labor	189,942,968.28	83,967,021.75
Other business related cash receipts	2,194,255.97	2,145,870.86
Subtotal of cash flow in	192,137,224.25	86,112,892.61
Cash paid for purchase of goods and reception of labor services	124,377,818.74	29,720,207.55
Cash paid to and for staff	21,313,450.95	10,956,023.00
Taxes paid	13,136,546.72	7,337,061.61
Other operation related cash payments	42,032,238.72	49,655,942.52
Subtotal of cash flow out	200,860,055.13	97,669,234.68
Net cash flows arising from operating activities	-8,722,830.88	-11,556,342.07
II. Cash flows arising from investment activities:
Cash received from recovery of investment
Cash received from investment income	285,643.43	285,643.43
Net amount of cash received from disposal of fixed assets, intangible assets and other long term assets	147,038.00	115,538.00
Interest income obtained
Subtotal of cash flow in	432,681.43	401,181.43
Cash paid for construction/purchase of fixed assets, intangible assets and other long term assets	24,156,271.77	21,005,952.79
Cash paid for investment	1,000,000.00
Subtotal of cash flow out	25,156,271.77	21,005,952.79
Net cash flow arising from investment activities	-24,723,590.34	-20,604,771.36
III. Cash flows arising from fund raising activities:
Other fund-raising related cash received
Subtotal of cash fl ow in
Other fund raising related cash payments	264,197.60	262,550.00
Cash paid for dividend/profit distribution or repayment of interest
Subtotal of cash flow out	264,197.60	262,550.00
Net cash flow arising from fund-raising activities	-264,197.60	-262,550.00
IV. Influence upon cash due to change of exchange rate
V. Net increase of cash and cash equivalents	-33,710,618.82	-32,423,663.43

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Cash Flow Statement (Cont’d)

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. Jan. to Jun, 05 In RMB

Items	Consolidated	Parent company
1. Net cash flows arising from adjustment of net profit into operating activities:
Net profit	5,209,639.04	5,209,639.04
Plus: Minority shareholders’ gain/loss	70,456.53
Depreciation of fixed assets	1,863,284.71	1,452,047.00
Amortization of intangible assets	230,346.87	230,346.87
Long-term expenses to be apportioned	1,451,288.00	379,362.40
Decrease (less: increase) of expenses to be apportioned	210,595.07	-3,863.46
Increase (less: decrease) of expenses drawn in advance	544,425.80	-141,159.80
Loss (less: income) from disposal of fixed assets, intangible assets and other long term assets	-48,832.18	-20,257.33
Losses from rejection of fixed assets
Financial expenses	413,093.00	413,093.00
Investment loss (less: income)	2,648,072.04	-1,848,614.14
Deferred tax loan (less: debit)
Decrease (less: increase) of inventories	1,763,211.33	1,111,678.42
Decrease (less: increase) of operative items receivable	-7,433,216.52	-2,506,524.10
Increase (less: decrease) of operative items payable	-15,645,194.57	-15,832,089.97
Net increase (less: decrease) of value added tax
Others
Net cash flows arising from operating activities	-8,722,830.88	-11,556,342.07
2. Investment and fund-raising activities with no cash income and expenses involved:
Capital converted from liabilities
Convertible company bonds due within a year
Fixed assets rented through financing
3. Net increase of cash and cash equivalents:
Ending cash balance	51,080,916.18	41,996,753.57
Less: Opening cash balance	84,791,535.00	74,420,417.00
Plus: Ending cash equivalent balance
Less: Opening balance of cash equivalent
Net increase of cash and cash equivalents	-33,710,618.82	-32,423,663.43

II. Notes to the Accounting Statements

(I) Accounting Policies, Accounting Estimation and Preparation of the Consolidated

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Accounting Statements

(1) Accounting standards and system

The Company implements the PRC Enterprise Accounting Standards and the PRC Enterprise Accounting System and other relevant regulations in preparing these accounting statements.

(2) Fiscal year

January 1 to December 31 of a calendar year.

(3) Standard Currency for Book Keeping

The Company uses Renminbi (RMB) as the standard currency for book keeping.

(4) Principle of bookkeeping and basis of pricing The Company takes the accrual system as the basis for book keeping; various assets are priced based on the actual costs unless there is otherwise special specification.

(5) Foreign Currency Translation:

Foreign currency transactions are stated in Renminbi after conversion at the exchange rate published by the People’s Bank of China at the beginning of the month when a transaction takes place. Monetary assets and liabilities in foreign currency on the balance sheet day are converted into RMB based on the standard rate published by the People’s Bank of China on the very day. The exchange gain/loss incurred therefrom is directly stated in the gain/loss of the very period except the exchange gain/loss involved in the foreign currency loan designated for purchase/construction of certain fixed assets which should be capitalized.

(6) Cash and cash equivalents

Cash listed in the statement of cash flow refers to the cash in hand and bank deposits ready for payment at any time. Cash equivalent refers to the investment held by the Company with short term (3 months), strong liquidity and low risk of value fluctuation that is easy to be converted into cash of known amount.

(7) Short-term investment

The short term investments refer to the investment which can be realized at any time after procurement with the holding time not exceeding one year. They include stock investment and securities investment, and measured based on the investment costs at the time of procurement. The cash dividends which have been announced for distribution but not yet received and the bond interest which is due but has not yet been received in the actual payment. The dividends or interest arising from the short-term investment while holding are used to offset the investment costs except the dividend or interest already stated in the accounts receivable. The short term investment is charged based on the lower of the cost and the market price at the end of the year and the reserve for price falling is provided on individual investment basis.

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(8) Accounts receivable and reserve for bad debts The loss from the bad debts is stated by allowance method.

Provision for bad debt is made after the specific assessment of the recoverability of the accounts receivable. The Group usually makes the provision based on a certain proportion after analysis on accounts receivable at the end of a period. For the accounts receivable difficult to be recovered, provision for bad debt shall be provided based on the practical experience combined with practical conditions.

Bad debts are recognized when irrefutable evidence shows that certain account receivable is impossible to be recovered because of debtor’s dissolution, bankruptcy, insolvency, serious deficiency of cash flow, etc. and offset with the reserve for corresponding bad debt already provided.

(9) Inventories:

Inventories consist of raw materials, work-in-process, finished products and easily-consumed products with low value. Inventories are stated according to the actual cost when they were obtained. Raw materials and finished products are stated according to the costs at the time of delivery calculated based on weighted average. The low-value consumption goods and packing materials are stated in the cost on once-and-for-all basis as taken out for use. Costs of finished products and products in process include those of raw materials, direct manpower, and all indirect production expenses amortized on percentage basis.

Inventories are stated at the lower of the cost and the realizable net value due to the reasons of being damaged, completely or partially out-of-date or the cost being lower than the sales price. Reserve for depreciation of inventories are allotted based on the balance between the cost of individual inventory items and their realizable net value. The net realizable value of the inventories was determined based on the market price less the estimated sales costs and relevant taxes in process of normal production and operation.

(10) Long-term investment

Long-term equity investment refers to the long term equity investment with holding term exceeding one year.

Long-term equity investment cost is stated according to the actual payment at the time of investment, or according to the book value of non-cash assets output plus relevant taxes. The equity method has been used for this Group’s investment in an investee which takes over 20% of the total voting-bearing assets of that investee or the investment produces significant affect on the investee’s financial and operation decision even the investment takes below 20% its total voting-bearing capital; The cost method has been used for the Company’s investment in an investee which takes below 20% of the total voting-bearing assets of that investee or the investment produces no significant affect on the investee’s

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financial and operation decision even the investment takes over 20% its total voting-bearing capital.

If the recoverable amount is lower than the book value of the investment and the reduced amount is unrecoverable within a certain period of time predictable because the investee’s stock price has been falling continually or the investee’s business operation has been worsened, while such lowered value is impossible to be recovered in the predictable future, reserve for devaluation of long term equity investment are allotted based on the balance between the amount recoverable and the book value of the long investment.

(11) Fixed assets pricing and depreciation

Fixed assets are defined as the premises, buildings and other principal production and operation equipment with direct connection with production and operation as well as the non-production/operation equipment with unit price of over RMB 2,000 and service life exceeding 2 years.

Fixed assets purchased or newly constructed are stated at the actual cost at the time of obtainment. For the fixed assets evaluated at the time of the Company’s restructuring, the value confirmed by the state assets authority through the appraisal is the entry value.

Fixed assets are depreciated by straight line method; depreciation is made based on the entry value less 5 – 10%of the predicted net residue value within the predicted service life on average basis.

The estimated service life and predicted residual ratio of fixed assets are stated as follows:

follows:
Fixed Assets Residual Rate Housing & Building Machine & Equipment Motor Vehicles Electronic Equipment Other equipment	Predited Service Life 20 to 35 years 10 years 5 years 5 years 5 years	Annual Depreciation Rate 2.6%-4.8% 9%-9.5% 19% 19% 19%	Predicted
			5%-10% 5%-10% 5% 5% 5%

Fixed assets are stated at the lower of the book value and the recoverable amount at the end of a period.

When the ability of fixed assets to create economic benefit has seriously affected in fact and the recoverable amount is lower than the balance of the book value, reserve for deterioration can be provided. When fixed assets have actually been unable to bring about any financial benefit, reserve for deterioration should be provided in full.

(12) Construction-in-progress

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Construction-in-progress refers to capital assets in process of construction or installation and is stated in the engineering costs based on the expenses actually paid. The costs involved in valuation include the building expenses and other direct expenses, cost of machines and equipment, installation cost; but also include loan expenses incurred in the special loan of such project before the fixed asset has reached the predicted application status. The construction in progress is transferred into the fixed assets after the works has reached the predicted application status.

If any construction in process has been suspended for a long time and is estimated unable to restart the work within foreseeable time; or construction in process has been proved backward in terms of performances and technology and the economic benefit to be brought about by it is greatly indefinite and the recoverable amount is lower than the balance of book value, reserve for deterioration is permitted to be provided.

(13) Loan expenses

Such loan expenses as interest from the special loans for purchasing/constructing fixed assets, depreciation/premium amortized, auxiliary expenses, foreign exchange difference, etc. can be capitalized and stated in the costs of assets if they compliance wit the following three items:

1. Assets expenses have already incurred;

2. Loan expenses have already incurred;

1. The necessary purchase/construction activities to make the assets up to the planned application status have already started.

When the fixed asset purchased/constructed has reached the predicted application status, the capitalization of the loan cost stops. The loan expenses incurred afterwards are stated in the gain/loss of the current period.

Interest expense in the loan expenses is based on the weighted average of the accumulative expenditure of the fixed asset purchased/constructed and the weighted average interest rate of the relevant loans and its capitalized amount is determined within the limit not exceeding the interest of the special loan actually incurred in the current period.

For the expenses of the special foreign currency loans and the auxiliary expenses of material special loans, the capitalized amount is recognized based on the amount actually incurred. Expenses of other loans are directly stated as financial expenses at the very period of incurrence.

• (14) Intangible assets evaluation and amortization

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The intangible asset is mainly land use right.

Land use right is charged based on the actual payment and amortized over 50 years according to the straight-line method. Commencing from January 1, 2001, the land use right obtained or purchased by means of paying land assignment fee is calculated as intangible assets prior to commencement of the construction project with the actual payment as the cost. The book value of the land use right during building construction on the land is all changed over to the cost of construction-in-progress.

(15) Long-term expenses to be proportioned

Long term expenses to be apportioned, refer to various expenses, including the payment

for improved the rented fixed assets, which have been paid but are to be apportioned over more than 1 year (with one year exclusive).

Expenses for improving the rented fixed assets refer to the expenses actually incurred for improving the fixed assets rented for operation purpose which should be amortized in average over the shorter term of the rent term and the service life of the rented assets.

Other long term expenses to be apportioned are amortized on average basis in the beneficiary term of the relevant items by means of straight-line method.

The expenses incurred in the preparation of the Company had been aggregated in the long term expenses to be amortized and were stated in the gain/loss of the very period in the very month when the Company started the production and operation on once-and-for-all basis.

If the projects involved with long term expenses to be apportioned are unable to provide

• benefit in the afterwards accounting terms, the balance of such expenses not yet amortized shall all be transferred to the current gains/losses.

(16) Special accounts payable

Special accounts payable refer to the funds appropriated for special purpose to the company by the government, such as the special fund for technical innovation, technical research, etc. as well as the fund obtained from other sources.

When such fund is used to purchase fixed assets, the company should transfer the corresponding fund into the capital public reserve.

(17) Revenue recognition

Sales of goods

Sales income is recognized when the significant risks and rewards of ownership of the goods have been transferred to customers, the economic benefits associated with the transaction can flow into this Group and the amount of sales-related costs can be measured reliably.

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Cash discount is stated as the financial expense of the current period of actual incurrence; sales allowance eats up part of the income of the current period of actual incurrence. Labor services

Income from labor services is recognized at the time of completion in case the service starts and ends within a fiscal year. Income from labor services starting and ending in different fiscal years is recognized based on the percentage of completion at the balance sheet day provided that the result of the labor service transaction can be reliably measured.

(18) Accounting treatment of income tax

This Group adopts tax payable method in treating income tax expenses.

(19) Method of preparing the consolidated financial statements

The Company implements the Provisional Regulations on Printing and Issuing Consolidated Accounting Statements promulgated by the Ministry of Finance of the People’s Republic of China (Document on Accounting (1995) No. 11).

Consolidated financial statements cover the financial statements of the subsidiaries in the consolidation ended June 30, 2002. In accordance with the Official Reply to the Request for Instructions on the Consolidation Range for Consolidated Accounting Statements promulgated by the Ministry of Finance (Document on Accounting (2) (1996) No. 2, a subsidiary whose income from the principal business is below 10% of the Company’s income from principal business, whose total assets is below 10% of the Company’s total assets, whose total profit is below 10% of the Company’s total profit shall not be consolidated.

Subsidiaries refer to the businesses whose voting-bearing capital is directly or indirectly held by the Company by over 50%, or whose financial and operation policies are decided by the Company even though the Company controls its voting-bearing capital below 50% and the Company is entitled to obtain profit from their operation activities.

The balance of the material current accounts and transactions between the Company and its consolidated subsidiaries shall be offset while preparing the consolidated statements. If the accounting policy adopted by a consolidated subsidiary differs from that by the parent company while such difference occurred therefrom affects greatly the consolidated statements, the accounting policy implemented by the parent company shall be adjusted.

(II) Taxes

Taxes the Group has to pay are summarized as follows:

Taxes Rate Taxation basis

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Value-added tax	17%	Calculated based on 17%of the sales income less the input VAT allowed for offsetting in the current
		period.
Operation tax	5%	Housing lease income
urban
construction	1%	Payment of VAT and business tax in the very period
tax
Business income tax	15-33%	Amount of income taxable (1)

The Group provides the business income tax based on the balance of the total income less the items permitted for deduction as the taxable income amount. According to the relevant cases of the income tax, the Group, a company incorporated within Shenzhen Special Economic Zone, applies tax rate of 15%; the other companies incorporated in other places apply tax rate of 33%. In addition, Shenzhen FIYTA Shenzhen FIYTA Sophisticated Timepieces Manufacture Co., Ltd., one of the Company’s subsidiaries, has been approved by the local tax authority to enjoy preferential treatment of two years’ total exemption and three years’ half exemption from business income tax commencing from the year of making profit.

(III) Controlled subsidiaries and joint ventures

Subsidiaries: Shenzhen Feitu New Tech Development Co., Ltd. Xi’an Haomen Restaurants & Recreation Co., Ltd.	Registered place Legal representative Shenzhe n Chen Zhili Xi’an Men Tengshan	Registere d capital HKD3,080, 000 HKD16,000 ,000		Investment bythe Company Original currency Conversion in RMB Proportion controlled by the Company Principal Business Cons olidat ed or not Rema rks RMB992,626 HKD107,313 USD143,475 1,848,000 60% Pulse gilding and vacuum film plating N Note 1 RMB11,040,000 11,040,000 62% Catering, recreation, fine goods N Note 2
				Original currency
				RMB992,626 HKD107,313 USD143,475 RMB11,040,000

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									purchase
									sales and
Shenzhen									repair
Harmony Watches	World Center		Shenzhe n	Xu Dongsheng	RMB15,00 0,000	RMB13,625,000	13,625,000	90%	services of timepieces	Y
Co., Ltd.									and
									component
									s
Shenzhen									Processing,
Feijing									production and
Sophisticated Optical			Shenzhe n	Xu Dongsheng	RMB7,000, 000	RMB6,300,000	6,300,000	99%	marketing of	Y
Instruments
Manufacture									sophisticate
Co., Ltd.									d optical instruments
									Producing
									various
									timepieces
Shenzhen									and
FIYTA									movements
Sophisticated Timepieces			Shenzhe n	Xu Dongsheng	RMB10,00 0,000	RMB9,000,000	9,000,000	99%	, spares and parts,	Y
Manufacture									sophisticate
Co., Ltd.									d
									timepieces
									and repair
									service
									Production
Shenzhen									and
Feiyu Artistic Timepiece Co.,			Shenzhe n	Zhu Gensen	HKD3,000, 000	RMB825,000 USD192,981	1,905,000	75%	marketing of various	N	Note 3
Ltd.									artistic
									clocks
									Famous brand
									watches,
Shenzhen									glasses,
Harmony		World			RMB2,800,0				ornaments,
			Shenzhen	Lu Bingqiang		RMB1,400,000	1,400,000	50%		Y	Note 4
Watches	Center				00				gifts and
Co., Ltd.									general
									merchandise,
									handicrafts

(1) The operation term of the said subsidiary was due on December 16, 2003 and its liquidation started in December, 2003. The subsidiary was not consolidated in the Company’s financial statement commencing from the date of its liquidation.

(2) That subsidiary sold its assets of catering and recreation in 2003 and terminated the operation activities before the end of 2003.

14

(3) The operation term of that subsidiary expired on November 28, 2001 and the liquidation started at the end of 2001. The liquidation had not yet been completed at the end of the report period. Commencing from 2001, the subsidiary has not been put in the consolidation of the Group.

(4) That subsidiary was originally a joint venture of the Company. Its accounting has always been based on the equity method as its revenue from the principal business, total assets and total profit were below 10% of the respective data of the Company. From this year on, the Company has taken over control of the finance and operation management of the joint venture while the total profit of the joint venture this year has exceeded 10% of the Company’s total profit. Therefore, commencing from 2003, the joint venture has been consolidated in the Company and regarded as one of the Company’s subsidiaries.

(IV) Notes to the principal items on the accounting statements

1. Monetary funds

1. Monetary funds
Items	June 30, 2005	December 31, 2004
Cash on hand	517,817.43	379,405.00
Bank deposit	50,235,735.70	84,091,003.00
Other Monetary Funds	327,363.05	321,127.00
Total	51,080,916.18	84,791,535.00

• Foreign exchange funds ended June 30, 2005 are stated as follows:

Items	June 30, 2005
Currencies	After conversion into RMB
HK$	5,448,831.58
US$	2,356,372.28
￡	1,683.00
Total	7,806,886.86

2. Short-term investment

Items Stock investment Repurchase of	June 30, 2005 Investment amount Provision for price falling 22,138,415.20 12,985,174.20	December 31, 2004 Investment amount Provision for price falling 22,143,326.00 10,323,854.00
		Investment amount 22,143,326.00

15

government bonds Total

22,138,415.20 12,985,174.20 22,143,326.00

10,323,854.00

• (a) (a) Market price of short term stock

June 30, 2005 December 31, 2004 Stock investment 9,153,241.00 11,819,472.00

(b) Principal investment projects Investees Shares Held Investment Time Income earned CITIC Securities 1,061,700.00 Feb and Mar, 2004 none Xiaxin Electronics 634,000.00 Jan, Mar and Dec, 2004 none

1. Accounts receivable

Age Within a year 1~2 years 2~3 years Over 3 years Total		June 30, 2005 Proportion Provision for bad debts 20.37% 634,535.00 3.30% 545,872.00 6.49% 1,832,892.00 69.84% 38,105,238..00 100% 41,118,537.00	December 31, 2004 Amount Proportion Provision for bad debts 12,690,728.00 21% 634,535.00 3,286,334.00 6% 545,872.00 2,474,617.00 4% 1,832,892.00 41,397,715.00 69% 38,105,238..00 59,849,394.00 100% 41,118,537.00	December 31, 2004 Amount Proportion Provision for bad debts 12,690,728.00 21% 634,535.00 3,286,334.00 6% 545,872.00 2,474,617.00 4% 1,832,892.00 41,397,715.00 69% 38,105,238..00 59,849,394.00 100% 41,118,537.00
	Amount 12,545,115.63 2,032,357.00 3,999,146.28 43,004,518.79 61,581,137.70		Amount 12,690,728.00 3,286,334.00 2,474,617.00 41,397,715.00 59,849,394.00	Proportion 21% 6% 4% 69% 100%

Ended June 30, 2005, there were no accounts receivable owed by the shareholders holding more than 5% (including 5%) of the Company’s total shares.

Ended June 30, 2005, the top five debtors of the accounts receivable and the amounts are listed as follows:

Companies		Amount receivable	Proportion in the total of the
			accounts receivable
Beijing Urban/Rural Trade Center	Co., Ltd.	2,033,710.00	3.02%
Qingdao Handry Timepieces,	Glasses and	1,298,215.00	1.93%
Jewelry Co.
Timepieces and Sewing Machine Wholesale		982,604.00	1.46%
Station of Yingkou General Merchandise Co.
Siping No. 1 Department Store		823,302.00	1.22%
Anshan Timepieces and	Photographic	807,815.00	1.20%

16

Equipment Co. Total

5,945,646.00

8.83%

4. Other receivables

		June 30, 2005		December 31, 2004	December 31, 2004	December 31, 2004
Age	Amount	Proportion	Provision for	Amount	Proportio	Bad debt
			bad debts		n
Within a year	9,119,084.33	26.47%	190,403.00	11,080,592.00	32%	190,403.00
1 to 2 years	6,063,744.00	17.60%	38,186.00	6,401,826.00	18%	38,186.00
2 to 3 years	9,024,381.00	26.19%	7,082,684.00	7,960,241.00	23%	7,082,684.00
Over 3 years	10,245,543.37	29.74%	6,422,660.00	9,245,184.00	27%	6,422,660.00
Total	34,452,752.70	100%	13,733,933.00	34,687,843.00	100%	13,733,933.0
						0

Ended June 30, 2005, there were no other accounts receivable owed by the shareholders holding more than 5% (including 5%) of the Company’s total shares except the balance receivable from the related parties as described in Note (VI) 2. Ended June 30, 2005, the top 5 debtors of other receivables and the amounts are stated as follows:

Companies Shenzhen Feiyu Artistic Timepiece Co., Ltd. Shenzhen Feitu New Technology Development Co., Ltd. Xinlongtai Industrial Co., Ltd. Xi’an Aviation Engine Co. Zhuangtu Commodities Trading Center Total	Amount receivable 5,352,480.13 1,904,482.00 1,573,876.89 715,034.21 641,807.20 10,187,680.43	Proportion in the total of the	Proportion in the total of the
			accounts receivable 15.54% 5.52% 4.57% 2.08% 1.86% 29.57%

5. Expenses to be apportioned

Items	Dec 31, 2004	Increase in the report	Amount amortized in	June 30, 2005
		year	current year
Rent	82,564.00	77,787.63	79,725.28	80,626.35
Insurance premium	18,623.00	30,104.60	18,823.44	29,904.16
Simple fitting up fee	259,912.00		210,268.48	49,643.52
Others	81,363.00	14,942.00	24,612.10	71,692.90
Total	442,462.00	122,834.23	333,429.30	231,866.93

6. Accounts prepaid

17

	December 31, 2004	December 31, 2004	June 30, 2005	June 30, 2005
Age	Amount	Proportion	Amount	Proportion
Within a year	2,771,912.00	100%	1,257,008.75	100%
1 to 2 years
2 to 3 years
Over 3 years
Total	2,771,912.00	100%	1,257,008.75	100%

Ended June 30, 2005, there were no accounts prepaid owed by the shareholders holding more than 5% (including 5%) of the Company’s total shares.

7. Inventories

June 30, 2005 Items Amount Provision for price falling Raw materials 46,228,630.72 21,566,183.00 Products in process 2,828,777.35 Finished products and Goods in stock 225,748,004.86 37,824,163.39 Low-value consumption articles and packing materials 18,541.75 Total 274,823,954.18 59,390,346.39	December 31, 2004 Amount Provision for price falling 45,054,052.00 21,566,183.00 1,729,758.00 216,799,604.00 38,055,472.00 22,061.00 263,605,475.00 59,621,655.00

• For the net realizable value of the inventories, refer to the market price. It is determined based on the regional estimated sales expense and the amount after the relevant taxes.

8. Long-term investments

Items	June 30, 2005	December 31, 2004
Stock investment	3, 085,000.00	3,085,000.00
Other equity investment	2,800,000.00	2,800,000.00
Total	5,885,000.00	5,885,000.00

① Stock investment

①Stock investmen	t
Investees	Type	of	Number	of	Proportion	Investment	Market		Reserve for	Remark
	shares		shares		in the	amount	price	at	devaluation	s
					registered		year end
					capital of
					the
					investee
Wanneng Joint Stock	Legal person		1.1 million		0.13%	3,000,000.00				non-liste
Co., Ltd.	shares		shares							d

18

Xi’an Tangcheng Legal person 50,000 0.10% 85,000.00 non-liste Joint Stock Co., Ltd. shares shares d Total 3,085,000.00

② Other equity investments

					Investment amount	Investment amount	Investment amount
					Initial investment amount
Investees			Investment Original currenc		Conversion in RM	Equity adjusted		Adjusted amoun				Ending balance % in the inv
						year		accumulated			equit	total equity
Shenzhen CATIC		C	13	years 300,000..00	300,000..00							300,000..00 15%
Transmit Co., Ltd.
Shenzhen			20	years 1,500,000.00	1,500,000.00							1,500,000.00 50%
Research Institute
of Northwest China
Polytechnic
University
Beijing Henglianda				1,000,000.00	1,000,000.00							1,000,000.00 50%
Timepiece Co., Ltd.
Total				2,800,000.0	2,800,000.00							2,800,000.00
9. Fixed assets		and		accumulative depreciation
Fixed assets, type		and		December 31,	Increase in	the	Decrease		in	the	June 30, 2005
cost				2004	report period		report period
Housing		and		274,068,292.00								274,068,292.00
buildings
Machines & equipment				13,669,622.00	1,163,100.00							14,832,722.00
Electronic equipment				9,059,701.00	583,118.19		7,658.00					9,635,161.19
Motor vehicle				8,680,525.00	453,954.00		84,500.00					9,049,979.00
Other equipment				12,646,155.00	462,750.00		579,767.70					12,529,137.30
Total				318,124,295.00	2,662,922.19		671,925.70					320,115,291.49
Depreciation			of	35,661,585.00	3,595,238.40							39,256,823.40
housing and buildings
Machines & equipment				7,748,084.00	535,687.31		45,393.40					8,238,377.91
Electronic equipment				3,181,897.00	771,245.86		2,178.00					3,950,964.86
Motor vehicle				4,107,361.00	546,064.19		323,077.56					4,330,347.63
Other equipment				5,346,981.00	339,788.93		579,769.31					5,107,000.62
Total				56,045,908.00	5,788,024.69		950,418.27					60,883,514.42
Provisions		for
devaluation of	fixed
assets
Housing and buildings				2,600,000.00								2,600,000.00
Machines & equipment				260,323.09								260,323.09
Total				2,860,323.09								2,860,323.09

10. Construction in process

Projects December 31, Increase in the Fixed assets Other June 30, 2005 Funds source 2004 current year transferred in decreases the current year

19

Exterior	wall	715,151.00	212,511.86		927,662.86	Self-raised
restructuring
works	of
FIYTA
Others		575,091.00	237,108.78	147,227.00	664,972.78
Total		1,290,242.00	449,620.64	147,227.00	1,592,635.64	Self-raised

11. Long-term expenses to be proportioned

Items	December	31,	Increase in the	Transfer	Transfer	Amount	June 30, 2005
	2004		report year	out	this	amortized in
				year		current year
Trademark	1,880,007.00					187,499.34	1,692,507.66
compensation
Other deferred	66,934.00		7,201,655.15			1,758,169.03	5,510,420.12
payment
Total	1,946,941.00		7,201,655.15			1,945,668.37	7,202,927.78

12. Short-term Loan

Items June 30, 2005 December 31, 2004 Bank loan: Secured 20,000,000.00 20,000,000.00 Others Total 20,000,000.00 20,000,000.00 13. Accounts payable June 30, 2005 December 31, 2004 Age Balance Proportion (%) Balance Proportion (%) Within a year 34,915,746.30 94.08% 61,942,573.05 94.91% Over 1 year but below 2 years 1,309,718.16 3.53% 2,432,881.56 3.73% Over 2 years but below 3 years Over 3 years 888,343.39 2.39% 888,343.39 1.36% Total 37,113,807.85 100% 65,263,798.00 100%	Items June 30, 2005 December 31, 2004 Bank loan: Secured 20,000,000.00 20,000,000.00 Others Total 20,000,000.00 20,000,000.00 13. Accounts payable June 30, 2005 December 31, 2004 Age Balance Proportion (%) Balance Proportion (%) Within a year 34,915,746.30 94.08% 61,942,573.05 94.91% Over 1 year but below 2 years 1,309,718.16 3.53% 2,432,881.56 3.73% Over 2 years but below 3 years Over 3 years 888,343.39 2.39% 888,343.39 1.36% Total 37,113,807.85 100% 65,263,798.00 100%	Items June 30, 2005 December 31, 2004 Bank loan: Secured 20,000,000.00 20,000,000.00 Others Total 20,000,000.00 20,000,000.00 13. Accounts payable June 30, 2005 December 31, 2004 Age Balance Proportion (%) Balance Proportion (%) Within a year 34,915,746.30 94.08% 61,942,573.05 94.91% Over 1 year but below 2 years 1,309,718.16 3.53% 2,432,881.56 3.73% Over 2 years but below 3 years Over 3 years 888,343.39 2.39% 888,343.39 1.36% Total 37,113,807.85 100% 65,263,798.00 100%
	Balance 61,942,573.05 2,432,881.56 888,343.39 65,263,798.00
		94.91% 3.73% 1.36% 100%

In the accounts payable, there are no arrears from the shareholders that hold more than 5% (with 5% inclusive) of the Company’s shares.

14. Advance Receipts

	June 30,	2005	December 31, 2004
Age	Balance	Proportion (%)	Balance	Proportion (%)
Within a year	699,290.40	100.%	684,171.00	100%

20

Over 1 year but below 2 years Over 2 years but below 3 years Over 3 years Total 699,290.40 100% 684,171.00 100%

In the advance receipts, there are no arrears from the shareholders that hold more than 5% (with 5% inclusive) of the Company’s shares.

15. Other payables

Age Within a year Over 1 year but below 2 years Over 2 years but below 3 years Over 3 years Total	June 30, 2005 Balance Proportion (%) 8,059,361.36 42.09% 4,021,856.44 21.00% 3,014,552.00 15.74% 4,053,421.47 21.17% 19,149,191.27 100%	December 31, 2004 Balance Proportion (%) 8,653,615.63 45.43% 3,157,332.06 16.58% 2,936,634.96 15.42% 4,299,044.35 22.57% 19,046,627.00 100%	December 31, 2004 Balance Proportion (%) 8,653,615.63 45.43% 3,157,332.06 16.58% 2,936,634.96 15.42% 4,299,044.35 22.57% 19,046,627.00 100%
			45.43% 16.58% 15.42% 22.57% 100%

In other payables, there are no arrears from the shareholders that hold more than 5% (with 5% inclusive) of the Company’s shares.

16. Taxes payable

Taxes	June 30, 2005	December 31, 2004
Operation tax payable	591,043.01	653,099.00
VAT not offset yet	-10,108,789.26	-10,225,965.00
Urban construction tax dutiable	51,220.98	48,020.00
Business income tax dutiable	416,389.97	449,154.00
Others	803,100.80	183,446.00
Total	-8,247,034.50	-8,892,246.00

1. Expenses drawn in advance

Items June 30, 2005 December 31, 2004 Housing, water and electricity 778,818.58 124,827.00 Advertising 12,725.20 140,000.00 Double salaries at year end 266,170.00 Others 378,595.02 94,716.00 Total 1,170,138.80 625,713.00

1. Other accounts due

21

Items	June 30, 2005	December 31, 2004
Educational Surcharge	17,714.98	8,298.00
Flood fighting fund	1,716.11	1,136.00
Others	9,983.21
Total	29,414.30	9,434.00

19. Special accounts payable

Items	June 30, 2005	December 31, 2004
Fund financed for construction of	3,000,000.00	3,000,000.00
enterprise technology center
Total	3,000,000.00	3,000,000.00

According to Document SHEN JING MAO FA [2003] No. 93, the Company’s Technology Center has been identified as Shenzhen Enterprise Technology Center and financed a supporting fund amounting to RMB 3 million for construction of the enterprise technology center. The Company has used all the fund for purchasing the equipment.

20. Minority shareholders’ equity

Items			June 30, 2005	December 31, 2004
Xi’an Haomen Restaurants		&	4,753,410.00	4,753,410.00
Recreation Co., Ltd.
Shenzhen Harmony	World		1,253,383.53	1,182,917.00
Watches Center Co., Ltd.
Shenzhen Harmony	World		1,400,000.00	1,400,000.00
Watches Center Co., Ltd.
Total			7,406,793.53	7,336,327.00
20. Share Capital
Items			June 30, 2005	December 31, 2004
Negotiable shares not listed			130,248,000.00	130,248,000.00
Negotiable shares, listed			119,069,999.00	119,069,999.00
Including: Domestically listed RMB			60,749,999.00	60,749,999.00
ordinary shares
Domestically listed RMB		based	58,320,000.00	58,320,000.00
foreign shares
Total:			249,317,999.00	249,317,999.00

1. Capital public reserve

Items June 30, 2005

December 31, 2004

22

Share capital	premium	premium			177,354,784.00	177,354,784.00
Value added	in assets	assessment			13,753,693.00	13,753,693.00
Price difference		in		related	738,757.00	738,757.00
transactions
Total					191,847,234.00	191,847,243.00
22. Surplus public reserve
Items					June 30, 2005	December 31, 2004
Statutory surplus public reserve					43,445,904.00	43,445,904.00
Statutory public welfare fund					25,036,994.00	25,036,994.00
Discretionary	surplus		public		61,984,894.00	61,984,894.00
reserve
Total					130,467,792.00	130,467,792.00
23. Retained	earnings
Items					June 30, 2005	December 31, 2004
Retained earnings						-54,268,783.00
- Retained	earnings		at	year	-54,268,783.00
beginning
- Profit this year					5,209,639.04
Total					-49,059,143.96	-54,268,783.00

24. Income from principal business

Items	Jan 1 to Jun 30, 05	Jan 1 to Jun 30, 04
Income from sales of products	53,401,239.97	66,243,641.43
Income from sales of goods	87,164,573.30	60,647,687.49
Income from properties	19,590,219.55	7,263,722.19
Total	160,156,032.82	134,155,051.11
25. Costs of principal business
Items	Jan 1 to Jun 30, 05	Jan 1 to Jun 30, 04
Costs of sales of products	26,956,171.20	32,852,632.53
Costs of sales of commodities	70,200,231.46	50,110,901.96
Costs of properties	4,169,116.00	689,860.77
Total	101,325,518.66	83,653,395.26

26. Taxes and surcharges of principal business

Items	Jan 1 to Jun 30, 05	Jan 1 to Jun 30, 04
Operation tax	1,054,706.00	504,197.25
Urban construction tax	102,719.33	60,585.97

23

Educational Surcharge	Educational Surcharge		308,157.99	308,157.99				193,757.92
Total			1,465,583.32					758,541.14
27. Financial expenses
Types			Jan 1	to Jun 30, 05			Jan 1 to Jun 30, 04
Interest payment			503,093.00					2,114.00
Less: Interest income			277,159.48					411,893.82
Exchange losses
Less: Exchange income				-96.85				160,399.69
Bank charges			276,719.77
Others								48,794.15
Total			502,556.44					-200,585.98
28. Profit from other	business
			Jan 1 to Jun 30, 05					Jan 1 to Jun 30,
								04
Items Income			Cost	Taxes		Profit		Profit
Income from 994,024.33			698,354.82			295,669.51		1,153,855.04
repairing and
replacement
Others								8,438.10
Total	994,024.33		698,354.82			295,669.51		1,162,293.14
29. Investment income
Types			Jan 1 to Jun 30, 05		Jan	1 to	Jun 30, 04
Earnings from short		term	-2,648,072.04				-2,795,826.67
investment
Investees adjusted	based on
equity method
Bond investment							351,335,63
Income from disposal of		the
invested companies
Others							3,872.59
Total			-2,648,072.04				-2,440,618.45
30. Non-operating income
Major detailed items			Jan 1 to Jun 30, 05				Jan 1 to Jun 30, 04
Net earning from disposal		of fixed	13,200.00					702,525.26
assets with output VAT transferred

24

in and out

Outlay unnecessary to be paid Others 99,115.21 462,917.34 Total 112,315.21 1,165,442.60

31. Non-operating expenses

Major items Jan 1 to Jun 30, 05 Jan 1 to Jun 30, 04 Net loss from disposal of fixed 14,255.12 4,358.62 assets with input VAT transferred in Penalty payment 7,581.70 21,322.50 Others 14,530.76 1,469.61 Total 36,637.58 27,150.73

(V) Notes to the relevant items on the accounting statements of the parent company 1. Accounts receivable

	June 30,	June 30,	2005		December	31, 2004
Age	Amount	Proportion		Provision for	Amount	Proportion	Provision for
				bad debts			bad debts
Within a year	10,348,987.84		18.35%	459,756.00	10,140,308.00	19%	459,756.00
1 to 2 years	2,816,442.51		4.99%	130,993.00	1,309,950.00	2%	130,993.00
2 to 3 years	2,012,533.28		3.57% .	1,218,833.00	1,860,558.00	3%	1,218,833.00
Over 3 years	41,226,385.64		73.09%	37,898,180.00	41,190,657.00	76%	37,898,180.00
Total	56,404,349.27		100%	39,707,762.00	54,501,473.00	100%	39,707,762.00

Top five debtors of the accounts receivable at the end of the period are as follows:

Companies			Amount receivable	Proportion in the total of
				the accounts receivable
Beijing Urban/Rural Trade Center Co., Ltd.			2,033,710.00	3.61%
Qingdao Handry Timepieces,		Glasses and	1,298,215.00	2.30%
Jewelry Co.
Timepieces and Sewing	Machine Wholesale		982,604.00	1.74%
Station of Yingkou General Merchandise Co.
Siping No. 1 Department	Store		823,302.00	1.46%
Anshan Timepieces	and	Photographic	807,815.00	1.43%
Equipment Co.

• Ended June 30, 2005, there were no accounts receivable owed by the shareholders holding more than 5% (including 5%) of the Company’s total shares.

2. Other receivables

25

		June 30, 2005		December 31, 2004	December 31, 2004	December 31, 2004
Age	Amount	Proportion	Provision for	Amount	Proportion	Provision for
			bad debts			bad debts
Within a year	146,448,911.69	90.05%	2,190,403.00	163,301,243.00	91%	2,190,403.00
1 to 2 years	2,140,537.88	1.32%	38,186.00	2,521,860.00	1%	38,186.00
2 to 3 years	10,221,014.68	6.29%	7,568,960.00	9,907,340.00	6%	7,568,960.00
Over 3 years	3,814,552.91	2.35%	2,738,302.00	3,249,072.00	2%	2,738,302.00
Total	162,625,017.16	100%	12,535,851.00	178,979,515.00	100%	12,535,851.00

• Ended June 30, 2005, there were no other receivables owed by the shareholders holding more than 5% (including 5%) of the Company’s total shares.

3. Long-term equity investment

Items	June 30, 2005	December 31, 2004
Stock investment	3,085,000.00	3,085,000.00
Subsidiary	36,967,796.18	32,471,110.00
Others	1,800,000.00	1,800,000.00
Total	41,852,796.18	37,356,110.00

(1) Stock investment

Investees		Type of share	Type of share	Number	in the	Proportio	Investme	Investme	Investme	Market		Reserve	Remarks
				investees’ total		n of	nt	amount		price	at	for
				registered		capital				year end		devaluatio
				shares								n
Wanneng	Joint	Legal	person	1.10	million	0.13%	3,000,000.0
Stock Co., Ltd.		shares		shares			0						non-listed
Xi’an Tangcheng		Legal	person	50,00 shares		0.10%	85,000.00
Joint Stock Co.,		shares											non-listed
Ltd.
Total
							3,085,000.0
							0
(2) Subsidiaries
Investees				Operation	Proportion in		the		June 30, 2004			December	31, 2004
				term	registered capital			of
					the investee
Shenzhen	Feitu		New	1983-2003		60%
Technology	Development		Co.,

26

Ltd.
Xi’an Haomen Restaurants &		1994-2009	62%	5,800,500.00	5,800,500.00
Recreation Co., Ltd.
Shenzhen Harmony	World	1997-2012	90 %	6,818,241.78	6,184,133.00
Watches Center Co., Ltd.
Shenzhen	Feijing	1997-2007	90 %
Sophisticated	Optical
Instruments Manufacture Co.,
Ltd.
Shenzhen	FIYTA	1999-2009	90%	20,924,852.30	17,239,083.00
Sophisticated Timepieces
Manufacture Co., Ltd.
Shenzhen Harmony	World	1993-2008	50%	3,424,202.10	3,247,394.00
Watches Center Co., Ltd.
Total				36,967,796.18	32,471,110.00

(3) Other equity investments

					Initial investment	amount	amount
Investees		Investment	Initial investment		Conversion in	Equity		Adjusted		Ending	%	in	the
		Term	(in	original	RMB	adjuste		amount	of	balance	investees’ total
			currency)			d	this	accumulate			equity
						year		d equity
Shenzhen	CATIC	13 years	300,000.00		300,000.00					300,000..00	15%
Culture Transmit Co.,
Ltd.
Shenzhen		20 years	1,500,000.00		1,500,000.0					1,500,000.	50%
Research Institute					0					00
of Northwest China
Polytechnic
University
Total			1,800,000.00		1,800,000.0
					0					1,800,000.
										00

4. Income from principal business

Items	Jan 1 - Jun 30, 05	Jan 1 to Jun 30, 04
FIYTA watches	51,784,841.74	66,067,465.05
Income from properties	19,590,219.55	7,263,722.19
Others	1,488,218.80
Total	72,863,280.09	73,331,187.24

5. Costs of principal business

27

Items	Jan 1 to Jun 30, 05	Jan 1 to Jun 30, 04
FIYTA watches	32,398,206.59	43,443,238.33
Property costs	4,169,116.00	689,860.77
Others	1,488,218.80
Total	38,055,541.39	44,133,099.10

(VI) Related parties and the transactions

1. Related parties with control relationship

Companies	Companies	Registered	Principal			Relationship	Relationship		Company type	Legal
		address	business							Representativ
										e
CATIC	SHENZHEN	Shenzhen	Investing		to set	The	Company’s		Joint stock co.,	Wu
HOLDINGS LTDS.			up	entities,		parent	company		ltd.	Guangquan
			domestic		trade,
			materials		supply
			and sales
CATIC	Shenzhen	Shenzhen	Import and		export	shareholder		of	Solely owned by	Wu
Corporation			of motor vehicles,			the	Company’s		the state	Guangquan
			equipment		and	parent	company
			machinery		made
			within the	Group.

3. Balance of the Principal Accounts Receivable from the Related Parties

Companies	Jun 30, 05	Dec 31, 04
Shenzhen Feiyu Artistic Timepiece	5,472,480.00	5,472,480.00
Co., Ltd.
Shenzhen Feitu New Technology	1,904,482.00	1,904,482.00
Development Co., Ltd.
CATIC Shenzhen Corporation	1,500,000.00	1,500,000.00

4. Related Parties without Control Relationship

Companies Relationship Shenzhen Tianma Microelectronics Co., Ltd. controlled by the same parent company Shenzhen CATIC Property Management Co., Ltd. controlled by the same parent company shareholder Shenzhen Rainbow Emporium Co., Ltd. sharing the same Chairman of the Board Shenzhen Nanguang (Group) Co., Ltd. sharing the same Chairman of the Board Shenzhen CATIC Culture Transmit Co., Ltd. Associate

28

Shenzhen Research Institute of Northwest China Joint venture institution Polytechnic University

5. Material related transactions with the related parties

Items		Jan - Jun, 05	Jan - Jun, 04
Property	management fee	500,000.00	495,100.80
Total		500,000.00	495,100.80

Note: The related party involved in this transaction is Shenzhen CATIC Property Management Co., Ltd.

(VII) Additional information

1. The net assets-income ratio and earnings per share are calculated in accordance with the Rules for Public Companies to Disclose Information and Prepare Statements (No. 9) promulgated by China Securities Regulatory Commission (CSRC).

Profit of	the report	Net assets-income ratio		Earnings per share	(RMB/share)
year
		Fully diluted	Weighted average	Fully diluted	Weighted
					average
Principal	business	10.98%	11.03%	0.23	0.23
profit
Operating profit		1.71%	1.71%	0.04	0.04
Net profit		1.00%	1.00%	0.02	0.02
Net profit less non-		1.42%	1.42%	0.03	0.03
recurring loss/gain

2. Schedule of Reserve for Impairment of Assets

(a) Consolidation

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2005 In RMB

RMB
Items	Opening Balance	Increase in the report period	Decrease in the report period	Ending balance
I. Accounts receivable	54,852,470.00	0.00	0.00	54,852,470.00
Incl.: Accounts receivable	41,118,537.00	0.00	0.00	41,118,537.00
Other receivables	13,733,933.00	0.00	0.00	13,733,933.00
II. Reserve for devaluation of short-term investment	10,323,854.00	2,661,320.20	0.00	12,985,174.20
Incl.: Stock investment	10,323,854.00	2,661,320.20	0.00	12,985,174.20
Bond investment	0.00	0.00	0.00	0.00

29

III. Reserve for price falling of inventories	59,621,655.00	0.00	231,308.61	59,390,346.39
including: merchandise inventory	0.00	0.00	0.00	0.00
Finished products	38,055,472.00	0.00	231,308.61	37,824,163.39
Raw materials	21,566,183.00		0.00	21,566,183.00
Low-value consumption articles and packing materials	0.00	0.00	0.00	0.00
IV. Total reserve for devaluation of long-term investment	0.00	0.00	0.00	0.00
Including: Long-term equity investment	0.00	0.00	0.00	0.00
Long term bond investment	0.00	0.00	0.00	0.00
V. Total reserve for devaluation of fixed assets	2,860,323.09	0.00	0.00	2,860,323.09
Including: housing and buildings	2,600,000.00	0.00	0.00	2,600,000.00
Machines & equipment	260,323.09	0.00	0.00	260,323.09
VI. Reserve for depreciation of intangible assets	0.00	0.00	0.00	0.00
incl.: Patent	0.00	0.00	0.00	0.00
Trademark	0.00	0.00	0.00	0.00
VII. Reserve for devaluation of construction-in-progress	0.00	0.00	0.00	0.00
VIII. Reserve for devaluation of entrusted loan	0.00	0.00	0.00	0.00

(b) Parent company

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2005 In RMB

RMB
Items	Opening Balance	Increase in the report period	Decrease in the report period	Ending balance
I. Accounts receivable	52,243,613.00	0.00	0.00	52,243,613.00
Incl.: Accounts receivable	39,707,762.00	0.00	0.00	39,707,762.00
Other receivables	12,535,851.00	0.00	0.00	12,535,851.00
II. Reserve for devaluation of short-term investment	10,323,854.00	2,661,320.20	0.00	12,985,174.20
Incl.: Stock investment	10,323,854.00	2,661,320.20	0.00	12,985,174.20
Bond investment	0.00	0.00	0.00	0.00
III. Reserve for price falling of inventories	55,346,525.00	0.00	0.00	55,346,525.00
including: merchandise inventory	0.00	0.00	0.00	0.00
Finished products	33,780,342.00	0.00	0.00	33,780,342.00

30

Raw materials	21,566,183.00	0.00	0.00	21,566,183.00
Low-value consumption articles and packing materials	0.00	0.00	0.00	0.00
IV. Total reserve for devaluation of long-term investment	0.00	0.00	0.00	0.00
Including: Long-term equity investment	0.00	0.00	0.00	0.00
Long term bond investment	0.00	0.00	0.00	0.00
V. Total reserve for devaluation of fixed assets	2,600,000.00	0.00	0.00	2,600,000.00
Including: housing and buildings	2,600,000.00	0.00	0.00	2,600,000.00
Machines & equipment	0.00	0.00	0.00	0.00
VI. Reserve for depreciation of intangible assets	0.00	0.00	0.00	0.00
incl.: Patent	0.00	0.00	0.00	0.00
Trademark	0.00	0.00	0.00	0.00
VII. Reserve for devaluation of construction-in-progress	0.00	0.00	0.00	0.00
VIII. Reserve for devaluation of entrusted loan	0.00	0.00	0.00	0.00

31