FIYTA Precision Technology Co., Ltd. - Interim / Quarterly Report 2007

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SHENZHEN FIYTA HOLDINGS LTD. 2007 Semi-Annual Report （ Full Text ）

August 20, 2007

Section 1 Important Notice, Definition and Table of Contents

I. Important Notice

The Board of Directors and 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 authenticity, accuracy and completion of the whole contents.

All the directors attended the board meeting.

The Company’s 2007 semi-annual financial report enclosed herein has not been audited. Mr. Wu Guangquan, the Chairman of the Board, Mr. Xu Dongsheng, the Managing Director, Mr. Li Dehua, Deputy General Manager and Chief Financial Officer and Mr. Hu Xinglong, Manager of the Financial Department, hereby ensure the accuracy and completeness of the financial report enclosed in this semi-annual report.

II. Definition

The following names in abbreviation shall refer to the following organizations unless the context hereof otherwise clearly requires:

The Company or Fiyta: Shenzhen Fiyta Holdings Co., Ltd. CATIC Shenzhen: CATIC Shenzhen Holdings Ltd. Harmony: Shenzhen Harmony World Watches Center Co., Ltd. Rainbow Supermarket: Shenzhen Rainbow Supermarket Co., Ltd.

III. Table of Contents
Section 1 Important Notice, Definition and Table of Contents	Page 1
Section 2 Company Information	Page 2
Section 3 Changes in Capital stock and Shares Held by Principal Shareholders Page 4
Section 4 Directors, Supervisors and Senior Executives	Page 7
Section 5 Report of the Board of Directors	Page 8
Section 6 Material Issues	Page 12
Section 7 Financial Report	Page 15
Section 8 Documents Available for Inspection	Page 16

Section 2 Company Information

I. Company Profile 1. Company Name in Chinese: 深圳市飞亚达（集团）股份有限公司 In English: SHENZHEN FIYTA HOLDINGS LTD Short Form in Chinese: 飞亚达公司 Short Form in English: FIYTA

Stock Exchange Listed with: Shenzhen Stock Exchange Short Form & Code of the Stock: S FIYTA A 000026 FIYTA B 200026

3. Registered Office Address: FIYTA Technology Building, Gaoxin S. Road One,

Nanshan District, Shenzhen Office Address: 20[th] Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen Postal Code: 518057 Web Site: http://www.fiyta.com E-mail: [email protected]

Legal Representative: Mr. Wu Guangquan
Secretary of the Board; Mr. Hao Huiwen Securities Affairs Representative: Miss Li Wenjing Liaison Address: 20[th] Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen Tel : 0755－86013669 86013992 Fax: 0755－83348369 E-mail: [email protected]
Newspapers Designated for Disclosing the Information: Securities Times, Hong Kong Commercial Daily

Internet Website for publishing this semi-annual report: http://www.cninfo.com.cn Place Where the Semi-Annual Report is Prepared and Placed: Securities Department of the Company

7. Other Relevant Information:

(1) Date of first registration: March 30, 1990 Date of change in registration: January 30, 1997 Registration with: Shenzhen Municipal Administration for Industry and Commerce.

(2) Business License No.: 4403011001583 Taxation Registration No.: SZ Zi No: 440301192189783

II. Financial Highlights Table 1

Items	End of the report period	End of thepreviousyear	End of thepreviousyear	Increase/decrease of the end of the report period vs the end of thepreviousyear(%)	Increase/decrease of the end of the report period vs the end of thepreviousyear(%)
		Before adjustment	After adjustment	Before adjustment	After adjustment
Current assets:	574,597,891.08	485,402,611.42	485,402,611.42	18.38%	18.38%
Currentliabilities	257,194,291.20	193,732,964.08	193,732,964.08	32.76%	32.76%
Total assets	864,748,180.98	771,947,475.56	775,110,230.56	12.02%	11.56%

Shareholders’equity (excluding minority equity)	591,828,217.78	562,634,460.99	564,828,187.41	5.19%	4.78%
Net assets pershare	2.374	2.257	2.265	5.19%	4.78%
Net assets per share after adjustment	2.319	2.180	2.189	6.35%	5.93%

Table 2

Items	Report Period	Same Period of the Previous Year	Same Period of the Previous Year	Increase/decrease of the report period vs the same period of the previousyear(%)	Increase/decrease of the report period vs the same period of the previousyear(%)
		Before adjustment	After adjustment	Before adjustment	After adjustment
Operating profit	30,145,875.35	15,629,210.86	16,964,402.50	92.88%	77.70%
Totalprofit	30,982,796.88	17,078,612.65	17,078,612.65	81.41%	81.41%
Netprofit	27,000,030.37	13,595,389.06	13,185,342.01	98.60%	104.77%
net profit after deduction of non- recurringloss/gain	25,415,706.56	12,338,589.59	11,928,542.54	105.99%	113.07%
Basic earnings pershare	0.108	0.055	0.053	98.60%	104.77%
Diluted earningsper share	0.108	0.055	0.053	98.60%	104.77%
Net assets-income ratio	4.56%	2.49%	2.41%	Increase by 2.07 percentage points	Increase by 2.15 percentage points
Net cash flows arising from operatingactivities	-31,592,113.96	-26,564,640.47
Net cash flows per share arising from operating activities	-0.13	-0.11

Deducting non-recurring gain/loss items and amount involved

Non-recurring gainandlossitems	Fromyearbeginning to the end ofthereport period
Net amount of non-operating income and expenses	836,921.53
Earningsfromshort term investment	836,668.09
Amount affected by theincome tax	-89,265.81
Total	1,584,323.81

Table 3: Profit Statement

Items	Net assets-income ratio	Net assets-income ratio	Earnings per share (RMB/share)	Earnings per share (RMB/share)
	Fullydiluted	Weighted average	Fullydiluted	Weighted average
Net profit attributable to ordinary sharesinthe Company	4.56%	4.67%	0.108	0.108
Net profit attributable to the ordinary shares in the Company less non-recurring gains and loss	4.29%	4.40%	0.102	0.102

Section 3 Change in Capital stock and Shares Held by the Principal Shareholders

I. Change in Shares

Changes in the Company’s capital stock ended June 30, 2007 are as follows: In shares

	Before the	change	Increase/ Decrease (+ / -) as of the period	Increase/ Decrease (+ / -) as of the period	Increase/ Decrease (+ / -) as of the period	Increase/ Decrease (+ / -) as of the period	Increase/ Decrease (+ / -) as of the period	Afterthe change	Afterthe change
				the period
	Q’ty	Proportio n	New	Bo	Shares convert ed from the capital reserve	Oth ers	Su b-t otal	Q’ty	Proportio n
				nus
			issui	sha
			ng	res
I. Non-listed negotiable shares	130,248,000	52.24%						130,248,000	52.24%
1. Promoters’shares	130,248,000	52.24%	0	0	0	0	0	130,248,000	52.24%
Including:
State-owned shares
Domestic corporate shares	130,248,000	52.24%	0	0	0	0	0	130,248,000	52.24%
Foreign corporate shares
Others
2. Corporate shares placed
3. Employees’shares
4. Preference shares orothers
II. Listed negotiable shares	119,069,999	47.76%	0	0	0	0	0	119,069,999	47.76%
1. RMB ordinary shares	60,749,999	24.37%	0	0	0	0	0	60,749,999	24.37%
Including:
held by senior executives	48,210	0.02%	0	0	0	0	0	48,210	0.02%
2. Foreign shares listed domestically	58,320,000	23.39%	0	0	0	0	0	58,320,000	23.39%
III. TotalShares	249,317,999	100.00%	0	0	0	0	0	249,317,999	100.00%

II. Total shareholders at the end of the report period

Ended June 30, 2007, the Company had totally 18,737 shareholders, including 8,252 shareholders of A-shares and 10,485 shareholders of B-shares.

III. Shares held by the top ten shareholders Shares held by top 10 shareholders ended June 30, 2007:

18737

Nature of Shareholders	Proportion of shares held		Q’ty of Non-negoti able Shares Held	Shares pledged or frozen
		Total
		shares held
		(shares)
Domestic state corporate	52.24%	130248000	130248000	0

Henan Fangchen Technology & Trade Co., Ltd.	Domestic non-state corporate	2.50%	6231100	-
Shenzhen Xinglun Network Technology Co.,Ltd.	Domestic non-state corporate	1.89%	4700157	-
KaifengXinfengTrade Co.,Ltd.	Domestic non-state corporate	1.65%	4101800	-
Shanghai Delin Property Management Co., Ltd.	Domestic non-state corporate	1.59%	3951975	-
Bank of China – E Fund Stable Growth SecuritiesInvestmentFund	Domestic non-state corporate	1.12%	2803619	-
HANG SENG CONSUMER SECTOR FLEXIPOWER FUND	Domestic non-state corporate	1.09%	2710800	-
Bank of China – E Fund Positive Growth Securities Investment Fund	Domestic non-state corporate	1.04%	2600000	-
China Minsheng Banking Corp., Ltd. – Oriental Carefully Selected Mixed Open-End SecuritiesInvestmentFund	Domestic non-state corporate	0.86%	2141476	-
Bank of China – Huabao Xingye Advance Growth Stock Type Securities Investment Fund	Domestic non-state corporate	0.80%	2000000	-

The shareholder that holds over 5% (including 5%) of the total capital stock is CATIC SHENZHEN HOLDINGS LTD. In the report period there was no change in the shareholding and there were no shares held by it pledged or frozen.

IV. Shares held by the top ten shareholders of negotiable shares Shares held by top 10 shareholders of negotiable shares ended June 30, 2007:

Sharesheld by the top tenshareholders of negotiableAshares	Sharesheld by the top tenshareholders of negotiableAshares
Names ofShareholders	Q’ty of Negotiable SharesHeld	ShareType
Henan Fangchen Technology &Trade Co.,Ltd.	6231100	NegotiableA-shares
Shenzhen Xinglun Network Technology Co., Ltd.	4700157	Negotiable A-shares
KaifengXinfengTrade Co.,Ltd.	4101800	NegotiableA-shares
Shanghai Delin PropertyManagement Co.,Ltd.	3951975	NegotiableA-shares
Bank of China – E Fund Stable Growth Securities InvestmentFund	2803619	NegotiableA-shares
Bank of China – E Fund Positive Growth Securities Investment Fund	2600000	NegotiableA-shares
China Minsheng Banking Corp., Ltd. – Oriental Carefully Selected Mixed Open-End Securities InvestmentFund	2141476	NegotiableA-shares
Bank of China – Huabao Xingye Advance Growth Stock Type SecuritiesInvestmentFund	2000000	Negotiable A-shares
Industrial and Commercial Bank of China – E Fund Value Based Growth Mixed Securities Investment Fund	1699848	Negotiable A-shares
NationalSocialSecurityFund 601 Portfolio	904739	NegotiableA-shares
Shares held by the top ten shareholders of negotiable B shares
Names ofShareholders	Q’ty of Negotiable	ShareType

	Shares Held
HANG SENG CONSUMER SECTOR FLEXIPOWER FUND	2710800	NegotiableB-shares
SBCI FINANCE ASIA LTD A/C SBCHONGKONG	1344000	NegotiableB-shares
HANG SENG CHINA B-SHARE FOCUSFUND	838575	NegotiableB-shares
HANG SENG CHINA EQUITY FUND	800000	NegotiableB-shares
GUOTAI JUNAN SECURIES HONG KONG LIMITED	587683	NegotiableB-shares
GOLDMAN SACHS INTL	586900	Negotiable B-shares
LOMBARDODIER DARIER HENTSCH& CIE	424000	NegotiableB-shares
WuKunhao	341200	NegotiableB-shares
Shanghai Hong Kong Wanguo Securities	312629	Negotiable B-shares
TOYO SECURITIESASIA LIMITED	247400	NegotiableB-shares
Relationship/concerted action among the above shareholders	Among the top ten shareholders, there exists no business relationship between the promoter shareholder and other shareholders of negotiable shares. The Company has not found any business relationship among other shareholders of negotiable shares and cannot identify whether there are any shares held other shareholders of negotiable shares pledged or frozen.

V. In the report period, no change took place in the Company’s controlling shareholder or actual controller.

Section 4 Directors, Supervisors and Senior Executives

I. Change in the Company’s Shares

Of the directors, supervisors and senior executives in current office, only Deputy General Manager Mr. Lu Bingqiang holds 48 shares in which no change took place in the report period.

II. New Engagement or Disengagement of Directors, Supervisors, Senior Executives In the report period, there was no new engagement or disengagement of Directors, Supervisors and Senior Executives.

Section 5 Report of the Board of Directors

I. Discussion and Analysis of the Overall Operation in the Report Period

(I) General

In the first half year of 2007, the Company insisted on the practice of leading various business activities with the brand strategy in promoting the upgrading of the Company’s principal businesses according to the guidelines of “enhancing the development belief, sparing no effort in building brand, improving the qualification of the staff and deepening innovative management”, steadily developing FIYTA Brand, progressively expand sales in the overseas market and improving the capability of technology research and development and industrial designing; reinforcing promotion of HARMONY retail brand, keeping on developing new chain shops in key cities in Mainland China and expanding brand cooperation. The Company once again organized a mission to SIHH expo in Switzerland and exhibited for the first time three types of tourbillon watch of limitation version and up-to-date technology based space reinforced titanium watch. In the report period, the Company started on general basis the “Balanced Score Card” project. The strategic diagram and score card for Watch making, HARMONY and various departments of the headquarters have been completed in development. In 2007, Lean “Six Sigma” Management work has started formally and the Company has added for the first time 5 black-band project; meanwhile, the Company planned to complete 12 green-band projects; in the report period, the Company has successfully been upgraded to “2006 CCTV Top 20 Employers” and the case has been put to the book of China Enterprise Powers of Human Resource Management.

The Company has kept a speedy and steady development trend and achieved great success in the three principal businesses, namely, sales of top brand watch in HARMONY, Fiyta watches and property and achieved a big growth in economic results. In the report period, the Company realized a operation income by RMB 35.038 million on accumulated basis, a 51.45% growth over the same period of the previous year; realized total profit by RMB 30.98 million, increased by RMB 13.90 million or an 81.41% growth over the same period of the previous year; realized net profit by RMB 27 million, increased by 13.81 million or a 104.77% growth over the same period of the previous year. (For the detail, refer to the following table. In RMB)

Major Indexes	Jan. to Jun., 2007	Jan. to Jun., 2006	Increase/Decrease	Increase/Decrease Rate(%)
Operation income	350,380,602.40	231,353,224.49	119,027,377.91	51.45%
Totalprofit	30,982,796.88	17,078,612.65	13,904,184.23	81.41%
Netprofit	27,000,030.37	13,185,342.01	13,814,688.36	104.77%

1. FIYTA Watches The Company realized an operation income by RMB 69.72 million from Fiyta watches from January to June, increased by RMB 8.97 million or a 14.75% growth over the same period of the previous year.

In the report period, the Company further reinforced the personalized services, identity sales and transmission of brand value, etc. The high-grade products, such as HAPPINESS PRAYING Watch, SPACE FLIGHT Watch, have kept good sale in the market; the Company has achieved a substantial progress in cooperation between research and development, productions and marketing, improvement of new product research and development and popularization, product seriation, and supply chain, etc. by holding joint meeting of different departments and meetings of designated topics. In the report period, the Company successfully held the Third FIYTA Cup Watch Design Competition and FIYTA International Summit of Innovation Design to which the domestic and overseas industrial design circle has paid enthusiastic attention to and given positive response, and has received around 600 pieces of works for competition from UK, the United States, Japan, China, etc. As a result, the

Company’s influence has been further expanded and the FIYTA brand familiarity has been further upgraded. The development of “Shenzhou VII Space Watch” to which great attention has been made to is now in the stage of preliminary sample; with tackling of key technical difficulty as the juncture, the deepened research and development of mechanical movement technology, material technology and magnet-proof technology have been pushed forward and titanium series products will be reinforced and launched successively to the market in the second half year. In the report period, the Company submitted applications for 18 appearance design patents and 2 practical new model patents. The Company has positively reinforced the share of best practice in sales, continuously upgraded the personnel qualification and sales performances, carried out promotion activities of a number of theme products and sales contests, promoted sales and improved the morale.

2. HARMONY Top Brand Watch Retails In the first half year, HARMONY totally realized sales income amounting to RMB 254.33 million, a 73.54% growth over the same period of the previous year; realized total profit amounting to RMB 17 million, a 203.57% growth over the same period of the previous year.

In the report period, HARMONY further positively expanded and steadily optimized the famous brand watch chain shop network and the scale effect has gradually come into view and HARMONY Brand Identity has been significantly improved; further deepened the “surface-medium-deep levels” based 3-level marketing management theory, and at the same time unceasingly enriched the 3-level marketing theory system on the base of operation practice; further enhanced the development of sales outlets. In the first half year, the Company newly opened 6 chain shops, including Changsha Rolex Franchised Shop, Yinchuan Xinhua Shop, Yijing Central City Shop, Chongqing Century Xindu Shop. In the report, there have been altogether 57 chain shops all over the country. To counter the relative density of holidays in the first half year, the Company carried out “High Grade and Luxury” series promotion activities, effectively promoted the sales of luxury brands and potential brands and created a historical record of RMB 6 million in sales of a single day on the Valentine’s Day; the Company has further reinforced the cooperative relations with brands and established regular meeting system and communication mechanism with the key brands and main force brands, a number of brands, including Vacheron Constantin, Longines, have held a number of large promotion activities in the HARMONY network which have effectively promoted deepened cooperation relations.

3. Property Operation In the report period, FIYTA Technology Building located in Shenzhen Hi-tech Park and FIYTA Building located in Shenzhen Huaqiang North Road Business Zone are in good operation status with good operating status; the Company has realized operating income amounting to RMB 27.34 million, a 21.88% growth over the same period of the previous year.

(II) Principal Business and Operation

The Company is mainly engaged in design, development, manufacture, sales and repairing of timepieces and components, including operation of FIYTA watch products and sales of HARMONY world top brand watches; and operation of the properties, namely FIYTA Building and FIYTA Technology Building.

1.The composition of the income and profit from the principal business is as follows:

Businesses	Business income in RMB	Cost of the principal businessesin RMB	Gross profit rate	Year-on-ye ar increase/d ecrease of revenue from principal businesse s	Year-on-ye ar increase/d ecrease of principal business cost	Year-on-year increase/decrease percentage points of gross profit rate

Industrial manufacture and sales	69,718,328.89	32,509,656.76	53.37%	14.75%	14.24%	Increase by 0.21 percentage point
Retail	254,328,189.62	196,508,787.66	22.73%	73.54%	71.10%	Increase by 1.10 percentage point
Property operation	27,341,859.04	3,887,910.12	85.78%	21.88%	-0.75%	Increase by 3.24 percentage points
Other business	2,491,094.41	996,851.48	59.98%	54.71%	35.69%	Increase by 5.61 percentage points

In the report period, the sector or products whose turnover or profit take over 10% of that from the principal businesses is timepieces and property.
(1) Watches The sales income and sales cost of FIYTA watches and foreign famous watches are listed as follows:

Table 1: To be presented based on the categories of the products

Businesses	Business income in RMB	Cost of the principal businessesin RMB	Gross profit rate	Year-on-year increase/decrea	Year-on-ye ar increase/de	Year-on-year increase/decr ease percentage points of gross profit rate
					crease of
				se of revenue	principal
				from principal	business
				businesses	cost
Manufacture and sales of FIYTA watches	69,718,328.89	32,509,656.76	53.37%	14.75%	14.24%	Increase by 0.21 percentage points
Sales of foreign famous watches	254,328,189.62	196,508,787.66	22.73%	73.54%	71.10%	Increase by 1.10 percentage points

Table 2: Listed according to regions

Serial No.	Regions	Sales in RMB	Year-on-year increase/ decrease (%)
1	Northeast China	36,475,034.24	57.0%
2	North China	46,123,304.27	60.5%
3	Northwest China	73,207,423.56	68.1%
5	East China	47,360,337.48	49.7%
4	Southwest China	13,307,231.78	35.5%
7	SouthChina	104,074,317.62	48.0%
	Total	320,547,648.95	54.6%

(2) Property The profit from the property operation took over 10% of the total profit from the principal business. The said operating income and profit were mainly from the lease of FIYTA building and FIYTA Technology Building.

In the report period, no material change took place in the Company’s profit composition, principal business’structure, and earning power of the principal business in comparison with the previous report period.
In the report period, the Company had no other business activities having major influence on the Company.

5. Problems and Difficulties in Operation

The timepiece industry the Company is engaged in is still experiencing severe market competition and foreign brand products are still taking majority market shares in the Chinese watch market. FIYTA still needs to be improved in brand positioning and construction and is still experiencing the pressure arising from the channels and is being compressed by imported watches; the position and area in important supermarkets tend to be continuously compressed or marginalized; and the Company has not yet achieved a substantial progress in entry into the high-end network and needs to be continuously reinforced in upgrading brands and seriation of products, etc. In respect of retail of famous brand watches, both domestic and foreign famous brand watch retailers are very interested in huge growth potential of the domestic famous brand watch market, set foot one after another in the domestic famous brand watch retail business and further expanded the chain shop scale and a competition pattern formation is in progress. With continuous expansion of HARMONY Chain Shop Network, the preparation level of human power resource is still one of the major bottlenecks in restricting the development of the Company; the management functions of various departments of the headquarters still needs to be further improved and the regional management framework and management functions need urgently to be improved as well.

II. Investment

1. Investment with the Proceedings Raised through Share Offering

In the report period, there were no proceeds raised through share offering used for investment.

2. Other Investments

There was no material investment project in the report period.

III. Prediction of Operation Performances

With growth of the income from the principal business and upgrading of the earning power, especially big growth of the earning power of HARMONY, the accumulated net profit in the period from January to September, 2007 is predicted to grow by 50%－100% over the same period of the previous year.

Section 6 Significant Issues

I. The Company has been strict with itself in standardizing operation and enthusiastically improving its corporate governance according to the relevant documents of China Securities Regulatory Commission. As a result, a basic framework and principle of its corporate governance has been established and the relevant internal control system is quite complete and sound and is in process of implementation. However, there still exists some shortcoming in its corporate governance, which mainly lies in the issues that the relevant governance system needs to be further revised and improved; special committees of the Board of Directors have not yet established and the equity encouragement in the management has not been put into practice yet. However, the Company has worked out a general reform program to deal with the aforesaid issues. (For the detail, refer to Public Notice No. 2007-035. The relevant issues were disclosed on Securities Times, Hong Kong Commercial Daily and the website http://www.cninfo.com.cn.)

II. In the report period, the annual shareholders’ general meeting has approved the 2006 Profit Distribution Proposal, according to which the Company would neither distribute cash dividend or bonus shares to the shareholders for the year 2006 nor convert its capital reserve into capital stock. For the semi-annual of 2007, the Company has prepared neither profit distribution proposal nor proposal for converting public reserve into capital stock.

III. In the report period, the Company has never been involved in any material lawsuit or arbitration and no previous material lawsuit or arbitration has been extended to the report period either.

IV. In the report period, the Company has never been involved in any assets acquisition or assets reorganization and no assets acquisition or assets reorganization has been extended to the report period either.

V. Transactions with Related Parties

Implementation of Regular Related Transactions

(1) Both of the Company’s FIYTA Building and FIYTA Technology Building have received property management services and small quantity of property lease services from Shenzhen CATIC Property Management Co., Ltd., a related corporate of the Company. The service charges are determined with reference to the market price by both parties. In the report period, the Company’s property management service charge and rental payable was RMB 843,000, which complies with the estimate at the year beginning.

(2) Both of the Company’s FIYTA Building and FIYTA Technology Building offer property lease service to Shenzhen CATIC Real Estate Co., Ltd. and Shenzhen Maiwei Cable TV Equipment Co., Ltd. The service charges are determined with reference to the market price by both parties. In the report period, the property management service charge and rental was RMB 813,100, which complies with the estimate at the year beginning.

(3) The Company sells watches through designated counters in Rainbow Supermarket. In the report period, the sales cost for the designated counters incurred amounted to RMB 2.405 million, which complies with the prediction at the year beginning.

Particulars about the Routine Related Transactions in 2006 and Predicted Routine Related Transactions in 2007 was published on the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn on April 26, 2007.

2. Related Liabilities or Guarantees

Ended June 30, 2007, CATIC Shenzhen, the Company’s holding shareholder had offered

guarantee to the Company for the credit line amounting to RMB 190 million and the Company has obtained bank loan amounting to RMB 190 million based on the said credit line.

There exists no such situation that the Company’s holding shareholder or any of its subsidiaries has ever occupied the Company’s funds.

VI. Important Contracts and Implementation

In the report period, the Company was not involved in such events as keeping as custodian, contracted or leased any other company’s assets and vice versa in the report period or extended from the previous years.
In the report period, the Company has never been involved in any material guarantees which were extended to the report period from the previous periods either.
In the report period, the Company had not been involved in entrustment for finance management and no such event occurred previously but carried down to the report period either.
Other Important Contracts and Implementation

The Company and Shanghai Pudong Development Bank Zhenhua Sub-Branch executed an agreement on credit line amounting to RMB 30 million with a term from March 14, 2007 to March 14, 2008. The Company has used a total credit line under the said agreement amounting to RMB 30 million.

VII. In the report period, no shareholder holding over 5% (with 5% inclusive) of the Company’s shares disclosed any existing affective commitment and no commitment occurred in previous periods was extended to the report period either.

VIII. The financial report of the report period has not been audited yet and the Company has not changed the certified public accountants.

IX. In the report period, neither the Company nor any of its directors or senior executives has ever been punished by the supervisory/administrative authority.

X. Reception, research, communication, interview in the report period

Reception	Reception	Way of		Matters discussed and information
			Visitors received
time	place	reception		provided

January 9, 2007	the Company	Site research	Tong Dongcai from Guojin Securities	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
January 19, 2006	the Company	Site research	Zhao Xuegui from Everbright Securities	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
February 8, 2007	the Company	Site research	Chen Chen from CITIC Securities	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
March 7, 2007	the Company	Site research	Pan Feng from E-Fund; Cao	Development trend of the domestic luxury goods sector, somemeasures concerning

			Jianfei from Huabao Fund; Yang Lei from DachengFund	the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
April 3, 2007	the Company	Site research	Shi Hongmei from Orient Securities	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
April 3, 2007	Head Office of Dacheng Fund	Communication	Cao Xiongfei, Yang Lei and Yang Jianhua from Da Cheng Fund	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
April 5, 2007	Head Office of E-Fund	Communication	Jiang Zuoliang, Panfeng, Chen Zhimin, Ran Hua, Sun Song from E-Fund	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of the Company’s public brochures
June 16, 2007	the Company	Site Research	Zhao Fengbo from Martin Currie Fund	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of 2006 Annual Report and the Company’s public brochures
June 29, 2007	the Company	Site research	Xia Maosheng from Guodu Securities	Development trend of the domestic luxury goods sector, some measures concerning the Company’s strategic development, brand construction, terminal management in the past three years. Provision of 2006 Annual Report and the Company’s public brochures

XI Reform for Equity Separation

The Compamy announced its third Equity Separation Reform Proposal on July 14, 2007. (Refer to Securities Times and http://www.cninfo.com.cn. The proposal for consideration of the equity reform is adjusted as follows: shareholders of negotiable A shares shall be entitled to obtain 3.1 shares for every 10 negotiable A shares they hold from the shareholders of non-negotiable shares. The Company is going to hold a site shareholders’ meeting on August 21, 2007. At present, the equity reform work is still in process.

Section 7 Financial Report

I. Accounting Statements (attached hereinafter on Pages 17 to 24)

II. Notes to Accounting Statements (attached hereinafter on Pages 25 to 56)

Section 8 Documents Available for Inspection

I. Semi-annual Report carried with personal signature of the Chairman of the Board;

II. Financial Report signed by and under the seal of the legal representative, chief accountant and accounting supervisor;

III. All the originals of the Company’s documents and public notice disclosed in the newspapers designated by China Securities Regulatory Commission.

IV. Articles of Association of the Company.

SHENZHEN FIYTA HOLDINGS LTD. Board of Directors August 20, 2007

Attachment: Financial Report (Unaudited) I. Accounting Statements

Balance Sheet

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2007 In RMB


Assets	Ending balance		Opening balance
	Consolidated	Parent company	Consolidated	Parent company
Current assets:
Monetary funds	67,373,208.75	61,305,801.33	60,226,078.54	48,521,282.16
Transaction based financialassets	2,970,000.00	2,970,000.00	2,138,400.00	2,138,400.00
Notes receivable
Accounts receivable	35,284,640.15	17,727,618.21	29,949,363.85	12,258,698.48
Advance to Suppliers	12,058,462.35	-0.01	7,785,252.34	59,999.99
Dividend receivable		2,770,434.88	244,066.90	2,770,434.88
Other receivables	21,437,385.99	262,622,917.04	13,863,209.85	214,996,031.04
Inventories	435,474,193.84	55,616,949.61	371,196,239.94	55,072,650.67
Non-current assets due withina year
Other current assets	0.00	0.00	0.00	0.00
Total current assets	574,597,891.08	403,013,721.06	485,402,611.42	335,817,497.22
Non-current assets:
Long term accounts payable
Long-term equity investment	5,519,041.29	147,433,298.65	5,519,041.29	161,199,323.70
Real Estate Investment
Fixed assets	260,723,533.15	242,370,034.41	260,501,370.86	242,888,183.06
Construction-in-progress	205,261.50	205,261.50	151,261.50	151,261.50
Engineering supplies
Disposal of fixed assets
Intangible assets	11,643,695.56	11,530,495.56	11,815,732.72	11,702,532.72
Goodwill
Long-term expenses to be apportioned	7,923,238.20	6,041,404.06	8,557,457.77	6,226,236.60
Deferred income tax	4,135,520.20	4,003,061.18	3,162,755.00	3,030,295.98
Other non-current assets
Total non-current assets	290,150,289.90	411,583,555.36	289,707,619.14	425,197,833.56
Total assets	864,748,180.98	814,597,276.42	775,110,230.56	761,015,330.78

Legal representative: Wu Guangquan Chief Financial Officer: Li Dehua Manager of the Accounting Department: Hu Xinglong

Balance Sheet (Cont’d)

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. June 30, 2007 In RMB

Shareholders’ equity and liabilities	Ending balance	Ending balance	Opening balance	Opening balance
	Consolidated	Parent company	Consolidated	Parent company
Liabilities
Current liabilities
Short-term Loan	190,000,000.00	190,000,000.00	140,000,000.00	140,000,000.00
Accounts payable	47,621,390.26	1,703,505.91	39,397,856.09	11,749,442.14
Advance from customers	3,862,052.99	74,292.00	550,455.25	242,866.25
Staff’s wages payable	5,099,331.72	2,042,139.61	4,838,675.92	2,048,540.41
Taxes payable	-21,751,641.51	3,789,861.31	-17,689,494.22	4,235,357.75
Dividends payable
Other payables	32,363,157.74	32,741,594.67	26,635,471.04	28,622,329.62
Total other current liabilities	0.00	0.00	0.00	0.00
Total current liabilities	257,194,291.20	230,351,393.50	193,732,964.08	186,898,536.17
Long-term Loan	0.00
Bonds payable
Long term accounts payable	5,000,000.00		5,000,000.00
Special accounts payable	3,000,000.00	3,000,000.00	3,000,000.00	3,000,000.00
Deferred income tax			967,398.56	967,398.56
Total non-current liabilities	8,000,000.00	3,000,000.00	8,967,398.56	3,967,398.56
Total liabilities	265,194,291.20	233,351,393.50	202,700,362.64	190,865,934.73
Owner’s equity
Paid-up capital	249,317,999.00	249,317,999.00	249,317,999.00	249,317,999.00
Capital Reserve	191,847,232.65	191,847,232.65	191,847,232.65	191,847,232.65
Surplus Reserve	101,480,997.62	101,480,997.62	101,480,997.62	101,480,997.62
Retained Earnings	49,181,988.51	38,599,653.65	22,181,958.14	27,503,166.78
Total owners’ equity attributable to the parent company	591,828,217.78	581,245,882.92	564,828,187.41	570,149,396.05
Minority shareholders’ equity:	7,725,672.00		7,581,680.51
Total owner’s equity	599,553,889.78	581,245,882.92	572,409,867.92	570,149,396.05
Total liabilities and owners’ equity	864,748,180.98	814,597,276.42	775,110,230.56	761,015,330.78

Legal representative: Wu Guangquan Chief Financial Officer: Li Dehua Manager of the Accounting Department: Hu Xinglong

Statement of Profit and Profit Distribution

Prepared by:SHENZHEN FIYTA HOLDINGSLTD.	Prepared by:SHENZHEN FIYTA HOLDINGSLTD.	Prepared by:SHENZHEN FIYTA HOLDINGSLTD.	June 30,2007 In RMB	June 30,2007 In RMB
Items	Jan.to Jun.,2007		Jan.to Jun.,2006
	Consolidated	Parent company	Consolidated	Parent company
I. Businessincome	350,380,602.40	100,926,241.66	231,353,224.49	84,240,346.76
Less: Business costs	230,404,336.46	42,956,580.97	147,959,110.10	37,942,818.18
Business Taxes and Surcharge	2,106,269.38	1,744,703.03	1,393,440.96	1,200,007.23
Sales expenses	47,669,139.13	26,650,743.15	36,359,095.06	22,164,024.18
Overheads	34,079,236.97	19,815,542.67	27,926,820.32	15,864,374.25
Financialexpenses	6,812,413.20	104,635.54	2,085,547.19	272,387.15
Investmentincome	836,668.09	836,668.09	1,335,191.64	1,335,191.64
III. Operating profit	30,145,875.35	10,490,704.39	16,964,402.50	8,131,927.41
Plus: Non-operating income	843,780.30	331,739.40	186,868.70
Less: Non-operating expenses	6,858.77		72,658.55	3,556.96
IV. Totalprofit	30,982,796.88	10,822,443.79	17,078,612.65	8,128,370.45
Less: Income tax expense	3,838,775.02	-274,043.08	4,013,334.62	2,460,180.05
V. Net profit	27,144,021.86	11,096,486.87	13,065,278.03	5,668,190.40
Net profit attributable to the owner of the parent company	27,000,030.37	11,096,486.87	13,185,342.01	5,668,190.40
Minority shareholders’ equity	143,991.49		-120,063.98
VI. Earnings pershare
(I) Basic earnings per share	0.108		0.053
(II) Diluted earnings per share	0.108		0.053
Items	Jan.to Jun.,2007		Jan.to Jun.,2006
	Consolidated	Parent company	Consolidated	Parent company
Net profit	27,000,030.37	11,096,486.87	13,185,342.01	5,668,190.40
Plus: Retained earnings at year beginning	22,181,958.14	27,503,166.78	-6,448,293.31
Profit available for distribution	49,181,988.51	38,599,653.65	6,737,048.70	5,668,190.40
Less: Provision of statutory surplus public reserve
Provision of statutory publicwelfarefund
Profit available for distribution to the investors	49,181,988.51	38,599,653.65	6,737,048.70	5,668,190.40

Less: Dividends of common shares payable
Retained Earnings	49,181,988.51	38,599,653.65	6,737,048.70	5,668,190.40

Legal representative: Wu Guangquan Chief Financial Officer: Li Dehua Manager of the Accounting Department: Hu Xinglong

Cash Flow Statement

Prepared by: SHENZHEN FIYTA HOLDINGS LTD. Jan to Jun 2007 In RMB

Items	Report Period	Report Period	Same Period of the Previous Year	Same Period of the Previous Year
	Consolidated	Parent company	Consolidated	Parent company
I. Net cash flows arising from operating activities
Cash received from sales of goods and supply of labor	409,107,319.92	103,924,762.27	279,614,438.26	95,107,822.32
Other business related cash receipts	5,389,442.42	2,776,003.47	1,498,569.30	1,009,428.31
Subtotal of cash flow in	414,496,762.34	106,700,765.74	281,113,007.56	96,117,250.63
Cash paid for purchase of goods and receptionof laborservices	337,985,392.66	31,526,203.50	225,397,611.12	36,853,225.59
Cash paid to and for staff	36,542,923.26	16,962,882.54	28,530,696.04	13,018,518.31
Taxes paid	19,117,691.66	11,573,497.56	12,412,814.74	7,373,835.97
Other operation related cash payments	52,442,868.72	77,209,800.69	41,336,526.13	63,257,829.46
Subtotal of cash flow out	446,088,876.30	137,272,384.29	307,677,648.03	120,503,409.33
Net cash flows arising from operating activities	-31,592,113.96	-30,571,618.55	-26,564,640.47	-24,386,158.70
II. Cash flows arising from investment activities:
Cash received from recovery of investment			3,000,000.00	3,000,000.00
Net amount of cash received from disposal of fixed assets, intangible assets and other long termassets	561,045.00	561,045.00	112,885.00
Subtotal of cash flow in	561,045.00	561,045.00	3,112,885.00	3,000,000.00
Cash paid for construction/purchase of fixed assets, intangible assets and other long termassets	6,844,601.83	2,227,708.28	10,123,823.65	5,408,915.42
Subtotal of cash flow out	6,844,601.83	2,227,708.28	10,123,823.65	5,408,915.42
Net cash flow arising from investment activities	-6,283,556.83	-1,666,663.28	-7,010,938.65	-2,408,915.42
III. Cash flows arising from fund raising activities:
Cash received from borrowings	70,000,000.00	70,000,000.00	40,000,000.00	40,000,000.00
Subtotal of cash flow in	70,000,000.00	70,000,000.00	40,000,000.00	40,000,000.00
Cash paid for liabilities repayment	20,000,000.00	20,000,000.00
Cash paid for dividend/profit distribution or repayment of interest	4,977,199.00	4,977,199.00	1,461,300.00	1,461,300.00
Subtotal of cash flow out	24,977,199.00	24,977,199.00	1,461,300.00	1,461,300.00
Net cash flow arising from fund-raising activities	45,022,801.00	45,022,801.00	38,538,700.00	38,538,700.00
IV. Influence upon cash due to change ofexchangerate

V. Net increase of cash and cash equivalents	7,147,130.21	12,784,519.17	4,963,120.88	11,743,625.88

Legal representative: Wu Guangquan Chief Financial Officer: Li Dehua Manager of the Accounting Department: Hu Xinglong

Cash Flow Statement (Cont’d) Prepared by:SHENZHEN FIYTA HOLDINGSLTD.Janto Jun 2007 In RMB	Cash Flow Statement (Cont’d) Prepared by:SHENZHEN FIYTA HOLDINGSLTD.Janto Jun 2007 In RMB	Cash Flow Statement (Cont’d) Prepared by:SHENZHEN FIYTA HOLDINGSLTD.Janto Jun 2007 In RMB	Cash Flow Statement (Cont’d) Prepared by:SHENZHEN FIYTA HOLDINGSLTD.Janto Jun 2007 In RMB	Cash Flow Statement (Cont’d) Prepared by:SHENZHEN FIYTA HOLDINGSLTD.Janto Jun 2007 In RMB
Items	Amount in	report period	Amount of the same period of the previousyear
	Consolidated	Parent company	Consolidated	Parent company
1. Net cash flows arising from adjustment of net profit into operating activities
Net profit	27,144,021.86	11,096,486.87	13,065,278.03	5,668,190.40
Plus: Provision for devaluation of assets
Depreciation of fixed assets	6,200,211.04	4,724,571.07	5,850,888.12	4,917,277.63
Amortization of intangible assets	359,537.16	359,537.16	417,847.20	417,847.20
Long-term expenses to be apportioned	3,302,849.54	2,220,011.73	2,469,351.64	1,169,681.81
Loss (less: income) from disposal of fixed assets, intangible assets and other long termassets	-31,739.40	-31,739.40	-114,210.15
Losses from rejection of fixed assets
Financial expenses	5,166,704.98		1,298,781.76	155,000.00
Investment loss	-836,668.09	-836,668.09	-1,335,191.64	-1,335,191.64
Decrease of deferred income tax	-972,765.20	-972,765.20	410,047.05	410,047.05
Increase of deferred income tax	-967,398.56	-967,398.56
Decrease of inventories	-63,702,089.90	31,565.06	-56,393,135.11	-2,280,589.53
Decrease (less: increase) of operative items receivable	-17,168,271.15	-41,270,536.57	4,583,862.10	-3,268,672.08
Increase (less: decrease) of operativeitems payable	9,913,493.76	-4,924,682.62	3,181,840.53	-30,239,749.54
Net cash flows arising from operating activities	-31,592,113.96	-30,571,618.55	-26,564,640.47	-24,386,158.70
2. Investment and fund-raising activities with no cash income and expenses involved
Capital converted from liabilities
Convertible company bonds due withina year
3. Net increase of cash and cash equivalents:
Ending cash balance	67,373,208.75	61,305,801.33	52,673,326.99	41,732,415.87
Less: Opening cash balance	60,226,078.54	48,521,282.16	47,710,206.11	29,988,789.99
Plus: Ending balance of cash equivalent
Less: Opening balance of cash equivalent

Net increase of cash and cash equivalents	7,147,130.21	12,784,519.17	4,963,120.88	11,743,625.88
Legal representative: Wu Guangquan Chief Financial Officer: Li Dehua Manager of the Accounting Department: Hu Xinglong

II. Notes to the Accounting Statements

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

1. Basis for Preparation of Accounting Statements

The financial statements are prepared according to the enterprise accounting standards and the Enterprise Accounting System promulgated by the central government.

2. Fiscal Year

The Company adopts the calendar year for its fiscal year. A fiscal year is from January 1 to December 31 of years.

3. Functional currency for bookkeeping

The Company uses Renminbi as the functional currency for bookkeeping.

4. Bookkeeping basis and valuation principle:

The Company adopts the accrual basis for its bookkeeping. All the assets are stated based on the costs at the time of acquisition and reverse for impairment of the assets is provided in case of subsequent impairment of the assets.

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 on the first day of the month when a transaction takes place. An item in foreign currency shall be stated after conversion based on the exchange rate as of the balance sheet date. The exchange differences arising from differences between the spot rate as at the balance sheet date and that recognized initially or the difference in the spot rate as at the previous balance sheet rate is charged to the current gain and loss. The non-monetary items in foreign currency measured based on the historical cost are converted based on the rate of the transaction day without change of the amount of the functional currency for bookkeeping; the non-monetary items in foreign currency measured based on the fair value is converted based on the exchange rate as of the date of determining the fair value; the differences between the amount of the functional currency for bookkeeping after conversion and the original book amount are treated as change in fair value and charged to the current gain and loss.

The exchange gain/loss arising from the borrowings attributable to the purchase/construction of the fixed assets will be treated based on the principle of capitalization of the borrowing expenses;

the exchange gain/loss in directly connection with development of real estate property shall be capitalized before completion of the real estate property.

6. Cash and cash equivalents

Cash listed in the statement of cash flow refers to the cash in hand and bank deposits and cash equivalents ready for payment at any time. Cash equivalent refers to the investment held by the Company with short term (not exceeding 3 months), strong liquidity and low risk of value fluctuation that is easy to be converted into cash of known amount.

7. Calculation for Financial Instruments

Financial instruments include financial assets and financial liabilities

Financial assets are classified into four types at the initial recognition as follows:

(1) The financial assets measured based on the fair value and with the changes stated to the current gain and loss include tradable financial assets and the financial assets measured based on the fair value and with the changes stated to the current gain and loss.

(2) Held to maturity investments
(3) Loans and accounts receivable
(4) Financial Assets Available for Sale

Financial liabilities are classified into four types at the initial recognition as follows:

(1) The financial liabilities measured based on the fair value and with the changes stated to the current gain and loss include tradable financial liabilities and the financial liabilities measured based on the fair value and with the changes stated to the current gain and loss.

(2) Other Financial Liabilities

8. Accounts receivable and provision for bad debts

Accounts receivable refer to accounts receivable and other receivables. The Company adopts the allowance method for possible loss arising from bad debts. Accounts receivable are listed based on the net amount of the amount actually incurred less the provision for bad debts.

(1) Accounts Receivable

Accounts receivable include the accounts receivable from the related parties and that receivable from non-related parties.

Reserve for bad debts is provided after assessment of the recoverability of the accounts receivable. Reserve for bad debits is provided when evidence proves that it is difficult to recover any accounts receivable. For the accounts receivable for which no special reserve for bad debts

is provided, general reserve for bad debts is provided based on the following proportions by means of aging:

ns of aging:
Age	Proportion
within a year	5%
1 -2 years	10%
2 -3 years	30%
Over 3 years	50%

(2) Criteria for determining bad debts:

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 include raw materials, products in process, finished products, commodities in stock, low-priced and easily-worn articles and packing materials, etc. which are stated based on the lower of the cost and the net realizable value.

Inventories are charged based on the actual cost at the time of acquisition. The costs of raw materials and finished products at the time of delivery are calculated based on the weighted average; the costs of low-priced and easily-worn articles are calculated based on once-and-for-all resale at the time of receiving; packing materials are charged to the production cost on once-and-for-all basis at the time of receiving. Costs of finished products and products in process include those of raw materials, direct manpower, and all indirect production expenses amortized at proper proportion at normal production capacity.

Reserve for price-falling of inventories is provided based on the balance of the cost of individual inventory items higher than the net realizable value.

The net realizable value of the inventories was determined based on the market price less the estimated costs to incur at the time of completion, the sales costs and relevant taxes in process of normal production and operation.

The Company adopts perpetual inventory system as its stock taking system.

Long term Equity Investment
(1) Long-term equity investment

Long term investment includes the Company’s equity investment in its subsidiaries, associates, joint ventures and the investees on which the Company has no control power, joint control power or significant influence without quotation in the active market and whose fair value is not reliably measurable.

Recognition of initial investment cost

Consolidation of Enterprises under the Same Control

The consolidated party takes cash payment, assignment of non-cash assets or assuming liabilities as the consolidation consideration. It is necessary to take the share of the book value of the owner’s equity of the party consolidated as the initial investment cost of the long term equity investment. For the differences between the initial investment cost of the long term equity investment, cash paid and non-cash assets assigned and the book value of the liabilities assumed, it is necessary to adjust the capital reserve. In case the capital reserve is not sufficient to offset, it is necessary to adjust the retained earnings. In case the party consolidated takes the equity securities issued as the consolidation consideration, it is necessary to take the share of the book value of the owner’s equity of the party consolidated acquired on the consolidation date as the initial investment cost of the long term equity investment. In case of taking the total book amount of the shares issued as the capital stock, for the balance between the initial investment cost of the long term equity investment and the total book amount of the shares issued, it is necessary to adjust the capital reserve. In case the capital reserve is not sufficient to offset, it is necessary to adjust the retained earnings.

Consolidation of Enterprises not under Same Control

For the consolidation of an enterprise fulfilled in a single exchange transaction, the consolidation costs are the assets paid, liabilities incurred or assumed and the fair value of equity based securities as issued for the purpose of obtaining the control power of the party purchased. For the consolidation of an enterprise fulfilled in a number of exchange transactions, the consolidated cost is the sum of every single transaction costs. All direct relevant expenses incurred to the purchaser in consolidation of an enterprise should be charged to the cost of enterprise consolidation. In case there is any provision on some future event as specified in the consolidation contract or agreement which may influence the consolidation costs, while such future event is expected to probably occur on the date of purchase and the amount which affects the combination cost can be reliably measured, the purchaser should charge it to the consolidation cost.

Long term equity investment obtained in a way other than the long term equity investment formed in the enterprise consolidation

The long term equity investment as acquired by cash payment should take the purchase consideration as actually paid as the initial investment costs, which include the expenses, tax and duties and other necessary expenditures in direct connection with the long term equity investment; The long term equity investment obtained by issuing equity based securities should be regarded as initial investment cost based on the fair value of the equity based securities as issued; the long term equity investment provided by the investor should be taken as the initial investment cost based on the value as specified in the investment contract or agreement provided that the value as specified in the contract or agreement is unfair.

Successive Measurement of Long Term Equity Investment

In case the investor can exercise control over the investees or has no common control power or significant influence, while there is no quotation in the active market or the investment cannot be reliably measured based on the fair value, the cost method is used for calculating the long term equity investment; the long term equity investment calculated based on the cost method is charged based on the initial investment cost; additional or recovered investment should adjust the cost of the long term equity investment; the cash dividend or profit announced for distribution by the investee is recognized as the current investment income; the investment income recognized by the investor is only limited to the amount of accumulated net profit distributed after the investee has accepted the investment; the aforesaid amount exceeding the profit or cash dividend is recovered as the initial investment cost;

The long term equity investment is calculated based on the equity method if the investor has control or joint control power and produces significant influence upon the investee. In case the long term equity investment is greater than the fair value based share in the investee’s recognizable net assets enjoyable by the investor, the initial investment cost in the long term equity investment shall not be adjusted. In case the initial cost of long term equity investment is smaller than the fair value based share in the investee’s recognizable net assets enjoyable by the Company, the balance shall be charged to the current gain and loss and at the same time long term equity investment cost shall be adjusted. After the investor has acquired the long term equity investment, the investment gain/loss should be recognized according to the share in the realized net gain/loss in the investee which can be enjoyed or should be shred; The investor should reduce the book value of long term equity investment correspondingly according to the part enjoyable in the profit or cash dividend announced for distribution by the investee; The net loss incurred to the investee as recognized by the investor should be reduced to zero in maximum based on the book value of long term equity investment and other long term equity which has actually formed net investment in the investee except that the investor has the obligation of assuming extra loss.

In disposal of long term equity investment, the balance between the par value and the price when it is actually obtained is stated in the gains/losses of the very year. For the long term equity investment calculated based on the equity method, in case the other change in the owners’ equity other than the net gain and loss in the investee is charged to the owners’ equity, in disposal of that investment, the party that has formerly been stated in the owners’ equity at the time of disposal of that investment should be transferred to the current gain and loss based on the corresponding proportion.

(2) Impairment of long-term equity investment

At the end of the period if the recoverable amount is lower than their book value due to continuously falling market price, worsened operation of the investee, reserve for devaluation of long term investment shall be provided based on the balance of the recoverable amount lower than the book value of the long term investment.

11. Fixed assets pricing and depreciation

Fixed assets refer to tangible assets used for producing commodities, providing labor services, leasing, operation or management with service life exceeding one year and higher unit value. Commencing from January 1, 2001, when any land is used for self-use project construction, the book value of the land use right forms part of the costs of housing and building.

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 value for book entry.

Fixed assets are depreciated by straight line method based on the entry value less the predicted net residue value within the predicted service life. For the fixed assets for which reserve for impairment is provided, the depreciation amount is determined according to the book value after deduction of the reserve for impairment and the remaining service life.

The estimated service life, predicted residual ratio and annual depreciation ratio are stated as follows:

			Annual
	Estimated	Estimated	depreciation
Types of fixed assets	service life	residual ratio	rate
Housing and buildings	20 to 35 years	5%	2.7%-4.8%
Machines & equipment	10 years	5%-10%	9%-9.5%
Motor vehicles	5 years	5%	19%

Electronic equipment	5 years	5%	19%
Other equipment	5 years	5%	19%
Refurbishment	5 years	0%	20%

Income from disposal of fixed assets, including sales, assignment, scrapping, or impairment, is charged to the non-operating income or expenditure after deduction of its book value and relevant taxes.

Expenditures for repairing and maintenance of fixed assets are charged to the current expenses at the time of incurrence. The follow-up expenditures arising from major restructuring, extension, improvement, refurbishment of fixed assets, etc. may be capitalized when the economic benefit of such fixed assets which flows into the enterprise has exceeded the amount as previously estimated. For the follow-up expenditures for major restructuring, extension, improvement, etc., depreciation is provided during the useful period of the fixed assets according to the straight-line method, and for the expenditures for refurbishment, depreciation is provided within the predicted beneficial period according to the straight-line method.

Fixed assets are stated at the lower of the book value and the recoverable amount at the end of a period. In case there is any sign or change in environment which shows that the book value of individual fixed assets may exceed the amount recoverable, the Company shall make impairment test over such asset. If the book value of some individual asset exceeds the amount recoverable, the balance shall be recognized as the impairment loss.

12. Construction in process

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 engineering 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. Depreciation starts to be provided commencing from the next month after construction-in-progress is transferred to fixed assets when it reaches the useful status as predicted; that which has been put into application but has not yet undergone the procedures of completion settlement, it may be charged based on the estimated value and shall not be adjusted after the actual value has been determined.

In case there is any sign or change in environment which shows that the book value of individual construction-in-progress may exceed the amount recoverable, the Company shall make impairment test over such asset. If the book value of some individual asset exceeds the

amount recoverable, the balance shall be recognized as the impairment loss.

13. Loan expenses

Loan expenses, such as interest arising from designated loans for purchase/construction of fixed assets, start to be capitalized and charged to the cost of such assets when asset expenditures and loan expenses have already incurred and the purchase/construction activities have already started in order to make the assets reach the predicted application status. The capitalization stops when the fixed asset as purchased/constructed has reached the predicted application status and the follow-up loan expenses are stated in the loss/gain of the very period.

For interest expense in each period in the loan expenses which does not exceed the limit of the interest expenses actually incurred in the designated loan in the very period based on the accumulated expenditure weighted average of the fixed assets as purchased/constructed in the very period and the weight average interest rate of the relevant loan, the capitalization amount is determined.

Expenses of other loans are directly stated as financial expenses in the very period of incurrence.

14. Intangible Assets

Intangible asset is land use right and is stated as the net amount of cost less the accumulated amortization.

The land use right as purchased is used as the actual cost based on the amount actually paid. Intangible assets are stated at the lower of the book value and the recoverable amount at the end of a period. In case there is any sign or change in environment which shows that the book value of individual intangible assets may exceed the amount recoverable, the Company shall make impairment test over such asset. If the book value of some individual asset exceeds the amount recoverable, the balance shall be recognized as the impairment loss.

15. Long-term expenses to be proportioned

Long-term expenses to be proportioned including expense for trademark use fee and various expenses already paid but the amortization term is over one year (with one year exclusive) are amortized on average basis according to the predicted beneficial period and are presented as the net amount actually paid less the accumulated amortization.

16. Wages to the Employees

The Company’s on-service staff join the staff’s social security system established and managed by the local government, including pension and medical insurance and other social security

system. With the exception of the above, the Company has no other significant staff’s benefit commitment.

According to relevant regulations, the Company provides insurance premiums and public reserve based on a certain proportion of total wages not less than the minimum as specified but not exceeding the maximum and hands in to the social security authority. The corresponding payments are stated in the current production costs or expenses.

17. Dividend Distribution

The cash dividend to be distributed with approval of the shareholders’ general meeting is recognized as liability in the very period of approval.

18. Special accounts payable

Special accounts payable refer to the fund 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.

The Company used this fund for purchasing fixed assets and the corresponding amount is transferred to the capital reserve upon approval by the relevant departments after successful completion inspection.

19. Income recognition

Sales of goods/products

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 the Company and the amount of sales-related costs can be measured reliably.

Labor services

Income from labor services is recognized based on the percentage of completion in the very period when labor service has been supplied.

Other incomes are recognized on the following basis:

Interest income – it is recognized based on the deposit term and effective yield.

Subsidy income – it is recognized when actually received.

For the operation lease, the rent of the operation lease is recognized based on the straight line method in different periods during the lease term.

20. Operating Lease

Operating lease refers to a lease with the major risks in connection with the ownership of the assets as well as the rewards belonging to the leasor. The rent from the operation leasing is recognized as the expenses within the lease period based on the straight-line method.

21. Accounting Treatment of Income Tax

The Company adopts the balance sheet liability approach in accounting treatment of the income tax expenses

1) The balance sheet day. According to the differences based on the provision of the tax law from the accounting treatment, such differences can be distinguished from provisional difference of tax payable and provisional difference for offsetting, which can be recognized as deferred income tax asset and deferred income tax liability and are measured according to the income tax amount with the predicted amount payable (or reimbursable) calculated according to the tax law. The income tax and deferred income tax of the very period are stated to the gain and loss of the very period as the income tax expenses or income but excluding the deferred income tax arising from transaction or events in consolidation of enterprises and directly charged to the owner’s equity.

22. Method of preparing the consolidated financial statements

The range of consolidated financial statement includes the Company and the subsidiaries in the consolidation range. Commencing from the date of obtaining a subsidiary’s eventual control power, the Company starts to consolidate the income, costs and profit in the corresponding period; and stops consolidation commencing from the date of losing the eventual control power. The balance of the material current accounts, transactions and unrealized profit in the Company are offset while preparing the consolidated statements. The part in the owner’s equity of a subsidiary in the consolidation range which does not belong to the Company is presented individually on the consolidated financial statement.

If the accounting policy adopted by a consolidated subsidiary differs from that by the Company while such difference occurred therefrom affects greatly the consolidated statements, the accounting policy implemented by the Company shall be adjusted.

(II) Taxes

Taxes and tax rates applicable to the Company are as follows: Taxes Tax rate Taxation basis

Value-added tax

Balance of 17%of the taxable sales less the input tax allowed for 17% offsetting in the current period.

Business tax 5% Housing lease income Urban construction tax Amount of VAT and business tax paidin the very period Business income tax(1) 15%,33% Amount of income taxable Housing Tax (2) 1.2% 70% of the cost of the real estate

(1) The Company 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 Company, 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 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. The year 2002 is the first year the said subsidiary made profit on accumulated basis; In the report year, the said subsidiary provided its business income tax based on the taxation rate of 7.5%.

(2) a. According to Article 5 of the Circular of Shenzhen Local Tax Bureau on Printing and Issuing the Questions and Answers on a Number of Policies on Use of Housing Tax and Vehicle and Vessel Use Tax, a production operator should pay Housing Tax based on 70% of the cost of the real estate at the tax rate of 1.2%. The Company pays the Housing Tax according to the tax rate as specified in the aforesaid circular.

(2) b. According to Article 9 of the Measures for Implementation of Housing Tax in Shenzhen Special Economic Zone, tax payers that have newly constructed or purchased housing and buildings (excluding housing and buildings constructed illegally) can be exempted from the housing tax for three years commencing from the month of construction or purchase. On June 27, 2006, the Company finished registration and filing with the Statement of Tax Exemption and Reduction Registration and Filling SHEN DI SHUI SAN JI YING JIAN BEI GAO ZI [2005] No. 35121 through No. 3 Inspection Office of Shenzhen Local Tax Bureau The Company may enjoy tax exemption commencing from the date of registration and filing.

(3) Other taxes are paid according to the specific regulations of the central government.

(III) Controlled Subsidiaries

						Investment by the Company	Investment by the Company	Proportion
								directly/ indirectly		Consolidate
			Registered	Legal	Registered		Conversion in	controlled by the		d or not
Subsidiaries			place	representative:	capital	Original currency	RMB	Company	Principal Business	(Y/N)	Remarks
Xi’an		Haomen									IV
Restaurants		&			HK$16,000,000.				Catering, recreation, fine
Recreation Co., Ltd.			Xi’an	Men Tengshan	00	RMB11,040,000.00	11,040,000.00	62%	goods	N	1. a
Shenzhen Harmony									purchase sales and repair
World	Watches				RMB123,800,00	RMB122,300,000.0			services of timepieces and
Center Co.,	Ltd.		Shenzhen	Xu Dongsheng	0.00	0	122,300,000.00	98.79%	components	Yes
Shenzhen		Feijing
Sophisticated Optical
Instruments
Manufacture		Co.,			RMB7,000,000.0				Processing, producing and
Ltd.			Shenzhen	Xu Dongsheng	0	RMB6,300,000.00	6,300,000.00	99.879%	selling optical instruments	N	IV.2
Shenzhen		FIYTA							Producing various clocks
Sophisticated									and watches, movements,
Timepieces									spares and parts,
Manufacture		Co.,			RMB10,000,000.				sophisticated timepieces,
Ltd.			Shenzhen	Xu Dongsheng	00	RMB9,000,000.00	9,000,000.00	99.879%	and repairing	Y

High grade clocks and IV watches, glasses, Shenzhen ornaments, gifts, general Harmony World merchandise and Watches Center RMB2,800,000.0 handicrafts (excluding gold Co., Ltd. Shenzhen Fang Juan 0 RMB1,400,000.00 1,400,000.00 50% and silver jewelry ) Y 1. b

(IV) Notes to the Consolidated Financial Statements

1. Monetary funds

1. Monetary funds
Items Cash on hand Bank deposit Other Monetary Funds Total	June 30, 2007 534,602.79 65,096,238.25 1,742,367.71 67,373,208.75	December 31, 2006 422,854.50 58,410,164.42 1,393,059.62
		60,226,078.54

As at June 30, 2007, other monetary funds held by the Company were mainly for providing security for the short term investments.

As at June 30, 2007, monetary fund at the year end includes the following foreign currency balances:

Foreign Currencies Amount, in RMB Exchange rate HK$ 6,224,642.51 0.9744 US$ 551,474.94 7.6155 Pound Sterling 110 15.3 Total	Conversion in RMB 6,065,291.66 4,199,757.41 1,683.00
	10,266,732.07

2. Transactional Financial Instruments

Items

Financial assets that are measured at fair value and changes in the value are charged to current gain and loss.

Fair value at the end Fair value at the of the period beginning of the period

2,970,000.00 2,138,400.00

3. Accounts receivable

Items June 30, 2007 December 31, 2006 Accounts receivable 76,486,854.28 71,151,577.98 Less: provision for designated bad 38,095,601.88 38,095,601.88 debts Provision for general bad debts 3,106,612.25 3,106,612.25 Net amount of accounts receivable 35,284,640.15 29,949,363.85

Aging of accounts receivable and reserve for bad debts are as follows:

Age Within a year 1 to 2 years 2 to 3 years Over 3 years Total	June 30, 2007 Amount Proportio n Provision for bad debts 29,665,809.25 39.24% 827,238.29 1,724,389.62 2.24% 141,878.06 5,992,372.84 7.78% 2,112,861.34 39,104,282.57 50.74% 38,120,236.44 76,486,854.28 100.00% 41,202,214.13	December 31, 2006 Amount Proport ion Provision for bad debts 23,881,051.12 33.56% 827,238.29 1,411,929.36 1.99% 141,878.06 6,788,308.38 9.54% 2,112,861.34 39,070,289.12 54.91% 38,120,236.44 71,151,577.98100.00 % 41,202,214.13	December 31, 2006 Amount Proport ion Provision for bad debts 23,881,051.12 33.56% 827,238.29 1,411,929.36 1.99% 141,878.06 6,788,308.38 9.54% 2,112,861.34 39,070,289.12 54.91% 38,120,236.44 71,151,577.98100.00 % 41,202,214.13
			41,202,214.13

As at June 30, 2007, in the balance of other receivables, there are no arrears from the shareholders that hold more than 5% (including 5%) of the Company’s shares.

As at June 30, 2007, the total amount of accounts receivable owed by top five debtors was RMB 5,945,616,.25, taking 7.72% of the total amount receivable.

As at June 30, 2007, the accounts receivable for which reserve for bad debts has been provided at bigger proportions on accumulated basis are summarized as follows:

				Balance of accounts	Reserve for bad debt
Company Names				receivable at year end	provided at year end	Age
Beijing Urban/Rural Trade Center Co.,		Ltd.		2,033,710.15	2,033,710.15	Over 3 years
Qingdao Handry Timepieces,	Glasses		and
Jewelry Co.				1,298,215.01	1,298,215.01	Over 3 years
Timepieces and Sewing Machine		Wholesale
Station of Yingkou General Merchandise Co.				982,604.03	982,604.03	Over 3 years
Siping No. 1 Department Store				823,302.04	823,302.04	Over 3 years
Anshan Timepieces and Photographic		Equipment
Co.				807,815.02	807,815.02	Over 3 years
Jilin Timepieces and Photographic Paraphernalia
Wholesale Co.				890,387.77	890,387.77	Over 3 years
Shenyang Cultural Building Co.,	Ltd.	Timepiece
Branch				773,020.92	773,020.92	Over 3 years
Qingdao Orient Group Co., Ltd.				764,149.26	764,149.26	Over 3 years
Anshan Timepiece and Sewing Machine Co.				696,745.88	696,745.88	Over 3 years
Shantou Overseas Time Lounge				647,818.28	647,818.28	Over 3 years
Datong Timepeice and Sewing		Machining
Purchase and Supply Station				623,586.07	623,586.07	Over 3 years
Beijing Blue Island Building				638,980.96	638,980.96	Over 3 years
Kunming Yutaixiang Timepeices Co.				609,251.89	609,251.89	Over 3 years
Xidan Department Store of	Beijing		Xidan
Department Store Co., Ltd.				544,265.48	544,265.48	Over 3 years
Others (below RMB 500,000 for a	single item)			28,585,226.85	25,961,749.12	Over 3 years

Total

40,719,079.61

38,095,601.88

4. Other receivables

4. Other receivables
Items Other receivables Less: reserve for bad debts Total	Ending balance 28,468,169.47 7,030,783.48 21,437,385.99	Opening balance 19,108,880.64 7,030,783.48
		12,078,097.16

Aging of other receivables and reserve for bad debts is as follows:

Age	Ending balance Amount Proporti on 14,306,727.25 49.11% 3,014,735.82 10.83% 504,325.16 1.81% 10,642,381.24 38.25% 28,468,169.47 100.00 %	Opening balance Amount Proporti on Provision for bad debts 5,973,319.80 31.26% 298,665.99 2,332,042.80 12.20% 233,204.28 298,412.70 1.56% 89,523.81 10,505,105.34 54.98% 6,409,389.40 19,108,880.64 100.00 % 7,030,783.48	Opening balance Amount Proporti on Provision for bad debts 5,973,319.80 31.26% 298,665.99 2,332,042.80 12.20% 233,204.28 298,412.70 1.56% 89,523.81 10,505,105.34 54.98% 6,409,389.40 19,108,880.64 100.00 % 7,030,783.48
	Proporti on 49.11% 10.83% 1.81% 38.25% 100.00 %	Proporti on 31.26% 12.20% 1.56% 54.98% 100.00 %
Within a
year
1 to 2
years
2 to 3
years
Over 3
years Total
			7,030,783.48

As at June 30, 2007, in the balance of other receivables, there were no arrears from the shareholders holding more than 5% (including 5%) of the Company’s shares.

As at June 30, 2007, other receivables for which reserve for bad debts has been provided at bigger proportions on accumulated basis are summarized as follows:

Company Names Xinlongtai Industrial Co., Ltd. Zhuangtu Commodities Trading Center Xi’an Aviation Engine Co. Shenzhen Feijing Sophisticated Optical Instruments Manufacture Co., Ltd. Total	Ending balance of other receivables Reserve for bad debt provided at year end Age 1,573,876.89 1,573,876.89 Over 3 years 641,807.20 641,807.20 Over 3 years 602,551.69 602,551.69 Over 3 years 6,199,676.83 1,293,685.48 2 to 3 years 9,017,912.61 4,111,921.26

5. Advance to Suppliers

. Advance to Suppliers
Items	Ending balance		Opening balance
Age of advances to suppliers	Amount	Proportion	Amount	Proportion
Within a year	12,058,462.35	100.00%	7,725,252.35	99.23%
2 to 3 years		0.00%	59,999.99	0.77%

Total

12,058,462.35

100.00%

7,785,252.34 100.00%

As at June 30, 2007, in the advances to suppliers, there were no arrears owed by any shareholding holding over 5% (with 5% inclusive) of the Company’s shares.

6. Inventories and Provision for falling price of inventories

Items Cost Raw materials Packing materials and low-value consumption goods Products in process Finished products and goods in stock Total Provisions for price falling of inventories Raw materials Finished products Total Inventories, net	Items Cost Raw materials Packing materials and low-value consumption goods Products in process Finished products and goods in stock Total Provisions for price falling of inventories Raw materials Finished products Total Inventories, net	Opening balance 43,408,372.98 2,864.00 1,930,715.85 372,047,127.60 417,389,080.43 Increase in the year Decrease in the year 18,747,520.18 27,445,320.31 4,306,426.71		Ending balance 45,670,717.91 69,522.41 431,620,367.30
				477,360,607.62
				18,747,520.18 23,138,893.60
		46,192,840.49		41,886,413.78
		371,196,239.94		435,474,193.84

(1) In process of normal production and operation, 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.

(2) That the cost of inventories at the end of the period increased by 14.23% over the year beginning was mainly due to the corresponding growth of inventories and corresponding increase of inventory reserve with growth of sales in the year resulted from increase of 6 new shops.

(3) Reserve for price falling of inventories decreased by 9.32% was mainly due to disposal and discarding of partial inventories in the report period and reverse for price falling of finished products in stock transferred out.

Long-term equity investment

Items Ending balance

Opening balance

Stock investment (1)		3,085,000.00	3,085,000.00
Other equity investment (2)		2,734,041.29	2,734,041.29
Total long-term equity investment		5,819,041.29	5,819,041.29
Provision for impairment	of
long-term equity investments (3)		300,000.00	300,000.00
Long-term equity investment, net		5,519,041.29	5,519,041.29

(1) Stock investment

(1) Stock investment
Investees Nature of Sharehold ers Q’ty Investment Proportion HUANENG POWER (a) Corporate shares 1,100,000 0.13% Xi’an Tangcheng Joint Stock Co., Ltd. Corporate shares 500,000 0.10% Total	Initial investment cost 3,000,000.00 85,000.00
	3,085,000.00

(2) Other equity investment

		Starting and	Proportion
		Ending Year	of shares	Investment
Investees		of Investment	held	amount
Shenzhen Research Institute of Northwest		2002.2-2022.
China Polytechnic University		2	50%	1,500,000.00
Xi’an Haomen Restaurants & Recreation
Co., Ltd. (b)		1994-2009	62%	5,800,500.87
		1995.5-2008.
Shenzhen CATIC Culture Transmit Co., Ltd.		5	15%	300,000.00
Shenzhen	Feijing Sophisticated Optical
Instruments	Manufacture Co., Ltd. (c)	1997-2007	90%	-4,866,459.58
	Total			2,734,041.29

(3) Provision for impairment of long-term equity investments

Opening balance Decreas Increase in e in the Investees the report Ending balance report period period

300,000.00

Shenzhen CATIC Culture Transmit Co., Ltd. 300,000.00

Shenzhen CATIC Culture Transmit Co., Ltd. wound up in October, 2005. The Company recognized all the book balance of the investment amounting to RMB 300,000.00 as reserve for impairment of long term investment.

Fixed assets and accumulative depreciation

Original value Housing and buildings Machines & equipment Motor vehicles Electronic equipment Other equipment Sub-total Accumulative depreciation Housing and buildings Machines & equipment Motor vehicles Electronic equipment Other equipment Sub-total Net value Provisions for impairment of fixed assets Housing and buildings Sub-total Book value	Opening balance Increase in the report period Decrease in the report period Ending balance 289,864,143.05 3,952,501.65 293,816,644.70 9,668,721.46 22,325.00 9,691,046.46 9,463,070.49 716,223.62 10,179,294.11 9,829,613.01 1,039,183.90 - 10,868,796.91 6,231,910.68 93,581.00 6,325,491.68
	325,057,458.69 5,823,815.17 - 330,881,273.86
	50,820,632.17 3,756,193.10 - 54,576,825.27 6,044,621.86 303,372.60 6,347,994.46 4,457,874.48 643,919.94 5,101,794.42 6,041,854.52 1,014,364.50 7,056,219.02 4,064,189.76 265,100.91 - 4,329,290.67
	71,429,172.79 5,982,951.05 - 77,412,123.84
	253,628,285.90 253,469,150.02 2,600,000.00 2,600,000.00
	2,600,000.00 2,600,000.00
	251,028,285.90 250,869,150.02

10. Improvement of fixed assets rented for operation

	Refurbishment of retail
Items
	shops
Opening balance	9,473,084.96
Increase in the report period	4,450,594.08
Depreciation in the report period	4,069,295.91
Ending balance	9,854,383.13

11. Construction in process

Project Budget Opening balance Air conditioning engineering for FIYTA Technology Building 302,523.00 151,261.50 Illumination engineering for FIYTA Technology Building 120,000.00 Total 151,261.50	Project Budget Opening balance Air conditioning engineering for FIYTA Technology Building 302,523.00 151,261.50 Illumination engineering for FIYTA Technology Building 120,000.00 Total 151,261.50	Increase in the report period 54,000.00	Transferred into the fixed assets in the report period 0.00	Ending balance Funds source 151,261.50Self-raised fund 54,000.00Self-raised fund 205,261.50
	151,261.50	54,000.00

None of the aforesaid construction in progress experienced borrowing expenses necessary to be capitalized.

12. Intangible assets

		Accumulativ						Remaini
					Amount	Transfer
Types	Initial amount	ely amortized in the report period	Opening balance	Increase in the report period	amortized in the period	out in the report period	Ending balance	ng amortiz ation term	Way of acquisi tion
Land use
right
FIYTA
Building at	15,487,349. 60	3,956,854.0 4	11,702,532. 72		172,037.1 6		11,530,495.5 6	33	Purcha se
Zhenhua

road, Futian

District Trademark Purcha 113,200.0 10 年 use right 113,200.00 0 113,200.00 se Total 15,600,549. 3,956,854.0 11,702,532. 113,200.0 172,037.1 - 11,643,695.5 - - 60 4 72 0 6 6

13. Long-term expenses to be proportioned

									Remai
			Accumulativel				Transfer
Types		Amount initially incurred	y amortized in the report period	Opening balance	Increase in the report period	Amount amortized in the period	out in the report period	Ending balance	ning amortiz ation term
Cost	for
making special		10,687,550. 10	6,106,932.01	4,906,625.0 2	1,854,938.2 3	2,180,945.16		4,580,618.09
counters									1-2年
ERP expenses		1,128,004.0 0	678,978.40	498,230.00	68,704.00	117,908.40		449,025.60	1-2年
Trademark
licensing royalty		3,750,000.0 0	2,807,492.34	1,130,007.6 6		187,500.00		942,507.66	4年
Refurbishing
expenses and others		10,304,275. 88	8,353,189.03	2,022,595.0 9	636,469.26	707,977.50		1,951,086.85	3-4年
Total		25,869,829. 98	17,946,591.78	8,557,457.7 7	2,560,111.49	3,194,331.06	0.00	7,923,238.20

14. Asset of deferred income tax

14. Asset of deferred income tax
Items	Ending balance	Opening balance
Asset of deferred income tax	4,135,520.20	3,162,755.00
Total	4,135,520.20	3,162,755.00
15. Short-term Loan
Types of Borrowings	Ending balance	Opening balance
Bank loans
- Secured loans	190,000,000.00	140,000,000.00

The annual interest rate of the aforesaid bank loan is 6.12-6.57% and CATIC Shenzhen Holdings Ltd., the Company’s holding shareholder, offered guarantee and assumed joint responsibility of guarantor.

Accounts payable

As at June 30, 2007, the total accounts payable in the Company was RMB 47,621,390.26. As at June 30, 2007, in the accounts payable, there are no arrears from the shareholders that hold more than 5% (with 5% inclusive) of the Company’s shares.

As at June 30, 2007, there are none in the big accounts payable with age exceeding 3 years.

17. Advance Receipts

As at June 30, 2007, the total advance receipts in the Company was RMB 3,862,052.99. Of the advance receipts, there was no big account with age exceeding 1 year.

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

18. Other payables:

As at June 30, 2007, the total other payables in the Company was RMB 32,363,157.74. As at June 30, 2007, in the other payables, there are no arrears from the shareholders that hold more than 5% (with 5% inclusive) of the Company’s shares.

19. Taxes payable

9. Taxes payable
Taxes Business tax Value-added tax Urban construction tax Business income tax Others Stamp tax Total	Ending balance 674,250.42 -26,288,477.72 119,930.73 3,218,278.06 137,461.00 321,888.49 -21,751,641.51	Opening balance 406,253.85 -20,985,036.19 106,724.42 2,293,642.64 285,906.20 138,093.93
		-17,754,415.15

20. Salaries Payable to Staff

Salaries payable to staff at the end of the period was RMB 5,099,331.72, the amount at the beginning of the period was RMB 4838675.92. The amount at the end of the period was mainly the salaries payable to staff amounting to RMB 1,274,655.39; and the expenses, such as the amount of staff’s insurance premium, education surcharge, etc. was RMB 3,824,676.33.

21. Long term accounts payable

Items	Ending balance	Opening balance
Fund for financing the construction of the	3,000,000.00	3,000,000.00
Company’s technology center (1)

Loan (2)

5,000,000.00 5,000,000.00 Total 8,000,000.00 8,000,000.00

(1) According to the document SHEN JING MAO FA [2002] No. 93, the Company’s technology center has been certified as an enterprise technology center at municipal level in Shenzhen. For this reason, the Company was granted financing fund for constructing the technology center amounting to RMB 3,000,000.00, which was all used for purchasing equipment.

(2) The fund was borrowed by Shenzhen Harmony World Watches Center Co., Ltd., one of the Company’s subsidiaries from Beijing Heng Da Li Swiss Clocks and Watches Co., Ltd., one of its associates.

22. Liabilities of deferred income tax

Items	Ending balance	Opening balance
Liabilities of deferred income tax	-	967,398.56
Total	-	967,398.56

23. Capital Stock

		Increase/ Decrease resulting	Increase/ Decrease resulting	Increase/ Decrease resulting	Increase/ Decrease resulting	Increase/ Decrease resulting
		from	the change in the report
				period
			Public Reserve
		Shar	Bon	Conv	Oth	Sub-	Opening
		es	us	erted	ers	total	balance
	Ending balance	allott	shar	share
		ed	es	s
(I) Non-negotiable shares
1. Promoters’ shares	130,248,000.00	--	--	--	--	--	130,248,000.00
including:
Domestic corporate shares	130,248,000.00	--	--	--	--	--	130,248,000.00
Total non-negotiable shares	130,248,000.00	--	--	--	--	--	130,248,000.00
(II) Listed negotiable shares
1. Domestically listed ordinary shares (in RMB)	60,749,999.00	--	--	--	--	--	60,749,999.00
Including: Senior executives’ shares	48,210.00	--	--	--	--	--	48,210.00

Foreign shares listed -- -- -- -- -- domestically 58,320,000.00 58,320,000.00 Total listed negotiable shares 119,069,999.00 -- -- -- -- -- 119,069,999.00 (III) Total Capital Stock 249,317,999.00 -- -- -- -- -- 249,317,999.00

The aforesaid capital stock has been verified by Shekou Zhonghua Certified Public Accountants by Capital Verification Report SHE ZHONG YAN ZI BAO ZI (1998) No. 16. 24. Capital Reserve

24. Capital Reserve
Items Opening balance Share capital premium 177,354,784.00 Value added in assets assessment 13,753,691.65 Price difference in related transactions 738,757.00 Total 191,847,232.65	Increase in the report period Decrease in the report period -- -- -- -- -- -- -- --	Ending balance 177,354,784.00 13,753,691.65 738,757.00
		191,847,232.65

25. Surplus Reserve

Items Opening balance Statutory surplus public reserve 39,496,103.62 Statutory public welfare fund Statutory discretionary surplus public reserve 61,984,894.00 Total 101,480,997.62	Increase in the report period	Decrease in the report period -- --	Ending balance 39,496,103.62 -- 61,984,894.00
	--
			101,480,997.62

26. Retained earnings

Items

Retained earnings at year beginning Plus: Profit in the report period

Amount 22,181,958.14 27,000,030.37

Surplus public reserve transferred in

Less: Allotting statutory public reserve

Dividend payable for common shares Retained earnings at year end

49,181,988.51

27. Operation Income and Costs

Amount of the same period of the Amount in report period previous year Income from Income from principal Principal principal Principal Sectors businesses business cost businesses business cost Watch manufacture 324,046,518.5 229,018,444.4 207,309,628.98[143,307,169.2] and retail 1 6 1 Income from property 3,887,910.12 22,433,450.34 3,917,301.69 27,341,859.04 management rent Other business 1,610,145.17 2,491,094.41 996,851.48 734,639.20 Total 353,879,471.9 233,903,206.0 231,353,224.49[147,959,110.1] 6 2 0

28. Taxes and surcharge of principal business

Amount of the Amount in the Items same period of the report period previous year Business tax 1,465,701.53 820,580.73 Urban construction tax 216,163.81 171,480.31 Educational Surcharge 356,538.59 363,382.65 Others 67,865.45 37,997.27 Total 2,106,269.38 1,393,440.96

30. Operation costs

Amount of the Amount in the same period of report period the previous Items year Operation costs 47,669,139.13 36,359,095.06

The operation costs in the report period increased by RMB 11,310,044.07 over the same period of the previous year was mainly due to growth of timepieces retail business which resulted in increase of advertisement costs and rental.

31. Financial Expenses

1. Financial Expenses
Items Interest income – bank deposit Interest payment – bank loan Exchange losses Service charges Others Total	Amount in the report period 229,135.52 5,166,704.98 361,339.06 1,513,504.68 6,812,413.20	Amount of the same period of the previous year 141,796.95 1,298,781.76 31,281.50 876,280.88 21,000.00
		2,085,547.19

Of the financial expenses in the report year, the interest payment for the bank loan increasing by RMB 3,867,923.22 was mainly due to bank loan amounting to RMB 190,000,000 at the end of the report period, a RMB 130,000,000.00 growth over the same period of the previous year and the interest payment increased correspondingly.

32. Investment income

Items Amount of the Amount in the same period of report period the previous year Earnings from stock investment 836,668.09 1,335,191.64 -- -- Earning from securities investment Dividend distributed to the Investees involved -- in calculation based on the cost method Provision for devaluation of long-term -- investments Provisions for devaluation of short-term investment Total 836,668.09 1,335,191.64

33. Non-operating income

Items

Amount in the Amount of the

Income from disposal of fixed assets Income from insurance claim Governmental reward Others Total 34. Non-operating expenditures Items Loss from disposal of fixed assets Penalty payment Others Total	report period 31,739.40 100,000.0 0 700,000.0 0 12,040.90 843,780.30 Amount in the report period -- 6,858.77 -- 6,858.77		same period of the previous year 70,399.03 116,469.67
			186,868.70
			Amount of the same period of the previous year 57,616.88 2,725.96 12,315.71 72,658.55

(V) Notes to the relevant items on the accounting statements of the parent company

Accounts receivable

Items	Amount in report period	Opening balance
Accounts receivable	58,101,206.70	52,632,286.97
Less: reserve for bad debts	40,373,588.49	40,373,588.49
Net amount of accounts receivable	17,727,618.21	12,258,698.48

Aging analysis of the Company’s accounts receivable is as follows:

	Amount	in report	period	Opening balance	Opening balance	Opening balance
		Propor	Provision for		Propor	Provision for
	Amount	tion	bad debts	Amount	tion	bad debts
Within a year	8,938,861.63	15.38 %	172,597.90	3,451,957.98	6.56%	172,597.90
1 to 2 years	1,137,580.26	1.96%	130,135.26	1,301,357.56	2.47%	130,135.26
2 to 3 years	7,122,389.35	12.26 %	2,112,861.34	7,042,871.15	13.38 %	2,112,861.34

Over 3 years 40,902,375.46 70.40% 37,957,993.99 40,836,100.28 77.59%[ 37,957,993.9] 9 Total 58,101,206.70[ 100.00] % 40,373,588.49 52,632,286.97 100.00%[ 40,373,588.4] 9

2. Other receivables

Items Amount in report year Opening balance Other receivables 268,993,705.52 221,152,860.25 Less: reserve for bad debts 6,370,788.48 6,370,788.48 Other receivables, net 262,622,917.04 214,782,071.77

(1) Aging analysis of the Company’s other receivables is as follows:

Amount in report year Amount Propor tion Provision for bad debts Within a year 254,837,711.41 94.74 % 177,226.73 1 to 2 years 472,318.560.18% 27,325.86 2 to 3 years 1,246,085.24 0.46% 89,523.81 Over 3 years 12,437,590.31 4.62% 6,076,712.08 Total 268,993,705.5 2 100.00 % 6,370,788.48	Amount in report year Amount Propor tion Provision for bad debts Within a year 254,837,711.41 94.74 % 177,226.73 1 to 2 years 472,318.560.18% 27,325.86 2 to 3 years 1,246,085.24 0.46% 89,523.81 Over 3 years 12,437,590.31 4.62% 6,076,712.08 Total 268,993,705.5 2 100.00 % 6,370,788.48	Amount in report year Amount Propor tion Provision for bad debts Within a year 254,837,711.41 94.74 % 177,226.73 1 to 2 years 472,318.560.18% 27,325.86 2 to 3 years 1,246,085.24 0.46% 89,523.81 Over 3 years 12,437,590.31 4.62% 6,076,712.08 Total 268,993,705.5 2 100.00 % 6,370,788.48	Amount in report year Amount Propor tion Provision for bad debts Within a year 254,837,711.41 94.74 % 177,226.73 1 to 2 years 472,318.560.18% 27,325.86 2 to 3 years 1,246,085.24 0.46% 89,523.81 Over 3 years 12,437,590.31 4.62% 6,076,712.08 Total 268,993,705.5 2 100.00 % 6,370,788.48	Opening balance Amount Propor tion Provision for bad debts 207,640,874.12 93.89 % 177,226.73 273,258.60 0.12% 27,325.86 1,110,705.91 0.50% 89,523.81 12,128,021.62 5.49% 6,076,712.08 221,152,860.25100.00 % 6,370,788.48	Opening balance Amount Propor tion Provision for bad debts 207,640,874.12 93.89 % 177,226.73 273,258.60 0.12% 27,325.86 1,110,705.91 0.50% 89,523.81 12,128,021.62 5.49% 6,076,712.08 221,152,860.25100.00 % 6,370,788.48	Opening balance Amount Propor tion Provision for bad debts 207,640,874.12 93.89 % 177,226.73 273,258.60 0.12% 27,325.86 1,110,705.91 0.50% 89,523.81 12,128,021.62 5.49% 6,076,712.08 221,152,860.25100.00 % 6,370,788.48
	268,993,705.5 2	100.00 %	6,370,788.48	221,152,860.25	100.00 %	6,370,788.48

3. Long-term equity investment

Items	Opening balance	Increase in the report	Decrease in the report period	Ending balance
		period
Stock investment
(1)	3,085,000.00			3,085,000.00
Subsidiaries (4)	156,614,323,70		13,766,025.05	142,848,298.65
Other equity
investment (2)	1,800,000.00			1,800,000.00
Total long-term
equity investment	161,499,323.70			147,733,298.65
Provision for
impairment of
long-term equity	300,000.00			300,000.00
investments (3)
Net amount of
long-term equity
investment	161,199,323.70			147,433,298.65

The long term equity investment of the Company includes:

(1) Stock investment

			Nature of				Proportion in the
			Shareholde			registered capital		Initial investment
Investees			rs		Q’ty		of the investee	cost
Wanneng	Joint	Stock	Corporate	1,100,000			0.13%	3,000,000.00
Co., Ltd.			shares
Xi’an Tangcheng		Joint	Corporate		500,000		0.10%	85,000.00
Stock Co.,	Ltd.		shares
	Total							3,085,000.00
(2) Other equity investment
			Starting			and
			Ending		Year	of	Investment
Investees			Investment				Proportion	Investment amount
Shenzhen	Research Institute of 2002.2-2022.2						50%	1,500,000.00

Northwest	China	Polytechnic
University
Shenzhen CATIC Culture Transmit
Co., Ltd.		1995.5-2008.5		15%	300,000.00
	Total				1,800,000.00
(3) Provision	for impairment of long-term equity investments
				Decrease
			Increase in
Investees		Opening balance	the report period	in the report period	Ending balance
Shenzhen	CATIC	Culture
Transmit Co., Ltd.		300,000.00	--	--	300,000.00

(4) Subsidiaries

Investment amount Change in accumulated equity Book Balance Invest ment Starting and Propor Ending Year of tion Increase in the Dividend to be Investees Investment (%)Opening balance Ending balance Opening balance report period distributed Ending balance Opening balance Ending balance Shenzhen Harmony World Watches 1997-2012 98.79 122,425,000.00 122,425,000.00 2,198,348.32 2,198,348.32 124,623,348.32 124,623,348.32 Center Co., Ltd. Shenzhen Harmony World Watches 1993-2008 50 1,400,000.00 1,400,000.00 983,877.69 983,877.69 2,383,877.69 2,383,877.69 Center Co., Ltd. Shenzhen FIYTA Sophisticated Timepieces 1999-2009 90 9,000,000.00 9,000,000.00 19,673,056.40 13,766,025.05 5,907,031.35 28,673,056.40 14,907,031.35 Manufacture Co., Ltd. Shenzhen Feijing Sophisticated Optical Instruments 1997-2007 90 6,300,000.00 6,300,000.00 -11,166,459.58 -11,166,459.58 -4,866,459.58 -4,866,459.58 Manufacture Co., Ltd. Xi’an Haomen Restaurants & 1994-2009 62 11,040,000.00 11,040,000.00 -5,239,499.13 -5,239,499.13 5,800,500.87 5,800,500.87 Recreation Co., Ltd. Total 150,165,000.00 150,165,000.00 6,449,323.70 -7,316,701.35 156,614,323.70 142,848,298.65

4. Operating Income and Cost

Sectors Sales of timepieces Income from property management Other business Total	Amount in report year Operation income Operation costs 72,500,380.17 38,071,819.37 27,341,859.04 3,887,910.12 1,084,002.45 996,851.48 100,926,241.66 42,956,580.97	Amount of the same period of the previous year Operation income Operation costs 60,754,623.11 33,295,393.37 22,433,450.34 3,917,301.69 1,052,273.31 730,123.12 84,240,346.76 37,942,818.18	Amount of the same period of the previous year Operation income Operation costs 60,754,623.11 33,295,393.37 22,433,450.34 3,917,301.69 1,052,273.31 730,123.12 84,240,346.76 37,942,818.18
			730,123.12
			37,942,818.18

6. Investment income

Items Earnings from stock investment Earning from securities investment Dividend distributed to the Investees involved in calculation based on the cost method Provision for devaluation of long-term investments Provisions for devaluation of short-term investment

Amount of the Amount in the same period of report period the previous year 836,668.09 1,335,191.64 -- -- -- --

Total 836,668.09 1,335,191.64

(VI) Related Parties and Related Transactions

1. Related parties with controlling relationship

(1) Basic information of the related parties with control relationship and the relationship with the Company are as follows:

Company Names	Company Names	Registered address	Principal business	Relationship	Ownership or type	Legal representati
						ve:
			Investing to set up	The
CATIC	SHENZHEN	Shenzhen	entities, domestic trade,	Company’s	Joint stock co.,	Wu
HOLDINGS	LTDS.		materials supply and	parent	ltd.	Guangquan
			sales	company
CATIC	Shenzhen	Shenzhen	Import and export of	shareholder	Solely owned by	Wu

Corporation motor vehicles, of the the state Guangquan equipment and machinery Company’s made within the Group. parent company

(2) Registered capital of the related party with control relationship and the change

			Increase in the report	Decrease in the
Company Names		December 31, 2006	year	report year		June 30, 2007
CATIC	SHENZHEN
HOLDINGS	LTDS.	642,000,000.00	--		--	642,000,000.00
CATIC	Shenzhen
Corporation		80,000,000.00	--		--	80,000,000.00
Shenzhen	Feijing
Sophisticated Optical
Instruments	Manufacture
Co., Ltd.		7,000,000.00	--		--	7,000,000.00
Shenzhen	FIYTA
Sophisticated
Timepieces Manufacture
Co., Ltd.		10,000,000.00	--		--	10,000,000.00
Shenzhen	Harmony
World Watches Center
Co., Ltd.		123,800,000.00	--		--	123,800,000.00
Xi’an	Haomen
Restaurants	&
Recreation Co., Ltd.		HK$ 16,000,000.00	--		--	HK$ 16,000,000.00
Shenzhen	Harmony
World Watches Center
Co., Ltd.		2,800,000.00	--		--	2,800,000.00
Beijing	Henglianda
Timepiece Co., Ltd.		10,000,000.00				10,000,000.00

(3) Shares held by the related party which can control the Company and the change:

Entity Names	Ending balance
	Amount
CATIC SHENZHEN HOLDINGS LTD.
– direct holding	130,248,000.00
CATIC Shenzhen Corporation
- Indirect holding	81,153,009.00

(4) Shares or equity in the related party controlled by the Company directly or indirectly held and the change

						Decrease	Decrease
			Increase in			in the
			the report			report
		Opening balance period				period		Ending balance
Company Names			Prop
			Propor Amou	ortio	Amo Propo			Proportio
		Amount	tion nt	n		unt	rtion	Amount	n
Shenzhen Feijing Sophisticated			99.00
Optical Instruments		6,300,000.00	% --	--		--	--	6,300,000.00 99.00%
Manufacture Co., Ltd.
Shenzhen FIYTA Sophisticated			99.00
Timepieces Manufacture Co.,	Ltd.	9,000,000.00	% --	--		--	--	9,000,000.00 99.00%
Shenzhen Harmony Watches Center Co., Ltd.	World	122,425,000.00	98.79 % --	--		--	--	122,425,000.00 98.79%
Xi’an Haomen Restaurants &			62.00
Recreation Co., Ltd.		11,040,000.00	% --	--		--	--	11,040,000.00 62.00%
Shenzhen Harmony Watches Center Co., Ltd.	World	2,800,000.00	50.00 % --	--		--	--	2,800,000.00 50.00%
Beijing Henglianda Timepiece Co., Ltd.		5,000,000.00	50.00 % --	--		--	--	5,000,000.00 50.00%
2. Related Parties without	Control Relationship
Company Names						Relationship with the
							Company
Shenzhen CATIC Property Management							controlled by the same
Co., Ltd.								parent company
								shareholder
Shenzhen Rainbow Supermarket Co., Ltd.							controlled by the same
								parent company
								shareholder
Shenzhen Shenhang Electronic Machinery
Co. Ltd.							Minority shareholders
Beijing Heng Da Li Swiss	Clocks	and Watches					Associate of a controlled
Co., Ltd.								subsidiary
Shenzhen Maiwei Cable TV		Equipment					controlled by the same
Co Ltd								parent company

3. Related transactions

(1) Pricing policy

The transactions with the related parties are priced based on the prices specified in the agreements executed by both parties.

(2) Significant transactions between the Company and the related parties are stated as follows:

	Amount in report year	Amount of the same
		period of the previous
		year
Items and companies	Amount in transaction	Amount in transaction
(1) Receiving labor services
Shenzhen CATIC Property Management
Co., Ltd.	440,567.94	887,134.21
(2) Leases (Operating rent)
Shenzhen CATIC Property Management
Co., Ltd.	402,480.00	402,480.00
(3) Leases (operating lease)
Shenzhen CATIC Real Estate	659,700.00	472,449.60
Shenzhen CATIC Sunshine Real Estate
Development Co., Ltd.		144,300.00
Shenzhen Maiwei Cable TV Equipment
Co Ltd	154,379.80	347,188.80
(4) Payment for sales expenses with
designated counters in the supermarket
Shenzhen Rainbow Supermarket Co.,
Ltd.	2,405,177.70	1,215,370.28
Total	4,062,305.44	3,468,922.89

4. Balance of the Current Accounts with Related Parties

Items and companies	Ending balance	Opening balance	Remarks
Accounts receivable
Shenzhen Rainbow Supermarket Co.,
Ltd.	72,933.80	668,927.30
Other receivables
Shenzhen CATIC Property Management	58,341.58	130,278.58	Deposit in

Co., Ltd.			security
Xi’an Haomen Restaurants & Recreation			Current
Co., Ltd.	2,400,000.00	2,400,000.00	account
			Current
CATIC Real Estate	109,950.00	219,900.00	account
Other payables
Xi’an Haomen Restaurants & Recreation			Account
Co., Ltd.	12,311,302.88	12,311,302.88	recovered
Shenzhen CATIC Property Management			Current
Co., Ltd.	716,462.66	528,796.57	account
Accounts payable
Xi’an Haomen Restaurants & Recreation			Current
Co., Ltd.	89,442.46	89,442.46	account
			Current
Long term accounts payable			account
Beijing Heng Da Li Swiss Clocks and Watches Co., Ltd.	5,000,000.00	5,000,000.00	Borrowings

(VII) Contingencies

Ended the report period, the Company had no significant contingencies necessary to be disclosed

(VIII) Commitments

1. Capital Commitment

Ended the report period, the Company had no capital payment commitment for which agreement had been executed but not necessary to be confirmed on the accounting statement.

2. Operation Lease Commitments

According to the irrevocable operational lease contracts as executed already, the future minimum rentals necessary to be paid are summarized as follows:

Items Within a year 1 to 2 years 2 to 3 years Over 3 years Total	Ending balance 9,232,971.00 8,926,714.00 4,462,736.00 422,300.00 23,044,721.00	Opening balance 7,345,100.00 6,462,300.00 5,948,000.00 844,600.00
		20,600,000.00

(IX Miscellaneous

According to the document [2007] SHANG HE JING WAI TOU ZI ZHENG ZI NO. 00276, FIYTA （HONGKONG）LIMITED, the Company’s subsidiary incorporated in Hong Kong, has been approved by the Ministry of Commerce of the People’s Republic of China with registered capital of US$ 1.2858 million. Its capital was 100% contributed by Shenzhen FIYTA Holdings Ltd. It is mainly engaged in sales of various analog watches and movements, spares and parts, various timing instruments. At present, the corporate registration and registration with the industry and commerce authority are in process of handling.

(X) Post Events

The Company published the third announcement of the Prospectus of Equity Separation Reform on July 14, 2007 (Refer to Securities Times and http://www.cninfo.com.cn)The equity reform work is still in progress at the present.

(XI) Provisions for impairment of fixed assets

Items	Opening balance	Decrease in the report period	Ending balance
I. Provision for bad debts	48,232,997.61		48,232,997.61
Incl.: Accounts receivable	41,202,214.13		41,202,214.13
Other receivables	7,030,783.48		7,030,783.48
II. Provisions for impairment of inventories	46,192,840.49	4,306,426.71	41,886,413.78
III. Reserve for impairment of transactional financial assets	4,357,600.00	831,600.00	3,526,000.00
IV. Provision for impairment of the held to the dueinvestment			-
V. Provision for impairment of long-term equity investments	300,000.00		300,000.00
VI. Provision for impairment of fixed assets	2,600,000.00		2,600,000.00
VII. Provision for impairment of investment basedrealestate			-
VIII. Provision for impairment of engineering supplies			-
IX. Provision for impairment of construction-in-progress			-
X. Provision for impairment of productionbased biologicalassets			-
XI. Provision for impairment of oil and gas assets			-
XII. Provision for impairment of intangible assets			-
XIII. Provision for impairment of goodwill			-
XIV. Others			-
Total	101,683,438.10		96,545,411.39

(XII) Statement of Changes in Owner’s Equity

Prepared by: SHENZHEN FIYTA HOLDINGS LTD.	Statement of Changes in Owner’s Equity January to December, 2006	Statement of Changes in Owner’s Equity January to December, 2006	Statement of Changes in Owner’s Equity January to December, 2006	Statement of Changes in Owner’s Equity January to December, 2006	Statement of Changes in Owner’s Equity January to December, 2006		In RMB
Items	Total owners’ equity attributable to the parent company
	Paid-up capital	Capital Reserve	Less: shares in stock	Surplus Reserve	Retained Earnings	Minority shareholders’ equity:	Total owner’s equity
I. Balance at the end of the previous year	249,317,999.00	191,847,232.6 5		98,654,301.0 2	-6,448,293.31	7,502,682.77	540,873,922.13
Plus: Change of accounting policy
Correction of previous errors
II. Balance at the year beginning	249,317,999.00	191,847,232.6 5		98,654,301.0 2	6,448,293.31	7,502,682.77	540,873,922.13
III. Amount involved in increase/decrease in the year				2,826,696.60	26,436,525.0 3	77,367.72	29,340,589.35
(I) Net profit					29,263,221.6 3	77,367.72	29,340,589.35
(II) Profit and loss directly charged to the owner’s equity
1. Net change in the fair value of the financial assets available for sale
2. Influence from change of the other owner’s equity of the investee
3. Influence from the income tax in connection with the owner’s equity as charged
4. Others
Total of the aforesaid (I) and (II)	-	-	-	-	29,263,221.6 3	77,367.72	29,340,589.35
(III) Capital provided and decreased by the owner
1. Capital provided by the owner
2. Amount of share payment charged to the owner’s equity
3. Others

(IV) Profit Distribution	(IV) Profit Distribution						2,826,696.60	2,826,696.60	-2,826,696.60	-2,826,696.60		0.00
1. Provision of surplus public reserve							2,826,696.60		-2,826,696.60			0.00
2. Distribution to the owner
(V) Internal carry-over of owner’s equity
1. Increased capital converted from capital reserve
2. Increased capital converted from surplus reserve
3. Making up Deficit with Surplus Public Reserve
IV. Ending balance		249,317,999.00		191,847,232.6 5			101,480,997. 62		19,988,231.7 2		7,580,050.49	570,214,511.48
Statement of Change in Owner’s Equity Prepared by: SHENZHEN FIYTA HOLDINGS LTD. Jan. to Jun., 2007 In RMB
	Total owners’ equity attributable to the parent company
	Paid-up capital		Capital Reserve		Less: shares in stock	Surplus Reserve		Retained Earnings		Minority shareholders’ equity:		Total owner’s equity
I. Balance at the end of the previous year	249,317,999. 00		191,847,232. 65			101,480,997.62		19,988,231.72		7,580,050.49		570,214,511.48
Plus: Change of accounting policy								2,193,726.42		1,630.02		2,195,356.44
Correction of previous errors
II. Balance at the year beginning	249,317,999. 00		191,847,232. 65			101,480,997.62		22,181,958.14		7,581,680.51		572,409,867.92
III. Amount involved in increase/decrease in the year								27,000,030.37		143,991.49		27,144,021.86
(I) Net profit								27,000,030.37		143,991.49		27,144,021.86
(II) Profit and loss directly charged to the owner’s equity												-
1. Net change in the fair value of the financial assets available for sale												-
2. Influence from change of the other owner’s equity of the investee												-
3. Influence from the income tax in connection with the owner’s equity as charged												-

4. Others							-
Total of the aforesaid (I) and (II)	-	-	-	-	27,000,030.37	143,991.49	27,144,021.86
(III) Capital provided and decreased by the owner
1. Capital provided by the owner
2. Amount of share payment charged to the owner’s equity
3. Others
(IV) Profit Distribution
1. Provision of surplus public reserve
2. Distribution to the owner
3. Others
(V) Internal carry-over of owner’s equity
1. Increased capital converted from capital reserve
2. Increased capital converted from surplus reserve
3. Making up Deficit with Surplus Public Reserve
IV. Ending balance	249,317,999. 00	191,847,232. 65		101,480,997.62	49,181,988.51	7,725,672.00	599,553,889.78

AI assistant

FIYTA Precision Technology Co., Ltd. — Interim / Quarterly Report 2007

53563_rns_2007-08-20_9e081d40-9f02-4cf1-9d27-030ffd045068.PDF

August 20, 2007

Section 1 Important Notice, Definition and Table of Contents

I. Important Notice

II. Definition

3. Registered Office Address: FIYTA Technology Building, Gaoxin S. Road One,

7. Other Relevant Information:

Section 3 Change in Capital stock and Shares Held by the Principal Shareholders

I. Change in Shares

II. Total shareholders at the end of the report period

III. Shares held by the top ten shareholders Shares held by top 10 shareholders ended June 30, 2007:

IV. Shares held by the top ten shareholders of negotiable shares Shares held by top 10 shareholders of negotiable shares ended June 30, 2007:

Section 4 Directors, Supervisors and Senior Executives

I. Change in the Company’s Shares

II. New Engagement or Disengagement of Directors, Supervisors, Senior Executives In the report period, there was no new engagement or disengagement of Directors, Supervisors and Senior Executives.

Section 5 Report of the Board of Directors

I. Discussion and Analysis of the Overall Operation in the Report Period

(I) General

(II) Principal Business and Operation

1.The composition of the income and profit from the principal business is as follows:

5. Problems and Difficulties in Operation

II. Investment

1. Investment with the Proceedings Raised through Share Offering

2. Other Investments

III. Prediction of Operation Performances

Section 6 Significant Issues

V. Transactions with Related Parties

2. Related Liabilities or Guarantees

VI. Important Contracts and Implementation

VII. In the report period, no shareholder holding over 5% (with 5% inclusive) of the Company’s shares disclosed any existing affective commitment and no commitment occurred in previous periods was extended to the report period either.

VIII. The financial report of the report period has not been audited yet and the Company has not changed the certified public accountants.

IX. In the report period, neither the Company nor any of its directors or senior executives has ever been punished by the supervisory/administrative authority.

XI Reform for Equity Separation

Section 7 Financial Report

I. Accounting Statements (attached hereinafter on Pages 17 to 24)

Section 8 Documents Available for Inspection

I. Semi-annual Report carried with personal signature of the Chairman of the Board;

IV. Articles of Association of the Company.

Attachment: Financial Report (Unaudited) I. Accounting Statements

Balance Sheet

Balance Sheet (Cont’d)

Statement of Profit and Profit Distribution

Cash Flow Statement

II. Notes to the Accounting Statements

1. Basis for Preparation of Accounting Statements

2. Fiscal Year

3. Functional currency for bookkeeping

4. Bookkeeping basis and valuation principle:

5. Foreign Currency Translation

6. Cash and cash equivalents

7. Calculation for Financial Instruments

(2) Other Financial Liabilities

8. Accounts receivable and provision for bad debts

(1) Accounts Receivable

(2) Criteria for determining bad debts:

9. Inventories:

Recognition of initial investment cost

Consolidation of Enterprises under the Same Control

Consolidation of Enterprises not under Same Control

Successive Measurement of Long Term Equity Investment

(2) Impairment of long-term equity investment

11. Fixed assets pricing and depreciation

12. Construction in process

13. Loan expenses

14. Intangible Assets

15. Long-term expenses to be proportioned

16. Wages to the Employees

17. Dividend Distribution

18. Special accounts payable

19. Income recognition

Labor services

20. Operating Lease

21. Accounting Treatment of Income Tax

22. Method of preparing the consolidated financial statements

(II) Taxes

(III) Controlled Subsidiaries

(IV) Notes to the Consolidated Financial Statements

1. Monetary funds

FIYTA Precision Technology Co., Ltd. Interim / Quarterly Report 2007