FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text FIYTA Precision Technology Co., Ltd. 2021 Annual Report March, 2022 1 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 1 Important Notice, Table of Contents and Definition The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives hereby individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are neither material omissions nor errors which would render any statement misleading. Zhang Xuhua, the Company leader, Song Yaoming, chief financial officer, and Tian Hui, the manager of the accounting department (treasurer) hereby confirm the authenticity and completeness of the financial report enclosed in this Annual Report. All the directors attended the board meeting for reviewing the Annual Report. Any perspective description, such as the future plan, development strategy, etc. involved in the Annual Report shall not constitute the Company’s substantial commitment to the investors and the investors should please pay attention to their investment risks. In this report, the Company has described in detail the existing macro-economic risks as well as operation risks. Investors are advised to refer to the contents concerning the Company's future development prospect in Section 3 Discussion and Analysis of the Management. The profit distribution preplan reviewed and approved by the Board of Directors is summarized as follows: based on the number of shares after deducting the shares in the special securities account for repurchase from the total number of shares on the equity registration date when the profit distribution plan is implemented in the future, the Company is going to distribute cash dividend to all shareholders at the rate of CNY 3.00 (with tax inclusive) for every 10 shares, and 0 bonus shares (with tax inclusive) shall be distributed and no public reserve shall be capitalized. 2 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Table of Contents Section 1 Important Notice, Table of Contents and Definition Section 2 Company Profile and Financial Highlights Section 3 Discussion and Analysis by the Management Section 4 Corporate Governance Section 5 Environment and Social Responsibility Section 6 Significant Events Section 7 Change of the Shares and Particulars about Shareholders Section 8 About the Preferred Shares Section 9 About Bonds Section 10 Financial Report 3 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Documents Available for Inspection I. Financial Statements signed by and under the seal of the legal representative, chief accountant and accounting supervisors; II. The original Auditors’ Report affixed with the seal of the accounting firm, signed by and affixed with the seal of the certified public accountant. III. Originals of all documents and manuscripts of all the Company’s documents disclosed to the public during the reporting period. 4 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Definitions Terms to be defined Refers to Definition This Company, the Company or FIYTA Refers to FIYTA Precision Technology Co., Ltd. AVIC Refers to Aviation Industry Corporation of China, Ltd. AVIC International Refers to AVIC International Holding Corporation AVIC International Industrial Refers to AVIC International Industrial Holding Co., Ltd. AVIC International Shenzhen Refers to AVIC International Shenzhen Co., Ltd. AVIC IHL Refers to AVIC International Holding Limited The Sales Co. Refers to FIYTA Sales Co., Ltd. Harmony Refers to Shenzhen Harmony World Watches Center Co., Ltd. Precision Technology Co. Refers to Shenzhen FIYTA Precision Technology Co., Ltd. Science & Technology Development Co. Refers to Shenzhen FIYTA Technology Development Co., Ltd. the Hong Kong Co. Refers to FIYTA (Hong Kong) Limited SHIYUEHUI Refers to Shiyuehui Boutique (Shenzhen) Co., Ltd. Hengdarui Refers to Liaoning Hengdarui Commerce & Trade Co., Ltd. Harmony E-Commerce Limited Refers to Shenzhen Harmony E-Commerce Limited Xunhang Co. Refers to Shenzhen XUNHANG Precision Technology Co., Ltd. HARMONY (Hainan) Co. Refers to Harmony World Watches Center (Hainan) Ltd. Shanghai Watch Industry Refers to Shanghai Watch Industry Co., Ltd. Rainbow Ltd. Refers to Rainbow Digital Commercial Co., Ltd. Shennan Circuit Refers to Shennan Circuit Co., Ltd. 5 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 2 Company Profile and Financial Highlights I. Company Information Short form of the stock FIYTA and FIYTA B Stock Code 000026 and 200026 Stock Exchange Listed with Shenzhen Stock Exchange Company Name in Chinese FIYTA Precision Technology Co., Ltd. Abbreviation of the Company 飞亚达公司 Name in Chinese Company name in English (if FIYTA Precision Technology Co., Ltd. any) Abbreviation of the Company FIYTA name in English (if any) Legal Representative Zhang Xuhua Registered address: FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen Postal Code of the Registered 518057 Address On January 30, 1997, the Company’s registered address was changed from "Building 6, CATIC Zone, Shennan Road Central, Shenzhen" to "Building 6, CATIC Zone, Shennan Road Central, Futian District, Changes of the Company's Shenzhen"; on April 5, 2000, the registered address was changed to "Fiyta Building, 163 Zhenhua Road, Registered Address Futian District, Shenzhen"; on February 20, 2004, the registered address was changed to "FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen". Office Address 20th Floor, FIYTA Technology Building, Gaoxin S. Road One, Nanshan District, Shenzhen Postal Code of the Registered 518057 Address Website: www.fiytagroup.com E-mail: investor@fiyta.com.cn II. Liaison Persons and Communication Information Secretary of the Board Securities Affairs Representative Names Song Yaoming (acting ) Xiong Yaojia 20th Floor, FIYTA Technology Building, Gaoxin 18th Floor, FIYTA Technology Building, Gaoxin Liaison Address S. Road One, Nanshan District, Shenzhen S. Road One, Nanshan District, Shenzhen Tel. 0755-86013669 0755-86013669 Fax 0755-83348369 0755-83348369 Email investor@fiyta.com.cn investor@fiyta.com.cn 6 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text III. Information Disclosure and Place where the Regular Reports are Prepared The website of the Stock Exchange on which the Company http://www.szse.cn discloses the Annual Report Names and websites of the media on which the Company Securities Times, Hong Kong Commercial Daily, and www.cninfo.com.cn discloses the Annual Report Place where the Company’s Annual Report was prepared The Planning & Operation Department of the Company and is placed for inquiry IV. Changes in Registration Organization Code 91440300192189783K Changes in principal business activities since No change listing (if any) Changes in the controlling shareholder over the No change past years (if any) V. Other Relevant Information The CPAs appointed by the Company Name of the CPAs Da Hua Certified Public Accountants (Special General Partnership) Office address 1101, Building 7, No. 16 Xisi huanzhong Road, Haidian District, Beijing Names of the CPAs as the authorized Long Jiao and Wang Dong signatories The sponsor performing persistent supervision duties engaged by the Company in the reporting period Inapplicable The financial advisor performing persistent supervision duties engaged by the Company in the reporting period Inapplicable VI. Summary of Accounting/Financial Data Does the Company need to make retroactive adjustment or restatement of the accounting data of the previous years? No Increase/decrease in the 2021 2020 reporting year over the 2019 previous year Turnover in CNY 5,243,733,540.93 4,243,439,952.59 23.57% 3,704,210,734.90 Net profit attributable to the Company’s 387,840,282.95 294,115,156.04 31.87% 215,909,014.15 shareholders, in CNY Net profit attributable to the Company’s 369,418,754.83 269,095,012.41 37.28% 199,678,661.09 7 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text shareholders less the non-recurring items, in CNY Net cash flows arising from operating 547,249,108.45 378,210,505.87 44.69% 444,820,768.61 activities, in CNY Basic earning per share (CNY/share) 0.9036 0.6764 33.59% 0.4943 Diluted earning per share (CNY/share) 0.9036 0.6764 33.59% 0.4943 Return on equity, weighted average (%) 13.39% 10.78% 2.61% 8.21% Increase/decrease of the end of the reporting year End of 2021 End of 2020 End of 2019 over the end of the previous year Total assets, in CNY 4,110,579,952.49 4,018,712,700.18 2.29% 3,760,923,285.37 Net assets attributable to the Company’s shareholders (owner’s equity attributable 3,013,232,642.53 2,799,948,388.09 7.62% 2,654,533,766.99 to the Company’s shareholders, in CNY) The lower of the Company’s net profit before and after the deduction of non-recurring gains and losses in the last three fiscal years is negative, and the auditor's report of the previous year shows that the Company’s going concern ability is uncertain. No The lower of the net profit before and after the deduction of the non-recurring gains and losses is negative. No VII. Discrepancy in accounting data between IAS and CAS 1. Differences in the net profit disclosed in the financial report & the net assets attributable to the Company’s shareholders respectively according to the IAS and the CAS. Inapplicable 2. Differences in the net profit disclosed in the financial report & the net assets attributable to the Company’s shareholders respectively according to the IAS and the CAS. Inapplicable VIII. Financial Data Summary based on Quarters In CNY The first quarter The second quarter The third quarter The fourth quarter Turnover 1,378,277,735.81 1,399,241,785.53 1,307,278,222.69 1,158,935,796.90 Net profit attributable to the 118,222,042.23 115,322,684.32 109,034,679.41 45,260,876.99 Company’s shareholders 8 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Net profit less the non-recurring profit/loss attributable to the 113,576,505.85 110,219,727.57 104,537,027.94 41,085,493.47 Company’s shareholders Net cash flows arising from operating 28,711,219.83 176,443,344.10 163,056,189.37 179,038,355.15 activities Are the above financial indicators or their totals significantly different from the financial indicators disclosed by the Company in the quarterly and semi-annual reports? No IX. Extraordinary items and amount In CNY Items Amount in 2021 Amount in 2020 Amount in 2019 Note Gain/loss from disposal of non-current assets, including the part written-off with the provision for 730,134.87 -369,857.30 -926,118.60 impairment of assets. The government subsidies included in the profits and losses of the current period ( (excluding government grants which are closely 23,476,186.50 30,634,128.57 18,428,906.18 related to the Company’s normal business and conform with the national standard amount or quantity) Reversal of provision for impairment of accounts receivable that has been separately tested for 2,225,653.32 163,925.30 impairment Other non-operating income and expenses other -3,058,731.52 1,556,300.78 3,353,916.43 than the aforesaid items Less: Amount affected by the income tax 4,951,715.05 6,964,353.72 4,626,350.95 Total 18,421,528.12 25,020,143.63 16,230,353.06 -- Details of other gains and losses in compliance with the definition of non-recurring gains and losses. Inapplicable Explanation of the non-recurring gains and losses listed in the Explanatory Announcement No.1 on Information Disclosure for Companies Offering their Securities to the Public - Non-recurring Gains and Losses as recurring gains and losses Inapplicable 9 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 3 Discussion and Analysis by the Management I. About the Industry the Company Engages in As a representative of precision technology, watches bear diversified attributes of function and art. They carry emotional needs such as "love" and "beauty" on the wrist, and are gradually becoming a symbolic representation of consumers' pursuit of quality life. Watch industry in which the Company engages has experienced flourishing for centuries with continuous appearance, technological innovation and profound historical and cultural accumulation. It has formed a relatively stable industry structure. The high-end luxury watches mainly represented by Swiss watch brands, mid-end and fashion watches composed represented by European and American brands, Japanese brands, and domestic brands are facing the broad global watch consumer market. With the economic growth of China, consumption upgrading and the guidance of consumption policies, the continuous expansion of the domestic watch consumption market has become a consensus. Even after the impact of COVID-19, its overall scale has a compound growth rate of more than 6% in the past five years. What is noticeable that the expansion of high-net-worth individuals and the change of consumption concept have promoted the continuous popularization and rejuvenation of domestic mid-to-high-end consumption, and the consumption of mid-to-high-end watches mainly by Swiss watch brands has performed well. According to the statistics of the Swiss Watch Industry Federation , the compound growth rate of Swiss watch exports to Mainland China in the past five years is nearly 20%, and it will hit a record high in 2021. At the same time, driven by the overall improvement of domestic manufacturing level, digital transformation, cultural self-confidence and return of consumption, the rise of national tide culture, domestic brands in the watch industry have also ushered in new development opportunities, and continue to upgrade quality and personalization . In August 2021, the tenth meeting of the Central Committee for Financial and Economic Affairs made policy arrangements on promoting common prosperity, further clarifying the expansion of the scale of the middle-income group and optimizing the income structure. It is true that economic development and policy dividends have provided many development opportunities for the industry we are in, but also brought about great challenges. At present, the mid-to-high-end watch brands dominated by the Swiss watch brand are still the main driving force for the growth of the industry, and the top brand effect is significant. Domestic watch brands are facing many challenges in terms of operational capabilities and resource integration capabilities. The rapid development has put forward a new topic of accelerating digital transformation for offline physical business; the normalization and periodic repetition of COVID-19 has caused cyclical fluctuations in the consumer market and consumer confidence. Year 2021 is the first year of the "14th Five-Year Plan". We are now standing on a new level. Looking back at the past 30 years, the Company has always been deeply involved in the watch industry, and has grown into a flagship company in 10 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text China's watch industry. The "FIYTA" brand has become one of the most well-known watch brands in China after the reform and opening up, and the market share and comprehensive competitive strength of HARMONY watch retail business rank among the forefront of the domestic watch retail industry. In the face of increasing industry competition, we shall adhere to the "empty cup attitude", face up to the challenges, seize opportunities, and take the initiative to consolidate and enhance core competitiveness to adapt to market changes. The road is ahead. We believe that time shall witness our growth. II. Main business the Company operated in the reporting period With the establishment and development originated from aviation precision manufacturing and material technology, the Company is mainly carrying out the activities of watch brand management and luxurious watch retails. From the perspective of technical characteristics, the Company is engaged in precision technology industry. Since its establishment, relying on the advantages in precision manufacturing technology, material technology and talents of the aviation industry, the Company has been continuously devoting itself to the building of professional watch-making capability and brand operation, has successfully built the "FIYTA" brand and established the brand a leading position in the domestic industry by virtue of the advantages in technology and quality. In order to grasp the opportunities in the domestic famous brand watch market and accelerate the breakthrough of its own brand, the Company began to expand the retail chain business of famous brand watches in 1997, and is committed to becoming the most outstanding comprehensive service provider of famous brand watches. The Company has always focused on strengthening the construction of brand resources and channel resources, deepening the cooperative relationship between international excellent watch brands and domestic high-end retail channels, refined operations, and digital development. While expanding the Company’s revenue sources, it has also established stable base are for the development of its own brand. Under the general background of industrial upgrading and intelligent manufacturing, the Company relies on high-end precision manufacturing technology and industrial accumulation, based on the development principle of “technology being homologous, the industry being same-rooted and value being co-directional”, and extends the development of precision technology business and smart wears business. At present, these two businesses have begun to take shape. The Company adheres to the original intention of "Big Country Brand", and relies on precision manufacturing technology, brand influence and channel deep cultivation to promote continuous brand breakthroughs. The Company's sales scale is at the forefront of the industry. Over the years, the Company has achieved a favorable industry recognition and reputation. In 2021, the Company was honorably awarded the titles of "International Reputation Brand", "Top 200 Enterprises in China's Light Industry", "Top 20 Listed Companies in Governance in the Greater Bay Area in 2021", and was granted "Shenzhen R&D and Standardization Synchronization Demonstration Enterprise Grade A", and its wholly-owned subsidiary was elected in the List of Key Technologically Advanced Enterprises in Guangdong Province. Accompanied by the launch of the "Shenzhou 12" manned spacecraft, the Company has once again helped China's manned spaceflight industry. III. Analysis on Core Competitiveness (I) Adhering to Brand Leadership and Having Accumulated Rich Experience in Brand Management 11 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Since its establishment, FIYTA has always adhered to brand leadership, with building of a flagship brand in the Chinese watch industry as its development goal, and has achieved multiple industry firsts in brand building, marketing communication, product design, etc., and has a solid brand operation foundation. In the 1990s, with the CCTV news broadcast announcing "FIYTA Telling Time for you", the Company successfully established the popularity and influence of the FIYTA Brand in China; at the beginning of the 21st century, since the Chinese astronauts first entered space, their professional chronographs were all manufactured by FIYTA. “FIYTA” has become one of the world's three biggest aerospace watch brands, and the spirit of professional watchmaking continues to be passed on with the country's manned aerospace industry. Meanwhile, the Company actively promoted the development of internationalization and by participating in the preparation of international standards ,entered BASELWORLD etc., strengthen exchanges and interactions with outstanding Swiss brands, played an active role on the world watch stage, and persistently increased global influence. (II) Construction of Deep Ploughed Channel and Creating Excellent Channel Management Ability FIYTA persistently constructed the deeply ploughed channel, and continuously provided a source of power for brand development with high-quality services and refined operation capability. The Company has formed a globalized sales network centered on the domestic market. FIYTA brand channels have been distributed in more than 30 countries and regions around the world, with more than 3,000 business outlets; HARMONY World Watch Retails have upgraded the deep ploughed channels with more than 200 business outlets; on the basis of full coverage of cooperation with mainstream e-commerce platforms, the Company focused on promoting the expansion of innovative channels, and started trial for the new channels, such as live video, mini programs, etc. The Company has always devoted itself to building the ability of outstanding channel operation, powerful team, excellent services, and providing customers with the best consumption experience in all aspects. The “Three-Level Marketing”, “Perfect Sales”, “Outstanding Operation” etc. have already been deposited as the core work logic of channel operation. In recent years, the Company has comprehensively promoted digital construction, made a preliminary result in the digital transformation and achieved full coverage of online and offline self-operated stores, and shall provide customers with more systematic professional services and create more value. (III) Building the Advantages of the Leading Core technology Based on Precision Technology Over more than 30 years, the company has been devoting itself to the building of precision technology research and development capability, has successively built advanced R & D, production technology and manufacturing technology platforms, and has established R & D and production bases in Shenzhen and Switzerland respectively; and has established professional watchmaking capabilities, including self-made driving units of watches and key components manufacturing, space watch research and development and high-end watchmaking techniques, etc., and achieved continuous breakthroughs in research and development and application of new materials, new processes and new technologies. At present, the Company has 2 national high-tech enterprises, established a national enterprise technology center, a national industrial design center, and is a national technological innovation demonstration enterprise. The Company has accumulatively applied for 611 patents and been granted 566 patents, including 4 honorable mentions of the Chinese patents, 1 gold award of China Design and 5 honorable mentions of China design; the Company has taken lead in preparation of more than 55% of the national watch industry standards and has also actively participated in preparation of the international industrial standards and took lead and participated in preparation of many international standards. 12 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text IV. Analysis on Principal Businesses 1. General In 2021, the macro economy was full of complexity, and the rebound of consumption gradually slowed down since the third quarter, and the year-on-year growth rate of total domestic retail sales projected a “high to low” outlook. In the face of the complex and changeable consumer market, repeated epidemics in many places and occasional natural disasters and many other impacts, the Company continued to focus on "Brand Strength, Product Strength, and Channel Strength" on the premise of strictly preventing and controlling the epidemic and ensuring the health of employees, made every effort to promote high-quality development and the implementation of the strategy of great brand, and cooperated with all employees to effectively respond to external pressures and challenges, and continued to achieve breakthrough in the business performances. In the reporting period, the Company realized revenue amounting to CNY 5,243.73 million with year-on-year growth of 23.57% and realized total profit amounting to CNY 502.33 million with a year-on-year growth of 34.51%. The Company realized growth and reached new highs successively for five years. At the same time, the Company's operational capability and efficiency were further improved. The return on net assets reached 13.39%, an increase of 2.61 percentage points year-on-year; the inventory turnover rate reached 1.57 times, an increase of 0.22 times year-on-year. (1) Adhered to brand leadership and continued to promote brand building and product operation capability During the reporting period, the FIYTA brand solidly promoted the integration of products and sales, renewed the brand image of the terminal, deepened the core DNA of aerospace, and carried out integration of the marketing activities in conjunction with the "Shenzhou 12", "Zhuhai Air Show", "Aerospace Month" and other hot spots. As a result, the revenue from aerospace series products increased significantly year-on-year. The Company deeply cultured the core series, optimized the logic of new product development, and significantly improved the success rate of new product development; continued to focus on "excellent operation", "outstanding sales" and CRM system, and solidly promoted refinement in operation, and achieved an increase in the average unit price per customer by 12% year-on-year. HARMONY continued to consolidate its operation capability and dig deep into the dimensions of high-quality services, excellent operation, and customer research. The average single-store output of the old stores increased by 27.93% year-on-year, the average customer unit price increased by 25.44% year-on-year, and the inventory turnover rate exceeded 2 times. (2) Accelerated upgrading of channel structure and improved channel layout During the reporting period, the FIYTA brand steadily promoted the entry of stores in shopping malls, and newly opened 100 self-operated stores in shopping malls; deepened online channel operations, and achieved good overall performance during the "Double Eleven" period; Harmony steadily promoted high-quality products in the expansion of new stores and the renovation of old stores with mid-to-high-end channels accounting for more than 55%; actively promoted the innovative cooperation model of stores, and opened high-end collection stores Time Vallée in cooperation with Richemont Group in Shenzhen and Dongguan. At the same time, on the basis of the full coverage of the Hainan duty-free system of its own brand, the Company further improved the strategic layout of Hainan Offshore Duty-free Market by establishing a wholly-owned subsidiary in Hainan. (3) Adhered to innovation-driving, accelerated movement production capacity building and digital transformation During the reporting period, the Company continued to promote the watch movement production capacity building, and realized successful application of some self-developed movements in a series of products such as aerospace watches. The FIYTA brand continued to deepen the operation of the CRM system. Membership recruitment and potential customer 13 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text conversion continued to grow steadily, and offline member sales accounted for 94%. The branch cloud store project was officially launched, and private domain operations were actively explored. On the basis of the iteration of the digital retail system, HARMONY further promoted the integration of online and offline development, and the transaction amount from repurchase by regular customers and purchase by potential customers increased significantly, and the total amount accounted for more than 50% of the overall revenue; new media operations also achieved innovative breakthrough. (4) Seized market opportunities and accelerated the development of new businesses During the reporting period, the Company, on the basis of deep cultivation of optical communications and lasers in precision technology business, promoted the expansion of new markets and new customers, such as aerospace and medical equipment in an orderly manner, and some projects entered the stage of batch cooperation; the smart wearable business focused on creating hot-selling products and improving the proportion of self-operated channels. As a result, its revenue increased by 70% year-on-year. Year-on-year Movements of the Key Financial Items are summarized as follows: Balance sheet items Items Ending balance Opening balance Variation Cause of the movement proportion Mainly due to the impact of short-term loan repayment Monetary capital 210,254,737.14 353,057,285.71 -40.45% during the reporting year. Mainly due to the decrease of advance payment for Advance payment for goods 7,946,750.81 16,612,773.76 -52.16% purchases in HARMONY World Watch Retail Mainly due to the increase in advance payments for the Other non-current assets 42,680,753.78 13,536,307.13 215.31% purchase of real estate during the reporting year. Mainly due to the impact of short-term loan repayment Short term loans 265,994,595.43 542,673,278.09 -50.98% during the reporting year. This was mainly due to the due acceptance of the notes Notes payable 21,223.10 3,581,360.00 -99.41% payable of the precision technology business. Mainly due to the increase in dividends payable in the Dividends payable 5,015,026.30 1,639,513.77 205.88% equity incentive during the reporting year. Mainly due to the impact of the write-off of deferred Deferred income 1,792,833.90 2,916,346.43 -38.52% income during the reporting year. Mainly due to the influence from the implementation of the Deferred income tax liability 5,236,514.03 3,067,834.55 70.69% new standards for lease during the reporting year. Other comprehensive Mainly due to movement of the translation balance of -7,658,346.40 976,871.41 -883.97% income foreign currency statements Income statement items from the beginning of the year to the end of the reporting period Items Amount incurred Amount incurred Variation Cause of the movement in the reporting in the previous proportion period period Taxes and surcharges 37,563,586.80 25,444,139.30 47.63% Mainly due to the influence of the revenue growth 14 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text during the reporting year. Mainly due to the increase of the provision for price Loss from impairment of -25,861,394.56 -15,426,526.41 -67.64% falling of the brand watch inventory in the reporting assets year. Mainly due to the increase in income from disposal of Income from disposal of 730,134.87 -369,857.30 297.41% assets related to the implementation of the new lease assets standards. Mainly due to the greater impact from the adjustment of Non-operating income 627,435.03 3,111,413.64 -79.83% the compensation received by stores in the same period of the previous year. The increase in income tax expenses was mainly due Income tax expenses 114,467,375.88 79,338,516.60 44.28% to the increase in profit. Cash flow statement items from the beginning of the year to the end of the reporting period Items Amount incurred Amount incurred Variation Cause of the movement in the reporting in the previous proportion period period Mainly due to the increase in taxes and surcharges due Various taxes paid 346,383,502.98 222,180,568.75 55.90% to the increase in income during the reporting year. Cash paid for purchase/construction of Mainly due to the increase in expenditure on new store fixed assets, Intangible 204,422,787.61 133,531,954.47 53.09% additions and improvements during the reporting year. assets and other long term assets Mainly due to the subscription money received from Cash received from the implementation of the 2018 A-share Restricted 58,216,000.00 - 100.00% absorbing investment Stock Incentive Plan (Phase II) during the reporting year. Mainly due to the increase in bank borrowings during Cash received from loans 1,155,724,412.23 743,213,671.65 55.50% the reporting year. Mainly due to the increase in debt repayment during Cash paid for debt repayment 1,386,708,158.95 768,247,433.10 80.50% the reporting year. Cash paid for dividend/profit Mainly due to increase of the cash dividends during the distribution or repayment of 187,069,913.31 106,703,352.70 75.32% reporting year. interest Mainly due to the influence from the implementation of Other fund-raising activity 124,710,390.58 72,317,669.93 72.45% the new standards for lease and decrease of payment related cash payments for repurchase of B-shares during the reporting year. Influence of the change of Mainly due to the influence of the change of exchange exchange rate on the cash -1,140,476.33 -2,810,603.32 59.42% rate. and cash equivalent 15 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 2. Revenue and Costs (1) Composition of Revenues In CNY 2021 2020 Year-on-year Proportion in the Proportion in the Amount Amount increase/decrease revenue revenue Total operating 5,243,733,540.93 100% 4,243,439,952.59 100% 23.57% revenue Based on sectors Watches 4,923,280,724.48 93.89% 3,970,903,426.36 93.58% 23.98% Precision technology 150,094,350.20 2.86% 138,806,456.76 3.27% 8.13% business Leases 151,461,309.62 2.89% 117,282,310.32 2.76% 29.14% Others 18,897,156.63 0.36% 16,447,759.15 0.39% 14.89% Based on products Watch brand business 1,012,443,357.87 19.31% 970,035,756.22 22.86% 4.37% Watch retail and 3,910,837,366.61 74.58% 3,000,867,670.14 70.72% 30.32% services Precision technology 150,094,350.20 2.86% 138,806,456.76 3.27% 8.13% business Leases 151,461,309.62 2.89% 117,282,310.32 2.76% 29.14% Others 18,897,156.63 0.36% 16,447,759.15 0.39% 14.89% Based on regions South China 2,685,613,515.77 51.21% 2,198,531,106.33 51.81% 22.15% Northwest China 746,028,947.88 14.23% 601,805,121.89 14.18% 23.97% Northeast China 249,949,686.95 4.77% 198,893,856.16 4.69% 25.67% East China 732,103,484.67 13.96% 561,941,020.36 13.24% 30.28% Northeast China 294,675,252.56 5.62% 233,806,759.67 5.51% 26.03% Southwest China 535,362,653.10 10.21% 448,462,088.18 10.57% 19.38% Distribution model Direct selling 5,047,771,480.39 96.26% 4,040,253,573.70 95.21% 1.05% Distribution 195,962,060.54 3.74% 203,186,378.89 4.79% -1.05% 16 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text (2) Sector(s), Product(s), Region(s) and Sales Models Taking over 10% of the Operating Revenue or Operating Profit In CNY Year-on-year Year-on-year Year-on-year increase/decrease increase/decrease increase/decrease Turnover Operating cost Gross profit rate of operating of operating costs of gross profit rate revenue over the over the previous over the previous previous year year year Based on sectors Watches 4,923,280,724.48 3,117,288,604.21 36.68% 23.98% 25.77% -0.90% Precision technology 150,094,350.20 123,279,446.44 17.87% 8.13% 8.38% -0.19% business Leases 151,461,309.62 42,866,382.31 71.70% 29.14% 5.66% 6.29% Others 18,897,156.63 2,221,796.17 88.24% 14.89% -65.07% 26.91% Based on products Watch brand 1,012,443,357.87 287,829,118.76 71.57% 4.37% 2.80% 0.43% business Watch retail and 3,910,837,366.61 2,829,459,485.45 27.65% 30.32% 28.70% 0.91% services Precision technology 150,094,350.20 123,279,446.44 17.87% 8.13% 8.38% -0.19% business Leases 151,461,309.62 42,866,382.31 71.70% 29.14% 5.66% 6.29% Others 18,897,156.63 2,221,796.17 88.24% 14.89% -65.07% 26.91% Based on regions South China 2,685,613,515.77 1,715,184,561.60 36.13% 22.15% 24.34% -1.12% Northwest China 746,028,947.88 461,425,308.95 38.15% 23.97% 24.78% -0.40% Northeast China 249,949,686.95 143,242,438.82 42.69% 25.67% 23.30% 1.10% East China 732,103,484.67 440,933,119.23 39.77% 30.28% 26.33% 1.88% Northeast China 294,675,252.56 203,497,030.88 30.94% 26.03% 25.90% 0.08% Southwest China 535,362,653.10 321,373,769.65 39.97% 19.38% 22.13% -1.35% Distribution model Direct selling 5,047,771,480.39 3,215,136,567.11 36.31% 24.94% 25.61% -0.34% Distribution 195,962,060.54 70,519,662.02 64.01% -3.56% -11.49% 3.23% 17 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text While adjustment of the statistical caliber for the principal business data took place in the reporting period, the principal business data with the statistical caliber adjusted at the end of the reporting period in the latest year. Inapplicable (3) Is the physical sales income greater than the service income Yes Classified based on Year-on-year Items In CNY 2021 2020 sectors increase/decrease Sales volume pcs 795,178 820,987 -3.14% Brand watches Output pcs 727,091 793,206 -8.34% Inventory pcs 996,794 1,064,881 -6.39% Note to the cause of the year-on-year movement of the relevant data by over 30% Inapplicable (4) Implementation of Important Sale Contracts and Important Purchase Contracts Concluded during the Reporting Year Inapplicable (5) Composition of Operating Costs Classified based on sectors and products In CNY 2021 2020 Classified based on Year-on-year Items Proportion in Proportion in sectors Amount Amount increase/decrease operating costs operating costs Goods purchase 2,829,459,485.45 86.12% 2,198,558,391.97 83.30% 28.70% cost Raw materials 256,857,016.25 7.82% 250,957,959.33 9.51% 2.35% Labor costs 24,624,829.03 0.75% 22,639,961.48 0.86% 8.77% Depreciation Watches 776,630.56 0.02% 1,290,580.38 0.05% -39.82% expense Water and 557,212.31 0.02% 576,614.61 0.02% -3.36% electricity fees Rent 254,302.70 0.01% 198,298.53 0.01% 28.24% Others 4,759,127.90 0.14% 4,326,929.11 0.16% 9.99% Precision Raw materials 88,916,323.84 2.71% 89,561,279.27 3.39% -0.72% 18 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text technology Labor costs 19,308,218.35 0.59% 15,492,911.02 0.59% 24.63% business Depreciation 2,929,018.86 0.09% 1,715,869.90 0.07% 70.70% expense Water and 1,185,220.49 0.04% 936,944.23 0.04% 26.50% electricity fees Rent 127,758.44 0.00% 111,201.56 0.00% 14.89% Others 10,812,906.46 0.33% 5,930,402.44 0.22% 82.33% Depreciation 16,068,736.92 0.49% 16,013,313.84 0.61% 0.35% expense Leases Labor costs 3,216,088.80 0.10% 2,642,580.58 0.10% 21.70% Others 23,581,556.59 0.72% 21,916,045.93 0.83% 7.60% Purchase of Others 2,221,796.17 0.07% 6,360,252.90 0.24% -65.07% finished products In CNY 2021 2020 Classified based on Year-on-year Items Proportion in Proportion in products Amount Amount increase/decrease operating costs operating costs Raw materials 256,857,016.25 7.82% 250,957,959.33 9.51% 2.35% Labor costs 24,624,829.03 0.75% 22,639,961.48 0.86% 8.77% Depreciation 776,630.56 0.02% 1,290,580.38 0.05% -39.82% Watch brand expense business Water and 557,212.31 0.02% 576,614.61 0.02% -3.36% electricity fees Rent 254,302.70 0.01% 198,298.53 0.01% 28.24% Others 4,759,127.90 0.14% 4,326,929.11 0.16% 9.99% Watch retail and Goods purchase 2,829,459,485.45 86.12% 2,198,558,391.97 83.30% 28.70% services cost Raw materials 88,916,323.84 2.71% 89,561,279.27 3.39% -0.72% Labor costs 19,308,218.35 0.59% 15,492,911.02 0.59% 24.63% Depreciation Precision 2,929,018.86 0.09% 1,715,869.90 0.07% 70.70% expense technology Water and business 1,185,220.49 0.04% 936,944.23 0.04% 26.50% electricity fees Rent 127,758.44 0.00% 111,201.56 0.00% 14.89% Others 10,812,906.46 0.33% 5,930,402.44 0.22% 82.33% Depreciation Leases 16,068,736.92 0.49% 16,013,313.84 0.61% 0.35% expense 19 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Labor costs 3,216,088.80 0.10% 2,642,580.58 0.10% 21.70% Others 23,581,556.59 0.72% 21,916,045.93 0.83% 7.60% Purchase of Others 2,221,796.17 0.07% 6,360,252.90 0.24% -65.07% finished products (6) Is there any change in the consolidation scope in the reporting period During the reporting period, Shenzhen Xunhang Precision Technology Co., Ltd. and HARMONY World Watch Center (Hainan) Limited, the Company's newly established wholly-owned subsidiaries, were included in the scope of the Company's consolidated statements; the deregistration of 68 Station Co., Ltd., one of the Company's wholly-owned subsidiaries was completed on March 5, 2021, and it has been excluded from the scope of the Company's consolidated statements. (7) Is there any significant change or adjustment related situation taken place in the Company’s business, products or services in the reporting period Inapplicable (8) Major sales customers and major suppliers Information about the major sales customers Total sales to the top five customers, in CNY 1,075,275,776.18 Proportion of the total sales to the top five customers in the total 20.50% sales of the year Proportion of the total sales to the related parties in the top five 0.00% customers in the total sales of the year Information of the top 5 customers No. Customers Sales (in CNY) Proportion in the total sales of the year 1. No. 1 401,690,557.55 7.66% 2. No. 2 213,674,973.69 4.07% 3. No. 3 160,522,193.39 3.06% 4. No. 4 152,600,173.29 2.91% 5 No. 5 146,787,878.26 2.80% Total -- 1,075,275,776.18 20.50% Other Information about the major customers Inapplicable Major suppliers Total amount of purchase from top five suppliers, in CNY 2,442,268,149.63. Proportion of the purchase amount from the top five suppliers in 71.43% 20 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text the Company’s total purchase amount Proportion of the purchase amount from the related parties in 0.00% the top five suppliers in the Company’s total purchase amount Information about the top 5 suppliers Proportion in the total purchases of the year No. Suppliers Purchase amount, in CNY (%) 1. No. 1 843,772,178.18 24.68% 2. No. 2 649,684,534.95 19.00% 3. No. 3 429,363,470.59 12.56% 4. No. 4 259,899,372.30 7.60% 5 No. 5 259,548,593.61 7.59% Total -- 2,442,268,149.63 71.43% Other information about the major suppliers Inapplicable 3. Expenses In CNY Year-on-year 2021 2020 Note to significant changes increase/decrease Sales costs 1,049,898,223.28 870,713,899.32 20.58% Inapplicable Administrative expenses 261,626,762.41 256,559,127.23 1.98% Inapplicable Financial expenses 34,677,073.65 33,449,276.41 3.67% Inapplicable R & D expenditures 57,802,569.17 51,489,323.49 12.26% Inapplicable 4. Investment in R & D Description of the Impact on the predicted future Project purpose Project progress The objective to be reached Main R & D Projects development of the Company Developing multiple series of New series products Innovative products with the Fulfillment of the tasks products with FIYTA brand with the quality of brand characteristics Providing innovative products in the very year characteristics, and launching FIYTA Brand provided to the market sales as planned Development of an innovative Developing new Improving new product structure to improve watch Improving new product Fulfillment of the tasks product innovation performances and market protection performance was performances and market in the very year protection structure competitiveness completed and it has been competitiveness applied in watch products Development of Improving new product In process According to the needs of brand Improving new product 21 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text mechanical watch performances and market differentiation, developing performances and market movements with competitiveness mechanical watch movements competitiveness brand differentiation with special functions and characteristics indication methods According to the requirements of Development of Providing special Providing special equipment Fulfillment of the tasks manned space missions, watch for manned equipment watches for the watches for the field of manned in the very year developed and delivered special spaceflight field of manned spaceflight spaceflight equipment watches Development of smart watches Smart watch with Improving new product with camera function with the Improving new product Fulfillment of the tasks camera and body sign performances and market capacity of monitoring body sign performances and market in the very year monitoring competitiveness data which have been launched competitiveness in the market as planned R & D Staff 2021 2020 Variation proportion Number of R & D staff (persons) 128 117 9.40% Proportion of R & D staff in total 2.52% 2.39% 0.13% employees Educational background structure —— —— —— of R & D staff Undergraduate 63 64 -1.56% Master 22 22 0.00% Doctor 3 2 50.00% Junior college and below 40 29 37.93% 研发人员年龄构成 —— —— —— Below 30 47 46 2.17% 30 - 40 60 46 30.43% Over 40 21 25 -16.00% Investment in R & D 2021 2020 Variation proportion Amount of investment in R & D, in 57,802,569.17 51,489,323.49 12.26% CNY Proportion of investment in R & D 1.10% 1.21% -0.11% in operating revenue Amount of capitalized investment 0.00. 0.00. 0.00% in R & D (in CNY) Proportion of capitalized 0.00% 0.00% 0.00% investment in R & D in the total 22 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text investment in R & D Reasons and effects of major changes in the composition of the Company's R&D personnel Inapplicable Cause(s) of significant change of the total investment in R & D in the operating revenue Inapplicable Note to the cause of significant change in the capitalization rate of investment in R & D and note to the reasonability Inapplicable 5. Cash Flow In CNY Items 2021 2020 Year-on-year increase/decrease Subtotal of cash flow in from 5,944,580,198.34 4,682,489,563.33 26.95% operating activity Subtotal of cash flow out from 5,397,331,089.89 4,304,279,057.46 25.39% operating activity Net cash flow arising from operating 547,249,108.45 378,210,505.87 44.69% activities Subtotal of cash flow in from 59,657.53 150,556.62 -60.38% investment activity Subtotal of cash flow out from 204,422,787.61 133,531,954.47 53.09% investment activity Net cash flows arising from -204,363,130.08 -133,381,397.85 -53.22% investment activities Subtotal of cash flow in from fund 1,213,940,412.23 743,213,671.65 63.34% raising activity Sub-total cash flow paid for financing 1,698,488,462.84 947,268,455.73 79.30% activities Net cash flow arising from -484,548,050.61 -204,054,784.08 -137.46% capital-raising activities Net increase of cash and cash -142,802,548.57 37,963,720.62 -476.16% equivalents Notes to the major influencing factors for the significant change in the relevant year-on-year data 1. During the reporting year, the net cash flow from operating activities was CNY 547,249,108.45, an increase of CNY 169,038,602.58 compared with CNY 378,210,505.87 in the same period last year, mainly due to the implementation of the new lease standards. 2. Net cash flow arising from investment activities amounted to CNY -204,363,130.08 in the reporting year, while it was CNY -133,381,397.85 in the same period of the previous year with the payment increased by CNY 70,981,732.23, which was mainly due to increase of the increase of payments for refurbishment and improvement of the stores during the 23 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text reporting period. 3. Net cash flow arising from financing activities amounting to CNY -484,548,050.61 in the reporting year, a year-on-year increase of CNY 280,493,266.53 in comparison with the previous year amounting to CNY -204,054,784.08 was mainly due to increase of the repayment of bank loans, increase of cash dividends and influence from the implementation of the new lease standards. Note to the cause of significant difference between the net cash flow arising from the Company's business activities and the net profit of the reporting year during the reporting period. Inapplicable V. Analysis on Non-Principal Businesses Inapplicable VI. Analysis on Assets and Liabilities 1. Significant Changes in Assets Composition In CNY End of 2021 Beginning of 2021 Proportion Proportion Increase/decrease Note to significant changes Amount in total Amount in total in proportion assets assets Monetary fund 210,254,737.14 5.11% 353,057,285.71 8.46% -3.35% Inapplicable Accounts receivable 388,885,601.28 9.46% 475,598,684.88 11.39% -1.93% Inapplicable Contract assets 0.00 0.00% 0.00 0.00% 0.00% Inapplicable Inventories 2,050,148,750.89 49.87% 1,931,780,185.85 46.28% 3.59% Inapplicable Investment-oriented 383,425,916.35 9.33% 398,086,447.78 9.54% -0.21% Inapplicable real estate Long-term equity 55,155,605.31 1.34% 51,400,665.92 1.23% 0.11% Inapplicable investment Fixed assets 349,495,316.65 8.50% 352,734,280.76 8.45% 0.05% Inapplicable Construction-in-process 0.00 0.00% 0.00 0.00% 0.00% Inapplicable Use right assets 147,932,475.42 3.60% 163,169,400.44 3.91% -0.31% Inapplicable Short term loans 265,994,595.43 6.47% 542,673,278.09 13.00% -6.53% Inapplicable Contract liabilities 22,505,426.65 0.55% 18,213,396.49 0.44% 0.11% Inapplicable Long-term borrowings 0.00 0.00% 4,070,330.00 0.10% -0.10% Inapplicable Lease liabilities 64,918,722.10 1.58% 77,439,579.30 1.86% -0.28% Inapplicable Higher proportion of foreign assets 24 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Inapplicable 2. Assets and liabilities measured based on fair value Inapplicable 3. Restriction on rights in the assets ended the reporting period A property owned by Switzerland based Montres Chouriet SA with net value of CNY 11,490,566.65 was used as a collateral for the overseas long term loan amounting to CNY 3,924,900.00. VII. Analysis of Investment Situation 1. General Amount of investment in the reporting period Amount of investment in the same period of the Amount of variation (CNY) previous year (CNY) 20,000,000.00 139,500,000.00 -85.66% Notes: 1. With review and approval of the Company's 23rd Session of the Ninth Board of Directors on December 14, 2020, the Company decided to invest in the establishment of a wholly-owned subsidiary - Shenzhen Xunhang Precision Technology Co., Ltd., with its own capital amounting to CNY10 million. The relevant procedures for establishment and registration with the authority for industry and commerce were completed on April 7, 2021. For the detail, please refer to the "Announcement 2021-035 on the Investment and Establishment of Wholly-owned Subsidiaries and Completion of Industrial and Commercial Registration" disclosed by the Company on www.cninfo.com.cn; 2. With review and approval of the Company's 29th Session of the Ninth Board of Directors on May 21, 2021, the Company decided to invest in the establishment of a wholly-owned subsidiary - HARMONY World Watch Center (Hainan) Limited, with its own capital amounting to CNY10 million. The relevant procedures for establishment and registration with the authority for industry and commerce were completed on June 17, 2021. For the detail, please refer to the "Announcement 2021-058 on the Investment and Establishment of Wholly-owned Subsidiaries and Completion of Industrial and Commercial Registration" disclosed by the Company on www.cninfo.com.cn; 2. Significant Equity Investment Acquired in the Reporting Period Inapplicable 3. Significant non-equity investment in process in the reporting period Inapplicable 25 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 4. Financial assets investment (1) Portfolio investment Inapplicable (2) Investment in derivatives Inapplicable 5. Application of the raised capital Inapplicable VIII. Sales of Significant Assets and Equity 1. Sales of Significant Assets Inapplicable 2. Sales of Significant Equity Inapplicable IX. Analysis on Mutual Shareholding Companies Particulars about the principal subsidiaries and mutual shareholding companies which may affect the Company’s net profit by over 10%. In CNY Company Company Principal Registered Total assets Net assets Turnover Operating profit Net profit name type business capital Shenzhen Purchase & Harmony sale and World Subsidiari repairing 2,102,556,925. 1,068,121,963. 3,868,319,859. 600,000,000 382,325,720.42 289,056,005.29 Watches es service of 63 67 65 Center Co., watches and Ltd. components Design, R & D and sales of FIYTA Sales Subsidiary watches and 450,000,000 506,762,746.87 392,336,579.87 580,635,486.42 4,064,580.03 -233,569.13 Co., Ltd. components & parts Shenzhen Subsidiary Manufacture 100,000,000 321,057,850.26 169,167,312.11 372,362,396.35 58,418,500.85 53,979,457.58 26 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text FIYTA and production Precision of watches and Technology components Co., Ltd. Shenzhen Production and FIYTA machining of Technology Subsidiary sophisticated 50,000,000 188,352,333.30 133,415,385.71 173,195,343.47 13,634,825.72 13,094,286.88 Development components Co., Ltd. and parts Trading of FIYTA (Hong watches and Subsidiary 137,737,520 229,791,419.84 202,225,606.14 104,597,635.75 14,247,097.40 12,930,206.75 Kong) Limited accessories and investment Design, R & D Emile Chouriet and sales of (Shenzhen) Subsidiary watches and 41,355,200 122,151,707.51 59,031,329.02. 91,239,738.45. 4,216,166.14 3,138,963.28 Limited components & parts Production and Mutual Shanghai sales of shareholdi Watch Industry watches and 15,350,000 160,904,718.18 134,940,325.17 150,929,452.87 15,094,324.17 15,019,757.54 ng Co., Ltd. components & company parts Acquisition and disposal of subsidiaries in the reporting period Way of acquisition and disposal of subsidiaries Impact upon the overall production and Company name in the reporting period operation and performances The establishment of a wholly-owned subsidiary is conducive to promoting the Shenzhen XUNHANG Precision Technology business expansion of smart wearables and Newly established Co., Ltd. precision technology, and will have a positive impact on the long-term development and benefit improvement of the Company. The establishment of wholly-owned subsidiaries is conducive to promoting the business development of retail of brand Harmony World Watches Center (Hainan) Ltd. Newly established watches, and will have a positive impact on the long-term development and benefit improvement of the Company. It does not have a significant impact on the 68-Station Limited Deregistration completed Company's overall production, operation and performance. 27 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Note to the principal mutual shareholding companies Inapplicable X. Structural Subjects Controlled by the Company Inapplicable XI. Expectation on future development of the Company (I) External Environment and Risks In 2022, the global political and economic environment shall remain complex and changeable. The COVID-19 epidemic has entered a stage of normalization, and the economic recovery shall gradually become moderate. China's economic development shall also face the triple pressures of shrinking demand, supply shocks, and weakening expectations. The consumer market shall be confronted with profound changes. Changes in the consumer market have driven continuous innovation in the competition pattern of the watch industry. The industry structure has been significantly differentiated. The market share of mid-to-high-end brands has further expanded, and continues to sink to younger consumer groups. Light luxury and niche brands emerge one after another to meet the needs of consumer segmentation, diversified consumer demand, and further intensified competition of the industry. At the same time, under the guidance of economic growth and policies, the middle-income group corresponding to the watch industry continues to expand; increasingly personalized consumer demand provides development space for market segmentation; cultural confidence drives the rise of the national tide, and domestic watch brands are receiving the opportunity to overtake on a bend; the rapid development of e-commerce platforms promotes the overall digital transformation of retail business, and the integration of online and offline channels; the development of tax-free channels brings new opportunities for incremental markets. Crisis and opportunity coexist. In the journey of people's continuous pursuit for a better life, the Company is firmly optimistic about the development prospects of the industry, and shall adhere to the original intention and mission of "creating a quality life", continuously consolidate its core competitiveness, and accelerate business transformation and upgrading. (II) Key Work in 2022 In 2022, the Company shall continue to practice the strategy of "big country brand", continue to promote the creation of products and brands that represent Chinese image, Chinese quality, Chinese technology and Chinese culture, with "focusing on the three forces, strengthening professionalism, and systematically enhancing superiority of competition; conduct digital transformation. , build a hard core, and rapidly promote transformation and upgrading" as the annual work theme, and solidly promote the following work: 1. Focusing on the three forces, strengthening professionalism, and systematically enhancing superiority of competition To establish the high-end Chinese watch brand construction as the lead, with aerospace as the support, solidly promote the integration of products and sales, build an integrated marketing system, systematically enhance the "brand power"; continuously improve product operation efficiency, build and strengthen product life cycle operation management, focus on the core series, strive to create high-quality products, improve product quality management system and after-sales 28 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text service system, strictly implement the extended warranty policy, improve "product power"; by applying leverage on the two main lines of "operation improvement + structure upgrading", deepen the construction of digital retail system, improve the operation capacity of individual stores, promote the expansion and upgrading of middle and high-end channels through multiple means, continuously improve the market share of each region, and enhance the "channel power". 2. To conduct digital transformation, build a hard core, and rapidly promote transformation and upgrading Continue to adhere to the long-term investment in digitalization, and gradually establish and deepen the digital management system of "people, goods, stores, customers and finance"; adhere to the leadership of science and technology, accelerate the application of home-made products, improve the localization rate of home-made watch movements, and continue to explore new materials, new technologies and new processes to be applied in making high-end watches. 3. Driven with innovation, to accelerate the development of new business In respect of precision technology business, continue to strengthen and expand the fields of superiority, including optical communication, lasers, etc., further expand new markets and develop new customers in aerospace, medical equipment, etc., take technology as the lead, constantly improve the complexity of the process, and further improve the overall solution capacity; in respect of smart wear business, continue to promote technological innovation, strengthen technological reserves, accelerate the iteration of new products, and constantly improve the construction of outdoor light entertainment ecosystem. Meanwhile, continue to explore the layout of "active health", "great pension" and other fields. 4.To consolidate management, strengthen coordination and systematically improve team execution Further exert the "Iron Army" spirit formed by the operation and counterattack during the Anti-COVID-19, continue to forge the professional ability of the team, take the "Big Country Brand" strategy as the lead, strengthen the synergy between the business and the team, continuously deepen the full coverage of the power mechanism, and further stimulate the enthusiasm and creativity of the core team, and systematically improve the team execution. XII. Reception of Survey, Communications, Interviews, etc. during the Reporting Period Index of Basic Types of Way of Main contents discussed Information on the Reception time Place of reception Visitors Visitors Received reception and information provided Investigation and Received Survey In order to provide investors with a comprehensive and in-depth understanding of the Company’s situation, the Company held a 2020 Online Performance http://irm.cninfo.co Wechat Mini Briefing and conducted Extensive investors’ participation in the Company's m.cn/ircs/company/ March 25, Program Titled communications and Others Others 2020 Annual Online Performance Presentation by companyDetail?sto 2021 “FIYTA Relationship exchange with investors network remoteness ckcode=000026&or with Investors on the Company’s 2020 gId=gssz0000026 operating status, development strategy, watch brand management business, brand watch retails, and development of precision technology and smart wearables. TF Securities Co., Ltd., Shanghai Guotai Junan Securities & Assets Management Co., Ltd., Shenzhen Qianhai Shengyao Capital Investment The Company conducted Management Co., Ltd., Shenzhen Qianhai communication on http://irm.cninfo.co Dengcheng Asset Management Co.,Ltd., Ningbo management of watch m.cn/ircs/company/ 20th Floor, FIYTA Field Deovolente Investment Partnership Enterprise (L.P.), brands, retail of April 20, 2021 Institution companyDetail?sto Technology Building survey GF Securities Co., Ltd., Rongtong Fund Management well-known brand ckcode=000026&or Co., Ltd., China Merchants Securities Co., Ltd, watches, development of gId=gssz0000026 Shenzhen Jindou Investment Co., Ltd., Everbright precision technology Securities Company Limited, Wanlian Securities business, etc. Co.,Ltd., China Great Wall Securities Co.,Ltd., Guotai Junan Securities Co.,Ltd., Shenwan Hongyuan 29 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Securities Co.Ltd., China International Capital Corporation Limited, Harmony Capital Group, Changjiang Securities Company Limited , ESSENCE SECURITIES Co., Ltd., Penghua Fund Management Co., Ltd., Fullgoal Fund Management Company Limited, Bosera Fund Management Co., Ltd., Hangzhou Mingliang Asset Management Co., Ltd., Shenzhen Haifuling Capital Management Co., Ltd., Shenzhen Qianhai Chengbeile Investment Co., Ltd., Essence Fund Management Co., Ltd. and PA asset TF Securities Co., Wanlian Securities Co.,Ltd., Shenwan Hongyuan Securities Co. Ltd., FOUNDER SECURITIES CO.,LTD., Guolian Securities Co., Ltd., Huatai Securities Co., Ltd., China Merchants Securities Co., Ltd., Soochow The Company conducted Securities Co., Ltd., Guotai Junan Securities Co.,Ltd., China Life Insurance Company Limited, Penghua communication on http://irm.cninfo.co management of watch Telephone Fund Management Co., Ltd., China Universal Asset m.cn/ircs/company/ August 20, brands, retail of Teleconference communic Institution Management Co.,Ltd., Hua An Fund Management companyDetail?sto 2021 well-known brand ation Co., Ltd., Tianjin State-owned Capital Investment ckcode=000026&or watches, development of And Management Co., Ltd., Youngy Investment gId=gssz0000026 precision technology Holding Group Co. Ltd., Yuancheng Investment business, etc. Management Co., Ltd. , China International Capital Corporation Limited, Shenzhen Kangrui Capital Management Co., Ltd. , Shanghai Premium Bright Global Captial Co.,Ltd. and Shanghai Tourmaline Asset Management CO.,Ltd. Section 4 Corporate Governance I. General In year 2021, the Company kept improving the Company’s corporate governance structure strictly according to the PRC Company Law, the PRC Securities Law and the regulations of China Securities Regulatory Commission concerning governance of listed companies, and tried to enhance construction of modern enterprise system, upgraded the level of regulatory operation of the Company. As a result, there was no discrepancy between the situation of the Company’s corporate governance and the regulatory documents of China Securities Regulatory Commission concerning governance of listed companies. The Company established and improved relatively standardized corporate governance structure and rules of procedures strictly according to law, rules and regulations, including the PRC Company Law, and the Articles of Association of the Company, formed a decision-making and operation management system with the Shareholders’ Meeting, the Board of Directors, the Supervisory Committee and the management of the Company as the principal structure. They implemented their respective duties according to the PRC Company Law and the Articles of Association. The General Meeting is the Company’s power organ and has the power of deciding the Company’s operation policy and investment plan, reviewing and approving the Company’s annual financial budget scheme, settlement scheme, profit distribution plan, loss make-up plan, change of the application of the proceeds raised through issuing, the equity incentive plan, etc., make resolutions on the Company's increase or decrease of registered capital, issuance of corporate bonds and bond-like financing instruments, merger, division, dissolution, liquidation or change of company form, formulate or approve the Company's articles of association and amendments to the articles of association, elect and replace the directors and supervisors serving as employee representatives and decide matters concerning the remuneration of directors and supervisors. The Board of Directors plays the role of "setting strategies, making decisions, and preventing risks", and is responsible for implementing the resolutions of the general meetings of shareholders, convening and reporting to the general meeting of 30 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text shareholders. Within the authorization from the General Meeting, decides the Company’s external investment, acquisition and sales of assets, assets pledge, external guarantee, related transactions, etc., decides establishment of the Company’s internal management organs and branches, engagement and disengagement of the Company’s general manager, the Board secretary and other senior executives, etc. The Board of Directors consists of nine directors, including three independent directors. The Board of Directors has established three subordinate special committees, namely the Strategy Committee, the Audit Committee and Nomination, Emolument and Assessment Committee. The Supervisory Committee is the Company’s supervisory organ in charge of reviewing the Company's regular reports, examining the Company's financial affairs, supervising the directors and senior executives in performing duties according to the law and proposes dismissal of any director or senior executive who breaches the law, the administrative rules and regulations, the Articles of Association or resolutions of the General Meeting, etc. The Supervisory Committee consists of three supervisors including one staff supervisor. The management is responsible for "seeking operation, carrying out implementation, and strengthening management". The General Manager is responsible to the Board of Directors, presides over the production, operation and management of the Company under the leadership of the Board of Directors, organizes the implementation of resolutions of the Board of Directors, reports work to the Board of Directors, and organizes the implementation of the Company's annual development plan, operation and management; plans and formulates the Company's investment plan and investment plan, annual financial budget plan, final account plan, profit distribution plan and loss recovery plan and the Company's plan for increasing or decreasing registered capital, etc. Whether there is a material difference between the actual situation of corporate governance and laws, administrative regulations and regulations on the governance of listed companies issued by the China Securities Regulatory Commission. No II. Independence in securing the Company's assets, personnel, finance, organization, business, etc. relative to the controlling shareholder and actual controller The Company is independent in business, personnel, assets, organization and finance from its controlling shareholder. The Company has complete and independent business and the ability of autonomous operation. Business: The Company is mainly engaged in timepiece businesses and has independent production, auxiliary production system and complementary facilities, and possesses its own procurement and sales systems. There exists no competition in the same sector between the Company and its controlling shareholder. Personnel: The Company is completely independent in organization and has sound systems in labor, personnel and salaries management. Except Mr. Xiao Yi, Mr. Xiao Zhanglin, Mr. Li Peiyin and Mr. Deng Jianghu as directors, and Mr. Zheng Qiyuan, the chairman of the Supervisory Committee, and Ms. Cao Zhen as supervisor, none of other senior executives takes any concurrent office in the shareholders and none of the financial staff works concurrently for any related parties. Assets: The assets of the Company and its controlling shareholder are highly distinct. The Company enjoys the corporate ownership over its assets and the assets are completely independent from its controlling shareholder. In addition, the 31 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Company enjoys sole ownership of such trademarks as FIYTA, HARMONY, etc. Organization: The Board of Directors, the Supervisory Committee and the other internal organs are well established and work independently. There exist neither subordinate relations between the controlling shareholder/its functional departments nor doing joint office work. The controlling shareholder enjoys its rights and undertakes the corresponding obligations according to the law and has never been involved in any action which directly or indirectly interferes the Company’s business activities surpassing the authority of the General Meeting. Finance: The Company has established independent financial department, worked out sound and independent financial and accounting system and financial management system and independently opened bank accounts. The controlling shareholder has never interfered the Company in its financial and accounting activities. III. Horizontal Competitions Inapplicable IV. Annual General Meeting and Extraordinary General Meetings in the Reporting Period 1. General Meetings Proportion of Resolutions of the Sessions Meeting type attendance of the Meeting date Date of disclosure meetings investors Announcement on the 2021 1st Extraordinary Extraordinary General Resolution of 2021 1st 38.17% January 06, 2021 January 07, 2021 General Meeting Meeting Extraordinary General Meeting, 2021-002 Announcement on the 2021 2nd Extraordinary General Resolution of 2021 2nd Extraordinary General 40.45% February 24, 2021 February 25, 2021 Meeting Extraordinary General Meeting Meeting, 2021-023 Announcement on the 2020 Annual General Annual General Resolution of 2020 44.48% May 07, 2021 May 08, 2021 Meeting Meeting Annual General Meeting, 2021-045 Announcement on the 2021 3rd Extraordinary Extraordinary General Resolution of 2021 3rd 37.53% July 01, 2021 July 02, 2021 General Meeting Meeting Extraordinary General Meeting, 2021-059 Announcement on the 2021 4th Extraordinary Extraordinary General Resolution of 2021 4th 47.37% September 08, 2021 September 09, 2021 General Meeting Meeting Extraordinary General Meeting, 2021-087 32 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Announcement on the 2021 5th Extraordinary Extraordinary General Resolution of 2021 5th 38.41% November 30, 2021 December 01, 2021 General Meeting Meeting Extraordinary General Meeting, 2021-101 2. Extraordinary general meeting requested for holding by the preferred shareholders with the voting power recovered. Inapplicable 33 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text V. Directors, Supervisors and Senior Executives 1. Basic information Number of Sharehol shares held Number of ding Shareholding Change of Number of shares Starting at the restricted increased Office Expiry date Stock decreased in the other held at end of the Name Title Gender Age date of beginning of shares in the Cause of increase/decrease of shares Status of tenure option reporting period increase/decr reporting period tenure the reporting granted reporting (shares) ease (shares) (shares) period (shares) period (shares) (shares) Zhang Chairman of July 01, In office Male 45 September 0 0 0 0 0 0 0 Xuhua the Board 2021 08, 2024 February Xiao Yi Director In office Male 48 September 0 0 0 0 0 0 0 24, 2021 08, 2024 Xiao Director In office Male 46 September September 0 0 0 0 0 0 0 Zhanglin 20, 2017 08, 2024 February Li Peiyin Director In office Male 36 September 0 0 0 0 0 0 0 24, 2021 08, 2024 1. 2018 A-Share Restricted Stock Incentive Plan (Phase II) granted 80,000 restricted shares Deng 2. Before he became a director, he reduced his Director In office Male 38 September September 33,000 0 80,000 0 -10,989 -102,011 0 Jianghu holdings of A shares by 10,989 shares; 08, 2021 08, 2024 3. After leaving office, 102,011 restricted A shares were repurchased and canceled. February Director In office Male September 24, 2021 08, 2024 2018 A-Share Restricted Stock Incentive Plan Pan Bo 46 130,000 0 150,000 0 0 0 280,000 (Phase II) granted 150,000 restricted shares General January In office Male September Manager 15, 2021 08, 2024 Wang Independent In office Male 52 September September 0 0 0 0 0 0 0 Jianxin Director 11, 2018 08, 2024 Zhong Independent In office Male 47 September September 0 0 0 0 0 0 0 Hongming Director 11, 2018 08, 2024 Tang Independent In office Male 48 September September 0 0 0 0 0 0 0 Xiaofei Director 11, 2018 08, 2024 Chairman of Zheng the March 08, In office Male 59 September 0 0 0 0 0 0 0 Qiyuan Supervisory 2021 08, 2024 Committee February Cao Zhen Supervisor In office Female 51 September 0 0 0 0 0 0 0 24, 2021 08, 2024 Hu Jing Supervisor In office Female 51 September September 9,000 0 0 0 0 0 9,000 07, 2021 08, 2024 August 2018 A-Share Restricted Stock Incentive Plan Lu Wanjun Deputy GM In office Male 55 September 130,000 0 150,000 0 0 0 280,000 08, 2014 (Phase II) granted 150,000 restricted shares 08, 2024 34 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Chief Law October In office Male September Adviser 25, 2021 08, 2024 Liu October 2018 A-Share Restricted Stock Incentive Plan Deputy GM In office Male 51 September 130,000 0 150,000 0 0 0 280,000 Xiaoming 17, 2016 (Phase II) granted 150,000 restricted shares 08, 2024 October 2018 A-Share Restricted Stock Incentive Plan Li Ming Deputy GM In office Male 49 September 130,040 0 150,000 0 0 0 280,040 17, 2016 (Phase II) granted 150,000 restricted shares 08, 2024 Song Chief February In office Male 55 September 0 0 0 0 0 0 0 Yaoming Accountant 06, 2022 08, 2024 Tang 2018 A-Share Restricted Stock Incentive Plan Deputy GM In office Male 49 September September 60,000 0 150,000 0 0 0 210,000 Haiyuan (Phase II) granted 150,000 restricted shares 29, 2019 08, 2024 Huang Chairman of June 11, After leaving office, 66,700 restricted A shares Retired Male 48 September 180,000 0 0 0 0 -66,700 113,300 Yongfeng the Board 2021 were repurchased and canceled. 08, 2017 Wang May 21, February Director Retired Male 56 0 0 0 0 0 0 0 Mingchuan 2009 02, 2021 December February Fu Debin Director Retired Male 45 0 0 0 0 0 0 0 09, 2016 02, 2021 February Wang Bo Director Retired Male 43 September 0 0 0 0 0 0 0 02, 2021 20, 2017 May 31, February Director Retired Male 58 2017 02, 2021 2018 A-Share Restricted Stock Incentive Plan Chen Libin 180,000 0 180,000 0 0 0 360,000 General March 08, January (Phase II) granted 180,000 restricted shares Retired Male Manager 2017 15, 2021 Chairman of Wang the June 02, February Retired Male 58 0 0 0 0 0 0 0 Baoying Supervisory 2017 24, 2021 Committee Sheng Supervisor Retired Female 46 September September 0 0 0 0 0 0 0 Qing 11, 2018 07, 2021 Fang April 12, February Supervisor Retired Male 36 0 0 0 0 0 0 0 Jiasheng 2019 24, 2021 Chief October January Retired Male 46 Accountant 17, 2016 28, 2022 2018 A-Share Restricted Stock Incentive Plan Chen Zhuo 131,000 0 150,000 0 0 0 281,000 Secretary of January January (Phase II) granted 150,000 restricted shares Retired Male the Board 15, 2021 28, 2022 1. 2018 A-Share Restricted Stock Incentive Plan Xu February (Phase II) granted 150,000 restricted shares Deputy GM Retired Male 43 September 50,000 0 150,000 0 0 -183,350 16,650 Chuangyue 03, 2021 2. After leaving office, 183,350 restricted A shares 29, 2019 were repurchased and canceled. Total -- -- -- -- -- -- 1,163,040 0 1,310,000 0 -10,989 -352,061 2,109,990 35 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text During the reporting period, is there any resignation of directors and supervisors and dismissal of senior executives during their term of office? In January 2021, the Company received written resignation reports from Mr. Chen Libin, the managing director, and Mr. Pan Bo, the deputy general manager and secretary of the Board of Directors. Mr. Chen Libin resigned from the position of General Manager of the Company due to work reasons and continued to hold other positions in the Company after his resignation; Mr. Pan Bo resigned from the positions of deputy General Manager and Board Secretary of the Company due to work reason, and continued to hold other positions in the Company after his resignation. In February 2021, the Company received written resignation reports submitted by directors Mr. Wang Mingchuan, Mr. Fu Debin, Mr. Wang Bo and Mr. Chen Libin, supervisors Mr. Wang Baoying, Mr. Fang Jiasheng and deputy General Manager Mr. Xu Chuangyue. Mr. Wang Mingchuan, Mr. Fu Debin and Mr. Wang Bo resigned as directors of the Company due to work reason, and no longer hold any positions in the Company after their resignation; Mr. Chen Libin resigned as director of the Company due to work reason, and continued to hold other positions in the Company after his resignation; Mr. Wang Baoying resigned from the positions of supervisor and Chairman of the Supervisory Committee of the Company due to work reason, and no longer holds any positions in the Company after his resignation; Mr. Fang Jiasheng resigned from the position of supervisor of the Company due to work reason, and continued to hold other positions in the Company after resignation; Mr. Xu Chuangyue resigned from the position of deputy General Manager of the Company for personal reason and no longer hold any position in the Company after the resignation. The Company received a written resignation report submitted by Mr. Huang Yongfeng, the Chairman of the Board , in June 2021. Mr. Huang Yongfeng resigned as director and Chairman of the Company due to work reason, and no longer holds any position in the Company after his resignation. During the reporting period, the Company has completed the by-election of directors and supervisors and the appointment of senior executives on schedule in accordance with relevant laws and regulations. The independent directors checked the reasons for the resignation of the Chairman and the General Manager, and expressed their independent opinions on the changes of directors and senior executives. Personnel Change in Directors, Supervisors and Senior Executives Name Office Taken Type Date Cause Chairman of the Being Appointed as the Chairman of the Board at the 1st session of the September 08, 2021 Board elected Tenth Board of Directors. Chairman of the Being Appointed as the Chairman of the Board at the 31st session of July 01, 2021 Board elected the Ninth Board of Directors. Elected as a director of the Tenth Board of Directors of the Zhang Xuhua Being Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Director July 01, 2021 Company at the 30th session of the Ninth Board of Directors and elected the 2021 3rd Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. Xiao Yi Elected as a director of the Ninth Board of Directors of the Being Director February 24, 2021 Company at the 26th session of the Ninth Board of Directors and elected the 2021 2nd Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Xiao Zhanglin Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Li Peiyin Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. 36 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Elected as a director of the Ninth Board of Directors of the Being Director February 24, 2021 Company at the 26th session of the Ninth Board of Directors and elected the 2021 2nd Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Deng Jianghu Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Being Director September 08, 2021 Company at the 32nd session of the Ninth Board of Directors elected and the 2021 4th Extraordinary General Meeting. General Being Appointed as the General Manager of the Company at the 1st September 08, 2021 Manager appointed session of the Tenth Board of Directors. Elected as a director of the Company at the 26th session of the Being Pan Bo Director February 24, 2021 Ninth Board of Directors and the 2021 2nd Extraordinary elected General Meeting. General Being Appointed as the GM at the 25th session of the Ninth Board of January 15, 2021 Manager appointed Directors. Deputy GM and Terminatio resigned as Deputy GM of the Company and the Secretary of the Secretary of January 14, 2021 n the Board due to the work reason. the Board Elected as a director of the Tenth Board of Directors of the Independent Being Wang Jianxin September 08, 2021 Company at the 32nd session of the Ninth Board of Directors Director elected and the 2021 4th Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Zhong Independent Being September 08, 2021 Company at the 32nd session of the Ninth Board of Directors Hongming Director elected and the 2021 4th Extraordinary General Meeting. Elected as a director of the Tenth Board of Directors of the Independent Being Tang Xiaofei September 08, 2021 Company at the 32nd session of the Ninth Board of Directors Director elected and the 2021 4th Extraordinary General Meeting. Chairman of the Being Appointed as the Chairman of the Supervisory Committee at the Supervisory September 08, 2021 elected 1st session of the Tenth Board of Directors. Committee Appointed as a supervisor of the Tenth Supervisory Committee Being Supervisor September 08, 2021 at the 28th session of the Ninth Supervisory Committee and elected 2021 4th Extraordinary General Meeting. Zheng Qiyuan Chairman of the Being Elected the Chairman of the Ninth Supervisory Committee at the Supervisory March 08, 2021 elected 24th session of the Ninth Supervisory Committee. Committee Appointed as a supervisor of the Ninth Supervisory Committee Being Supervisor February 24, 2021 at the 23rd session of the Ninth Supervisory Committee and elected 2021 2nd Extraordinary General Meeting. Appointed as a supervisor of the Tenth Supervisory Committee Being Supervisor September 08, 2021 at the 28th session of the Ninth Supervisory Committee and elected 2021 4th Extraordinary General Meeting. Cao Zhen Appointed as a supervisor of the Ninth Supervisory Committee Being Supervisor February 24, 2021 at the 23rd session of the Ninth Supervisory Committee and elected 2021 2nd Extraordinary General Meeting. Elected a staff representative supervisor of the Tenth Being Hu Jing Supervisor September 07, 2021 Supervisory Committee of the Company at 2021 1st Staff elected Representative Conference. Chief Law Being Appointed as the Chief Law Adviser of the Company at the 2nd October 25, 2021 Adviser appointed session of the Tenth Board of Directors. Lu Wanjun Being Appointed as deputy General Manager of the Company at the Deputy GM September 08, 2021 appointed 1st session of the Tenth Board of Directors. Being Appointed as deputy General Manager of the Company at the Liu Xiaoming Deputy GM September 08, 2021 appointed 1st session of the Tenth Board of Directors. Being Appointed as deputy General Manager of the Company at the Li Ming Deputy GM September 08, 2021 appointed 1st session of the Tenth Board of Directors. Being Appointed as the Chief Accountant of the Company at the 6th Song Yaoming Chief Accountant February 06, 2022 appointed session of the Tenth Board of Directors. Being Appointed as deputy General Manager of the Company at the Tang Haiyuan Deputy GM September 08, 2021 appointed 1st session of the Tenth Board of Directors. Huang Chairman of the resigned as director and Chairman of the Company due to work Retired June 11, 2021 Yongfeng Board reason. Wang Director Retired February 02, 2021 resigned as a director of the Company due to work reason. 37 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Mingchuan Fu Debin Director Retired February 02, 2021 resigned as a director of the Company due to work reason. Wang Bo Director Retired February 02, 2021 resigned as a director of the Company due to work reason. Retired Director upon office September 08, 2021 Retired upon expiry of the Ninth Board of Directors. expiry Zhang Zhibiao Elected as a director of the Ninth Board of Directors of the Being Director February 24, 2021 Company at the 26th session of the Ninth Board of Directors and elected the 2021 2nd Extraordinary General Meeting. Director Retired February 02, 2021 resigned as a director of the Company due to work reason. Chen Libin General Terminatio January 15, 2021 resigned as the GM of the Company due to the work reason. Manager n Supervisor and Chairman of the resigned as a supervisor of the Company and the Chairman of Wang Baoying Retired February 24, 2021 Supervisory the Supervisory Committee due to work reason. Committee Retired Sheng Qing Supervisor upon office September 07, 2021 Retired upon expiry of the Ninth Supervisory Committee. expiry Fang Jiasheng Supervisor Retired February 24, 2021 resigned as a supervisor of the Company due to work reason. Chief Accountant Being Appointed as the Chief Accountant and the Board Secretary of & Secretary of September 08, 2021 appointed the Company at the 1st session of the Tenth Board of Directors. Chen Zhuo the Board Secretary of the Being Appointed as the Secretary of the Board at the 25th session of January 15, 2021 Board appointed the Ninth Board of Directors. Terminatio resigned as deputy GM of the Company due to the personal Xu Chuangyue Deputy GM February 03, 2021 n reason. 2. Incumbency Professional Background, CV and Major Duties of Directors, Supervisors and Senior Executives in Office Mr. Zhang Xuhua, born in March, 1977, holding master degree and EMBA of China Europe International Business School. He is now the Chairman of the Company. Mr. Zhang used to be the managing director, deputy GM, assistant to the GM, GM of the business department of the shopping center of Rainbow Digital Commercial Co.,Ltd., the GM of Chengdu Company, the GM of the business department of the shopping center, the GM of Chengdu Company, the GM of the Merchandise Center, the GM, manager of the procurement department, the supervisor of the merchants department of Dreams-On Department Store; staff of the market department of Vanke Industry Co., Ltd. Mr. Xiao Yi, male, born in March 1974, MBA of the Economic Management College of Beijing University of Aeronautics & Astronautics. Currently, he is a director of the Company, the Director of Organization Department/Human Resources Department of the CPC Committee of AVIC International Holding Corporation, a director of Tianma Microelectronics Co., Ltd., a director of Shennan Circuit Co., Ltd., a director of AVIC International Holding (Zhuhai) Co., Ltd., a director of AVIC International Economic and Trade Development Co., Ltd. He used to be the deputy manager and manager of the comprehensive management department of AVIC International Holding Corporation. Mr. Xiao Zhanglin, born in January 1976, senior engineer, MBA of Shanghai Jiao Tong University. Mr. Xiao is a director of the Company, the chief of the planning and operation department of AVIC International Holding Corporation, a director of Shennan Circuit Co., Ltd. and a director of Rainbow Department Store Co., Ltd. He used to be deputy chief of the strategy development department and deputy chief of the operation and management department of AVIC International Holding Corporation, the secretary of AVIC International Holding Limited, a director of Tianma Micro-electronics Co., Ltd. and a director of AVIC Sunda Holding Company Limited. Mr. Li Peiyin , born in September, 1986, Master of Accounting of Xiamen University, MBA of Missouri State University, CPA and senior accountant. Mr. Xiao is a director of the Company, the deputy chief of the financial management department 38 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text of AVIC International Holding Corporation (executive), a director of Shennan Circuit Co., Ltd. and a director of Rainbow Department Store Co., Ltd. He used to be the business manager, the assistant to the chief and the deputy chief of the Financial Management Department of AVIC International Holding Corporation. Mr. Deng Jianghu, born in July 1984, graduated from Northeast Normal University with a master's degree in business administration. He is a director of the Company, and deputy manager of the Planning & Development Department of AVIC International Holding Corporation (executive) and a director of Tianma Micro-electronics Co., Ltd. He used to be deputy manager and manager of the planning and operation department of the Company, director of modern service office of AVIC International Shenzhen Co., Ltd., senior project manager of the operation management department of AVIC International Holding Co., Ltd., a commissioner of the strategic management and senior commissioner of the Strategic Development Department of Shennan Circuit Co., Ltd. Mr. Pan Bo, born in March, 1976, bachelor of electromechanical engineering of Beijing University of Aeronautics & Astronautics, and EMBA of China Europe International Business School. He is the Managing Director of the Company. Mr. Pan used to be a deputy GM, the secretary of the board, and the assistant to the GM of the Company, the GM, deputy GM, the assistant to the GM, manager of the sales department, manager of the logistics department, manager of the after-sale service department of FIYTA Sales Co., Ltd. Mr. Zheng Qiyuan, born in July, 1963, MBA of the Economic Management College of Beijing University of Aeronautics & Astronautics, MBA of Paris Business School; senior engineer. Mr.Zheng is the Chairman of the Supervisory Committee of the Company and and a full-time director and supervisor of AVIC International Holding Corporation. Mr. Zheng used to be the secretary of the Ministry of Aviation Industry,chief staff of the Planning Department of the Ministry of Aviation Industry, deputy chief and chief of the Planning Department of AVIC Corporation, deputy manager and manager of the Bidding Center of AVIC Corporation, deputy manager and manager of AVIC International Economic & Trade Development Limited, a commissioner of AVIC International Holding Corporation, Chief Business Officer of AVIC International (HK) Group Limited, GM of AVIC International (HK) Trading Limited. Ms. Cao Zhen, born in October, 1971, EMBA of China Europe International Business School. Ms. Cao is a supervisor of the Company, vice-secretary of the Discipline Inspection Commission and the chief of the Discipline Inspection Department of AVIC International Holding Corporation. Ms. Cao used to be the chief editor, deputy manager and manager of the administrative management department, the secretary of the Board, the assistant to the GM of AVIC News of AVIC International Shenzhen Company Limited, the manager of the enterprise culture department of AVIC International Holding Corporation,the chief of the CPC Construction and Ideological and Political Work Department, the discipline secretary and the chairman of the trade union of AVIC International Shenzhen Company Limited, deputy leader of the discipline inspection team and the chief of the discipline inspection, supervision and audit department of AVIC International Holding Corporation. Ms. Hu Jing, born in September, 1971, is an intermediate accountant and holds a bachelor's degree in accounting from Jiangxi University of Finance and Economics. He is currently the fund supervisor the financial department and a staff representative supervisor of the Company. She used to be the senior business manager of the audit department and the tax supervisor of the finance department of the Company. Mr. Lu Wanjun, born in February, 1967, accountant and EMBA of China Europe International Business School. He is now a deputy GM and chief law adviser of the Company. He used to be the assistant to the GM of the Company, executive 39 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text deputy GM and deputy GM, the assistant to the GM and concurrently the manager of the financial department of Shenzhen Harmony World Watches Center Co., Ltd. Mr. Liu Xiaoming, born in 1971, engineer, economist, bachelor of mechanical engineering of Beijing University of Aeronautics & Astronautics, and EMBA of China Europe International Business School. He is now a deputy GM of the Company. He used to be the assistant to the GM of the Company, a deputy GM and the assistant to the GM of Shenzhen Harmony World Watches Center Co., Ltd. Mr. Li Ming, born in September, 1973, bachelor of marketing of Zhongnan University of Economics and Law and EMBA of China Europe International Business School. He is now a deputy GM of the Company. Mr. Li used to be the assistant to the GM and chief HR officer of the Company, a deputy GM, the assistant to the GM and manger of the HR department of Shenzhen Harmony World Watches Center Co., Ltd.; chief HR officer and the GM of the marketing center of China Netcom Shenzhen; manager of big customer market planning of China Telecom Shenzhen. Mr. Song Yaoming, born in July, 1967, accountant, master of economics of Shaanxi College of Finance and Economics and EMBA of China Europe International Business School. He is now the chief accountant of the Company. He used to be the deputy general manager and chief accountant of Rainbow Digital Commercial Co., Ltd., director of Shenzhen Aoxuan Investment Co., Ltd., director of Shenzhen Aoer Investment Development Co., Ltd., and deputy manager and accountant of the financial department of Shenyang FAW Jinbei Automobile Co., Ltd. Mr. Tang Haiyuan, born in February, 1973, senior engineer, bachelor of plastic molding technology and equipment of Hefei University of Technology, and EMBA of China Europe International Business School. He is now a deputy GM of the Company. Mr. Tang used to work for Shenzhen FIYTA Sophisticated Timepieces Manufacture Co., Ltd., taking the offices of the GM, a deputy GM, the assistant to the GM, and the manager of its quality department, manager and deputy manager of the engineering and technical department; also work for Shenzhen FIYTA Technology Development Co., Ltd., taking offices of the assistant to the GM and the manager of the technical department. Office taking in shareholder companies Does he/she Names of the receive Names of the Titles engaged in the Starting date Expiry date of persons in remuneration or Shareholders shareholders of tenure tenure office allowance from the shareholder Chief of the CPC Organization AVIC International Xiao Yi Department/Human Resource Yes Holding Corporation Department AVIC International Chief of the Operation and Xiao Zhanglin Yes Holding Corporation Management Department Deputy chief of the financial AVIC International Li Peiyin management department Yes Holding Corporation (presiding the work) Deputy chief of the planning & AVIC International Deng Jianghu development department Yes Holding Corporation (executive) AVIC International Full-time independent Zheng Qiyuan Yes Holding Corporation supervisor Vice-secretary of the discipline AVIC International inspection committee and the Cao Zhen Yes Holding Corporation chief of the discipline inspection department Office taking in other organizations 40 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Does he/she Titles receive Names of the engaged in Expiry date of remuneration or persons in Names of the other organizations Starting date of tenure other tenure allowance from office organizations other organization Tianma Micro-electronics Co., Director February 26, 2021 No Ltd. Shennan Circuit Co., Ltd. Director April 06, 2021 No Xiao Yi AVIC IHL (Zhuhai) Director December 27, 2021 No AVIC International Economic & Director December 27, 2021 No Trade Development Limited Shennan Circuit Co., Ltd. Director June 18, 2015 No Xiao Zhanglin Rainbow Digital Commercial Co., Director September 27, 2017 No Ltd. Rainbow Digital Commercial Co., Director February 24, 2021 No Li Peiyin Ltd. Shennan Circuit Co., Ltd. Director April 06, 2021 No Tianma Micro-electronics Co., Deng Jianghu Director November 29, 2021 No Ltd. Punishment imposed by the securities regulatory authority on the directors, supervisors and senior executives both in office and having left their posts in the reporting period. Inapplicable 3. Remuneration to Directors, Supervisors and Senior Executives Decision-making procedures, basis for determining the remuneration and actual payment to directors, supervisors and senior executive to directors, supervisors and senior executives The Company practiced the annual salary system for its directors and senior executives. The annual salary structure consists of the basic annual salary and performance based annual salary. The assessment of senior executives is conducted according to the Measures for Administration of the Remuneration to Senior Executives. Remuneration to Directors, Supervisors and Senior Executives during the Reporting Period In CNY 10,000 Is the Total pretax remuneration remuneration Name Title Gender Age Office Status from one of the received from Company's the Company related parties Zhang Xuhua Chairman of the Board Male 45 In office 42.27 No Xiao Yi Director Male 48 In office 0 Yes Xiao Zhanglin Director Male 46 In office 0 Yes Li Peiyin Director Male 36 In office 0 Yes Deng Jianghu Director Male 38 In office 83.91 Yes Pan Bo Managing Director Male 46 In office 232.22 No Wang Jianxin Independent Director Male 52 In office 9 No Zhong Independent Director Male 47 In office 9 No Hongming 41 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Tang Xiaofei Independent Director Male 48 In office 9 No Chairman of the Zheng Qiyuan Male 59 In office 0 Yes Supervisory Committee Cao Zhen Supervisor Female 51 In office 0 Yes Hu Jing Supervisor Female 51 In office 37.24 No deputy GM and chief law Lu Wanjun Male 55 In office 198.94 No adviser Liu Xiaoming Deputy GM Male 51 In office 247.94 No Li Ming Deputy GM Male 49 In office 189.94 No Tang Haiyuan Deputy GM Male 49 In office 201.97 No Huang Chairman of the Board Male 48 Retired 184.75 Yes Yongfeng Wang Director Male 56 Retired 0 Yes Mingchuan Fu Debin Director Male 45 Retired 0 Yes Wang Bo Director Male 43 Retired 0 Yes Chen Libin Managing Director Male 58 Retired 180.5 No Chairman of the Wang Baoying Male 58 Retired Yes Supervisory Committee Sheng Qing Supervisor Female 46 Retired 120.67 No Fang Jiasheng Supervisor Male 35 Retired 49.75 No Chief Accountant & Chen Zhuo Male 46 Retired 198.94 No Secretary of the Board Xu Chuangyue Deputy GM Male 43 Retired 72.68 No Total -- -- -- -- 2,068.72 -- VI. Duty Performance of Directors in the Reporting Period 1. Board Meetings Sessions Meeting date Date of disclosure Resolutions of the meetings Announcement on the Resolution of the 25th 25th session of the Ninth Board January 15, 2021 January 16, 2021 Session of the Ninth Board of Directors, of Directors. 2021-006 Announcement on the Resolution of the 26th 26th session of the Ninth Board February 04, 2021 February 05, 2021 Session of the Ninth Board of Directors, of Directors. 2021-015 Announcement on the Resolution of the 27th 27th session of the Ninth Board March 08, 2021 March 10, 2021 Session of the Ninth Board of Directors, of Directors 2021-026 Announcement on the Resolution of the 28th 28th session of the Ninth Board April 12, 2021 April 13, 2021 Session of the Ninth Board of Directors, of Directors 2021-037 Announcement on the Resolution of the 29th 29th session of the Ninth Board May 21, 2021 May 22, 2021 Session of the Ninth Board of Directors, of Directors 2021-048 Announcement on the Resolution of the 30th 30th session of the Ninth Board June 11, 2021 June 15, 2021 Session of the Ninth Board of Directors, of Directors 2021-052 Announcement on the Resolution of the 31st 31st session of the Ninth Board July 01, 2021 July 02, 2021 Session of the Ninth Board of Directors, of Directors 2021-062 42 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Announcement on the Resolution of the 32nd session of the Ninth August 18, 2021 August 20, 2021 32nd Session of the Ninth Board of Board of Directors Directors, 2021-072 Announcement on the Resolution of the 1st 1st session of the Tenth Board September 08, September 09, Session of the Tenth Board of Directors, of Directors 2021 2021 2021-085 Announcement on the Resolution of the 2nd 2nd session of the Tenth Board October 25, 2021 October 26, 2021 Session of the Tenth Board of Directors, of Directors 2021-090 Announcement on the Resolution of the 3rd 3rd session of the Tenth Board November 12, November 13, Session of the Tenth Board of Directors, of Directors 2021 2021 2021-097 Announcement on the Resolution of the 4th 4th session of the Tenth Board December 28, December 29, Session of the Tenth Board of Directors, of Directors 2021 2021 2021-104 2. Attendance of Directors for Board Meetings and General Meetings Attendance of Directors for Board Meetings and General Meetings Number of Board Failure to Number of Number of meetings personally Number of Number of Meetings attendances Names of which should Number of attend board attendance of Spot Attended by of board Directors be be absence meetings the General Attendances Communicati meeting by attended in successively Meeting on proxy the reporting twice period Zhang Xuhua 6 1 5 0 0 No 1 Xiao Yi 10 2 8 0 0 No 0 Xiao Zhanglin 12 2 10 0 0 No 0 Li Peiyin 10 2 8 0 0 No 0 Deng Jianghu 4 1 3 0 0 No 0 Pan Bo 10 2 8 0 0 No 5 Wang Jianxin 12 2 10 0 0 No 6 Zhong 12 2 10 0 0 No 0 Hongming Tang Xiaofei 12 2 10 0 0 No 0 Note to failure to attend the board meeting successively twice Inapplicable 3. Objection of directors on some relevant issues Have the directors proposed any objection on the relevant issues of the Company No 4. Other Note to Duty Performance of Directors Have the directors' recommendations to the Company been accepted Yes Explanation on why the directors' recommendations have been accepted or not been accepted During the reporting period, the Board of Directors gave full play to the role of "setting strategies, making decisions, and 43 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text preventing risks". The directors of the Company attended Board Meetings on time in strict accordance with the "Company Law", "Code of Corporate Governance for Listed Companies" and other laws and regulations and the "Articles of Association", diligently and conscientiously performed duties and rights of directors, and fully deliberated, made suggestions and voted on the resolutions of the Board of Directors. The Company fully considered and adopted the constructive opinions put forward by directors in terms of business development decision-making, internal system construction, personnel appointment and dismissal, external investment, and implementation of equity incentive plans. VII. Duty Performance of Special Committees under the Board of Directors in the Reporting Period Names of Special Number of Description of Important comments Other duty Specific objections About the members Meeting date Committees meetings held meetings and suggestions made performances (if any) Reviewed and During the reporting approved 2020 period, the members of Annual Work the Strategy Report of the Board Committee conducted March 08, 2021 of Directors and the in-depth discussions Company's 2020 and analysis on the Chairman of the Profit Distribution Company's operating committee: Zhang Proposal. conditions and Xuhua development Strategy Committee 2 prospects, proposed Committee members: Xiao Reviewed and valuable suggestions Zhanglin, Deng approved the and opinions for the Jianghu, Pan Bo proposal on Company's and Tang Xiaofei May 21, 2021 investing in the development strategy, establishment of a and provided strong wholly-owned support for the subsidiary. scientific decision-making of the Board of Directors. Reviewed and During the reporting approved 2020 period, in line with the Annual Report, principle of diligently 2020 Annual performing duties and Chairman of the Internal Control seeking truth from committee: Wang Self-assessment facts, members of the Jianxin; Report, the 2020 Audit Committee Audit Committee 4 March 08, 2021 members: Li Peiyin, Annual Internal provided advice and Xiao Zhanglin and Audit Work Report, suggestions in guiding Tang Xiaofei the Changes in internal audit work, Accounting supervising and Policies, the evaluating external Provision for audit institutions, and Impairment of establishing effective 44 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Assets and the internal control Write-off of Bad mechanisms, and Debts in Year 2020, actively safeguarded etc. the interests of the Company and all Reviewed and shareholders. approved the Company's 2021 1st Quarter Report and summary, and April 12, 2021 the 2021 1st Quarter Audit Work Report of the Discipline Inspection and Law Department Reviewed and approved the Company's 2021 Semi-annual Report and Summary, and such proposals as the August 18, 2021 change of accounting firm, and the signing of a financial service agreement with AVIC Finance Co., Ltd. Reviewed and approved the Company's 2021 3rd Quarterly Report and the October 25, 2021 proposal of repurchase of the Company's partial domestically listed foreign shares (B shares). Committee of Chairman of the Reviewed and During the reporting Nomination, Committee: Zhong 10 January 15, 2021 approved the period, the members of Remuneration and Hongming; Proposals on the Nomination, 45 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Assessment of the members: Xiao Yi, Adjusting the List of Remuneration and Board of Directors Xiao Zhanglin, Incentive Objects of Assessment Wang Jianxin and the Company's Committee prudently Tang Xiaofei 2018 A-share discussed and judged Restricted Stock the qualifications of Incentive Plan nominated directors (Phase II), the and senior executives, Number of Grants carefully reviewed the and the Granting of implementation of the Restricted Shares Company's equity and the incentive plan and the Appointment of the directors’ remuneration Company's assessment plan, etc., General Manager and effectively fulfilled and Secretary of relevant the Board. responsibilities. Reviewed and approved the proposal on the proposed change February 04, 2021 of directors and the repurchase and cancellation of some restricted shares. Reviewed and approved the proposal on the remuneration of directors and senior March 08, 2021 executives in 2020 and the adjustment of various special committees of the Board. Reviewed and approved the proposal on the April 12, 2021 repurchase and cancellation of some restricted shares. June 11, 2021 Reviewed and 46 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text approved the proposal on the proposed change of directors and the repurchase and cancellation of some restricted shares. Reviewed and approved the proposal on electing the Chairman of the Company, adjusting the members of the July 01, 2021 Strategy Committee of the Board of Directors, and repurchase and cancellation of some restricted shares. Reviewed and approved the proposal on the election of directors for the new Board August 18, 2021 of Directors and repurchase and cancellation of some restricted shares. Reviewed and approved the proposals on the election of the Chairman of the September 08, 2021 Company, adjusting the members of the strategy committee of the Board, and repurchase and cancellation of 47 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text some restricted shares. Reviewed and approved the proposal on the October 25, 2021 appointment of the Chief Law Adviser of the Company. Reviewed and approved the proposal on the achievement of the release of December 28, 2021 restrictions during the second release period of the 2018 A-share Restricted Stock Incentive Plan (Phase I). VIII. Work Summary of the Supervisory Committee Did the Supervisory Committee find any risk involved in performing the supervision activities in the reporting period No IX. Employees 1. Number, Job Composition and Education Background of Employees Number of employees working for the parent company at the end of the 129 reporting period (persons) Number of employees working for the major subsidiaries at the end of 4,952 the reporting period (persons) Total of employees at the end of the reporting period (persons) 5,081 Total employees receiving remuneration in the reporting period 5,081 (persons) Number of the retired employees for whom the parent company and the 0 major subsidiaries need to share the pension (persons) Job Composition Job Composition Categories Number of persons involved in the job composition Production 372 48 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Sales 3,745 Technical 399 Financial 142 Administrative 423 Total 5,081 Education background Education levels Number of persons Master's degree or higher 91 Undergraduate 731 Junior college 1,336 Below junior college 2,923 Total 5,081 2. Remuneration Policy The Company has worked out its remuneration policy by taking its business development planning and management practice into consideration and based on the principles of focusing on the values, creating and sharing core concepts, following hierarchical management, budget control, performance orientation, efficiency priority, fairness, positive incentives, and long-term attention. The Company has established a remuneration system with the assessment based annual salary system for medium and senior executives, performance-based salary systems for staff positions, and the production & performance jointly related payroll systems for production operators in accordance with the national laws, regulations and policies. The following administrative measures have been taken in implementation of the remuneration policy: Total salary management: the Company has prepared an annual remuneration budget based on the annual business planning, adjusted and controlled the total remuneration with such factors as the market remuneration level, organization efficiency, adjustment of the talent team, etc., and has achieved the management goal of benefit-orientation, positive incentive, classification management and adjusted distribution; Classification and grading of the management: The Company has established a differentiated, standardized, and market-oriented salary framework system that matches the job sequence and job level according to the professional/occupational development system of employees; With value as the key link, co-creating and sharing: the Company designs the incentive system according to the closed-loop value chain of value creation, evaluation and distribution. Through the establishment of value evaluation system and real-time incentive system consistent with the strategic development goals, the Company has formed a compensation along with the Company's benefits and personal performance, incremental compensation to the core key positions, excellent talent incentive mechanism. 49 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 3. Training Program (I) Building a team of high-quality professional talents and improve the readiness of talents for key positions In respect of training, the Company, relying on FIYTA Training Center, focused on the training of echelon talents, built a talent reserve pool, and improved the organization's talent readiness; created a learning atmosphere within the organization, and promoted the construction of a professional talent learning system through the projects such as "Outstanding Craftsman Reservoir" and "Lean Six Sigma". (II) Consolidating the terminal business talent training system, and building a strong terminal professional team In terms of terminal business talent training, the Company is building a customer-oriented terminal retail post training system, has strengthened the training of business personnel through the “bullseye training model”, optimized learning contents, strengthened learning methods, and used "double excellence" as a starting point to consolidate the business echelon management and operation ability. (III) With the project-based talent training system to create sustainable training Cultivate talents by means of project management method and logic, follow the 721 rules to design training programs, introduce conceptual tools such as experience extraction, action learning, performance improvement, and situational assessment, and precipitate star training programs such as "Nova Program", "Aerospace Learning Month", "Star Theory", etc. (IV) Carrying out targeted training in close combination with business strategic priorities The training contents closely match the Company's strategic direction and business focus, and continue to promote excellent sales ability improvement training to empower terminals; according to the needs of market development, timely conduct training such as new media operation training, brand strategic positioning training, etc., to help improve brand management capabilities and strategic transformation innovation. 4. Labor Outsourcing Inapplicable X. Profit Distribution and Reserve Capitalization Preparation, Implementation or Adjustment of the Policy for Profit Distribution, Especially the Policy for Cash Dividend Distribution in the Reporting Period The Company's 2020 Profit Distribution Plan was reviewed and approved at the 27th session of the Ninth Board of Directors held on March 8, 2021 and 2020 Annual General Meeting held on May 7, 2021 for review. It was resolved that with the Company’s total share capital as at the date of record for future implementation of the profit distribution plan as the base, the Company distributed cash dividend at the rate of CNY 4.00 for every 10 shares (with tax inclusive) with the total cash dividend distributed not exceeding CNY 174,300,752.40, distribute bonus share at the rate of 0 share for every 10 shares to the whole shareholders and capitalized no reserve. According to relevant laws and regulations, the Company's B shares held by the Company through the special securities account for repurchase did not have the right to participate in the profit distribution. In accordance with the principle that 50 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text the amount of cash dividends remained unchanged, the final implementation plan of the Company's equity distribution in 2020 was as follows: with the Company's existing share capital amounting to 426,556,436 shares involved in the distribution (the total share capital of 435,550,522 shares on the equity registration date deducting the repurchased shares in the special securities account for repurchase totaling 8,994,086 shares) as the base, the Company distributed the cash dividend at the rate of CNY 4.084341(with tax inclusive) to all shareholders for every 10 shares, distributed 0 bonus shares, and capitalized no reserve. The profit distribution plan was implemented on June 3, 2021. For the detail, please refer to the “Announcement on the Implementation of 2020 Annual Equity Distribution 2021-050”disclosed by the Company on www.cninfo.com.cn. Special Note to Cash Dividend Distribution Policy Does it comply with the Articles of Association or the resolution of the Yes General Meeting? Are the dividend distribution standard and proportions explicit and Yes clear? Are the relevant decision-making procedures and mechanism Yes complete? Have the independent directors done their duties and brought their role Yes into full play? Do minority shareholders have opportunity to fully express their Yes opinions and claims? Has their legal interest been fully protected? In case the cash dividend distribution policy has been adjusted or altered, do the conditions and procedures comply with the law and are Inapplicable they transparent? In the reporting period, both the Company’s profit and the parent company’s profit available for shareholders were positive but no cash dividend distribution proposal has been put forward. Inapplicable Profit Distribution and Conversion of Capital Reserve into Share Capital in the Reporting Period Bonus shares distributed at the rate of ___ (share) for 0 every 10 shares Dividend distributed at the rate of CNY___ for every 10 3.00 shares (with tax inclusive) Share capital base for the dividend distribution preplan 426,051,015 (shares) Total cash dividend distributed (with tax inclusive) 127,815,304.50 Amount of cash dividend distributed in other way(s) 4,653,185.52 (such as shares repurchased) Total amount of cash dividend (including other way(s)) 132,468,490.02 (CNY) Profit available for distribution (CNY) 834,920,189.09 51 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Proportion of the cash dividend in the total profit 100% available for distribution (with other method inclusive) Cash Dividend Distribution for the Reporting Year Others Detailed information for profit distribution or conversion of capital reserve into share capital preplan The Company's 2021 Profit Distribution Plan was reviewed and approved at the 6th session of the Tenth Board of Directors held on March 8, 2022. The Company plans to take the number of shares after deduction of the shares in the special securities account for repurchase from the total number of shares on the equity registration date as the base when the profit distribution plan is implemented in the future and distributes cash dividend at rate of CNY 3.00 (with tax inclusive) for every 10 shares to all shareholders, and distribute 0 bonus share, and capitalize no reserve. From the time of disclosing this profit distribution plan to that prior to the implementation, in the event of share repurchase, the Company intends to adjust the total distribution amount in accordance with the principle of fixed distribution ratio. The profit distribution plan is subject to review and approval of the General Meeting before implementation. XI. Implementation of the Company’s Equity Incentive Plan, Employee Stock Ownership Plan or other Employee Incentive Measures 1. Equity incentive 1. A-Share Restricted Shares Incentive Plan 2018(Phase 1) The 3rd session of the Ninth Board of Directors held on November 12, 2018 and 2019 1st Extraordinary General Meeting held on January 11, 2019 decided to start 2018 A-Share Restricted Stock Incentive Plan (Phase I), which was later on reviewed and approved at the 5th session of the Ninth Board of Directors held on January 11, 2019, and the Company eventually granted 4.224 million restricted A-shares to 128 persons eligible for the incentive. These restricted shares were awarded at price of CNY 4.40/share and were entirely awarded and registered for trading by January 30, 2019, For the detail, refer to the relevant announcement disclosed in the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. on January 12, 2019. The specific implementation during the reporting period is summarized as follows: Reviewed and approved at the 24th session of the Ninth Board of Directors, the conditions for the release of the restriction for sales in the first release period of the Company's 2018 A-share Restricted Stock Incentive Plan (Phase I) were satisfied, the 1.357641 million A-share restricted shares involved were listed for trading on February 1, 2021. For the detail, refer to the relevant announcement disclosed in the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. on January 12, 2021. Reviewed and approved at the 26th session of the Ninth Board of Directors and 2021 2nd Extraordinary General Meeting, the Company decided to repurchase and cancel the 51,359 restricted A-shares which were already granted to but with the restriction not yet relieved held by 1 retired and 1 deceased incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on February 5, 2021 and February 25, 2021. Reviewed and approved at the 28th session of the Ninth Board of Directors and 2020 Annual General Meeting, the Company decided to repurchase and cancel the 40,020 restricted A-shares which were already granted to but with the restriction not yet relieved held by 2 retired incentive objects. For the detail, refer to the relevant announcement disclosed 52 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text in http://www.cninfo.com.cn. respectively on April 13, 2021 and May 8, 2021. Reviewed and approved at the 30th session of the Ninth Board of Directors and 2021 3rd Extraordinary General Meeting, the Company decided to repurchase and cancel the 33,350 restricted A-shares which were already granted to but with the restriction not yet relieved held by 1 retired incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on June 15, 2021 and July 2, 2021. Reviewed and approved at the 31st session of the Ninth Board of Directors, the 32nd session of the Ninth Board of Directors and 2021 4th Extraordinary General Meeting, the Company decided to repurchase and cancel the 102,051 restricted A-shares which were already granted to but with the restriction not yet relieved held by 3 retired incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on July 2, 2021, August 29, 2021 and September 9, 2021. Reviewed and approved at the 4th session of the Tenth Board of Directors, the conditions for the release of the restriction for sales in the second release period of the Company's 2018 A-share Restricted Stock Incentive Plan (Phase I) were satisfied, the 1.244421 million A-share restricted shares involved were listed for trading on February 7, 2022. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. on January 28, 2022. 2. A-Share Restricted Shares Incentive Plan 2018(Phase 2) The 23rd session of the Ninth Board of Directors held on December 4, 2020 and 2021 1st Extraordinary General Meeting held on January 6, 2021 decided to start 2018 A-Share Restricted Stock Incentive Plan (Phase II), which was later on reviewed and approved at the 25th session of the Ninth Board of Directors held on January 15, 2021, and the Company eventually granted 7.66 million restricted A-shares to 135 persons eligible for the incentive. These restricted shares were awarded at price of CNY 7.60/share and were entirely awarded and registered for trading by January 29, 2021. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. on January 16, 2021. The specific implementation during the reporting period is summarized as follows: Reviewed and approved at the 26th session of the Ninth Board of Directors and 2021 2nd Extraordinary General Meeting, the Company decided to repurchase and cancel the 150,000 restricted A-shares which were already granted to but with the restriction not yet relieved held by 1 retired incentive object. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on February 5, 2021 and February 25, 2021. Reviewed and approved at the 28th session of the Ninth Board of Directors and 2020 Annual General Meeting, the Company decided to repurchase and cancel the 120,000 restricted A-shares which were already granted to but with the restriction not yet relieved held by 3 retired incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on April 13, 2021 and May 8, 2021. Reviewed and approved at the 30th session of the Ninth Board of Directors and 2021 3rd Extraordinary General Meeting, the Company decided to repurchase and cancel the 100,000 restricted A-shares which were already granted to but with the restriction not yet relieved held by 1 retired incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on June 15, 2021 and July 2, 2021. Reviewed and approved at the 32nd session of the Ninth Board of Directors and 2021 4th Extraordinary General Meeting, the Company decided to repurchase and cancel the 110,000 restricted A-shares which were already granted to 53 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text but with the restriction not yet relieved held by 2 retired incentive objects. For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. respectively on August 20, 2021 and September 9, 2021. Equity incentive to directors and senior executives of the Company In shares Strike price Quantity of Quantity of and the Quantity of Number of Number of Market price restricted Quantity of restricted Price of the number of restricted vested shares strike shares at the end of shares held at the shares shares newly restricted strike shares shares held at Names Title during the during the the reporting the beginning unlocked in granted shares during the the end of the reporting reporting period of the the reporting during the granted reporting reporting period period (CNY/share) reporting period reporting (CNY/share) period period period period (CNY/share) Chairman of Zhang Xuhua 0 0 0 0 0 0 0 the Board Xiao Yi Director 0 0 0 0 0 0 0 Xiao Zhanglin Director 0 0 0 0 0 0 0 Li Peiyin Director 0 0 0 0 0 0 0 Deng Jianghu Director 0 0 0 33,000 10,989 80,000 7.60 0 Managing Pan Bo 0 0 0 80,000 26,640 150,000 7.60 203,360 Director Independent Wang Jianxin 0 0 0 0 0 0 0 Director Zhong Independent 0 0 0 0 0 0 0 Hongming Director Independent Tang Xiaofei 0 0 0 0 0 0 0 Director deputy GM Lu Wanjun and chief law 0 0 0 80,000 26,640 150,000 7.60 203,360 adviser Liu Xiaoming Deputy GM 0 0 0 80,000 26,640 150,000 7.60 203,360 Li Ming Deputy GM 0 0 0 80,000 26,640 150,000 7.60 203,360 Tang Haiyuan Deputy GM 0 0 0 60,000 19,980 150,000 7.60 190,020 Huang Chairman of Yongfeng 0 0 0 100,000 33,300 0 0 the Board (Retired) Chen Libin Managing 0 0 0 100,000 33,300 180,000 7.60 246,700 (retired) Director Chen Zhuo Chief 0 0 0 80,000 26,640 150,000 7.60 203,360 54 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text (retired) Accountant & Secretary of the Board Xu Chuangyue Deputy GM 0 0 0 50,000 16,650 150,000 7.60 0 (retired) Total -- 0 0 -- -- 743,000 247,419 1,310,000 -- 1,453,520 According to the relevant regulations of the Company's equity incentive plan, since Mr. Deng Jianghu, Mr. Huang Yongfeng and Mr. Xu Remarks (If any) Chuangyue are the original incentive objects who have resigned, the Company has respectively granted but not yet lifted the restrictions on their holdings during the reporting period. The relevant repurchase and cancellation procedures have been completed. Assessment and Incentive Mechanism for Senior Executives In order to establish and improve the Company's incentive and restraint mechanism for senior executives, give full play to and mobilize the enthusiasm of the Company's executives, improve the Company's operational capabilities and economic benefits, and ensure the realization of the company's strategic goals, the Company continuously improved the work of tenure and contractual management of executives. With year/tenure as a period, the Company carried out the assessment of business performance objectives, and continued to promote the implementation of the rigid realization of rewards and punishments based on the assessment results, reflecting the strong incentives and hard constraints of remuneration, adhered to performance orientation, and strengthened effective incentives for accurate assessments. 2. Implementation of the Employee Stock Ownership Plan Inapplicable 3. Other employee incentive measures Inapplicable XII. Construction and Implementation of the Internal Control System during the Reporting Period 1. Construction and Implementation of the Internal Control System In order to strengthen the Company's internal control, promote the Company's standardized operation and healthy development, and protect the legitimate rights and interests of shareholders, the Company has established and improved the Company's internal control system in accordance with the "Company Law", "Securities Law" and other laws and regulations, and has conducted effective implementation. During the reporting period, the Company continued to promote the work related to the integration and optimization of internal control, risk management and compliance management supervision. The Company did not have any significant defects and shortcomings in the internal control. 2. Particular case found involving material defects in the internal control during the reporting period No 55 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text XIII. Management and Control of the Subsidiaries during the Reporting Period Inapplicable XIV. Internal Control Self-assessment Report or Internal Control Audit Report 1. Self-assessment Report of the Internal Control Date of disclosing the full text of the internal March 10, 2022 control assessment report Index of disclosure of the full text of the internal www.cninfo.com.cn control assessment report Proportion of the total assets of the organizations involved in the assessment in the 100.00% total assets of the Company’s consolidated financial statements Proportion of the operation revenue of the entitled involved in the assessment in the total 100.00% operation revenue of the Company’s consolidated financial statements Criteria for affirming the defects Categories Financial report Non-financial Report ① Serious violation of national laws, administrative regulations and normative documents; ② ”Decision-making of major issues, appointment and removal of important ① The defects involves fraud by directors, cadres, arrangement of important projects, supervisors and senior managers; use of large funds” failed to undergo ② Correction of published financial statements; collective decision-making process; ③ Certified public accountants found that there ③Serious loss of key officers and technical was a material misstatement in the financial personnel; Qualitative criteria statements of the current period, while internal ④ Lack of rules and regulations for control of control failed to find the misstatement in the or expiry of the system of rules and operation process; regulations to important businesses of the ④ The Company’s audit committee and the Company’s production and operation; discipline inspection, audit and law department ⑤ Expiry of the internal control of conducted ineffective supervision over the information disclosure resulted in public internal control. censure to the Company by the regulatory authority; ⑥ The result of the assessment of the internal control showed extraordinary defect 56 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text or serious defect has not be rectified. ① Material defect: misstatement ≥ 5% of the ① Material defect: misstatement ≥ 5% of pre-tax profit the pre-tax profit ② Important defect: 1% of the pre-tax ② Important defect: 1% of the pre-tax Quantitative criteria profit≤misstatement< 5% of the pre-tax profit≤misstatement< 5% of the profit pre-tax profit ③ General defect: misstatement<1% of ③ General defect: misstatement<1% of pre-tax profit pre-tax profit Number of material defects in financial reports 0 (pcs) Number of material defects in non-financial 0 reports (pcs) Number of important defects in financial reports 0 (pcs) Number of important defects in non-financial 0 reports (pcs) 2. Internal Control Audit Report Deliberation Opinions in the Internal Control Audit Report In our opinion, the Company maintained effective internal control over its financial report in all major aspects in accordance with the Basic Standard for Enterprise Internal Control and other relevant regulations as at December 31, 2021. Disclosure of the internal control audit Disclosed report Date of disclosing the full text of the March 10, 2022 internal control assessment report Index of disclosing the full text of the www.cninfo.com.cn internal control audit report Type of the onions in the internal Standard unqualified auditor’s report control audit report Are there any material defects in the No non-financial report Has the CPAs issued a qualified auditor’s report of internal control No Does the internal control audit report issued by the CPAs agree with the self-assessment report of the Board of Directors Yes 57 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text XV. Rectification of the Problems Found in the Self-inspection during the Special Campaign to Improve the Governance of Listed Companies During the reporting period, in accordance with the spirit of the CSRC’s “Announcement on Launching Special Campaign to Improve the Governance of Listed Companies” (CSRC Announcement [2020] No. 69) and other documents, the Company fully completed the special self-inspection work according to the special self-inspection list for governance of a listed company. Through this self-inspection, the Company believes that that the Company complies with the requirements specified in the "Company Law", "Code of Corporate Governance for Listed Companies.", "the Guidelines on the Bylaws of Listed Companies" and other laws and regulations in its overall company governance with quite complete governance structure and law-compliance operation. The two problems existing in the Company and the rectification as following: 1. Some directors, supervisors and senior executives of the Company failed to attend the General Meeting of Shareholders due to work arrangements and failed to implement the regulations for the application for leave. Rectification: From the end of the self-inspection work to the end of the reporting period, the Company held 4 general meetings of shareholders. The directors, supervisors and senior executives who were unable to attend (or attend as non-voting delegates) the meeting due to work arrangements have all signed the application for leave. 2. There were 8 defects found in the Company's Self-assessment of the Internal Control in 2019 with the defect level as general defects. Rectification: The Company has completed the rectification of the above 8 general defects in 2020, and there were no major defects in the Company's internal control. 58 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 5 Environment and Social Responsibility I. Significant Issues concerning Environmental Protection Does the Company or any of its subsidiaries belong to a key pollutant discharging unit as announced to the public by the environmental protection authority? Yes Description of Pollutant Name of the the major Number of Distribution of Way of Discharging Discharge Total discharge Total discharge Over-dischargi Company or its pollutants or discharging the discharging discharging concentration Standards in volume volume verified ng Subsidiary specific outlets outlets Force pollutant At the port of Shanghai Nickel and Nickel ﹤0.03, Intermittent and effluent Nickel: 0.1; Watch Industry chromium 1 chromium ﹤ 406 tons/year 650 tons/year None interruption treatment chromium: 0.1 Co., Ltd. effluent 0.01 equipment Construction and operation of the pollution prevention and control facilities Shanghai Watch Co., Ltd. reconstructed the waste water treatment facility in 2016 and added 2 sets of equipment in 2018 for the purpose of ensuring discharging of nickel and chromium effluent to comply with the Emission Standard of Pollutants for Electroplating during 2018. Up to now, the facility has been operating normally and its emission has never exceeded the limit as specified by the standard. The Company's online monitoring terminal has been docked with the government monitoring platform for timely testing. It complies with the standard in terms of emission factors. In order to implement the requirements of the Ministry of Ecology and Environment for energy saving and consumption reduction, the Company newly added a set of membrane filtration heavy metal device during the reporting year. As a result, its electroplating wastewater has reached the standard for clean water after the treatment. Therefore, the Company reuses a part of the water (recycling) , so that the total wastewater discharge last year was reduced by about 244 tons, and the recycling rate was about 37%. In compliance with the Document of Shanghai Municipal Bureau of Ecology and Environment, HU HUAN GUI (2020) No. 6, the primary pollutant wastewater should comply with the general principle of “the water which should be classified must be classified; the water which can be classified must be classified”. The Company started to entrust the municipal engineering department to arrange and improve the Company’s existing wastewater pipelines commencing from August, 2020, separate, collect and treat the domestic sewage and electroplating effluent. Environmental impact assessment on construction projects and other environmental protection administrative licensing In 2018,Yangpu District Bureau of Ecology and Environment of Shanghai organized and held the Clean Production Auditing and Assessment Seminar of Shanghai Watch Co., Ltd. where the Company's clean production work was assessed, audited and approved. Shanghai Watch Co., Ltd.has passed the pollution discharge verification organized by Yangpu District Bureau of Ecology and Environment of Shanghai and has received the Pollutant Discharge Permit issued by the said authority at the end of 2019. Since the individual non-heavy pollutant factors originally approved in the "Pollutant Discharge Permit" did not belong to the Company's discharge scope, the Company requested to change the 59 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text "Pollutant Discharge Permit", which was now been re-examined by the Yangpu District Bureau of Ecology and Environment and was issued on October 20, 2021. Contingency Plan for Emergent Environmental Incidents Shanghai Watch Co., Ltd. prepared the Emergency Response Plan against Emergent Environmental Incidents and regularly organizes training and exercise every year. The aforesaid plan has been approved and filed for record by Yangpu District Bureau of Ecology and Environment of Shanghai and has been published on the Environmental Information Disclosure Platform of Enterprises and Institutions of Shanghai. Environment Self-Monitoring Program Yangpu District Bureau of Ecology and Environment of Shanghai monitors the Company once a quarter. The Company entrusted a qualified third-party organization (Shanghai Textile Energy Conservation Center) to monitor and issue monitoring report every six months. The Company is equipped with online monitoring instruments and communicates with the district bureau of ecology and environment. The platforms of the bureau and the district government are connected to the Internet to transmit the concentration data of heavy pollution factors 24 hours a day. Administrative penalties for environmental issues during the reporting period Inapplicable Other environment information necessary to be disclosed The Company has disclosed the concerned information on the Environmental Information Disclosure Platform of Enterprises and Institutions of Shanghai according to the requirements of the local environmental protection authorities. Website: https://e2.sthj.sh.gov.cn. Measures taken to reduce carbon emissions during the reporting period and their effect Inapplicable Other information in connection with the environmental protection Inapplicable II. Social Responsibilities For the detail, please refer to the "2021 Corporate Social Responsibility Report" disclosed by the Company on March 10, 2022 on www.cninfo.com.cn. III. Consolidating and Expanding the Achievements of Poverty Alleviation and Rural Revitalization During the reporting period, the Company actively responded to national policies and participated in targeted poverty alleviation and rural revitalization through various means. Through the “LOVEAVIATION”, the aviation industry love support platform the Company has purchased "LOVEAVIATION" agricultural products during the Dragon Boat Festival, Mid-Autumn Festival and other traditional Chinese festivals to help poverty-stricken counties in Guizhou etc. in getting rid of poverty; carried out culturally characteristic poverty alleviation activities. On August 3, 2021, the "Children Enjoying Beautiful Time" Hand-in-Hand Summer Camp jointly organized by Shenzhen Chenghan Public Welfare Foundation and 60 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Gansu Aesthetic Education Promotion Association invited more than 50 teachers and students from Linxia, Gansu Province to enter the Park of FIYTA Clock Building and hold a "Hand-in-Hand Summer Camp" and the “Love being only Because of You" theme public welfare activities were successfully held. 61 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 6 Significant Events I. Implementation of Commitments 1. Commitments made by the Company's actual controller, shareholders, related parties, acquirers, the Company and other relevant parties fulfilled during the reporting period and not fulfilled as of the end of the reporting period Inapplicable 2. There existed profit anticipation for the Company’s assets or projects while the reporting period was still within the duration of the profit anticipation. The Company made explanation on whether the assets or projects reached the anticipated profit and the cause Inapplicable II. Non-operational Occupancy of the Company’s Capital by the Controlling Shareholder and its Related Parties Inapplicable III. Outward guarantee against regulations Inapplicable IV. Explanation of the Board of Directors on the Qualified Auditors' Report for the Latest Period Issued by the CPAs Inapplicable V. Explanation of the Board of Directors, the Supervisory Committee and Independent Directors (if any) on the “Qualified Auditor’s Report” issued by the CPAs in the Reporting Period Inapplicable VI. Explanation of changes in accounting policies, accounting estimates or correction of significant accounting errors compared with the financial report of the previous year The Ministry of Finance revised and issued the "Accounting Standards for Enterprises No. 21-Leases" on December 7, 2018. According to the requirement of the Ministry of Finance, a company which is listed both at home and abroad or listed overseas and prepares its financial statements according to the International Financial Reports Standards or the Accounting Standards for Enterprises started implementing the said accounting standards commencing from January 1, 2019; other enterprises implementing the accounting standards for enterprises started the implementation commencing from January 1, 2021. The Company as a domestically listed company started implementing the new lease standards 62 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text commencing from January 1, 2021 according to the aforesaid standards and circular promulgated by the Ministry of Finance. For details, please refer to the “Announcement on Change of the Accounting Policies 2021-030” disclosed on the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn/ on March 20, 2021. VII. Explanation on the Changes in the Scope of the Consolidated Statements in Comparison with the Financial Report of the Previous Year During the reporting period, Shenzhen Xunhang Precision Technology Co., Ltd. and HARMONY World Watch Center (Hainan) Limited, the Company's newly established wholly-owned subsidiaries, were included in the scope of the Company's consolidated statements; the deregistration of 68 Station Co., Ltd., one of the Company's wholly-owned subsidiaries, was completed on March 5, 2021, and it has been excluded from the scope of the Company's consolidated statements. VIII. Engagement/Disengagement of CPAs CPAs currently engaged by the Company Name of the domestic CPAs Da Hua Certified Public Accountants (Special General Partnership) Remuneration to the domestic CPAs (in CNY 10,000) 120 Successive years of the domestic CPAs offering auditing services 1 Name of the certified public accountants from the domestic CPAs Long Jiao and Wang Dong Successive years of the domestic CPAs offering auditing services 1 Has the CPAs been changed for the reporting period? Yes Has the CPAs been replaced during the auditing? No Have the examination and approval procedures been implemented in replacing the CPAs Yes Detailed explanation on the replacement/change of the CPAs The 32nd Session of the Ninth Board of Directors held on August 18, 2021 and 2021 4th Extraordinary General Meeting held on September 8, 2021 reviewed and approved the "Proposal on Change of the Accounting Firm". As the employment term of Grant Thornton LLP as the Company's auditor expired, the Company decided to employ Da Hua Certified Public Accountants as the Company's auditor of the financial statements and internal control of year 2021. For details, please refer to the “Announcement on the Change of the CPAs 2021-077” disclosed by the Company on http://www.cninfo.com.cn/ on August 20, 2021. Employment of CPAs, financial consultant or sponsor for auditing the internal control After review and approval at the Company's 4th Extraordinary General Meeting, the Company appointed Da Hua Certified Public Accountants (Special General Partnership) as the auditor of Company's 2021 annual financial statements and 63 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text internal control. IX. Delisting Possibly to be Confronted with after Disclosure of the Annual Report Inapplicable X. Matters concerning Bankruptcy Reorganization Inapplicable XI. Significant Lawsuits and Arbitrations Inapplicable XII. Penalty and Rectification Inapplicable XIII. Integrity of the Company, its Controlling Shareholder and Actual Controller Inapplicable XIV. Significant Related Transactions 1. Related Transactions Related with Day-to-Day Operations Inapplicable 2. Related transactions concerning acquisition and sales of assets or equity Inapplicable 3. Related transactions concerning joint investment in foreign countries Inapplicable 4. Current Associated Rights of Credit and Liabilities Inapplicable 5. Transactions with the finance company with incidence relation Deposit business Incidence Maximum Deposit interest Opening balance Amount incurred in the reporting Ending balance Related parties relation deposit limit per range (CNY 10,000) period (CNY 10,000) 64 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text day (CNY Total amount Total amount 10,000) deposited during withdrawn during the reporting the reporting period (in CNY period (in CNY 10,000) 10,000) Finance AVIC Finance company with 80,000 1.665% 28,353.23 313,638.76 327,213.39 14,778.60 Co., Ltd. incidence relation Loan business Amount incurred in the reporting period Incidence Loan amount Loan interest Opening balance Total loan during Total repayments Ending balance Related parties relation (CNY 10,000) rate range (CNY 10,000) the reporting during the (CNY 10,000) period (in CNY reporting period 10,000) (in CNY 10,000) Finance AVIC Finance company with 30,000 3.65% 0 20,000 20,000 0 Co., Ltd. incidence relation Credit extension and other financial business Inapplicable 6. Transactions between the finance company controlled by the Company and the related parties Inapplicable 7. Other Significant Related Transactions The 27th session of the Ninth Board of Directors held on March 18, 2021 and 2020 Annual General Meeting held on May 7, 2021 reviewed and approved the Proposal on Prediction of Regular Related Transactions in 2021. For the detail, refer to the Announcement on the Resolution of the 27th Session of the Ninth Board of Directors No. 2021-026, the Announcement on the Prediction of the Regular Related Transactions in 2021 No. 2021-029 and the Announcement on the Resolution of 2020 Annual General Meeting No. 2021-045. During the reporting period, the cumulative transaction amount of the Company's related transactions related to its daily operations was within the expected range of the year. The 32nd Session of the Ninth Board of Directors held on August 18, 2021 and 2021 4th Extraordinary General Meeting held on September 8, 2021, reviewed and approved the "Proposal for Signing Financial Service Agreement with AVIC Finance Co., Ltd. The Company decided to terminate the original contract with the AVIC Finance Ltd. and sign new Financial Services Agreement. For the detail, refer to the Announcement of the Resolution of the 32nd Session of the Ninth Board of Directors No. 2021-072, the Announcement on the Related Transaction in Connection with Signing Financial Service Agreement with AVIC Finance Co., Ltd. No. 2021-078 and the Announcement on the Resolution of 021 4th Extraordinary General Meeting No. 2021-087. 65 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Inquiry on the website for disclosing the provisional report concerning significant related transactions Description of the provisional announcements Date of disclosure Disclosure website Announcement on the Resolution of the 27th Session of March 10, 2021 www.cninfo.com.cn the Ninth Board of Directors, 2021-026 Announcement of the Prediction of the Regular Related March 10, 2021 www.cninfo.com.cn Transactions in 2021, 2021-029 Announcement on the Resolution of 2020 Annual General May 08, 2021 www.cninfo.com.cn Meeting, 2021-045 Announcement on the Resolution of the 32nd Session of August 20, 2021 www.cninfo.com.cn the Ninth Board of Directors, 2021-072 the Announcement on the Related Transaction in Connection with Signing Financial Service Agreement with August 20, 2021 www.cninfo.com.cn AVIC Finance Co., Ltd. No. 2021-078 Announcement on the Resolution of 2021 4th September 09, 2021 www.cninfo.com.cn Extraordinary General Meeting, 2021-087 XV. Important Contracts and Implementation 1. Custody, Contacting and Leases (1) Custody Inapplicable (2) Contracting Inapplicable (3) Leases Inapplicable 2. Significant Guarantees In CNY 10,000 Outward guarantees Offered by the Company and its Subsidiaries (excluding guarantee to the subsidiaries) Date of the announceme Actual Counter Implement Guarantee Names of Guarantee Date of Type of Collateral (if Guarantee nt on the amount of guarante ation to related Guarantees line occurrence guarantee any) period guarantee guarantee e (if any) status party? line 66 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Inapplicable Total amount of outward Total amount of outward guarantee approved in the 0 guarantee actually incurred 0 report period (A1) in the report period (A2) Total amount of outward Total ending balance of guarantee already outward guarantee at the 0 0 approved at the end of the end of the report period report period (A3) (A4) Guarantee to the subsidiaries Date of the announceme Actual Counter Implement Guarantee Names of Guarantee Date of Type of Collateral (if Guarantee nt on the amount of guarante ation to related Guarantees line occurrence guarantee any) period guarantee guarantee e (if any) status party? line Guarantee March 10, December Harmony 15,000 15,000 with joint 1 year No No 2021 23, 2021 responsibility the Guarantee March 10, June 23, Technology 3,000 289 with joint 1 year No No 2021 2021 Co. responsibility the Guarantee March 10, April 01, Technology 4,000 1,284 with joint 1 year No No 2021 2021 Co. responsibility Guarantee the Hong March 10, 3,270.4 0 with joint 1 year No No Kong Co. 2021 responsibility Total amount of guarantee Total guarantee quota to to the subsidiaries actually the subsidiaries approved 25,270.4 16,573 incurred in the reporting in the reporting period (B1) period (B2) Total guarantee quota to Total balance of actual the subsidiaries approved guarantee to the 25,270.4 16,573 at the end of the reporting subsidiaries at the end of period (B3) the reporting period (B4) Guarantee among the subsidiaries Date of the announceme Actual Counter Implement Guarantee Names of Guarantee Date of Type of Collateral (if Guarantee nt on the amount of guarante ation to related Guarantees line occurrence guarantee any) period guarantee guarantee e (if any) status party? line 67 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Inapplicable Total amount of guarantee Total guarantee quota to to the subsidiaries actually the subsidiaries approved 0 0 incurred in the reporting in the reporting period (C1) period (C2) Total guarantee quota to Total balance of actual the subsidiaries approved guarantee to the 0 0 at the end of the reporting subsidiaries at the end of period (C3) the reporting period (C4) Total amount of guarantees (i.e. Total of the previous three major items) Total amount of outward Total guarantee quota to the guarantee actually incurred subsidiaries approved in the 25,270.4 16,573 in the report period reporting period (A1+B1+C1) (A2+B2+C2) Total ending balance of Total amount of guarantees already guarantees at the end of approved at the end of the report 25,270.4 16,573 the report period period (A3+B3+C3) (A4+B4+C4) Proportion of the actual guarantees in the Company’s 5.50% net assets (namely A4+B4 + C4) where Amount of guarantees offered to the shareholders, 0 actual controller and its related parties (D) Amount of guarantee for liabilities directly or indirectly offered to the guarantees with the asset-liability ratio 0 exceeding 70% (E) Guarantee with total amount exceeding 50% of the net 0 assets (F) Total amount of the aforesaid three guarantees 0 (D+E+F) For the guarantee contract not yet due, guarantee responsibility incurred in the reporting period or there is Inapplicable evidence showing the description of the possible related discharge duty (if any) Note to the outward guarantee against the established Inapplicable procedures (if any) Description of the guarantee with complex method Inapplicable 68 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 3. Entrusting a Third Party to Manage the Cash Assets (1) Finance Management on Commission Inapplicable (2) Entrusted Loan Inapplicable 4. Other Important Contracts Inapplicable XVI. Notes to Other Significant Events 1. Amendment of the Company's Rules and Regulations Authorized by 2021 1st Extraordinary General Meeting, the 26th session of the Ninth Board of Directors held on February 4, 2021 reviewed and approved the "Proposal on the Amendment of the Articles of Association". For the detail, refer to the Amendment of the Articles of Association disclosed in http://www.cninfo.com.cn. on February 5, 2021. The 3rd session of the Tenth Board of Directors held on November 12, 2021 and 2021 5th Extraordinary General Meeting held on November 30, 2021, reviewed and approved the Proposal on the Amendment of the "Articles of Association", " the Proposal on the Amendment of the Rules of Procedures for the General Meetings ","the Proposal on the Amendment of the Rules of Procedures of Board Meetings ". For the detail, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. on November 13, 2021. 2. Repurchase of Partial Domestically Listed Foreign Investment Shares (B-Shares) The Company’s 2nd Session of the Tenth Board of Directors held on October 25, 2021 and 2021 5th Extraordinary General Meeting held on November 30, 2021 reviewed and approved the “Proposal for the Repurchase of Partial Domestically Listed Foreign Shares (B-Shares). For the detail, refer to the Report on the Repurchase of Partial Domestically Listed Foreign Shares (B-Shares) No. 2021-102. XVII. Significant Events of the Company's Subsidiaries Inapplicable 69 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 7 Change of the Shares and Particulars about Shareholders I. Change of the Shares 1. Change of the Shares In shares Before the change Increase/decrease (+, -) involved in the change After the change Shares New Bonus converted Quantity Proportion Others Sub-total Quantity Proportion issuing shares from reserve I. Restricted shares 4,457,513 1.04% 7,660,000 -1,982,029 5,677,971 10,135,484 2.38% 1. Shares held by the state 0 0.00% 0 0 0 0 0.00% 2. State corporate shares 0 0.00% 0 0 0 0 0.00% 3. Other domestic shares 4,457,513 1.04% 7,660,000 -1,982,029 5,677,971 10,135,484 2.38% Including: Domestic 0 0.00% 0 0 0 0 0.00% corporate shares Shares held by 4,457,513 1.04% 7,660,000 -1,982,029 5,677,971 10,135,484 2.38% domestic natural persons 4. Foreign invested shares 0 0.00% 0 0 0 0 0.00% Including: Foreign corporate 0 0.00% 0 0 0 0 0.00% shares Shares held by foreign 0 0.00% 0 0 0 0 0.00% natural persons II. Unrestricted shares 423,634,368 98.96% 0 -7,718,837 -7,718,837 415,915,531 97.62% 1. CNY ordinary shares 356,716,368 83.33% 0 1,275,249 1,275,249 357,991,617 84.03% 2. Foreign invested shares 66,918,000 15.63% 0 -8,994,086 -8,994,086 57,923,914 13.60% listed in Mainland China 3. Foreign invested shares 0 0.00% 0 0 0 0 0.00% listed abroad 4. Others 0 0.00% 0 0 0 0 0.00% III. Total shares 428,091,881 100.00% 7,660,000 -9,700,866 -2,040,866 426,051,015 100.00% Cause of the change of shares During the reporting period, the Company’s 2018 A-share Restricted Stock Incentive Plan (Phase II) was completed in granting and registered for listing on January 29, 2021. 7,660,000 shares were granted. 70 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text As in the Company's 2018 A-share Restricted Stock Incentive Plan (Phase I) and 2018 A-share Restricted Stock Incentive Plan (Phase II), 8 original incentive objects resigned and one passed away, they were no longer eligible for incentives. The Company has repurchased and canceled the 706,780 restricted A-shares that it had granted but had not yet lifted the restriction on sales in accordance with the provisions of the incentive plan. According to the Company’s Proposal for the Repurchase of Partial Domestically Listed Foreign Shares (B-Shares) by the Company, the Company repurchased 8,994,086 B-shares in total during the period from July 23, 2020 to July 22, 2021. This part of the B-shares were canceled on August 3, 2021. Due to the above reason, the Company's total shares changed from 428,091,881 shares to 426,051,015 shares. Approval of the Change of the Shares 2021 1st Extraordinary General Meeting held on January 6, 2021 reviewed and approved 2018 Restricted A-Share Incentive Plan (Phase II) (Draft) and the summary, which was later on reviewed and approved at the 25th session of the Ninth Board of Directors held on January 15, 2021, and the Company eventually granted 7.66 million restrictive A-shares to 135 persons eligible for the incentive. The Company's 2021 2nd Extraordinary General Meeting held on February 24, 2021 authorized the Board of Directors of the Company to repurchase and cancel 201,359 A-share restricted shares with the restriction not yet relieved that had been granted to and held by the former incentive objects one of whom had resigned and another of whom had passed away. The Company's 2020 Annual General Meeting held on May 7, 2021 authorized the Board of Directors of the Company to repurchase and cancel 160,020 A-share restricted shares with the restriction not yet relieved that had been granted to and held by the former incentive objects three of whom had resigned and another of whom had passed away. The Company's 2021 3rd Extraordinary General Meeting held on July 01, 2021 authorized the Board of Directors of the Company to repurchase and cancel 133,350 A-share restricted shares with the restriction not yet relieved that had been granted to and held by a retired former incentive object. The Company's 2021 4th Extraordinary General Meeting held on September 8, 2021 authorized the Board of Directors of the Company to repurchase and cancel 212,051 A-share restricted shares with the restriction not yet relieved that had been granted to and held by three retired former incentive object. The Company held 2020 2nd Extraordinary General Meeting on July 23, 2020, authorized the Company's Board of Directors to fully handle matters related to the cancellation of the repurchased shares after the repurchase of some domestically listed foreign shares (B-shares) was completed. Transfer of the Shares Changed Verified by China Securities Depository & Clearing Corporation Limited Shenzhen Branch, the transfer of the Company's share changes in the reporting period is as follows: 1. The Company's 2018 A-share Restricted Stock Incentive Plan (Phase II) was completed on January 29, 2021. As a result, 7,660,000 shares were granted. 71 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 2. The Company completed the repurchase and cancellation of A-share restricted shares on April 23, 2021, July 6, 2021, August 24, 2021 and November 3, 2021. Total repurchase logout 706,780 shares A Shares restrictive stock. 3. As at August 3, 2021, the Company completed repurchase and cancellation of 8,994,086 domestically listed foreign shares (B-shares). Influence of the change of the shares upon such financial indicators as the basic EPS and diluted EPS, net asset value per share attributable to the common stockholders in the past year and the latest period Earnings per share Net return on equity, weighted average (%) Basic earning per share (CNY/share) Diluted earning per share (CNY/share) 2021 2020 2021 2020 2021 2020 13.39% 10.78% 0.9036 0.6764 0.9036 0.6764 Other information the Company considers necessary or required by the securities regulatory authority to be disclosed. Inapplicable 2. Change of the Restricted Shares In shares Number of restricted Number of restricted Number of restricted Number of restricted Names of the shares at the Date of relieving the shares increased in shares relieved in the shares at the end of Cause of restriction Shareholders beginning of the restriction the reporting period reporting period the reporting period reporting period To be unlocked subject to the Locked shares for the conditions of the Chen Libin (retired) 160,000 180,000 33,300 306,700 retired senior locked shares for the executives retired senior executives As of the disclosure date, the Company intended to repurchase 176,720 restricted A-shares in Locked and not yet accordance with the unlocked restricted regulations, and the Chen Zhuo (retired) 118,250 156,640 26,640 248,250 shares held by the remaining shares senior executives shall be unlocked according to the conditions for unlocking the locked shares held by the retired senior 72 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text executives. To be unlocked subject to the conditions of the Locked and not yet locked shares for unlocked restricted Li Ming 117,530 156,640 26,640 247,530 senior executives and shares held by the the measures for the senior executives Company’s equity incentive management To be unlocked subject to the conditions of the Locked and not yet locked shares for unlocked restricted Pan Bo 117,500 156,640 26,640 247,500 senior executives and shares held by the the measures for the senior executives Company’s equity incentive management To be unlocked subject to the conditions of the Locked and not yet locked shares for unlocked restricted Lu Wanjun 117,500 156,640 26,640 247,500 senior executives and shares held by the the measures for the senior executives Company’s equity incentive management To be unlocked subject to the conditions of the Locked and not yet locked shares for unlocked restricted Liu Xiaoming 117,500 156,640 26,640 247,500 senior executives and shares held by the the measures for the senior executives Company’s equity incentive management To be unlocked Locked and not yet subject to the unlocked restricted conditions of the Tang Haiyuan 60,000 154,980 19,980 195,000 shares held by the locked shares for senior executives senior executives and the measures for the 73 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Company’s equity incentive management To be unlocked subject to the Not yet unlocked measures for the Bao Xianyong 60,000 120,000 19,980 160,020 restricted shares Company’s equity incentive management To be unlocked subject to the Not yet unlocked measures for the Sun Lei 60,000 120,000 19,980 160,020 restricted shares Company’s equity incentive management To be unlocked subject to the Not yet unlocked measures for the Sheng Li 60,000 120,000 19,980 160,020 restricted shares Company’s equity incentive management To be unlocked subject to the Locked and not yet conditions of the unlocked restricted locked shares for Other shareholders 3,469,233 6,264,212 1,111,221 7,915,444 shares held by the senior executives and retired senior the measures for the executives Company’s equity incentive management Total 4,457,513 7,742,392 1,357,641 10,135,484 -- -- II. Issuing and Listing 1. Issuing of securities (with preferred stock exclusive) in the reporting period Description of the Quantity stock and its Issuing price (or approved for Expiry date of Date of Date of issuing Quantity issued Date of listing Disclosure index derivative interest rate) being listed for trading disclosure securities trading Type of stock A-shares January 15, 7.60 7,660,000 January 29, http://www.cninfo January 28, 74 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 2021 2021 .com.cn/ 2021 Note to issuing of securities (with preferred stock exclusive) in the reporting period The 23rd session of the Ninth Board of Directors held on December 4, 2020 and 2021 1st Extraordinary General Meeting held on January 6, 2021 decided to start 2018 A-Share Restricted Stock Incentive Plan (Phase 2), which was later on reviewed and approved at the 25th session of the Ninth Board of Directors held on January 15, 2021, and the Company eventually granted 7.66 million restricted A-shares to 135 persons eligible for the incentive. This part of restricted A-shares was all granted by January 15, 2021 and registered for listing by January 29, 2021. For the detail, please refer to the "Announcement on Completion of the Grant Involved in the 2018 A-Share Restricted Stock Incentive Plan (Phase II) 2021-011” disclosed in the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn. 2. Note to changes of the company’s total shares and the structure of shareholders as well as the structure of assets and liabilities Same as the description in “the Cause of the Change of Shares”. 3. Existing Employee Shares Inapplicable III. Shareholders and Actual Controlling Shareholder 1. Number of Shareholders and Shareholding In shares Total preference shareholders with the Total common Total preference voting power Total common shareholders at the shareholders with the recovered at the end shareholders at the end of the month prior voting power recovered at 34,412 34,634 0 of the month before 0 end of the reporting to the date of the end of the reporting the day of disclosing period disclosing the annual period (if any) (Refer to the Annual Report (if report Note 8) any) (Refer to Note 8) Shares held by the shareholders holding over 5% shares or the top ten shareholders Number of Pledging, marking or freezing shares held Number of Increase/decrease Quantity of Names of the Nature of the Shareholding at the end of the in the reporting unrestricted Shareholders shareholder proportion the restricted Status of the shares Quantity period shares held reporting shares held period AVIC International State corporate 38.25% 162,977,327 - 0 162,977,327 Holding Limited 75 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Guoxin Investment Co., State corporate 1.82% 7,739,898 7,739,898 0 7,739,898 Ltd. Construction Bank of China - Penghua Huizhi Domestic Optimized Hybrid non-state-owned legal 1.10% 4,679,494 4,679,494 0 4,679,494 Securities Investment person Fund Construction Bank of China - Penghua Value Domestic Superiority Hybrid non-state-owned legal 0.60% 2,556,742 -4,915,693 0 2,556,742 Securities Investment person Fund (LOF) Domestic natural Qiu Hong 0.54% 2,300,000 700,000 0 2,300,000 person China Ifund Asset Management Co., Ltd. Domestic - Ifund All-Weather No. non-state-owned legal 0.43% 1,841,716 1,841,716 0 1,841,716 2 Phase G Private person Equity Securities Investment Fund SOCIETE GENERALE Foreign corporate 0.30% 1,265,800 1,024,300 0 1,265,800 Domestic natural Zhang Yinnan 0.28% 1,195,128 1,195,128 0 1,195,128 person Domestic natural Chen Hao 0.24% 1,041,143 -24,257 0 1,041,143 person Domestic natural Chen Chu 0.24% 1,004,400 508,599 0 1,004,400 person About the fact that a strategic investor or ordinary corporate became one of the top ten Inapplicable shareholders due to placement of new shares (if any) (Refer to Note 3) Explanation on associated relationship or Inapplicable consistent action of the above shareholders Among the above shareholders, AVIC International Holding Limited authorized representatives to exercise its voting Note to the aforesaid shareholders involving power on behalf at the Company’s 2021 1st Extraordinary General Meeting, 2021 2nd Extraordinary General Meeting, entrusting/being entrusted with voting power 2020 Annual General Meeting, 2021 3rd Extraordinary General Meeting, 2021 4th Extraordinary General Meeting and and the waiver of voting power 2021 5th Extraordinary General Meeting with the number of shares they represented was always 162,977,327. For the detail of the result of the aforesaid voting, refer to the relevant announcement disclosed in http://www.cninfo.com.cn. There is a special repurchase account among the top 10 shareholders (if any) (see Note 10) Inapplicable Special note to the designated repurchase 76 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text account in top 10 shareholders (if any) (Refer to Note 11) Shares held by top 10 shareholders of unrestricted shares Share type Names of the Shareholders Quantity of unrestricted shares held at the end of the reporting period Share type Quantity AVIC International Holding Limited 162,977,327 CNY ordinary shares 162,977,327 Guoxin Investment Co., Ltd. 7,739,898 CNY ordinary shares 7,739,898 Construction Bank of China - Penghua Huizhi 4,679,494 CNY ordinary shares 4,679,494 Optimized Hybrid Securities Investment Fund Construction Bank of China - Penghua Value Superiority Hybrid Securities Investment Fund 2,556,742 CNY ordinary shares 2,556,742 (LOF) Qiu Hong 2,300,000 CNY ordinary shares 2,300,000 China Ifund Asset Management Co., Ltd. - Ifund All-Weather No. 2 Phase G Private Equity 1,841,716 CNY ordinary shares 1,841,716 Securities Investment Fund SOCIETE GENERALE 1,265,800 CNY ordinary shares 1,265,800 Domestically listed Zhang Yinnan 1,195,128 1,195,128 foreign shares Chen Hao 1,041,143 CNY ordinary shares 1,041,143 Chen Chu 1,004,400 CNY ordinary shares 1,004,400 Explanation to the associated relationship or consistent action among the top 10 shareholders of non-restricted negotiable Inapplicable shares and that between the top 10 shareholders of non-restricted negotiable shares and top 10 shareholders. Note to the top 10 common shareholders involved in margin financing & securities lending Inapplicable (if any) (Refer to Note 4) Did the top ten common shareholders or top ten shareholders of unrestricted common shares conduct contractual repurchase during the reporting period? No 2. Controlling Shareholder Nature of the controlling shareholder: State-owned shareholding directly under the central government Type of the controlling shareholder: corporate Name of the Controlling Legal Representative Date of incorporation Organization Code Leading business activities 77 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Shareholder /Leader Investment in industries (specific projects are subject to application for approval); domestic trade, material supply and distribution (with commodities for exclusive operation, exclusive control AVIC International Holding and monopoly exclusive); Li Bin June 20, 1997 91440300279351229A Limited import and export (excluding items prohibited by laws and regulations and the decisions of the State Council; for the above items subject to approval, relevant approval must be obtained prior to operation). Equity in other domestic and foreign listed companies held by the controlling shareholder by AVIC International Holdings Limited holds 11.86% equity in Tianma Micro-electronics Co., Ltd. (000050.SZ) means of control and mutual and 67.05% equity in Shennan Circuits Company Limited (002916.SZ). shareholding in the reporting period. Change of the controlling shareholder in the reporting period Inapplicable 3. Actual Controller and its Concerted Parties Nature of the actual controller: State-owned assets regulatory agency directly under the central government Type of the actual controller: corporate Legal Representative Name of the Actual Controller Date of incorporation Organization Code Leading business activities /Leader Operating state-owned assets within the scope of authorization of the State Council; military aircraft and engines, guided weapons, military gas turbines, weapons and equipment supporting Aviation Industry Corporation of China, Tan Ruisong November 06, 2008 91110000710935732K systems and products research, design, Ltd. development, testing, production, sales, maintenance, guarantees and services, etc.; investment and management of finance, lease, general aviation services, transportation, medical care, engineering 78 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text survey and design, engineering contracting and construction, real estate development and other industries; design, research, development, testing, production, sales and maintenance services of civil aircraft and engines, airborne equipment and systems, gas turbines, automobiles and motorcycles and engines (including parts and components), refrigeration equipment, electronic products, environmental protection equipment and new energy equipment; equipment leasing; engineering survey and design; project contracting and construction; real estate development and operation; technology transfer and technical services related to the above businesses; import and export business; technical development and sales of ships; engineering equipment technology development; technology development of new energy products. (The company independently chooses operational projects according to law, carries out business activities; the projects must be approved according to the law by the competent authorities before carrying out business activities based on the approved contents; the company must not engage in any business activities prohibited or restricted by the local market industrial policy.) In addition to holding the Company's equity, AVIC, directly or indirectly, holds or controls the shares of domestic and foreign listed companies: holding 50% equity in AVICOPTER PLC (600038.SH), 48% equity in Jiangxi Hongdu Aviation Industry Co., Ltd. (600316.SH), 66% in China Avionics Systems Co., Ltd. (600372.SH), 69% in AVIC Shenyang Aircraft Company Limited (600760.SH), 55% in AVIC Xi’an Aircraft Industry Group Co., Ltd. (000768.SZ), 38% in AVIC Heavy Machinery Co., Ltd. (600765.SH), 52% in AVIC Electromechanical Systems Co., Ltd., (002013.SZ), 46% in Guizhou Guihang Automotive Equity in other domestic and foreign Components Co., Ltd. (600523.SH), 51% in Sichuan Chengfei Integration Technology Corp. Ltd. (002190.SZ), 40% in listed companies controlled by the actual AVIC Jonhon Optronic Technology Co.,Ltd. (002179.SZ), 54% in AVIC Electronic Measuring Instruments Company Limited controller in the reporting period. (300114.SZ), 50% in AVIC Industry-finance Holdings Co., Ltd. (600705.SH), 64% in Shennan Circuit Co., Ltd. (002916.SZ), 28% in Tianma Microelectronics Co., Ltd. (000050.SZ), 43% in Rainbow Digital Commercial Co., Ltd. (002419.SZ), 40% in Baosheng Science And Technology Innovation Co., Ltd. (600973.SH), 47% in AVIC Forstar S&t Co., Ltd (835640.BJ), 62% in AVICHINA INDUSTRY & TECHNOLOGY COMPANY LIMITED (2357.HK), 46% in Continental Aerospace Technologies Holding Limited (0232.HK), 65% in Nexteer Automotive Group Limited (1316.HK), 89% in KHD Humboldt Wedag 79 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text International AG (KWG:GR), 55% in FACC AG (AT00000F ACC2), 56% in HEFEI JIANGHANG AIRCRAFT EQUIPMENT CO., LTD. (688586.SH), 45% in AVIC Aviation High-Technology Co., Ltd. (600862.SH). Note: According to the relevant provisions of Standards for the Contents and Formats of Information Disclosure by Companies Offering Securities to the Public No. 1—— Prospectus promulgated by the Securities Regulatory Commission, it is believed that the Company's actual controller is traced upstream from AVIC International Holding Corporation to Aviation Industry Corporation of China, Ltd. The number and proportion of shares in the Company controlled by AVIC International Holding Corporation and Aviation Industry Corporation of China, Ltd. remain unchanged. Change of the actual controller in the reporting period Inapplicable Block Diagram of the Ownership and Control Relations between the Company and the Actual Controller State-owned Assets Supervision and Administration Commission of the State Council 100% Aviation Industry Corporation of China AVIC CCB Aviation Industry Equity Investment (Tianjin) Co., Ltd. 91.14% 8.86% AVIC International Holding Corporation 100% 100% AVIC International Shenzhen Company Limited AVIC International Industrial Holding Co., Ltd. 66.07% 33.93% AVIC International Holdings Limited 38.25% FIYTA Precision Technology Co., Ltd. 80 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text The actual controller controls the Company by means of trust or managing the assets in other ways: Inapplicable 4. The number of shares pledged by the Company's controlling shareholder or the first major shareholder and its persons acting in concert having accounted for 80% of the shares held by them Inapplicable 5. Other Corporate Shareholder Holding over 10% of the Company’s Shares Inapplicable 6. Shareholding Reduction Restriction on the Controlling Shareholder, the Actual Controller, the Reorganizing Party and other Committing Party Inapplicable IV. Specific implementation of the repurchase of shares during the reporting period Progress of implementation of the stock repurchase Proportion of the number of Number of shares Number of Proportion in the Amount for the Duration for the Proposal Purpose of shares already repurchased in shares to be total share planned planned disclosure time repurchase repurchased the target shares repurchased capital repurchase repurchase (shares) involved in the equity incentive plan (if any) No lower than Canceled 13.02 million CNY 80 million according to the July 23, 2020 to July 07, 2020 shares to 26.04 3.04% to 6.08% but not law and the 8,994,086 July 22, 2021 million shares exceeding CNY registered capital 160 million decreased No lower than Canceled November 30, 7.46 million CNY 50 million according to the October 27, 2021 to shares to 14.92 1.75% to 3.5% but not law and the 0 2021 November 29, million shares exceeding CNY registered capital 2022 100 million decreased Progress of implementation of reduction of the holding size of the shares repurchased by centralized bidding Inapplicable 81 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Section 8 About the Preferred Shares Inapplicable Section 9 About Bonds Inapplicable 82 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Independent Auditor ’s Report D.H.S.Z.[2022]003511 To the Shareholders of FIYTA Precision Technology Co., Ltd.: I.Audit Opinion We have audited the accompanying financial statements of FIYTA Precision Technology Co., Ltd. (herein after “FIYTA Ltd.” or the Company) , which comprise the consolidated and the parent company’s balance sheet as at 31 December 2021, the consolidated and the parent company’s statement of comprehensive income, the consolidated and the parent company’s cash flow statements and the consolidated and the parent company’s statement of changes in equity for the year then ended, and notes to the financial statements. In our opinion, the accompanying financial statements present in all material respects in accordance with the requirements of Accounting Standards for Business Enterprises, and fairly reflect FIYTA Ltd.’s financial position at 31 December 2021 and the financial performance and cash flows for the year then ended. II.Basis for Audit Opinion We conducted our audit in accordance with CICPA Standards on Auditing (“CSAs”) . In ‘IV. Certified Public Accountant’s Responsibilities for the Audit of Financial Statements’ of this report, our responsibilities under these standards are described. Those standards require that we comply with CICPA professional ethical requirements, that we are independent from FIYTA Ltd. and have fulfilled all other ethical obligations. We believe that we have obtained sufficient and appropriate audit evidence as basis of for our opinion. III.Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the following key audit matters that need to be communicated in audit report. (I) Existence of inventory and its net realizable value 83 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 1. Description As at 31 December 2021, the book balance, provision for decline in value, and carrying amount of inventory were RMB2,162.56 million, RMB112.41 million and RMB2,050.15 million respectively. The carrying amount of inventory accounts for 49.87% of the total assets of the Company. (i) As the main business of FIYTA Ltd is selling FIYTA brand watches and other branded watches, the main inventory of FIYTA Ltd are finished watches and watch components. The inventories are distributed in stores, regional warehouses, resellers’ warehouses and the Company’s warehouses which caused difficulty in inventory physical observation; (ii) The management of FIYTA Ltd measures inventory at lower of cost and net realizable value (NRV) at balance sheet date. Where the cost of an inventory exceeds its NRV, the difference is recognized as provision for decline in value. The determination of NRV involves significant judgment and estimates by the Management. Inventory value is significant to the Company’s assets and it requires significant judgement by the Management, as a result, we identified existence of inventory and its net realizable value as key audit matters. 2. How our audit addressed the key audit matter Major audit procedures we have conducted include: (i) Understanding, evaluating and testing the design and operating effectiveness of internal controls of procurement and payment, production and storage, and the provision for decline in value of inventory; (ii) Using the work of experts to conduct IT audit to information system and evaluating the authenticity and accuracy of business data which related to financial statements. (iii) Understanding and evaluating the appropriateness of the Company’s policy in provision for decline in value; (iv) Understanding and inquiring the locations of inventory storage, measurement method of inventory so as to determining the scope of inventory physical observation; (v) Discussing physical inventory count status with the Management and attending the physical inventory count and conducting observation and test count on site to check the quantity of the inventories and observe their condition. (vi) Obtaining the ageing report of inventory and taking into consideration of inventory condition in order to perform analytical review on the ageing as well as analyze the reasonableness of provision for decline in value; (vii) Reviewing and evaluating the appropriateness of significant estimates made by the 84 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Management in determining the NRV of inventory; (viii) Obtaining the calculation of provision for decline in value of inventory, reviewing whether the provision was made in compliance with relevant accounting policies and performing recalculation of provision. Checking the movements of prior year’s provision and analyzing whether the provision was adequately accrued in prior period. (ix) Tracing samples of large purchases in current period to their corresponding contracts and tax invoices, and inspecting their purchase requisition form and goods receipt notes. Based on audit work conducted above, we believe that the inventory exists and the measurement is reasonable stated according to the Company’s policies. (II) Revenue recognition 1. Description In 2021, the Company’s income from main business was RMB5,243.73 million. The Company’s revenue mainly comes from sales of FIYTA brand watches and distribution of other branded watches. Except for small amount of sales by direct sales and consignment sales of FIYTA brand watches, most of the sales of FIYTA brand watches and other branded watches are sold through shops in department store and on-line shops. Refer to Note IV 31 for accounting policy relating to revenue recognition. Operating revenue represents major line item in income statement and is main source of profit, the accuracy and completeness of revenue recognition have significant impact to the Company’s profit, as a result, we identified revenue recognition as a key audit matter. 2. How our audit addressed the key audit matter Major audit procedures we have conducted include: (i) Understanding, evaluating and testing the design and operating effectiveness of internal controls relating to revenue recognition; (ii) Using the work of experts to conduct IT audit to information system and evaluating the authenticity and accuracy of business data which related to financial statements. (iii) Obtaining and understanding accounting policies relating to revenue recognition, and reviewing and evaluating whether the point in time of control right transfer, measurement of transaction price and accounting for special transactions are complied with the accounting standards; (iv) Selecting samples from current year’s transaction records, and tracing them to supporting documents such as contract, tax invoice and goods dispatch note (if applicable) and courier waybill (if applicable) ; 85 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text (v) In connection with audit of accounts receivable, selecting major customers and confirming corresponding sales in current year and year-end balance; (vi) Conducting cut-off test to revenue recognized before and after the balance sheet date by selecting samples to check supporting documents such as contract, tax invoice and goods dispatch note (if applicable) and courier waybill (if applicable) to evaluate whether the revenue was recorded in appropriate accounting period; Based on audit work conducted above, we believe that the Company’s revenue recognition is in conformity to its revenue recognition policy. IV.Other Information The management of FIYTA Ltd (the “Management”) are responsible for the Other Information. The Other Information comprises all of the information included in the Company’s annual report other than the financial statements and our auditors’ report thereon. Our opinion expressed on the financial statements does not cover the Other Information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the Other Information and, in doing so, consider whether the Other Information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this Other Information, we are required to report that fact. We have nothing to report in this regard. V.Responsibilities of the Management and those Charged with Governance for the Financial Statements The Management of the Company is responsible for the preparation of the financial statements that give a fair view in accordance with Accounting Standards for Business Enterprises and for the design, implementation and maintenance of such internal controls as the Management determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intend to liquidate the Company or to cease operations, or have no realistic alternative 86 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text but to do so. Those who charged with governance is responsible for overseeing the Company’s financial reporting process. VI.Auditors’ Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with China Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. 2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. 4. Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required, according to China Standards on Auditing, to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. 87 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within FIYTA Ltd to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Da Hua Certified Public Accountants CICPA: (Special General Partnership) Long Jiao Beijing, China CICPA Wang Dong 8 March 2022 88 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Balance Sheet As at 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) [English Translation for Reference Only] Assets Note VI Closing Balance Closing Balance of prior period Current assets: Monetary funds note 1 210,254,737.14 353,057,285.71 Financial assets held for trading Derivative financial assets Notes receivable note 2 61,258,145.80 48,192,442.15 Accounts receivable note 3 388,885,601.28 475,598,684.88 Accounts receivable financing Prepayments note 4 7,946,750.81 16,612,773.76 Other receivables note 5 61,553,267.82 52,902,779.63 Inventories note 6 2,050,148,750.89 1,931,780,185.85 Contract assets Held-for-sale assets Current portion of non-current assets Other current assets note 7 72,698,692.72 75,935,141.76 Total current assets 2,852,745,946.46 2,954,079,293.74 Non-current assets: Debt investments Other debt investments Long-term receivables Long-term equity investments note 8 55,155,605.31 51,400,665.92 Investment in other equity instruments note 9 85,000.00 85,000.00 89 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Other non-current financial assets Investment properties note 10 383,425,916.35 398,086,447.78 Fixed assets note 11 349,495,316.65 352,734,280.76 Construction in progress Right-of-use assets note 12 147,932,475.42 Intangible assets note 13 34,035,330.43 37,859,316.51 Long-term deferred expenses note 14 163,790,333.44 130,017,587.99 Deferred tax assets note 15 81,233,274.65 80,913,800.35 Other non-current assets note 16 42,680,753.78 13,536,307.13 Total non-current assets 1,257,834,006.03 1,064,633,406.44 Total assets 4,110,579,952.49 4,018,712,700.18 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 90 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Balance Sheet (Continued) As at 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Liability and Equity Note VI Closing Balance Closing Balance of prior period Current liabilities: Short-term borrowings note 17 265,994,595.43 542,673,278.09 Financial liabilities held for trading Derivative financial liabilities Notes payable note 18 21,223.10 3,581,360.00 Accounts payable note 19 254,588,895.34 301,211,515.39 Payments received in advance note 20 11,025,664.72 9,991,850.67 Contract liabilities note 21 22,505,426.65 18,213,396.49 Employee benefits payable note 22 145,936,150.06 132,853,462.20 Tax payables note 23 67,769,880.01 68,925,271.90 Other payables note 24 167,808,759.95 128,577,597.94 Held-for-sale liabilities Current portion of non-current liabilities note 25 86,949,906.35 370,030.00 Other current liabilities note 26 2,798,738.32 2,299,755.09 Total current liabilities 1,025,399,239.93 1,208,697,517.77 Non-current liabilities: Long-term borrowings note 27 4,070,330.00 Bonds payable Including: Preferred stock Including: Perpetual debt Lease liabilities note 28 64,918,722.10 Long-term payables Long-term employee benefits payable Provisions 91 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Deferred income note 29 1,792,833.90 2,916,346.43 Deferred tax liabilities note 15 5,236,514.03 3,067,834.55 Other non-current liabilities Total non-current liabilities 71,948,070.03 10,054,510.98 Total liabilities 1,097,347,309.96 1,218,752,028.75 Equity: Share capital note 30 426,051,015.00 428,091,881.00 Other equity instruments Including: Preferred stock Including: Perpetual debt Capital reserves note 31 1,040,908,194.13 1,021,490,387.78 Less: Treasury stock note 32 60,585,678.92 61,633,530.48 Other comprehensive income note 33 -7,658,346.40 976,871.41 Special reserves note 34 1,062,731.13 Surplus reserve note 35 275,010,401.50 246,531,866.87 Retained earnings note 36 1,338,444,326.09 1,164,490,911.51 Equity attributable to parent company 3,013,232,642.53 2,799,948,388.09 Non-controlling interests 12,283.34 Total owners' equity 3,013,232,642.53 2,799,960,671.43 Total liabilities and owners' equity 4,110,579,952.49 4,018,712,700.18 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 92 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Balance Sheet As at 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Assets Note XVII Closing Balance Closing Balance of prior period Current assets: Monetary funds 171,022,392.92 292,055,169.74 Financial assets held for trading Derivative financial assets Notes receivable Accounts receivable note 1 129,880.48 1,464,798.79 Accounts receivable financing Prepayments Other receivables note 2 717,183,139.00 621,512,680.69 Inventories Contract assets Held-for-sale assets Current portion of non-current assets Other current assets 13,389,835.13 11,655,617.82 Total current assets 901,725,247.53 926,688,267.04 Non-current assets: Debt investments Other debt investments Long-term receivables Long-term equity investments note 3 1,542,067,945.03 1,529,415,188.28 Investment in other equity instruments 85,000.00 85,000.00 Other non-current financial assets 93 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Investment properties 311,379,234.57 323,296,494.84 Fixed assets 222,462,397.20 224,709,747.39 Construction in progress Productive biological assets Oil and gas assets Right-of-use assets Intangible assets 23,910,597.39 27,347,950.13 Development expenditure Goodwill Long-term deferred expenses 9,966,739.10 11,980,697.97 Deferred tax assets 1,671,761.28 1,380,180.94 Other non-current assets 1,435,800.93 473,312.35 Total non-current assets 2,112,979,475.50 2,118,688,571.90 Total assets 3,014,704,723.03 3,045,376,838.94 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO): Song Yaoming Financial Manager: Tian Hui 94 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Balance Sheet (Continued) As at 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Note Liability and Equity Closing Balance Closing Balance of prior period XVII Current liabilities: Short-term borrowings 250,256,666.67 400,425,930.05 Financial liabilities held for trading Derivative financial liabilities Notes payable Accounts payable 1,232,967.42 1,481,135.49 Payments received in advance 11,025,664.72 9,991,850.67 Contract liabilities 37,735.85 Employee benefits payable 24,758,938.89 25,256,531.70 Tax payables 2,676,682.58 2,778,265.84 Other payables 230,594,166.14 240,824,305.37 Held-for-sale liabilities Current portion of non-current liabilities Other current liabilities 2,264.15 Total current liabilities 520,545,086.42 680,798,019.12 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred stock Including: Perpetual debt Lease liabilities Long-term payables Long-term employee benefits payable Provisions 95 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Deferred income 1,792,833.90 2,377,718.35 Deferred tax liabilities Other non-current liabilities Total non-current liabilities 1,792,833.90 2,377,718.35 Total liabilities 522,337,920.32 683,175,737.47 Equity: Share capital 426,051,015.00 428,091,881.00 Other equity instruments Including: Preferred stock Including: Perpetual debt Capital reserves 1,045,449,410.67 1,027,145,928.88 Less: Treasury stock 60,585,678.92 61,633,530.48 Other comprehensive income Special reserves Surplus reserve 275,010,401.50 246,531,866.87 Retained earnings 806,441,654.46 722,064,955.20 Total owners' equity 2,492,366,802.71 2,362,201,101.47 Total liabilities and owners' equity 3,014,704,723.03 3,045,376,838.94 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 96 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Statement of Comprehensive Income For the year ended 31 December 2021 (Unless otherwise indicated, the currency is expressed in Prepared by: FIYTA Precision Technology Co., Ltd. RMB) Note Items Current Period Prior Period VI note 1. Operating revenue 5,243,733,540.93 4,243,439,952.59 37 note Less: Operating costs 3,285,656,229.13 2,639,229,537.06 37 note Taxes and surcharges 37,563,586.80 25,444,139.30 38 note Selling expenses 1,049,898,223.28 870,713,899.32 39 note Administrative expenses 261,626,762.41 256,559,127.23 40 note Research and development expenses 57,802,569.17 51,489,323.49 41 note Finance expenses 34,677,073.65 33,449,276.41 42 Including: Interest expenses 23,159,963.74 21,315,119.78 Interest income 3,589,649.85 4,941,334.19 note Add: Other income 21,328,673.21 25,170,397.09 43 note Income from investments 3,754,939.39 5,072,577.64 44 Including: Investment income from associates and joint ventures 3,754,939.39 5,072,577.64 Derecognition of financial assets at amortized cost Gains or losses from net exposure hedging Gains or losses from changes in fair values Credit impairment losses note 45 -11,075,001.77 -9,096,922.74 Impairment losses note 46 -25,861,394.56 -15,426,526.41 Gains or losses from asset disposals note 47 730,134.87 -369,857.30 2. Operating profit 505,386,447.63 371,904,318.06 Add: Non-operating income note 48 627,435.03 3,111,413.64 Less: Non-operating expenses note 49 3,686,166.55 1,555,112.86 97 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 3. Profit before tax 502,327,716.11 373,460,618.84 Less: Income tax note 50 114,467,375.88 79,338,516.60 4. Net profit 387,860,340.23 294,122,102.24 Including: Net profit realized before business combinations under common control I. Net profit classified by going concern Net profit from continuing operations 387,860,340.23 294,122,102.24 Net profit from discontinuing operations II. Net profit classified by ownership Net profit attributable to parent company 387,840,282.95 294,115,156.04 Net profit attributable to non-controlling interests 20,057.28 6,946.20 5. Other comprehensive income after tax -8,635,217.81 1,916,506.80 Other comprehensive income after tax attributable to parent company -8,635,217.81 1,917,080.50 I. Items of other comprehensive income that will not be reclassified to profit or loss i. Changes in remeasurement of defined benefit plans Other comprehensive income that cannot be transferred to ii. profit or loss under the equity method iii. Changes in fair value of investments in equity instruments iv. Changes in fair value of the Company's own credit risk II. Items of other comprehensive income that will be reclassified to -8,635,217.81 1,917,080.50 profit or loss Other comprehensive income that can be transferred to profit i. or loss under the equity method ii. Changes in fair value of other debt investments Amount of financial assets reclassified into other iii. comprehensive income iv. Provisions for credit impairment of other debt investments The effective portion of gains or losses arising from cash flow v. hedging Translation differences arising from financial statements in vi. -8,635,217.81 1,917,080.50 foreign currencies Other comprehensive income attributable to non-controlling interests after tax -573.70 98 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text 6. Total comprehensive income 379,225,122.42 296,038,609.04 Total comprehensive income attributable to parent company 379,205,065.14 296,032,236.54 Total comprehensive income attributable to non-controlling interests 20,057.28 6,372.50 7. Earnings per share I. Basic earnings per share 0.90 0.68 II. Diluted earnings per share 0.90 0.68 (Attached notes to statements are part of the consolidated financial statements) Legal Representative:Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 99 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Statement of Comprehensive Income For the year ended 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Note Items Current Period Prior Period XVII 1. Operating revenue note 4 179,455,712.71 137,381,795.95 Less: Operating costs note 4 38,852,252.32 36,497,097.45 Taxes and surcharges 7,760,628.42 4,435,717.73 Selling expenses 6,483,523.47 1,579,092.51 Administrative expenses 72,514,603.81 76,604,523.40 Research and development expenses 21,461,359.36 19,933,292.70 Finance expenses 3,650,109.37 3,127,102.39 Including: Interest expenses 6,662,862.52 6,230,252.39 Interest income 3,158,156.74 4,609,988.68 Add: Other income 2,603,212.27 9,324,872.59 Income from investments note 5 263,673,435.95 104,976,828.07 Including: Investment income from associates and joint ventures 3,754,939.39 4,976,828.07 Derecognition of financial assets at amortized cost Gains or losses from net exposure hedging Gains or losses from changes in fair values Credit impairment losses 192,081.60 -158,252.51 Impairment losses Gains or losses from asset disposals -63,188.36 -25,000.50 2. Operating profit 295,138,777.42 109,323,417.42 Add: Non-operating income 41,001.96 259,345.80 Less: Non-operating expenses 216,805.57 15,864.83 3. Profit before tax 294,962,973.81 109,566,898.39 100 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Less: Income tax 7,887,674.19 1,260,031.08 4. Net profit 287,075,299.62 108,306,867.31 Net profit from continuing operations 287,075,299.62 108,306,867.31 Net profit from discontinuing operations 5. Other comprehensive income after tax I. Items of other comprehensive income that will not be reclassified to profit or loss i. Changes in remeasurement of defined benefit plans Other comprehensive income that cannot be transferred to ii. profit or loss under the equity method iii. Changes in fair value of investments in equity instruments iv. Changes in fair value of the Company's own credit risk II. Items of other comprehensive income that will be reclassified to profit or loss Other comprehensive income that can be transferred to i. profit or loss under the equity method ii. Changes in fair value of other debt investments Amount of financial assets reclassified into other iii. comprehensive income iv. Provisions for credit impairment of other debt investments The effective portion of gains or losses arising from cash v. flow hedging Translation differences arising from financial statements in vi. foreign currencies 6. Total comprehensive income 287,075,299.62 108,306,867.31 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 101 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Cash Flows Statement For the year ended 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Items Note VI Current Period Prior Period 1. Cash flows from operating activities Cash received from sales and services 5,857,726,359.18 4,602,638,695.31 Tax and surcharge refunds 1,466,381.60 1,849,055.57 Other cash receipts related to operating activities note 51 85,387,457.56 78,001,812.45 Total cash inflows from operating activities 5,944,580,198.34 4,682,489,563.33 Cash paid for goods and services 3,862,745,653.01 3,046,261,111.48 Cash paid to and for employees 710,102,185.80 578,179,070.15 Taxes and surcharges paid 346,383,502.98 222,180,568.75 Other cash payments related to operating activities note 51 478,099,748.10 457,658,307.08 Total cash outflows from operating activities 5,397,331,089.89 4,304,279,057.46 Net cash flows from operating activities 547,249,108.45 378,210,505.87 2. Cash flows from investing activities Cash received from withdrawal of investments Cash received from investment income Net proceeds from disposals of fixed assets, intangible assets and 59,657.53 150,556.62 other long-term assets Net proceeds from disposal of subsidiaries and other business units Other cash receipts related to investing activities Total cash inflows from investing activities 59,657.53 150,556.62 Cash paid for fixed assets, intangible assets and other long-term 204,422,787.61 133,531,954.47 assets Cash paid for investments 102 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Net cash paid for acquiring subsidiaries and other business units Other cash payments related to investing activities Total cash outflows from investing activities 204,422,787.61 133,531,954.47 Net cash flows from investing activities -204,363,130.08 -133,381,397.85 3. Cash flows from financing activities Cash received from investments by others 58,216,000.00 Including: Cash received by subsidiaries from non-controlling investors Cash received from borrowings 1,155,724,412.23 743,213,671.65 Other cash receipts related to other financing activities Total cash inflows from financing activities 1,213,940,412.23 743,213,671.65 Cash repayments for debts 1,386,708,158.95 768,247,433.10 Cash paid for distribution of dividends and profit and for interest 187,069,913.31 106,703,352.70 expenses Including: Dividends or profit paid by subsidiaries to non-controlling investors Other cash payments related to financing activities note 51 124,710,390.58 72,317,669.93 Total cash outflows from financing activities 1,698,488,462.84 947,268,455.73 Net cash flows from financing activities -484,548,050.61 -204,054,784.08 4. Effect of changes in foreign exchange rates on cash and cash equivalents -1,140,476.33 -2,810,603.32 5. Net increase in cash and cash equivalents -142,802,548.57 37,963,720.62 Add: Opening balance of cash and cash equivalents 353,057,285.71 315,093,565.09 6. Closing balance of cash and cash equivalents note 52 210,254,737.14 353,057,285.71 (Attached notes to statements are part of the consolidated financial statements) Legal Representative:Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tianhui 103 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Cash Flows Statement For the year ended 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Items Note XVII Current Period Prior Period 1. Cash flows from operating activities Cash received from sales and services 183,608,762.33 178,808,738.19 Tax and surcharge refunds Other cash receipts related to operating activities 5,194,227,139.68 4,238,779,521.46 Total cash inflows from operating activities 5,377,835,902.01 4,417,588,259.65 Cash paid for goods and services Cash paid to and for employees 68,672,552.40 61,903,446.81 Taxes and surcharges paid 22,768,419.51 9,345,329.15 Other cash payments related to operating activities 5,359,975,023.49 3,948,860,602.89 Total cash outflows from operating activities 5,451,415,995.40 4,020,109,378.85 Net cash flows from operating activities -73,580,093.39 397,478,880.80 2. Cash flows from investing activities Cash received from withdrawal of investments Cash received from investment income 259,918,496.56 100,000,000.00 Net proceeds from disposals of fixed assets, intangible assets and other long-term assets 5,740.00 1,630.00 Net proceeds from disposal of subsidiaries and other business units Other cash receipts related to investing activities Total cash inflows from investing activities 259,924,236.56 100,001,630.00 Cash paid for fixed assets, intangible assets and other long-term 21,039,730.26 17,398,218.00 assets 104 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Cash paid for investments 139,500,000.00 Net cash paid for acquiring subsidiaries and other business units Other cash payments related to investing activities Total cash outflows from investing activities 21,039,730.26 156,898,218.00 Net cash flows from investing activities 238,884,506.30 -56,896,588.00 3. Cash flows from financing activities Cash received from investments by others 58,216,000.00 Cash received from borrowings 1,110,000,000.00 601,000,000.00 Other cash receipts related to other financing activities Total cash inflows from financing activities 1,168,216,000.00 601,000,000.00 Cash repayments for debts 1,260,000,000.00 741,000,000.00 Cash paid for distribution of dividends and profit and for interest 185,045,678.32 104,195,155.07 expenses Other cash payments related to financing activities 9,178,101.51 72,317,669.93 Total cash outflows from financing activities 1,454,223,779.83 917,512,825.00 Net cash flows from financing activities -286,007,779.83 -316,512,825.00 4. Effect of changes in foreign exchange rates on cash and cash equivalents -329,409.90 -1,112,644.08 5. Net increase in cash and cash equivalents -121,032,776.82 22,956,823.72 Add: Opening balance of cash and cash equivalents 292,055,169.74 269,098,346.02 6. Closing balance of cash and cash equivalents 171,022,392.92 292,055,169.74 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO): Song Yaoming Financial Manager:Tianhui 105 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Statement of Changes in Equity For the year ended 31 December 2021 (Unless otherwise indicated, the currency is Prepared by: FIYTA Precision Technology Co., Ltd. expressed in RMB) Items Current Period Equity attributable to parent company Other Non-contro Less: lling Total shareholders' equity Share Capital comprehen Special Surplus Retained Treasury interests capital reserves sive reserves reserves earnings stock income 1. Closing balance of last 428,091,88 1,021,490,3 61,633,530 246,531,86 1,164,490,9 976,871.41 12,283.34 2,799,960,671.43 year 1.00 87.78 .48 6.87 11.51 Add: Increase/decrease due to -11,188,268. -11,188,268.01 changes in accounting policies 01 Increase/decrease due to corrections of errors in prior period Business combination under common control Others 2. Opening balance of 428,091,88 1,021,490,3 61,633,530 246,531,86 1,153,302,6 976,871.41 12,283.34 2,788,772,403.42 current year 1.00 87.78 .48 6.87 43.50 3. Increase/decrease for -2,040,866. 19,417,806. -1,047,851 -8,635,217. 1,062,73 28,478,534 185,141,682 -12,283.34 224,460,239.11 current year 00 35 .56 81 1.13 .63 .59 -8,635,217. 387,840,282 I. Total comprehensive income 20,057.28 379,225,122.42 81 .95 II. Owner's contributions to and -2,040,866. 19,417,806. -1,047,851 -32,340.62 18,392,451.29 withdrawals of capital 00 35 .56 i. Common stock -8,994,086. -41,132,596. -45,368,94 contributed/paid-in capital by -4,757,740.96 00 76 1.80 shareholders/owners ii. Capital contributed by other equity instruments holders iii. Share-based 6,953,220. 60,553,780. 44,321,090 23,185,909.87 payments to owners' equity 00 11 .24 iv. Others -3,377.00 -32,340.62 -35,717.62 28,478,534 -202,698,60 III. Profits distribution -174,220,065.73 .63 0.36 i. Appropriation of surplus 28,478,534 -28,478,534. reserve .63 63 106 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text -174,220,06 ii. Distribution to owners -174,220,065.73 5.73 iii. Others IV. Transfers within owners' equity i. Capital reserves transferred to paid-in capital ii. Surplus reserve transferred to paid-in capital iii. Use of surplus reserve to cover previous losses iv. Changes in remeasurement of defined benefit plans transferred to retained earnings v. Other comprehensive income transferred to retained earnings vi. Others 1,062,73 V. Special reserves 1,062,731.13 1.13 i. Appropriated during 1,421,60 1,421,605.68 current year 5.68 ii. Used during current -358,874. -358,874.55 year 55 VI. Others 4. Closing balance of current 426,051,01 1,040,908,1 60,585,678 -7,658,346. 1,062,73 275,010,40 1,338,444,3 3,013,232,642.53 year 5.00 94.13 .92 40 1.13 1.50 26.09 (Attached notes to statements are part of the consolidated financial statements) Legal Representative:Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 107 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Consolidated Statement of Changes in Equity For the year ended 31 December 2021 Items Prior Period Equity attributable to parent company Specia Non-control Total Less: Other ling shareholders' l Surplus Retained Share capital Capital reserves Treasury comprehensiv interests equity reserv reserves earnings stock e income es 442,968,881.0 1,081,230,215.3 71,267,118.7 235,701,180 966,840,818. 2,654,539,67 1. Closing balance of last year -940,209.09 5,910.84 0 2 8 .14 40 7.83 Add: Increase/decrease due to changes in accounting policies Increase/decrease due to corrections of errors in prior period Business combination under common control Others 442,968,881.0 1,081,230,215.3 71,267,118.7 235,701,180 966,840,818. 2,654,539,67 2. Opening balance of current year -940,209.09 5,910.84 0 2 8 .14 40 7.83 3. Increase/decrease for current -14,877,000.0 -9,633,588.3 10,830,686. 197,650,093. 145,420,993. -59,739,827.54 1,917,080.50 6,372.50 year 0 0 73 11 60 294,115,156. 296,038,609. I. Total comprehensive income 1,917,080.50 6,372.50 04 04 II. Owner's contributions to and -14,877,000.0 -9,633,588.3 -64,983,239.2 -59,739,827.54 withdrawals of capital 0 0 4 i. Common stock -14,877,000.0 -8,802,188.3 -71,338,916.6 contributed/paid-in capital by -65,264,104.92 0 0 2 shareholders/owners ii. Capital contributed by other equity instruments holders iii. Share-based payments to 5,570,601.49 -831,400.00 6,402,001.49 owners' equity iv. Others -46,324.11 -46,324.11 10,830,686. -96,465,062.9 -85,634,376.2 III. Profits distribution 73 3 0 i. Appropriation of surplus 10,830,686. -10,830,686.7 reserve 73 3 -85,634,376.2 -85,634,376.2 ii. Distribution to owners 0 0 iii. Others 108 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text IV. Transfers within owners' equity i. Capital reserves transferred to paid-in capital ii. Surplus reserve transferred to paid-in capital iii. Use of surplus reserve to cover previous losses iv. Changes in remeasurement of defined benefit plans transferred to retained earnings v. Other comprehensive income transferred to retained earnings vi. Others V. Special reserves i. Appropriated during current year ii. Used during current year VI. Others 428,091,881.0 1,021,490,387.7 61,633,530.4 246,531,866 1,164,490,91 2,799,960,67 4. Closing balance of current year 976,871.41 12,283.34 0 8 8 .87 1.51 1.43 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 109 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Statement of Changes in Equity For the year ended 31 December 2021 Prepared by: FIYTA Precision Technology Co., Ltd. (Unless otherwise indicated, the currency is expressed in RMB) Items Current Period Other Speci Less: Capital comprehe al Surplus Retained Share capital Treasury Total shareholders' equity reserves nsive reser reserves earnings stock income ves 1,027,145,9 61,633,53 246,531,8 722,064,955. 1. Closing balance of last year 428,091,881.00 2,362,201,101.47 28.88 0.48 66.87 20 Add: Increase/decrease due to changes in accounting policies Increase/decrease due to corrections of errors in prior period Others 1,027,145,9 61,633,53 246,531,8 722,064,955. 2. Opening balance of current year 428,091,881.00 2,362,201,101.47 28.88 0.48 66.87 20 18,303,481. -1,047,851 28,478,53 84,376,699.2 3. Increase/decrease for current year -2,040,866.00 130,165,701.24 79 .56 4.63 6 287,075,299. I. Total comprehensive income 287,075,299.62 62 II. Owner's contributions to and withdrawals of 18,303,481. -1,047,851 -2,040,866.00 17,310,467.35 capital 79 .56 i. Common stock contributed/paid-in capital -41,132,596 -45,368,94 -8,994,086.00 -4,757,740.96 by shareholders/owners .76 1.80 ii. Capital contributed by other equity instruments holders iii. Share-based payments to owners' 59,439,455. 44,321,09 6,953,220.00 22,071,585.31 equity 55 0.24 iv. Others -3,377.00 -3,377.00 28,478,53 -202,698,600 III. Profits distribution -174,220,065.73 4.63 .36 28,478,53 -28,478,534. i. Appropriation of surplus reserve 4.63 63 -174,220,065 ii. Distribution to owners -174,220,065.73 .73 iii. Others IV. Transfers within owners' equity 110 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text i. Capital reserves transferred to paid-in capital ii. Surplus reserve transferred to paid-in capital iii. Use of surplus reserve to cover previous losses iv. Changes in remeasurement of defined benefit plans transferred to retained earnings v. Other comprehensive income transferred to retained earnings vi. Others V. Special reserves i. Appropriated during current year ii. Used during current year VI. Others 1,045,449,4 60,585,67 275,010,4 806,441,654. 4. Closing balance of current year 426,051,015.00 2,492,366,802.71 10.67 8.92 01.50 46 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 111 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text Parent Company's Statement of Changes in Equity For the year ended 31 December 2021 (Unless otherwise Prepared by: FIYTA Precision Technology Co., Ltd. indicated, the currency is expressed in RMB) Items Prior Period Other Speci Less: Share Capital compre al Total shareholders' Treasury Surplus reserves Retained earnings capital reserves hensive reser equity stock income ves 442,968,8 1,086,885,7 71,267,118 1. Closing balance of last year 235,701,180.14 710,223,150.82 1,961,542,968.60 81.00 56.42 .78 Add: Increase/decrease due to changes in accounting policies Increase/decrease due to corrections of errors in prior period Others 442,968,8 1,086,885,7 71,267,118 2. Opening balance of current year 235,701,180.14 710,223,150.82 2,404,511,849.60 81.00 56.42 .78 -14,877,00 -59,739,827 -9,633,588. 3. Increase/decrease for current year 10,830,686.73 11,841,804.38 -42,310,748.13 0.00 .54 30 I. Total comprehensive income 108,306,867.31 108,306,867.31 II. Owner's contributions to and withdrawals of -14,877,00 -59,739,827 -9,633,588. -64,983,239.24 capital 0.00 .54 30 i. Common stock contributed/paid-in -14,877,00 -65,264,104 -8,802,188. -71,338,916.62 capital by shareholders/owners 0.00 .92 30 ii. Capital contributed by other equity instruments holders iii. Share-based payments to owners' 5,570,601.4 -831,400.0 6,402,001.49 equity 9 0 iv. Others -46,324.11 -46,324.11 III. Profits distribution 10,830,686.73 -96,465,062.93 -85,634,376.20 i. Appropriation of surplus reserve 10,830,686.73 -10,830,686.73 ii. Distribution to owners -85,634,376.20 -85,634,376.20 iii. Others IV. Transfers within owners' equity 112 FIYTA Precision Technology Co., Ltd. 2021 Annual Report, Full Text i. Capital reserves transferred to paid-in capital ii. Surplus reserve transferred to paid-in capital iii. Use of surplus reserve to cover previous losses iv. Changes in remeasurement of defined benefit plans transferred to retained earnings v. Other comprehensive income transferred to retained earnings vi. Others V. Special reserves i. Appropriated during current year ii. Used during current year VI. Others 428,091,8 1,027,145,9 61,633,530 4. Closing balance of current year 246,531,866.87 722,064,955.20 2,362,201,101.47 81.00 28.88 .48 (Attached notes to statements are part of the consolidated financial statements) Legal Representative: Zhang Xuhua Finance Officer (CFO):Song Yaoming Financial Manager:Tian Hui 113 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 I. Company status 1. Registered place, organization and address of headquarters FIYTA Precision Technology Co., Ltd. (the “Company”) was founded, under the approval of Shen Fu Ban Fu (1992) 1259 issued by the General Office of Shenzhen Municipal Government, through the restructuring of former Shenzhen FIYTA Time Industrial Company by the promoter of China National Aero-Technology Import and Export Shenzhen Industry & Trade Center (name changed to “China National Aero-Technology Shenzhen Co., Ltd” lately) on 25 December 1992. On 3 June 1993, both the Company was listed on Shenzhen Stock Exchange. The Company holds business license with the Unified Social Credit Code of 91440300192189783K. As at 31 December 2021, the outstanding shares issued by the Company was 426.05 million shares and the registered capital was RMB426.05 million after a series of share dividend, right offering, share capital conversion from retained earnings, and issuing of new shares. The Company’s registered address is FIYTA Hi-Tech Building, Gao Xin Nan Yi Dao, Nanshan District, Shenzhen, Guangdong Province, where the Company’s headquarters locates. The parent company of the Company is CATIC Shenzhen Holdings Limited (CATIC Shenzhen) and the ultimate controlling party of the Company is Aviation Industry Corporation of China, Ltd. (AVIC) . 2. Nature of the Company’s business and main operating activities The business nature and main operating activities of the Company and its subsidiaries mainly include: producing and selling of analogue indication mechanical watches, quartz watches and its movements, components, various timing devices, processing and wholesaling karat gold jewelry watches, intelligent watches; domestic commercial and material supply and distributing business (excluding goods under exclusive operational rights, special control and exclusive sales) ; property management and leasing; providing design service; research, design, production, sales and technical support for precise watches and components; import and export business (according to Shen Mao Guan Deng Zheng Zi No.2007-072) . 3. Authorization for issue The financial statements have been approved and authorized for issue by the Board of Directors on 8 March 2022. II. Scope of consolidation There were 13 subsidiaries that are included in the Company’s scope of consolidation for year 2021, see Note VIII for details. Comparing to prior year, the entities that were included in the consolidation increased by 2 and decreased by 1. The Changes include: Notes to the financial statements – Page 114 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 1. Subsidiaries that were newly included in the consolidation Name Reasons for change Harmony World Watch Center (Hainan) Co., Ltd. Incorporated by investment Shenzhen Xunhang Precision Technology Co., Incorporated by investment Ltd. 2. Subsidiary that was excluded out of the consolidation Name Reasons for change Station 68 Ltd. Deregistered on 5 March 2021 III. Basis of preparation 1. Basis of preparation The financial statement is prepared in accordance with the requirements of Accounting Standards for Business Enterprises and associated application guidance, illustrations to the standards and related pronouncements (collectively known as “Accounting Standards for Business Enterprises” or “CAS”) . These financial statements also comply with the disclosure requirements of “Regulation on the Preparation of Information Disclosure of Companies Issuing Public Shares, No. 15: General Requirements for Financial Reports” (revised in 2014) issued by China Securities Regulatory Commission (CSRC) . 2. Going concern The Company assesses the going concern ability to the extent of 12 month after the balance sheet date. No issues that would result in significant doubt about the Company’s going concern is noted. As a result, the financial statements of the Company have been prepared on going concern basis. 3. Basis and principles of accounting Accrual basis is adopted for the Group’s accounting activity. Except for some financial instruments, the financial statements are measured using historical cost. In case of impairment occurred on assets, provisions for impairment are provided for in accordance with related regulations. IV. Significant accounting policies and accounting estimates 1. Highlight to specific accounting policies and estimates (1) The Company make specific accounting policies and estimates according to its nature of business. Accounting policies and estimates mainly includes: method of estimated credit loss accrual (Note IV. 12, Note IV. 13 and Note IV. 14) , measurement of inventory (Note IV. 15) , depreciation of investment property and fixed asset and amortization of intangible asset (Note IV. 18, Note IV. 19 and Note IV. 23) , revenue (Note IV, 31) etc. (2) Based on historical experience and other factors including reasonable estimation to future events, the Company continues to evaluate significant accounting estimates and key assumptions. If material changes to following accounting estimate and key assumption incurred, material impact would happened to the carrying value of the Company’s assets and liabilities in coming accounting year. Notes to the financial statements – Page 115 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 1) Measurement of Expected Credit Loss of accounts receivable and other receivables The management estimates impairment loss provision to accounts receivable and other receivables based on the judgments to estimated credit loss of accounts receivable and other receivables. If any events occurred that indicated the Company may not be able to recover the balance amount, estimation is needed in provision accrual. If the expected number is different with the estimated figure, the difference will affect the carrying value of accounts receivable and other receivables and the impairment loss expenses in corresponding accounting period. 2) Impairment to inventory. The Company recognizes provision for obsolete inventories based on the excess of the cost of inventory over its net realizable value. In determining the net realizable value of inventories, the management uses significant judgments to estimate the selling price, cost to finish manufacturing, and selling expenses and associated taxes. If the management revises estimated selling price and cost to finish manufacturing and selling expenses, the NAV estimation would be affected and the difference would have an effect to the inventory provision. 3) Estimation of long-term asset impairment. When evaluating whether there is impairment to long-term asset, the management mainly considers the following: (a) whether the events affect the asset impairment have already incurred; (b) whether the discounted cash flow from continue usage of the asset or disposal is lower than its carrying amount; and (c) whether major assumption used in estimating the future cash flow is appropriate. Changes to related assumption adopted in determining impairment such as profitability, discounting rate and growth rate may have material impact to the present value used in impairment test and result in impairment to above mentioned long-term assets. (a) Depreciation and amortization. The estimated residual value and useful life of investment property, fixed asset and intangible asset that used by the Company are based on historical actual useful life and actual residual value of assets with similar nature or functions. In the process of using such assets, estimated useful life and residual value may vary depending on the economic environment, technological environment and other environment that the assets located. If there is difference between the expectation and previous estimation, proper adjustments will be made by the management. (b) Share-based payments. The management makes best estimation based on up-to-date number of employees who have exercisable shares and adjusting the number of exercisable equity instrument on each balance sheet date in the vesting period. If there is difference between current year exercisable employee and previous estimation, proper adjustments will be made by the management. (c) Deferred tax asset. Deferred tax asset of taxable losses shall be recognized to the extent that there will have sufficient taxable income to offset. This involves significant judgments to estimate the timing and amount of future taxable profit and taking into consideration of tax planning so as to determine the amount of deferred tax asset. (d) Corporate income tax. The final tax treatment of many transaction and events are with uncertainty in the normal course of operation. Significant judgments involves in accrual of corporate income tax. If Notes to the financial statements – Page 116 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 there is difference between the final discretion and the amount recorded in books, the difference will affect the amount of tax in the period of final discretion. 2. Statement of compliance with Accounting Standards for Business Enterprises The financial statements of the Company have been prepared in accordance with the requirements of Accounting Standards for Business Enterprises. These financial statements present truly and completely the financial position as at 31 December 2021, the results of operations and the cash flows for the year then ended of the Company. 3. Accounting period The accounting period of the Company is the calendar year, i.e. from 1 January to 31 December of each year. 4. Operating cycle The operating cycle refer to the period from purchasing assets for process to realizing cash or cash equivalent. The Company’s operating cycle is 12 months which is also used as standard to determine the liquidity of asset and liabilities. 5. Recording currency The Company and its domestic subsidiaries adopt Renminbi (“RMB”) as the recording currency. FIYTA (Hong Kong) Limited (“FIYTA Hong Kong”) , a subsidiary of the Company outside mainland China, and Station 68 Limited (“Station 68”) , a subsidiary of FIYTA Hong Kong, use Hong Kong Dollar (“HKD”) as the recording currency according to the main economic environment where the companies operated in. Montres Chouriet SA, a subsidiary of FIYTA Hong Kong (“Swiss Company”) , uses Swiss Franc as the recording currency according to the main economic environment where the Swiss Company operated in. The recording currencies mentioned above will be translated to Renminbi when preparing financial statements. The currency used in preparing the Group’s financial statements is Renminbi. 6. Accounting treatment for business combinations involving entities under common control and not under common control (1) If a business combination is achieved through multiple steps, of which the terms, condition and economical effect is in line with one or more criteria as followed, the multiple transactions shall be dealt with as one-basket transaction. 1) the transactions were entered into at the same time or by considering each other’s influence; 2) a complete business result can only be achieved by combining all these transactions together; 3) the performing of one transaction is depended on at least one other transaction; 4) a transaction is not economical if it is considered stand along but it will become economical if it is considered in combination with other transactions. (2) Business combination involving entities under common control For a business combination involving enterprises under common control, the assets acquired and liabilities assumed are measured based on their carrying amounts in the consolidated financial statements of the ultimate controlling party at the combination date, except for adjustments due to different accounting policies. The difference between the carrying amount of the net assets acquired and Notes to the financial statements – Page 117 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 the consideration paid for the combination (or the total par value of shares issued) is adjusted against share premium in the capital reserve, with any excess adjusted against retained earnings. If there is contingent consideration and provision or assets are required to be recognized, the difference between the provision or assets and the contingent consideration shall adjust the capital reserve, with any excess adjusted against retained earnings. If business combinations involving entities under common control achieved in stages that involves multiple transactions belongs to one-basket transaction, all transactions shall be dealt with as one transaction. If not, the accounting treatment is as follows: Initial investment cost is the acquirer’s share of the carrying amount of the net assets of the acquiree in the consolidated financial statements of the ultimate controlling party at the combination date. The difference between the initial investment cost and the sum of carrying amount of investment prior to combination date and carrying amount of new considerations paid for the combination at the combination date is adjusted to capital reserve (share premium) . If the capital reserve is not sufficient to absorb the difference, any excess is adjusted against retained earnings. he difference between the carrying amount of the net assets acquired and the sum of carrying amount of investment prior to combination date and carrying amount of new considerations paid for the combination at the combination date is adjusted to capital reserve (share premium) . If the capital reserve is not sufficient to absorb the difference, any excess is adjusted against retained earnings. The profit or loss, other comprehensive income and changes in other owner’s equity recognized by the acquirer during the period from the later of initial investment date and the date that the acquirer and acquiree both under common ultimate control to the combination date are offset the opening retained earnings or profit for loss for the current period in the comparative statements. (3) Business combinations involving entities not under common control The purchase date refers to the date that the Company actually acquired control over the acquire i.e. the date when the control over the acquiree’s net assets or decision of business operation has been transferred to the Company. If the Company fulfills the following conditions at the same time, it is considered that the control has been transferred: ① the contract or agreement of business combination has been approved by internal power department; ② related matters has been approved by state supervisory authorities, if needed; ③ procedures of asset transfer has been completed; ④ the Company has been made majority of payments and has the ability and plan to make the residual payments; ⑤ the Company is in substances acquired the business and operating policies and enjoyed corresponding interests and undertaking risks of the acquire. On the purchase date, assets transferred, liabilities incurred or assumed as the consideration paid shall be measured at fair value. The difference between the fair value and carrying amount shall be charged to current period profit or loss. Notes to the financial statements – Page 118 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Where the combination cost exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognized as goodwill, and subsequently measured on the basis of its cost less accumulated impairment provisions. Where the combination cost is less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognized in profit or loss for the current period after reassessment. If business combinations involving entities not under common control achieved in stages that involves multiple transactions belong to one-basket transaction, all the transactions shall be treated as one. Otherwise, it shall be treated as follows: In the separate financial statements, the initial investment cost is the sum of the carrying amount of equity investment of the acquiree held prior to the acquisition date and additional investment cost at the acquisition date. When the previously-held equity investment which was accounted for under the e Accounting treatment for business combinations involving entities under common control and not under common control equity method before the acquisition date, any other comprehensive income previously recognized is not adjusted on acquisition date. When the investment is disposed of in later date, the amount that was recognized in other comprehensive income is recognized on the same basis as would be required if the investee had disposed directly of the related assets or liabilities. The owners’ equity recognized as the changes of the investee’s other owners’ equity except for net profit or loss, other comprehensive income and profit distribution, are transferred to profit or loss for the current period when disposing the investment. When the previously-held equity investment which was measured at fair value before the acquisition date, the accumulated changes in fair value included in other comprehensive income is transferred to profit or loss for the current period upon commencement of the cost method. (4) Transaction costs for business combination The overhead for the business combination, including the expenses for audit, legal services, valuation advisory, and other administrative expenses, are recorded in profit or loss for the current period when incurred. The transaction costs of equity or debt securities issued as the considerations of business combination are included in the initial recognition amount of the equity or debt securities. 7. Consolidated financial statements (1) Scope of consolidation The scope of consolidated financial statements is based on control. All subsidiaries (including standalone entity that controlled by the Company) are all included in the scope of consolidation. (2) Procedures of consolidation The consolidated financial statements are prepared by the Company based on the financial statements of the Company and its subsidiaries and other relevant information. The whole enterprise is considered as one accounting body when preparing consolidated financial statement and reflect the whole group’s financial position, performance and cash flow according to unified accounting policies based on accounting standards. All subsidiaries that are included in the scope of consolidation adopt same accounting policies, and Notes to the financial statements – Page 119 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 accounting period. If there are differences, the subsidiaries shall adjust its policies and accounting period accordingly. When preparing consolidated financial statements, the accounting policies and accounting periods of the subsidiaries should be consistent with those established by the Company, and all significant intra-group balances and transactions are eliminated. If the treatment based on enterprise group angle is different with the angle from subsidiaries’, it shall be treated based on enterprise group angle. The portion of a subsidiary’s equity that is not attributable to the parent is treated as non-controlling interests and presented separately in the consolidated balance sheet within shareholders’ equity. The portion of net profit or loss of subsidiaries for the period attributable to non-controlling interests is presented separately in the consolidated income statement below the “net profit” line item. When the amount of loss for the current period attributable to the non-controlling shareholders of a subsidiary exceeds the non-controlling shareholders’ share of the opening owners’ equity of the subsidiary, the excess is still allocated against the non-controlling interests. Where a subsidiary or business has been acquired through a business combination involving enterprises under common control in the reporting period, the subsidiary or business is deemed to be included in the consolidated financial statements from the date they are controlled by the ultimate controlling party. Their operating results and cash flows are included in the consolidated income statement and consolidated cash flow statement respectively from the date they are controlled by the ultimate controlling party. Where a subsidiary or business has been acquired through a business combination not involving enterprises under common control in the reporting period, the financial statements of subsidiaries shall be adjusted on the basis of fair value of identifiable net assets on purchase date. 1) Addition of subsidiaries or business operation Where a subsidiary or business has been acquired through a business combination involving enterprises under common control in the reporting period, the subsidiary or business is deemed to be included in the consolidated financial statements from the date they are controlled by the ultimate controlling party. Their operating results and cash flows are included in the consolidated income statement and consolidated cash flow statement respectively from the date they are controlled by the ultimate controlling party. If the Company can exert control over the investee under common control because of addition of investment, adjustments shall be made as if all the combining party are at the current condition in the angle of ultimate controlled party. Equity investment held before acquired control, profit or loss, other comprehensive income and other net asset changes that have already recognized between the later of acquiring original equity and the date under common control, and combination date shall offset opening retained earnings or current period profit or loss respectively. In the reporting period, if there is subsidiary or business addition involving entities not under common control, no adjustments shall be made to the consolidated balance sheet. The revenue, expenses and Notes to the financial statements – Page 120 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 profit from the purchasing date to period end shall be included in consolidated income statement. The cash flows from the purchasing date to period end shall be included in consolidated cash flow statement. Where a subsidiary or business has been acquired through a business combination not involving enterprises under common control by means of investment addition in the reporting period, equity held before the purchase date shall be re-measured at fair value. Difference between the fair value and the carrying amount shall be charged to current period investment gain. Changes related to equity method such as other comprehensive income and other equity changes beside net profit, other comprehensive income and profit distribution shall be transferred to current period investment gain. 2) Disposal subsidiary or business a) General principal In the reporting period, if the Company dispose of subsidiary or business, the subsidiary’s revenue, expenses, profit and cash flows from the beginning of the period to the disposal date shall be included in consolidated financial statements. When the Company loses control over a subsidiary because of disposing part of equity investment or other reasons, the remaining part of the equity investment is re-measured at fair value at the date when the control is lost. A gain or loss is recognized in the current period and is calculated by the aggregate of consideration received in disposal and the fair value of remaining part of the equity investment deducting the share of net assets in proportion to previous shareholding percentage in the former subsidiary since acquisition date and the goodwill. 2) Disposal of subsidiary through multiple steps In the event that the Company losses control over a subsidiary through multiple transactions, if one or more conditions below are fulfilled, it shall be treated as one-basket transaction: a) the transactions were entered into at the same time or by considering each other’s influence; b) a complete business result can only be achieved by combining all these transactions together; c) the performing of one transaction is depended on at least one other transaction; d) a transaction is not economical if it is considered stand along but it will become economical if it is considered in combination with other transactions. If the disposal was categorized as one-basket transaction, the Company dealt with all transactions as one transaction that resulted in lost control over subsidiary. But, before losing control, the difference between disposal consideration and the portion of net asset of the disposal part shall be recognized in other comprehensive income each time of disposal and charged to income statement in whole in the period loss control. If the disposal does not belong to one-basket transaction, the accounting treatment before lost control shall be in accordance with policies of disposal equity but not losing control. At the time control lost, deal with as normal subsidiary disposal. 3) Acquiring non-controlling interests of subsidiary Where the Company acquires a non-controlling interest from a subsidiary’s non-controlling Notes to the financial statements – Page 121 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 shareholders, the book value of shareholder’s equity attributed to the Company and to the non-controlling interest is adjusted to reflect the change in the Company’s interest in the subsidiaries. The difference between the proportion interests of the subsidiary’s net assets being acquired or disposed and the amount of the consideration paid or received is adjusted to the capital reserve in the consolidated balance sheet, with any excess adjusted to retained earnings. 8. Joint arrangement classification and accounting treatment for joint operation (1) Classification The Company classifies joint arrangements into joint operations and joint ventures based on the structure, legal form, terms and conditions in the arrangement, and other related facts. Joint operations means joint arrangement that does not realized through independent entity. Joint arrangement that realized through independent entity is normally recognized as joint venture but it also can be classified as joint operation if clear evidence showed that one of the following condition is met: 1) The legal form of an joint arrangement showed that the joint parties enjoyed rights over related assets and undertake liability respectively; 2) The contract showed that the joint parties enjoyed rights over related assets and undertake liability respectively; 3) Other facts and situation indicated that the joint parties enjoyed rights over related assets and undertake liability respectively; (2) Accounting treatment to joint operation The Company recognizes the following items relating to its interest in a joint operation, and account for them in accordance with relevant accounting standards: 1) its solely-held assets, and its share of any assets held jointly; 2) its solely-assumed liabilities, and its share of any liabilities assumed jointly; 3) its revenue from the sale of its share of the output arising from the joint operation; 4) its share of the revenue from the sale of the output by the joint operation; and 5) its solely-incurred expenses, and its share of any expenses incurred jointly. The Company contribute or disposal of assets (except that asset constitute business) . Before these assets are sold to third party, the Company only recognizes the portion of profit or losses that attributes to the other party. If the assets incurred impairment, the Company recognizes losses in full. For the assets purchased from joint operation (except that constitutes business) , before it is sold to third party, only the portion that attributable to the other parties. If assets incurred impairment, the Company recognizes losses based on its share. The Company does not enjoy joint control to joint operation. If the Company enjoys joint operation’s asset and undertaking related liabilities, the accounting treatment is the same. Otherwise, it shall be accounted for based on accounting standards. 9. Cash and cash equivalents When preparing cash flow statement, the Company recognizes cash in hand and bank deposit that Notes to the financial statements – Page 122 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 available for payment as cash. Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. 10. Foreign currency transactions and translation of foreign currency financial statements (1) Foreign currency transactions Foreign currency transactions are translated into the functional currency of the Company, using the exchange rates prevailing at the dates of the transactions. Monetary items denominated in foreign currencies are translated to Renminbi at the spot exchange rate at the balance sheet date. The resulting exchange differences between the spot exchange rate on balance sheet date and the spot exchange rate on initial recognition or on the previous balance sheet date are recognized in profit or loss. Non-monetary items that are measured at historical cost in foreign currencies are translated to Renminbi using the exchange rate at the transaction date. Non-monetary items that are measured at fair value in foreign currencies are translated using the exchange rate at the date the fair value is determined. The resulting exchange differences are recognized in profit or loss. (2) Translation of foreign currency financial statements When translating the foreign currency financial statements of overseas subsidiaries, assets and liabilities of foreign operation are translated to Renminbi at the spot exchange rate at the balance sheet date. Equity items, excluding “retained earnings”, are translated to Renminbi at the spot exchange rates at the transaction dates. When disposing overseas operations, foreign translation difference that related to the overseas business shall be charged to current period profit or losses from other comprehensive income. If the disposal resulted in decrease in shareholding but still maintain control, the translation difference will be included in non-controlling interest. If the disposal related to associate entity or joint venture entities, the translation difference will be included in current period profit or loss. 11. Financial instruments The Company recognizes financial assets or financial liabilities when the Company become a party of the financial instruments. Effective interest rate method refer to calculating the amortized cost of financial assets or liabilities and amortizes interest income or expenses into corresponding accounting period accordingly. Effective interest rate refers to the interest that is used to discount the estimated future cash flows of existing financial assets or financial liabilities to its amortized cost. When determining the effective interest rate, the cash flow is estimated taking consideration of all contractual terms of financial assets or financial liabilities but does not including estimated credit loss. Amortized cost of financial assets or financial liabilities is the initial recognition amount deduct principal and add or less accumulated amortization to the difference between initial recognition and the amount at maturity and less accumulated loss provision (for financial assets only) . (1) Recognition and derecognition of financial instruments Financial assets are classified into the following three categories depends on the Company’s Notes to the financial statements – Page 123 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 business mode of managing financial assets and cash flow characteristics of financial assets 1) Financial assets measured at amortized cost 2) Financial assets at fair value through other comprehensive income 3) Financial assets at fair value through profit or loss Financial assets are measured at fair value at initial recognition. But it is recognized using trading price for accounts receivable or notes receivable arose from sale of goods or providing of service that does not including material financing component or does not consider financing component within one year. For financial assets at fair value through profit or loss, the related transaction costs are directly recognized through profit or loss, and the related transaction costs of other types of financial assets are included in the initial recognition amounts. Only when the Company changes its business model of managing financial assets, all the financial assets affected shall be reclassified on the first day of the first reporting period after the business model changes. 1) Financial assets measured at amortized cost The Company shall classify financial assets that meet the following conditions and are not designated as financial assets at fair value through profit or loss as financial assets measured at amortized cost: The Company’s business model for managing the financial assets is to collect contractual cash flows; The terms of the financial asset contract stipulate that cash flows generated on a specific date are only payments of principal and interest based on the amount of outstanding principal. Financial assets measured at amortized cost of the Company includes cash and bank balances, notes receivable, accounts receivables and other receivables. After initial recognition, the effective interest rate method is used to measure the amortized cost of such financial assets. Profits or losses arising from financial assets measured at amortized costs and not part of any hedging relationship are included in current profit or loss when the recognition is terminated, amortized or impaired according to the effective interest rate. a) for financial assets that already impaired when it is acquired, the Company determines its interest income using adjusted effective interest rate based on its amortized cost. b) for financial assets that does not impaired when it is acquired but impaired latterly, the Company determines its interest income using adjusted effective interest rate based on its amortized cost. If there is no credit impairment in later period due to changes to risk factors, the Company uses effective interest rate times of carrying amount of the financial asset to determine interest income. 2) Financial assets at fair value through other comprehensive income The Company shall classify financial assets that meet the following conditions and are not designated as financial assets measured at fair value and whose changes are recorded in current profit or loss as financial assets measured at fair value through other comprehensive income: The Group’s business model for managing the financial assets is both to collect contractual cash flows and to sell the Notes to the financial statements – Page 124 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 financial assets, and the terms of the financial asset contract stipulate that cash flows generated on a specific date are only payments of principal and interest based on the amount of outstanding principal. After initial recognition, financial assets are subsequently measured at fair value. Interest, impairment losses or gains and exchange gains calculated by the effective interest rate method are recognized in profit or loss, while other gains or losses are recognized in other comprehensive income. When derecognized, the accumulated gains or losses previously recognized in other comprehensive income are transferred from other comprehensive income and recorded in current profit or loss. 3) Financial assets designated as fair value through other comprehensive income At initial recognition, the Company may designate non-trading equity instrument investments as financial assets at fair value through other comprehensive income, presented as other equity instrument investment, and recognize dividend income when the conditions are met (the designation cannot be revoked once it is made) . The fair value changes of this kind of financial asset shall be included in other comprehensive income and no impairment provision is needed. When de-recognizing the financial asset, accumulated gain or loss in other comprehensive income shall be transferred out of other comprehensive income and charged to retained earnings. During the investing period when the Company holds equity instruments, the Company recognizes dividends in current period profit or loss when the right of receiving dividends is confirmed and the associated economic benefit is probable to flow into the Company and that the amount can be measured reliably. The Company treated this kind of financial instrument under other equity investment. The designated equity instrument investment does not belong to the following: the purpose of obtaining the financial asset is mainly for the recent sale; it is part of the identifiable financial asset instrument combination under centralized management at initial recognition, and there is objective evidence that the short-term gain actually exists in the near future; it is a derivative (except for derivatives that meet the definition of a financial guarantee contract and are designated as effective hedging instruments) . 4) Financial assets at fair value through profit or loss The financial assets other than financial assets measured at amortized cost and financial assets at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. After initial recognition, the financial assets are subsequently measured at fair value, and the profits or losses generated from which are recognized in profit or loss. The Company present the financial assets as financial asset held for trade, other non-current financial assets. 5) Financial assets designated at fair value through profit or loss. At initial recognition, if the accounting mismatch can be eliminated or significantly reduced, the financial assets can be designated as financial assets at fair value through profit or loss. Notes to the financial statements – Page 125 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 If the hybrid contract includes one or more embedded derivatives and the main contract does not belong to the above financial assets, the Company may designate the whole as a financial instrument that is measured at fair value through profit or loss, except in the following cases: a) Embedded derivatives do not materially change the cash flow of a hybrid contract b) When it is first determined whether a similar hybrid contract requires a spin-off, there is little need for analysis to make it clear that the embedded derivatives it contains should not be split. If the prepayment right of the embedded loan allows the holder to repay the loan in advance with an amount close to the amortized cost, the prepayment right does not need to be split. After initial recognition, the financial assets are subsequently measured at fair value, and the profits or losses generated from which are recognized in profit or loss. The Company present the financial assets as financial asset held for trade, other non-current financial assets. (2) Classification and measurement of financial liabilities The Company categorizes financial liabilities into financial liabilities and equity instrument based on the contract terms and economical nature rather than solely on its legal form. Financial liabilities initially recognized as financial liabilities at fair value through profit or loss, other financial liabilities and derivative instrument designated as effective hedging instrument. The financial liabilities of the Company are initially measured at fair value. The related transaction costs of financial liabilities at fair value through profit or loss are directly recognized in profit or loss. The related transaction costs of other categories of financial liabilities are included in the initial recognition amount. Subsequent measurement of financial liabilities depends on its category: 1) Financial liabilities at fair value through profit or loss This category includes financial liabilities held for trade (including derivatives that are financial liabilities) and financial liabilities designated at fair value through profit or loss. At initial recognition, in order to provide more relevant accounting information, the Company classifies financial liabilities that meet one of the following conditions as financial liabilities at fair value through profit or loss (the designation cannot be revoked once it is made) : the aim of undertaking related financial liabilities is to sell or repurchase in the short run; it is part of identifiable financial instruments and there is objective evidence indicated that the enterprise adopts short-term profitability mode; belong to derivative instrument except for derivative instrument designated as effective hedging instrument and financial guarantee contract. Financial liabilities held for trade are measured at fair value subsequently and all fair value changes except for hedging accounting shall be included in current period profit or loss. At initial recognition, in order to provide more relevant accounting information, the Company classifies financial liabilities that meet one of the following conditions as financial liabilities designated at fair value through profit or loss (the designation cannot be revoked once it is made) : Notes to the financial statements – Page 126 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 a) accounting mismatches can be eliminated or significantly reduced. b) management and performance evaluation of financial liability portfolios or combinations of financial assets and financial liabilities based on fair value according to corporate risk management or investment strategies as stated in formal written documents, and report to key management personnel on this basis. When the Company initially recognizes a financial liability and designates it at fair value through profit or loss according to stipulations of standards, the changes in the fair value of the financial liability arising from changes in the company’s own credit risk are included in other comprehensive income, and other changes in fair value are recognized in profit or loss for the period. However, if the accounting causes or expands the accounting mismatch in profit or loss, the entire gain or loss of the financial liability (including the affected amount from changes in the company’s own credit risk) is included in the current profit or loss. 2) Other financial liabilities Except for the following items, the Company classifies financial liabilities as financial liabilities measured at amortized cost: a) Financial liabilities at fair value through profit or loss. b) The transfer of financial assets does not meet the conditions for derecognition or financial liabilities arising from the continued involvement in the transferred financial assets. c) Financial guarantee contracts that are not in the first two categories of this article, and loan commitments granted at a rate lower than market interest rates and that are not in the first category of this article Financial guarantee contracts that are not designated as financial liabilities measured at fair value through profit or loss are initially recognized at fair value. Subsequent to initial recognition, the subsequent measurement is determined according to the higher loss allowance of contingent liabilities under expected credit loss model and the initial recognition amount deducting by the accumulated amortization. (3) Derecognition of financial instruments 1) If a financial asset meets one of the following conditions, it shall be derecognized: a) The contractual right to receive the cash flow of the financial asset is terminated. b) The financial asset has been transferred, and the transfer meets the requirements of the “Accounting Standards for Business Enterprises No. 23 – Transfer of Financial Assets” regarding derecognition of financial assets. 2) Conditions of derecognition of financial liabilities If the current obligation of a financial liability (or a part thereof) has been discharged, the financial liability (or such part of financial liability) is derecognized. When the Company and the lender sign an agreement to replace the original financial liability with a new financial liability, and the new financial liability is substantially different from the original financial liability, the original financial liability is derecognized and a new financial liability is recognized. The Notes to the financial statements – Page 127 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 difference between the carrying amount and the consideration paid (including the transferred non-cash assets or liabilities assumed) is recognized in profit or loss If the Company repurchases part of the financial liabilities, the carrying amount of the financial liabilities as a whole is allocated based on the proportion of the fair value of the continuing recognition portion and the derecognition portion on the repurchase date. The difference between the carrying amount assigned to the derecognition portion and the consideration paid (including the transferred non-cash assets or liabilities assumed) shall be included in the current profit or loss. (4) Recognition basis and measurement for transfer of financial assets In the event of transfer of financial assets, the Company assesses the extent to which it retains the risks and rewards of ownership of the financial assets and treats them in the following cases: 1) If almost all risks and rewards of ownership of financial assets are transferred, the financial assets are derecognized and the rights and obligations arising from or retained in the transfer are separately recognized as assets or liabilities. 2) If almost all the risks and rewards of ownership of financial assets are retained, the financial assets shall continue to be recognized 3) If there is neither transfer nor retention of almost all risks and rewards of ownership of financial assets (i.e., other than (1) and (2) of this article) , then depending on whether or not they retain control over financial assets a) If there is neither transfer nor retention of almost all risks and rewards of ownership of financial assets (i.e., other than (1) and (2) of this article) , then depending on whether or not they retain control over financial assets b) If there is neither transfer nor retention of almost all risks and rewards of ownership of financial assets (i.e., other than (1) and (2) of this article) , then depending on whether or not they retain control over financial assets. When judging whether the transfer of financial assets satisfies the conditions for derecognition above, the principle of substance over form is adopted. The Company divides the transfer of financial assets into the overall transfer and partial transfer of financial assets: 1) If the overall transfer of financial assets meets the conditions for derecognition, the difference between the following is included in the current profit or loss a) The carrying amount of the transferred financial assets on the date of derecognition. b) The sum of the consideration received in respect of the transfer of financial assets and the amount corresponding to the derecognized portion in the accumulated changes in the fair value originally and directly recognized in other comprehensive income (the financial assets involved in the transfer are measured at fair value through other comprehensive income) If the transfer of a financial asset does not meet the conditions for derecognition, the financial asset will continue to be recognized and the consideration received is recognized as a financial liability (5) Method for determining the fair value of financial assets and financial liabilities Notes to the financial statements – Page 128 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 The fair value of financial assets or financial liabilities with active market is determined by active market quotations; active market quotations include quotations that are readily and regularly available from exchanges, dealers, brokers, industry groups, pricing agencies or regulatory authorities for related assets or liabilities, and represent actual and frequently occurring market transactions on a fair trade basis. The fair value of financial assets initially acquired or derived or financial liabilities assumed shall be determined on the basis of the market transaction price. The fair value of financial assets or financial liabilities without active market is determined using valuation techniques. In valuation, the Company adopts valuation techniques that are applicable under current circumstances and that are supported by adequate available data and other information, selects inputs with consistent asset or liability characteristics considered by market participants in trading related asset or liability, and uses relevant observable inputs where possible. Unobservable inputs are used where the relevant observable inputs are not available or are impracticable. (6) Provision for impairment of financial assets Based on the expected credit losses, the Company assesses the expected credit losses of the financial assets measured at amortized cost and financial assets at fair value through other comprehensive income, lease receivables, contract assets, loan commitment and financial liabilities that are not measured at fair value through profit or loss, and financial guarantee contract etc., and makes impairment accounting and recognizes loss provisions. The expected credit loss refers to the weighted average of the credit losses of financial instruments that are weighted by the risk of default. Credit loss refers to the difference between all contractual cash flows discounted at the original effective interest rate and receivable from the contract and all cash flows expected to be received by the Company, and the present value of all cash shortages. For financial assets that have been purchased or generated with credit impairment, loss provision is recognized only for the cumulative changes in lifetime expected credit losses after the initial recognition on the balance sheet date. For accounts receivable, contract assets, and lease receivables, the Company shall always measure the loss allowance for them at an amount equal to the lifetime expected credit losses. For financial assets that have been purchased or generated with credit impairment, loss provision is recognized only for the cumulative changes in lifetime expected credit losses after the initial recognition on the balance sheet date. On each balance sheet date, the amount of changes in lifetime expected credit losses is included in profit or loss as an impairment loss or gain. Even if the lifetime expected credit loss determined on the balance sheet date is less than the expected credit loss reflected in the estimated cash flow at the initial recognition, the positive change in expected credit loss is also recognized as an impairment gain Except for the provision for loss of financial instruments in item (3) of this article, the Company assesses whether the credit risk of the relevant financial instruments has increased significantly since the initial recognition on each balance sheet date, and separately measures its loss provision, recognizes Notes to the financial statements – Page 129 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 expected credit loss and its changes based on the following circumstances: a) If the credit risk of the financial instruments has increased significantly since the initial recognition, the loss provision is measured at the amount equivalent to the lifetime expected credit loss of the financial instruments, regardless of whether the basis the Company assesses the credit losses is on individual financial instrument or a combination of financial instruments, and the increase or reversal of the loss provision resulting therefrom should be included in the current profit or loss as an impairment loss or gain b) If the credit risk of the financial instruments has not increased significantly since the initial recognition, the loss provision is measured at the amount equivalent to the expected credit loss of the financial instruments in the next 12 months, regardless of whether the basis the Company assesses the credit loss is on individual financial instrument or the combination of financial instruments, and the increase or reversal of the loss provision resulting therefrom shall be included in the current profit or loss as an impairment loss or gain. For financial instruments in the third stage, the Company measures loss provision on the basis of life-time expected credit loss and calculating interest income according to their book balance minus the impairment provision and the actual interest rate. Incremental or reversal of credit loss provision shall be included in current profit or loss as impairment loss or gain. Except for financial asset at fair value through other comprehensive income, credit loss provision is to offset the carrying amount of financial assets. For financial assets at fair value through other comprehensive income, the credit loss provision is recognized in other comprehensive income and will not offset the financial asset’s carrying amount in balance sheet. If the Company recognized credit loss provision in prior accounting period in terms of life-time credit loss, but on current period balance sheet date, the associated financial asset does not belong to the situation of risk increased after the initial recognition, the Company shall accrue credit loss provision for this financial asset based on the next 12 month expected credit loss. Difference arose from above changes shall be included in current period profit or loss as impairment gain. 1) Assessment of significant increase of credit risk By comparing the default risk of financial instruments on balance sheet day with that on initial recognition day, the Company determines the relative change of default risk of financial instruments during the expected life of financial instruments, to evaluate whether the credit risk of financial instruments has increased significantly since the initial recognition. To determine whether credit risk has increased significantly since the initial recognition, factors considered by the Company includes: a) Whether there is serious deterioration of the debtor’s operating results that have occurred or are expected to occur; b) Changes in the existing or anticipated technological, market, economic or legal environment will have a significant negative impact on the debtor’s repayment capacity. Notes to the financial statements – Page 130 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 c) Serious deterioration of external or internal credit ratings (if any) of financial instruments that have occurred or are expected to occur; d) Whether the expected performance and repayment of debtor changes significantly. e) Whether the Company changed the way of managing financial assets. On the balance sheet date, if the Company assesses that the financial instrument only has lower level of credit risk, the Company assumes that the credit risk associated with the financial instrument does not increased after the initial recognition. If the default rate of a financial instrument is low and the debtor’s ability to fulfill its cash flow liability is strong, the financial instrument will be regarded with lower credit risk even if there will be adverse changed in economic and operating environment in long-term which may not necessarily decrease the debtor’s ability of fulfilling its cash flow liabilities. 2) Provision for impairment of financial assets When one or more events that adversely affect the expected future cash flows of a financial asset occur, the financial asset becomes a financial asset that has suffered credit impairment. Evidence that credit impairment has occurred in a financial asset includes the following observable information: a) significant financial difficulties of the issuer or debtor; b) the debtor breaches the contract, such as failure to pay or delay in the payment of interest or principal; c) the creditor gives the debtor a concession which would not have been made under any other circumstances for economic or contractual considerations relating to the financial difficulties of the debtor; d) the debtor is likely to go bankrupt or carry out other financial restructurings; e) the financial difficulties of the issuer or the debtor cause the active market of the financial asset to disappear; f) purchase or source a financial asset at a substantial discount that reflects the fact that credit losses have occurred. The credit impairment of financial assets may be caused by the joint action of multiple events, and may not be caused by separately identifiable event Determining expected credit loss (ECL) The Company evaluates ECL based on single or portfolio of financial instrument. When evaluating ECL, the Company considers past events, current situation and future economic condition. The Company categorizes financial instrument into different portfolios based on common credit risk characteristics. Common credit risk characteristics includes: types of financial instruments, aging portfolio, settlement period, debtor’s industries etc… Refer to accounting policies of financial instruments for standard for single evaluation and credit risk characteristics. The Company uses the following way to determine the ECL of financial instruments: a) For financial assets, credit loss is the present value of difference between all contractual cash flows receivable from the contract and all cash flows expected to be received by the Company. b) For lease receivable, credit loss is the present value of difference between all contractual cash Notes to the financial statements – Page 131 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 flows receivable from the contract and all cash flows expected to be received by the Company. c) For financial guarantee contract, credit loss is the present value of expected payment amount due to credit losses happened to the owner of the contract and less any amount that the Company expected to receive from the contract owner, debtor or other parties. d) For financial assets that already impaired on balance sheet date but not impaired when purchasing, the credit loss is the difference of carrying amount and present value of future cash flows discounted at original effective interest rate. Factors that the Company measures ECL of financial instrument includes: assessing a series of possible results and to determine a weighted average amount without bias; time value of money; information of past event, current situation and future economic condition forecast that can be obtained without paying extra cost or efforts on balance sheet date. 3) Write off If the Company no longer reasonably expects that the financial assets contract cash flow can be recovered fully or partially, the financial assets book balance will be reduced directly. Such reduction constitutes the derecognition of the financial assets. (7) Offset of financial assets and financial liabilities Financial assets and financial liabilities are presented separately in the balance sheet and are not offset. However, if all of the following conditions are met, the net amount offset by each other is presented in the balance sheet: 1) The Company has a statutory right to offset the recognized amount, and such legal right is currently enforceable; 2) The Company plans to settle in net amount or to realize the financial assets and settle the financial liabilities at the same time. 12. Bill receivables Refer to Note XI. 6 Financial instrument impairment for details of ECL determination and accounting method to bill receivable. If the Company has sufficient evidence to evaluate the ECL of bill receivable on single basis, it will be assessed on single basis. If there is not sufficient evidence to evaluate the ECL on single basis, the Company will make judgment based on historical loss experience, current situation and future economic situation, and classifying the bill receivable into different portfolios. The basis for portfolios is determined as follows: Portfolio Basis method Referencing historical impairment Risk-free The issuer has higher level of credit rating and no default in experience and taking into banker’s past and has strong ability to fulfil its contractual cash follow consideration of current situation and acceptance note obligation estimation of future conditions Business Bill receivables with same aging have similar credit risk Based on aging analysis acceptance note characteristics 13. Accounts receivables Notes to the financial statements – Page 132 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Refer to Note XI. 6 Financial instrument impairment for details of ECL determination and accounting method to accounts receivable. If the Company has sufficient evidence to evaluate the ECL of account receivable on single basis, it will be assessed on single basis. If there is not sufficient evidence to evaluate the ECL on single basis, the Company will make judgment based on historical loss experience, current situation and future economic situation, and classifying the account receivable into different portfolios. The basis for portfolios is determined as follows: Portfolio Basis method Referencing historical impairment Account receivables for related parties in scope Receivables for related parties experience and taking into of consolidation have similar credit risk in scope of consolidation consideration of current situation and characteristics estimation of future conditions Accounts receivables from Account receivables with same aging have Based on aging analysis other parties similar credit risk characteristics 14. Other receivables Refer to Note XI. 6 Financial instrument impairment for details of ECL determination and accounting method to other receivables. If the Company has sufficient evidence to evaluate the ECL of other receivables on single basis, it will be assessed on single basis. If there is not sufficient evidence to evaluate the ECL on single basis, the Company will make judgment based on historical loss experience, current situation and future economic situation, and classifying the other receivable into different portfolios. The basis for portfolios is determined as follows: Portfolio Basis method Receivables of down payment and The portfolio has similar credit risk Based on aging and ECL rate guarantee characteristics The portfolio has similar credit risk Referencing historical impairment characteristics experience and taking into Petty cash for employees consideration of current situation and estimation of future conditions The portfolio has similar credit risk Referencing historical impairment Social security payment paid on-behalf characteristics experience and taking into of employees consideration of current situation and estimation of future conditions The portfolio has similar credit risk Referencing historical impairment Receivables from related parties within characteristics experience and taking into scope of consolidation consideration of current situation and estimation of future conditions The portfolio has similar credit risk Others Based on aging and ECL rate characteristics 15. Inventory (1) Classification Inventory refers to the finished products or commodities that the Company holds for sale in its daily activities, semi-products in the production process, materials and consumables used in the production Notes to the financial statements – Page 133 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 process or the provision of labour services. Inventories include raw materials, work in progress, and finished goods. (2) Valuation method of inventory When inventory is acquired, it is initially measured at cost, including procurement costs, processing costs and other costs. When the inventory is issued, it is measured by the weighted average method (except for branded watches) and specific identification method (for branded watches) . (3) Basis for determining the net realizable value and method for provision for obsolete inventories After the inventory is thoroughly inspected at the end of the period, the provision shall be provided or adjusted at the lower of the cost of the inventory and its net realizable value. The net realizable value of inventory of goods directly used for sale, such as finished goods, stocked goods and materials for sale in the normal production and operation process, is determined by the estimated selling price of the inventory minus the estimated selling expenses and related taxes; net realizable value of inventory of materials that need to be processed is determined based on the estimated selling price of the finished products produced minus the estimated cost till completion, estimated selling expenses and related taxes and fees in the normal production and operation process; the net realizable value of the inventory held for the execution of a sales contract or labour contract is calculated on the basis of the contract price. If the quantity of the inventory held exceeds the quantity ordered by the sales contract, the net realizable value of the excess inventory is calculated based on the general sales price. The provision is accrued according to the individual inventory project at the end of the period; but for a large number of inventories with lower unit price, the provision is accrued according to the category of inventory; for those related to the product series produced and sold in the same region, have the same or similar end use or purpose and that are difficult to measure separately from other projects, they are combined for provision for inventory depreciation If the influencing factors of the write-down of inventory value have disappeared, the amount of write down will be restored and will be reversed within the amount of the provision for decline in value of the inventory that has been accrued. The amount of the reversal is included in the current profit or loss (4) Inventory count system The Company maintains a perpetual inventory system. (5) Amortization methods of low-value consumables and packaging materials Low-value consumables and packaging materials are charged to profit or loss when they are used. 16. Contract assets The Company has the right to receive the consideration for the transfer of goods to the customers. If the right depends on factors other than the passage of time, it is recognized as a contract asset. If the Company has the right (only depends on passage of time) to receive consideration from client, accounts receivable shall be recognized. Refer to Note XI 6 for impairment to contract asset. Notes to the financial statements – Page 134 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 17. Long-term Equity Investment (1) Determination of investment cost 1) For the long-term equity investment formed by business combination, the specific accounting policies are detailed in the accounting treatment of business combination under common control and not under common control as set out in this Note VI. 2) Long-term equity investment obtained by other means The initial investment cost of the long-term equity investment obtained by cash payment is the actual purchase price. The initial investment cost includes expenses directly related to the acquisition of long-term equity investments, taxes and other necessary expenses The initial investment cost of the long-term equity investment obtained by issuing equity securities is the fair value of the issued equity securities; the transaction cost incurred in the issuance or acquisition of its own equity instruments is deducted from equity if it is directly attributable to equity transactions. Under the premise that the non-monetary asset exchange has the commercial substance and the fair value of the assets received or surrendered can be reliably measured, the initial investment cost of the long-term equity investment exchanged for non-monetary assets is determined based on the fair value of the assets exchanged and relevant taxes payable, unless there is conclusive evidence that the fair value of the assets transferred is more reliable; for the exchange of non-monetary asset that does not meet the above premise, the initial investment cost of long-term equity investment is the carrying amount of the assets exchanged and the related taxes and fees payable. The initial investment cost of a long-term equity investment obtained through debt restructuring includes the fair value of the waived debt, taxes that can be directly attributable to the asset and other costs (2) Subsequent measurement and profit and loss recognition 1) Cost method The long-term equity investment that the Company can control over the investee is accounted for using the cost method, and the cost of the long-term equity investment is adjusted by adding or recovering the investment according to the initial investment cost. Except for the actual payment or the cash dividends or profits included in the consideration that have been announced but not yet paid at the time of acquiring the investment, the Company recognizes the current investment income according to its share of cash dividends or profits declared to be distributed by the investee. 2) Equity method The Company’s long-term equity investments in associates and joint ventures are accounted for using the equity method, and some of the equity investments in associates that are indirectly held by venture capital institutions, mutual funds, trust companies or similar entities including investment-linked insurance funds are measured at fair value through profit or loss. When the initial investment cost of a long-term equity investment is greater than the investment, the initial investment cost of the long-term equity investment shall not be adjusted by the difference between the fair value of the identifiable net Notes to the financial statements – Page 135 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 assets of the investee; if the initial investment cost is less than the investment, the difference between the fair value of the identifiable net assets of the investee should be included in the current profit or loss After obtaining the long-term equity investment, the Company shall recognize the investment income and other comprehensive income according to the share of net profit and loss and other comprehensive income realized by the investee that is entitled or should be shared respectively, and adjust the carrying amount of the long-term equity investment; and reduces the carrying amount of the long-term equity investment based on portion of the profit or cash dividend declared to be distributed by the investee; and for other changes in the owners’ equity other than the net profit or loss, other comprehensive income and profit distribution of the investee, the carrying amount of the long-term equity investment is adjusted and included in the owners’ equity. When recognizing the share of the net profit or loss of the investee, the Company shall adjust and recognize the net profit of the investee based on the fair value of the identifiable assets of the investee at the time of obtaining the investment. The unrealized internal transaction gains and losses between the Company and the associates and joint ventures shall be offset against the portion attributable to the Company in accordance with the proportion to be enjoyed, on the basis of which the investment gains and losses are recognized. When the Company recognizes the losses incurred by the investee that it should bear, it shall deal with it in the following order: Firstly, offset the carrying amount of the long-term equity investment. Secondly, if the carrying amount of the long-term equity investment is not enough to be offset, the investment loss will continue to be recognized to the extent of carrying amount of other long-term equity that virtually constitutes a net investment in the investee, and the carrying amount of the long-term receivables is offset. Finally, after the above-mentioned treatment, if the enterprise still bears additional obligations in accordance with the investment contract or agreement, the projected liabilities are recognized according to the estimated obligations and included in the current investment losses. If the investee realizes profit in the future period, after deducting the unrecognized loss share, and the reduction of book balance of the recognized projected liabilities and recovery of other long-term equity that virtually constitutes a net investment in the investee and carrying amount of long-term equity investment as opposite to the order above, the Company shall restore the investment income. (3) Conversion of accounting methods for long-term equity investment 1) Fair value measurement to equity method accounting If the equity investment originally held by the Company that does not have control, joint control or significant influence on the investee, which is accounted for according to the recognition and measurement criteria of financial instruments, can exert significant influence on the investee or jointly control but does not constitute control over it due to additional investment and otherwise, its initial investment cost shall be the sum of the fair value of the equity investment originally held in accordance with the “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments” and new investment cost after being accounted for under the equity method. Notes to the financial statements – Page 136 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 If the initial investment cost accounted for under the equity method is less than the fair value share of the identifiable net assets of the investee on the additional investment date determined by the new shareholding ratio after the additional investment, the carrying amount of the long-term equity investment is adjusted and included in the current non-operating income. 2) Fair value measurement or equity method accounting to cost method accounting If the equity investment originally held by the Company, that does not have control, joint control or significant influence on the investee and which is accounted for in accordance with the financial instrument recognition and measurement criteria, or the long-term equity investment originally held in associates or joint venture, can exercise control over the investee not under common control due to additional investment or otherwise, in the preparation of individual financial statements, the sum of the carrying amount of the equity investment originally held plus the new investment cost shall be regarded as the initial investment cost after being accounted for under the cost method. The other comprehensive income recognized by the equity method in respect of the equity investment originally held before the purchase date is accounted for on the same basis as the investee directly disposes of the relevant assets or liabilities when the investment is disposed of. If the equity investment held before the purchase date is accounted for in accordance with the relevant provisions of the “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments”, the cumulative fair value changes originally included in other comprehensive income are transferred to current profit or loss when the cost method is adopted. 3) Equity method accounting to fair value measurement If the Company loses joint control or significant influence on the investee due to the disposal of part of the equity investment or otherwise, the remaining equity after disposal shall be accounted for according to the “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments”. The difference between the fair value and the carrying amount on the date of losing joint control or significant impact is recognized in profit or loss. The other comprehensive income recognized in respect of the original equity investment using the equity method is accounted for on the same basis as the investee directly disposes of the relevant asset 4) Cost method to equity method Where the Company loses control over the investee due to the disposal of part of the equity investment, etc., in the preparation of individual financial statements, if the remaining equity after disposal can exercise joint control or significant influence on the investee, the equity method is adopted for accounting, and the remaining equity is deemed to be adjusted under the equity method when it is acquired. 5) Cost method to fair value measurement Where the Company loses control over the investee due to the disposal of part of the equity investment, etc., in the preparation of individual financial statements, if the remaining equity after disposal cannot jointly control or exert significant influence on the investee, the relevant provisions of the Notes to the financial statements – Page 137 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments” are adopted. The difference between the fair value and the carrying amount on the date of loss of control is recognized in profit or loss for the current period. (4) Disposal of long-term equity investment For the disposal of long-term equity investment, the difference between the carrying amount and the actual purchase price shall be included in the current profit or loss. For the long-term equity investment accounted for using the equity method, when the investment is disposed of, the part that is originally included in the other comprehensive income is accounted for in the same proportion based on the same basis as the investee directly disposes of the relevant assets or liabilities. If the terms, conditions and economic impact of each transaction on disposal of the equity investment in a subsidiary satisfy one or more of the following cases, the multiple transactions are treated as a package transaction: 1) The transactions are made simultaneously or with consideration of each other’s influence; 2) The transactions as a whole can achieve a complete business outcome; 3) The occurrence of a transaction depends on the occurrence of at least one other transaction; 4) A transaction is uneconomic alone, but it is economic when considered together with other transactions Where the loss of control over the original subsidiary due to disposal of part of the equity investment or otherwise which is not a package transaction, the individual financial statements and consolidated financial statements shall be classified for relevant accounting treatment: a) In the individual financial statements, the difference between the carrying amount of the disposed equity and the actual purchase price is included in the current profit or loss. If the remaining equity after disposal can exert joint control or significant influence on the investee, it shall be accounted for under the equity method, and the residual equity shall be deemed to be adjusted by equity method when it is acquired; if the remaining equity after disposal cannot exert joint control or significant influence over the investee, it shall be accounted for by the relevant provisions of the “Accounting Standards for Business Enterprises No. 22 – Recognition and Measurement of Financial Instruments”, and the difference between the fair value and the carrying amount on the date of loss of control is included in the current profit or loss. b) In the consolidated financial statements, for each transaction before the loss of control over the subsidiary, capital reserve (share premium) is adjusted for the difference between the disposal price and the share of the net assets corresponding to the disposed long-term equity investment that the subsidiary has continuously calculated from the date of purchase or the merger date; if the capital reserve is insufficient to offset, the retained earnings will be adjusted; when the control of the subsidiary is lost, the remaining equity shall be re-measured according to its fair value on the date of loss of control. The sum of the consideration for the disposal of the equity and the fair value of the remaining equity, less the share of the net assets that that the original subsidiary has continuously calculated from the date of purchase Notes to the financial statements – Page 138 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 calculated based on the original shareholding, is included in the investment income for the period of loss of control, while reducing goodwill. Other comprehensive income related to the original subsidiary’s equity investment will be converted into current investment income when control is lost. If each transaction on disposal of the equity investment in a subsidiary until the loss of control is a package transaction, each transaction is accounted for as a transaction to dispose of the equity investment in the subsidiary with loss of control, which is distinguished between individual financial statements and consolidated financial statements: a) In the individual financial statements, the difference between each disposal price and the carrying amount of the long-term equity investment corresponding to the disposed equity before the loss of control is recognized as other comprehensive income, and when the control is lost, it is transferred to profit or loss for the period of the loss of control. b) In the consolidated financial statements, the difference between each disposal price and the disposal investment that has the share of the net assets of the subsidiary before the loss of control is recognized as other comprehensive income, and transferred to profit or loss for the period of the loss of control. (5) Judging criteria for joint control and significant influence If the Company collectively controls an arrangement with other parties in accordance with the relevant agreement, and the activity decision that has a significant impact on the return of the arrangement needs to be unanimously agreed upon by the parties sharing the control, it is considered that the Company and other parties jointly control an arrangement, which is a joint arrangement. If the joint arrangement is reached through a separate entity and it determines that the Company has rights to the net assets of the separate entity in accordance with the relevant agreement, the separate entity is regarded as a joint venture and is accounted for using the equity method. If it is judged according to the relevant agreement that the Company does not have rights to the net assets of the separate entity, the separate entity acts as a joint operation, and the Company recognizes the items related to the share of the interests of the joint operation and conducts accounting treatment in accordance with the relevant ASBEs. Significant influence refers to the investor’s power to participate in the decision-making of the financial and operating policies of the investee, but it cannot control or jointly control the formulation of these policies with other parties. The Company has a significant influence on the investee under one or more of the following situations and taking into account all facts and circumstances: (1) it is represented on the board of directors or similar authorities of the investee; (2) it involves in the formulation of financial and operating policy of the investee; (3) it has important transactions with the investee; (4) it dispatches management personnel to the investee; (5) it provides key technical information to the investee. 18. Investment Property Investment property refers to property held for the purpose of earning rent or capital appreciation, or both, including leased land use rights, land use rights held and prepared for transfer after appreciation, Notes to the financial statements – Page 139 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 and leased buildings. Besides, for empty constructions that the Company held for rent lately but with the written resolution from the board stated that it will be used as operating lease and that intention will not be changed in short-term, it can be treated as investment property. The Company’s investment property is recorded at its cost, and the cost of purchased investment property includes the purchase price, related taxes and other expenses directly attributable to the asset; the cost of self-built investment property is composed of the necessary expenses incurred before the asset is ready for expected use. The Company adopts the cost model for subsequent measurement of investment property, and depreciates or amortizes buildings and land use rights according to their estimated service life and net residual value. Expected useful life, residual value and annual depreciation rate are as follows: Estimated useful Category life Residual value rate % Depreciation rate % (years) Property 20-35 5.00 4.80-2.70 When the use of investment property is changed to self-use, the Company converts the investment property into fixed assets or intangible assets from the date of change. When the use of self-use property changes to rental earning or capital appreciation, the Company converts fixed assets or intangible assets into investment property from the date of change. When a conversion occurs, the carrying amount before conversion is used as the converted value The investment property is derecognized when the investment property is disposed of, or permanently withdrawn from use and is not expected to obtain economic benefits from its disposal. The amount of disposal income from the sale, transfer, retirement or damage of the investment property after deducting its carrying amount and related taxes and expenses is recognized in profit or loss for the current period. 19. Fixed assets (1) Recognition conditions of fixed assets Fixed assets refer to tangible assets held for the purpose of producing goods, providing labour services, renting or operating management, and having a useful life of more than one fiscal year. Fixed assets are recognized when they meet all of the following conditions: 1) the economic benefits associated with the fixed assets are likely to flow into the enterprise; 2) the cost of the fixed assets can be reliably measured. (2) Initial measurement of fixed assets The fixed assets of the Company are initially measured at cost. 1) The cost of outsourcing fixed assets includes the purchase price, import duties and other related taxes and fees, as well as other expenses that can be directly attributed to the assets before they reach their intended usable state. 2) The cost of self-built fixed assets is determined by the necessary expenditures incurred before the assets reach their expected usable state. Notes to the financial statements – Page 140 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 3) For fixed assets invested by investors, the value agreed in the investment contract or agreement is regarded as the book value, but the value agreed in the contract or agreement is not accounted for at fair value. 4) If the payment for the purchase of fixed assets is delayed beyond the normal credit conditions, and is of a financing nature in essence, the cost of fixed assets is determined on the basis of the present value of the purchase price. The difference between the actual payment and the present value of the purchase price is recorded in the current profit or loss during the credit period, except where it should be capitalized. (3) Subsequent measurement and disposal of fixed assets 1) Depreciation of fixed assets Depreciation of fixed assets is accrued over the estimated useful life based on its recorded value less the estimated net residual value. The fixed assets that have been provided for impairment losses are depreciated in the future period based on the carrying amount after deducting the impairment provision and the remaining useful life. The Company determines the service life and estimated net residual value of fixed assets based on the nature and use of fixed assets. At the end of the year, the service life, the estimated net residual value and the depreciation method of the fixed assets are reviewed. If there is a difference from the original estimate, corresponding adjustments will be made. The depreciation method, depreciation period and annual depreciation rate of various fixed assets are as follows. Estimated Method of Residual value Class depreciation useful life Depreciation rate % rate % (years) Property and plant Straight-line 20-35 5.00 4.80-2.70 Machinery and Straight-line 10 5.00-10.00 9.50-9.00 equipment Electronic equipment Straight-line 5 5.00 19.00 Motor vehicles Straight-line 5 5.00 19.00 Others Straight-line 5 5.00 19.00 2) Subsequent expenditures on fixed assets Subsequent expenditures related to fixed assets that meet the conditions for recognition of fixed assets are included in the cost of fixed assets; those that do not meet the conditions for recognition of fixed assets are included in the current profit or loss when they occur. 3) Disposal of fixed assets When a fixed asset is disposed of or no economic benefit is expected to result from its use or disposal, the fixed asset is derecognized. The amount of disposal income from sale, transfer, retirement or damage of the fixed asset after deducting its book value and related taxes is included into the current profit or loss. 20. Construction in Progress (1) Initial measurement of construction in progress Notes to the financial statements – Page 141 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 The self-built construction in progress of the Company is measured at the actual cost, which is determined by the necessary expenses incurred before the construction of the asset reaches the intended usable condition, including the cost of engineering materials, labour costs and relevant taxes payable, capitalized borrowing costs and indirect costs that should be apportioned. The Company’s construction in progress is classified into projects when in accounting (2) Criteria for and time point of construction in progress to convert into fixed asset The total expenditure incurred before the construction in progress project is constructed to reach the intended usable condition shall be recorded as the book value of the fixed assets. For the construction in progress built which has reached the intended usable condition, but has not yet completed the final accounts, since the date of reaching expected use condition, according to the project budget, cost or actual project costs, it shall be converted into fixed assets at the estimated value, and fixed assets shall be depreciated in accordance with the depreciation policy of the Company for fixed assets. After the completion of the final accounts, the original estimated value shall be adjusted according to the actual cost, but the original depreciation amount shall not be adjusted. 21. Borrowing Costs (1) Recognition principle for capitalization of borrowing costs If the borrowing costs of the Company can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it shall start capitalization and be included in the cost of relevant assets in the case of eligible for capitalization; other borrowing costs shall be recognized as expenses at the time of occurrence and shall be included in the current profit or loss. Assets that are eligible for capitalization are assets that require a long period of time to purchase or produce activities to achieve fixed assets, investment property and inventory that are available for intended use or sale. Borrowing costs begin to capitalize when all of the following conditions are met: 1) Assets expenditure has occurred, including expenditure incurred in the form of cash payment, transfer of non-cash assets or assuming of interest-bearing debt for the acquisition and construction or production of assets eligible for capitalization; 2) Borrowing costs have already occurred; 3) The purchase and construction or production activities necessary for the assets to reach the intended use or saleable status have started. (2) Capitalization period of borrowing costs The period of capitalization refers to the period from the point of time when the borrowing costs are capitalized to the point of time where the capitalization is stopped, excluding the period during which the borrowing costs are suspended from capitalization. The borrowing costs shall cease to be capitalized when the assets acquired or produced that meet the conditions for capitalization are ready for intended use or sale. When a part of the assets purchased or produced that meet the capitalization conditions are Notes to the financial statements – Page 142 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 completed and can be used alone, such part of the assets shall stop capitalization of borrowing costs. Where each part of the assets purchased or produced is completed separately, but must wait until the whole is completed or can be sold externally, the capitalization of the borrowing costs shall be stopped when the assets are completed as a whole. (3) Suspension of capitalization period If the assets that meet the capitalization conditions are interrupted abnormally during the construction or production process and the interruption time lasts for more than 3 months, the capitalization of borrowing costs shall be suspended; the borrowing costs shall continue to be capitalized if the acquisition or production of assets eligible for capitalization is necessary to meet the required usable status or the availability of sales. The borrowing costs incurred during the interruption are recognized as profit or loss for the current period and the borrowing costs continue to be capitalized until the acquisition or production of assets is resumed. (4) Calculation for capitalization amount of borrowing costs Interest charges on special borrowings (excluding interest income on unused borrowings deposited in the bank, or investment income on temporary investment) and their ancillary expenses shall be capitalized before the assets purchased or produced that meet the capitalization conditions are ready for intended use or sale. The amount of capitalized interest on general borrowings is calculated by the weighted average of the excess portion of the accumulative asset expenditures over the special borrowings multiplied by the capitalization rate of general borrowings. The capitalization rate is determined based on the weighted average interest rate of general borrowings. Where there is a discount or premium in the borrowings, the interest amount shall be adjusted in accordance with the effective interest rate method to determine the discount or premium amount that shall be amortized during each accounting period. 22. Right-of-use Assets The Company initially measures the right-to-use assets at cost, which includes: (1) initial measurement amount of lease liabilities; (2) lease payments made before or at the beginning of the lease term, and deduction of the relevant amount of rental incentives if any; (3) initial direct expenses incurred by the Company; (4) expected costs to be incurred by the Company for dismantling and removing leased assets, restoring the site of leased assets or restoring leased assets to the state agreed in the lease terms (excluding costs incurred for the production of inventory) After the beginning of the lease term, the Company adopts the cost model for subsequent measurement of the right-of-use assets If it is reasonably certain to obtain the ownership of the leased assets at the expiration of the lease term, the Company shall depreciate the leased assets within the remaining useful life of the leased Notes to the financial statements – Page 143 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 assets. If it is not reasonably certain to obtain the ownership of the leased assets at the expiration of the lease term, the Company shall depreciate the leased assets within the shorter of the lease term and the remaining useful life of the leased assets. For the right-of-use assets with impairment provision, depreciation shall be calculated based on the book value after deduction of impairment provision in according with the above principles in future periods. 23. Intangible Assets and Development Expenditure Intangible assets refer to the identifiable non-monetary assets owned or controlled by the Company which have no physical form, including land use rights, software and trademark use rights. (1) Initial measurement of intangible assets The cost of externally purchased intangible assets includes the purchase price, relevant taxation and other expenses directly attributable to bringing the assets to expected usage. If payment for the purchase price of intangible assets is delayed beyond normal credit conditions and is in fact financing in nature, the cost of the intangible assets is determined based on the present value of the purchase price. For intangible asset obtained through debt restructuring for offsetting the debt of the debtor, its initial measurement cost includes the fair value of the waived creditor’s rights and taxes and other costs directly attributable to bringing the asset to expected usage. The difference between the fair value of the waived creditor’s rights and the carrying amount shall be recognized in profit or loss for the period. The book value of intangible asset received in exchange for non-monetary asset is based on the fair value of the asset surrendered and relevant taxes payable, provided that the exchange of nonmonetary asset has a commercial substance and the fair value of both the asset received and the asset surrendered can be reliably measured, except there is definite evidence that the fair value of the asset received is more reliable; for exchange of non-monetary asset that cannot satisfy the above conditions, the cost of the intangible asset received is based on the carrying amount of the asset surrendered and relevant taxes payable, and no profit or loss is recognized. For intangible asset obtained through business absorption or combination under common control, its book value is determined by the carrying amount of the combined party; for intangible asset obtained through business absorption or merger not under common control, its book value is determined by the fair value of the intangible asset. The cost of an internally developed intangible asset includes the materials consumed in developing the intangible asset, labour costs, registration fees, amortization of other patented rights and licensed rights used during the development process, interest expenses meeting capitalization conditions, and other direct costs for bringing the intangible asset to expected usage. (2) Subsequent measurement of intangible assets The Company determines the useful life of intangible assets on acquisition, which are classified as intangible assets with limited useful life and indefinite useful life. 1) Intangible assets with a limited useful life Notes to the financial statements – Page 144 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Intangible assets with a limited useful life are depreciated using straight line method over the term during which they bring economic benefits to the Company. The estimated life and basis for the intangible assets with a limited useful life are as follows: Estimated useful Item Amortization method life Land use right 50 Straight-line Software systems 5 Straight-line Right to use the trademark 5-10 Straight-line The useful life and depreciation method of intangible assets with a limited useful life are reassessed at the end of each period. If there is a difference from the original estimate, corresponding adjustments will be made. Upon re-assessment, there was no difference in the useful life and depreciation method of intangible assets from the previous estimates at the end of the period. (3) Specific basis for determining the research stage and development stage of internal research and development projects of the Company Research stage: a stage of scheduled innovative investigations and research activities for the acquisition and understanding of new scientific or technical knowledge. Development stage: before the commercial production or use, the research results or other knowledge will be applied to a plan or design to produce new or substantial improvements in materials, devices, products and other activities. The expenditure of the research stage of the internal research and development project is included in the current profit or loss at the time of occurrence (4) Specific standard for capitalization of expenditure in the development stage The expenditure of an internal research and development project in the development stage is recognized as an intangible asset when meeting all of the following conditions: 1) It is technically feasible to complete the intangible asset so that it can be used or sold; 2) With an intention to complete the intangible asset and to use or sell it; 3) The way the intangible asset generates economic benefits can prove the existence of a market for the products produced using the intangible asset or a market for the intangible asset itself, and if the intangible asset will be used internally, its usefulness can be proven; 4) Having sufficient technical, financial resources and other resource support to complete the development of the intangible asset, and having the ability to use or sell the intangible asset; 5) Expenditure attributable to the development stage of the intangible asset can be reliably measured. Expenditures incurred in the development stage that do not meet the above conditions shall be included in the current profit or loss at the time of occurrence. The development expenditures which have been included in the profit or loss in the previous periods will not be recognized as an asset in the future Notes to the financial statements – Page 145 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 period. The capitalized expenditures in the development phase are shown in the balance sheet as development expenditures and are converted into intangible assets from the date of the project’s intended use. 24. Impairment on Long-term Assets On the balance sheet date, the Company determines whether there may be a sign of impairment on long-term assets. If there is a sign of impairment on long-term assets, the recoverable amount is estimated on the basis of a single asset. If it is difficult to estimate the recoverable amount of a single asset, then determine the recoverable amount of the asset group on the basis of the asset group to which the asset belongs. The estimated recoverable amount of an asset is the higher of its fair value less the cost of disposal and the present value of the expected future cash flow of the asset. The measurement results of recoverable amount show that when the recoverable amount of an long-term asset is lower than its book value, the book value of the long-term asset is reduced to its recoverable amount. The reduced amount is recognized as an impairment loss on the asset and included in the current profit or loss, at the same time, asset impairment provision will be made accordingly. Asset impairment loss shall not be reversed during the subsequent accounting period once recognized. After the asset impairment loss is recognized, the depreciation or amortization expenses of the impaired assets will be adjusted accordingly in the future period, so that the assets’ book value after adjustment (deducting the estimated net residual value) will be systematically apportioned over the remaining useful life of the assets. No matter whether there is any sign of impairment or not, the impairment test is carried out every year for goodwill and intangible assets with an indefinite useful life arising from an enterprise merger. In the impairment test of goodwill, the book value of goodwill would be apportioned to asset group or portfolio of asset group expected to benefit from the synergy effect of an enterprise merger. When taking an impairment test on the relevant asset group or portfolio of asset group containing goodwill, if there is a sign of impairment on the asset group or portfolio of asset group related to the goodwill, the Company first calculates the recoverable amount after testing the asset group or portfolio of asset group which does not contain the goodwill for impairment, and then compares it with the related book value to recognize the corresponding impairment loss. Next, the Company conducts an impairment test on the asset group or portfolio of asset group which contains the goodwill and compares the book value of the related asset group or portfolio of asset group (book value includes the share of goodwill) with the recoverable amount. If the recoverable amount of the related asset group or portfolio of asset group is lower than the book value, the Company will recognize the impairment loss of goodwill. 25. Long-term Deferred Expenses (1) Amortization method Long-term deferred expenses refer to expenses that have already been spent by the Company, but shall be apportioned in the current period and the future periods and the benefit period is over 1 year. Notes to the financial statements – Page 146 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Long-term deferred expenses are amortized in benefit period (2) Amortization period Category Amortization period Note Counter fabrication expenses 2-3 Decoration expenses 3-5 Others 2-3 26. Contract liabilities The obligation to transfer goods to a customer for which consideration has been received or receivable is recognized in part as a contract liability 27. Employee Remuneration Employee remuneration refers to the various forms of remuneration or compensation given by the Company to obtain the services provided by the employees or to terminate the labour relationship. Employee remuneration includes short-term remuneration, post-employment benefits, termination benefits and other long-term employee benefits. (1) Short-term remuneration Short-term remuneration refers to the employee compensation other than post-employment benefits and termination benefits required to be fully paid by the Company within 12 months after the end of the annual reporting period in which the employees render relevant services. During the accounting period in which the employees render services, the Company recognizes the short-term remuneration payable as liabilities and includes the same in related asset costs or expenses according to the object which benefits from the services rendered by employees. (2) Post-employment benefits Post-employment benefits refer to various forms of remuneration and benefits other than short-term remuneration and termination benefits provided by the Company after the retirement of employees or termination of labour relationship with the Company in exchange for the services rendered by employees. The Company’s post-employment benefits is defined contribution plan. Defined contribution plan of the post-employment benefits mainly refers to the social basic endowment insurance, unemployment insurance, etc. organized and implemented by local labour and social security institutions; in addition to social basic endowment insurance and unemployment insurance, employees who retire after 1 January 2009 can voluntarily participate in the Company’s enterprise annuity plan. During the accounting period when employees render services to the Company, amount payable calculated by the defined contribution plan is recognized as a liability and included in the current profit or loss or related asset costs. The Company will no longer have any other payment obligations after making the above-mentioned payments on a regular basis in accordance with the standards and annuity plans prescribed by the State. (3) Termination benefits Termination benefits refer to the compensation paid to an employee when the Company terminates Notes to the financial statements – Page 147 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 the employment relationship with the employee before the expiry of the employment contract or provides compensation as an offer to encourage the employee to accept voluntary redundancy. The Company recognizes the liabilities arising from the compensation paid to terminate the employment relationship with employees and includes the same in the current profit or loss at the earlier date of the following: 1) when the Company cannot reverse the termination benefits due to the plan of cancelling the labour relationship or the termination benefits provided by the advice of reducing staff; and 2) the Company recognizes the cost or expense relative to the payment of termination benefits of restructuring into the current profit or loss. The Company provides internal retirement benefits to employees who accept internal retirement arrangements. The internal retirement benefits refer to the remuneration and the social insurance premiums paid to the employees who have not reached the retirement age set by the State, and voluntarily withdrew from the job after approval of the Company’s management. The Company pays internal retired benefits to an internal retired employee from the day when the internal retirement arrangement begins till the employee reaches the normal retirement age. For internal retirement benefits, the Company conducts accounting treatment in contrast to the termination benefits. When the related recognition conditions of termination benefits are met, the Company will recognize the remuneration and the social insurance premiums of the internal retired employee to be paid during the period between the employee’s termination of service and normal retirement date as liabilities and include the same in the current profit or loss in one time. Changes in actuarial assumptions of internal retirement benefits and differences arising from the adjustment of welfare standards are included in current profit or loss when incurred. (4) Other long-term employee benefits Other long-term employee benefits refer to all employee benefits except for short-term remuneration, post-employment benefits, and termination benefits. For other long-term employee benefits that meet the conditions of the defined contribution plan, during the accounting period in which the employees provide services for the Company, the amount that should be paid is recognized as a liability and is included in the current profit or loss or related asset costs. In addition to the above situations, other long-term employee benefits are actuarially calculated by the independent actuary using the expected cumulative welfare unit method on the balance sheet date, and the welfare obligations arising from the defined benefit plans are attributed to the period during which the employees provide services and are included in the current profit or loss or related asset costs. 28. Projected liabilities (1) Basis for recognition of projected liabilities The Company will recognize projected liabilities if the obligation relating to contingent matters meets all of the following conditions: This obligation is a present obligation assumed by the Company; The fulfillment of this obligation will probably cause the outflow of economic benefits from the Notes to the financial statements – Page 148 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Company; The amount of this obligation can be measured reliably. (2) Measurement method of projected liabilities The initial measurement of projected liabilities of the Company is based on the best estimate of the expenditure required for the performance of the related present obligations. When determining the best estimate, the Company comprehensively considers the risks, uncertainties relating to the contingent matters and time value of currency. If the time value of currency has a great influence, the Company determines the best estimate by discounting the related future cash outflows. The best estimate is determined in different situations as follow: If there is a continuous range (or interval) of the required expenditure and the probability of the occurrence of all the results in the range is the same, the best estimate is determined according to the median value of the range, which is the average of the upper and lower limit. Where there is not a continuous range (or interval) of the required expenditure, or there is a continuous range, but the probability of the occurrence of all the results in the range is different, if the contingencies involve a single project, the best estimate is determined by the amount which is most likely to occur; if the contingencies involve a number of projects, the best estimate is determined based on various possible results and related probability calculation. If all or part of the expenses of the Company required to settle projected liabilities are expected to be compensated by a third party and it is basically certain to receive the amount of compensation, it is independently recognized as an asset. The amount of compensation recognized will not exceed the book value of the projected liabilities. 29. Lease liabilities The Company initially measures the lease liabilities according to the present value of the unpaid lease payments at the beginning of the lease term. In calculating the present value of lease payments, the Company adopts the interest rate implicit in the lease as the discount rate. If it is impossible to determine the interest rate implicit in the lease, the incremental borrowing rate of the Company shall be used as the discount rate. Lease payments include: (1) Fixed payments and substantive fixed payments after deducting the relevant amount of lease incentives; (2) Variable lease payments depending on an index or rate; (3) Where the Company reasonably determines that the option will be exercised, the amount of the lease payment includes the exercise price of purchase option; (4) Where the lease term reflects that the Company will exercise the option to terminate the lease, the amount of the lease payment includes the amount to be paid for the exercise of the option to terminate the lease; (5) Expected payments based on the guaranteed residual value provided by the Company. Notes to the financial statements – Page 149 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 The Company calculates the interest charges of the lease liabilities for each period of the lease term at a fixed discount rate and includes the same in the profit or loss of the current period or the related asset costs. Variable lease payments not included in the measurement of lease liabilities shall be included in the current profit or loss or the related asset costs when they actually occur. 30. Share-based payment (1) Category of share-based payment The Company’s share-based payments include equity-settled share-based payments and cash settled share-based payments. (2) Recognition method of fair value of equity instrument For options and other equity instruments granted by the Company with an active market, the fair value is determined at the active market quotations. For options and other equity instruments granted by the Company with no active market, option pricing model shall be used to estimate the fair value of the equity instruments. Factors as follows shall be taken into account using option pricing models: the exercise price of the option, the validity of the option, the current price of the target share, the expected volatility of the share price, predicted dividend of the share and risk-free rate of the option within the validity period. In determining the fair value of the equity instruments at the date of grant, the Company shall consider the impact of market conditions in the vesting conditions and non-vesting conditions stated in the share-based payment agreement. If there are no vesting conditions in the share-based payments, as long as the employees or other parties satisfy the non-market conditions in all of the vesting conditions (such as term of service) , the Company shall recognize the services rendered as an expense accordingly. (3) Recognition basis for the best estimate of exercisable equity instruments On each balance sheet date within the vesting period, the estimated number of exercisable equity instruments is amended based on the best estimate made by the Company according to the latest available subsequent information as to changes in the number of employees with exercisable rights. As at the exercise date, the final estimated number of exercisable equity instruments should equal the actual number of exercisable equity instruments. (4) Accounting treatment Equity-settled share-based payments are measured at the fair value of the equity instruments granted to employees. For those exercisable immediately after the grant, they shall be included in the relevant costs or expenses at the fair value of equity instruments at the grant date with an increase in capital reserve accordingly. For those exercisable only after provision of services or satisfaction of prescribed performance conditions within the vesting period, on each balance sheet date within the vesting period, the Company will recognize the services received in the current period in related costs or expenses and capital reserves at the fair value of equity instruments on the grant date based on the best Notes to the financial statements – Page 150 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 estimate of the number of exercisable equity instruments. After the vesting period, relevant costs or expenses and total owners’ equity which have been recognized will not be adjusted. Cash-settled share-based payments are calculated by the fair value of liabilities assumed in accordance with the Company’s shares or other equity instruments. For those exercisable immediately after the grant, they shall be included in the relevant costs or expenses at the fair value of the liabilities assumed by the Company at the grant date with an increase in liabilities accordingly. For cash-settled share-based payments exercisable only after provision of services or satisfaction of prescribed performance conditions within the vesting period, on each balance sheet date within the vesting period, the Company will recognize the services received in the current period in costs or expenses and corresponding liabilities at the amount of fair value of the liabilities assumed by the Company based on the best estimate of the number of exercisable equity instruments. At each balance sheet date and the settlement date prior to the settlement of relevant liabilities, the fair value of the liabilities is re-measured through profit or loss. During the vesting period, if the equity instruments granted are cancelled, the Company will treat the cancelled equity instruments granted as accelerated vesting, and the amount within the remaining period should be recognized immediately in profit or loss while recognizing the capital reverse. If employees or other parties can meet non-vesting conditions but do not meet within the vesting period, the Company will treat it as cancelled equity instruments granted. 31. Revenue The Company’s revenue mainly come from: (1) Sales of watch (2) Precision manufacturing (3) Property leasing (1) General principal of revenue recognition The Group recognizes revenue when the contract performance obligations have been fulfilled i.e. the customer has gained control over the relevant goods or services. Performance obligations means the Company’s commitment to transfer identifiable goods or service to clients. Obtaining control of the relevant goods means that it is able to dominate the use of the goods and derive almost all economic benefits therefrom. The Company assesses contracts at the beginning date of a contract to identify each performance obligations contained in a contract and to determine whether each performance obligation is to be finished over a period of time or at a point of time. The Company satisfies a performance obligation over time if one of the following criteria is met; or otherwise, a performance obligation is satisfied at a certain point in time: 1) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs; 2) the customer can control the goods under construction during the Company’s performance; 3) the Company’s performance does not create goods Notes to the financial statements – Page 151 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 with an alternative use to it and the Company has a right to payment for performance completed to date throughout the contract term. Otherwise, the Company recognizes revenue at the point of time. For performance obligation satisfied over time, the Company recognizes revenue over time by measuring the progress towards complete satisfaction of that performance obligation. When the outcome of that performance obligation cannot be measured reasonably, but the Company expects to recover the costs incurred in satisfying the performance obligation, the Company recognizes revenue only to the extent of the amount of costs incurred until it can reasonably measure the outcome of the performance obligation (2) Detailed method for revenue recognition The Company has three main business sectors: sales of watch, precision manufacturing and property leasing. Based on the Company’s business mode and terms of settlement, the Company set detailed method of revenue recognition method as follows: 1) Sales of watch Sale of watch belongs to fulfilling performance obligations at a point of time. ① Online sales Revenue shall be recognized at the point that the goods are dispatched and the customer confirmed received the goods. ② Offline sales Revenue shall be recognized at the point when the goods are delivered and payment by customer is collected. ③ Consignment sale The Company recognizes revenue when the Company receives the detail of the sales list from distributors and confirms that the control over goods ownership were transferred to the purchaser. ④ Sale of consigned goods from others Under Sale of consigned goods from others, the Group recognizes revenue in net amount when it delivered consigned sale goods to customer and confirms that control over the ownership of goods were transferred to the purchaser. 2) Precision manufacturing Precision manufacturing business belongs to fulfilling performance obligations at a point of time. Revenue from domestic sales shall be recognized when the goods are delivered and the economic benefit associated with the goods is probable to flow into the Company. Revenue from export shall be recognized when the following criteria is satisfied: The Company declared the good at custom; obtained bill of lading; the right of collecting payment is obtained and its probable that the economic benefit associated with the goods flows into the Company. 3) Property leasing Refer to Note IV 35. (4) for details. (3) Revenue treatment principles for specific transactions Notes to the financial statements – Page 152 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 1) Contracts with sales return provisions When the customer obtains control of the relevant goods, revenue is recognized based on the amount of consideration expected to be received due to the transfer of goods to the customers (exclusive of the amount expected to be refunded due to the return of sales) , while liability is recognized based on the amount expected to be refunded due to the return of sales. The carrying amount of goods expected to be returned at sales of goods, after deduction of costs expected to incur for recovery of such goods (including impairment of value of the returned goods) , will be accounted for under the item of “Right of return assets”. 2) Contracts with quality assurance provisions The Company assesses whether a separate service is rendered in respect of the quality assurance besides guaranteeing the sales of goods to customers are in line with the designated standards. When additional service is provided by the Company, it is considered as a single performance obligation and under accounting treatment according to the standards on revenue; otherwise, quality assurance obligations will be under accounting treatment according to the accounting standards on contingent matters 32. Contract costs (1) Contract performance cost The Company recognizes the cost of contract performance as an asset for the cost of performing the contract as meeting all of the following conditions: 1) The cost is directly related to a current or expected contract, including direct labour, direct materials, manufacturing expenses (or similar expenses) , costs clearly to be borne by the customer, and other costs incurred solely for the contract; 2) This cost increases the resources that the company will use to fulfill its performance obligations in the future. 3) The cost is expected to be recovered The asset will be presented under inventory or other non-current assets based on the length of its amortization period. (2) Contract obtainment cost If the incremental cost of the Company is expected to be recovered, the contract acquisition cost is recognized as an asset. Incremental cost refers to the cost that the Company will not occur without obtaining a contract, such as sales commission. For the amortization period not exceeding one year, it is included in the current profit or loss when it occurs. (3) Amortization of contract costs The Company recognizes the contract performance cost and the contract acquisition cost on the same basis as the commodity income related to the contract cost asset, and amortizes it at the time when the performance obligation is performed or in accordance with the performance of the performance obligation, and is included in the current profit or loss. (4) Contract cost impairment For assets related to contract costs, if the book value is higher than the Notes to the financial statements – Page 153 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 difference between the remaining consideration expected to be received by the Company for transfer of the goods related to the assets and the estimated cost of transferring the relevant goods, the excess should be depreciated and confirmed as an asset impairment loss If the factors caused impairment changed after impairment provision is accrued, impairment provision shall be reversed and included in current period profit or loss but the carrying amount of asset after the reversal shall not exceed the carrying amount at the reversal date as if there was no impair. 33. Government Subsidies 1. Classification Government subsidies refer to monetary and non-monetary assets received from the government without compensation, however excluding the capital invested by the government as a corporate owner. According to the subsidy objects stipulated in the documents of relevant government, government subsidies are divided into subsidies related to assets and subsidies related to income. Government subsidies related to assets are obtained by the Company for the purposes of acquiring, constructing or otherwise forming long-term assets. Government subsidies related to income refer to the government subsidies other than those related to assets 2. Recognition of government subsidies Where evidence shows that the Company complies with relevant conditions of policies for financial supports and is expected to receive the financial support funds at the end of the period, the amount receivable is recognized as government subsidies. Otherwise, the government subsidy is recognized upon actual receipt. Government subsidies in the form of monetary assets are stated at the amount received or receivable. Government subsidies in the form of non-monetary assets are measured at fair value; if fair value cannot be reliably obtained, a nominal amount (RMB1) is used. Government subsidies that are measured at nominal amount shall be recognized in the current profit or loss directly. 3. Accounting treatment The Company determines whether a government subsidy shall use gross method or net method based on its economical substance. In general, only one method is used for one category or similar government subsidy and it shall be used in a consistent way. Government subsidies related to assets are recognized as deferred income, and are recognized, under reasonable and systematic approach, in profit and loss in each period over the useful life of the constructed or purchased assets; Government subsidies related to income aiming at compensating for relevant expenses or losses to be incurred by the enterprise in subsequent periods are recognized as deferred income, and are recognized in current profit or loss when relevant expenses or losses are recognized. Government subsidies aiming at compensating for relevant expenses or losses of the enterprise that are already incurred are charged to current profit or loss once received. Government subsidies related to daily activities of enterprises are included in other income; Notes to the financial statements – Page 154 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 government subsidies that are not related to daily activities of enterprises are included in non-operating income and expense. Government subsidies related to the discount interest received from policy-related preferential loans offset the relevant borrowing costs; if the policy-based preferential interest rate loan provided by the lending bank is obtained, the borrowing amount actually received shall be taken as the recording value of the borrowings, and borrowing cost should be calculated using the preferential interest rate according to the loan principal and the policy. When it is required to return recognized government subsidy, if such subsidy is used to write down the carrying value of relevant assets on initial recognition, the carrying value of the relevant assets shall be adjusted; if there is balance of relevant deferred income, it shall be written down to the book balance of relevant deferred income, and the excess is included in the current profit or loss; where there is no relevant deferred income, it shall be directly included in the current profit or loss 34. Deferred Income Tax Assets and Deferred Income Tax Liabilities Deferred income tax assets and deferred income tax liabilities are measured and recognized based on the difference (temporary difference) between the taxable base of assets and liabilities and book value. On balance sheet date, the deferred income tax assets and deferred income tax liabilities are measured at the applicable tax rate during the period when it is expected to recover such assets or settle such liabilities. (1) Criteria for recognition of deferred income tax assets The Company recognizes deferred income tax assets arising from deductible temporary difference to the extent it is probably that future taxable amount will be available against which the deductible temporary difference can be utilized, and deductible losses and taxes can be carried forward to subsequent years. However, the deferred income tax assets arising from the initial recognition of assets or liabilities in a transaction with the following features are not recognized: 1) the transaction is not a business combination; 2) neither the accounting profit or the taxable income or deductible losses will be affected when the transaction occurs. For deductible temporary difference in relation to investment in the associates, corresponding deferred income tax assets are recognized in the following conditions: the temporary difference is probably reversed in a foreseeable future and it is likely that taxable income is obtained for deduction of the deductible temporary difference in the future. (2) Criteria for recognition of deferred income tax liabilities The Company recognizes deferred income tax liabilities on the temporary difference between the taxable but not yet paid taxation in the current and previous periods, excluding: 1) temporary difference arising from the initial recognition of goodwill; 2) a transaction or event arising from non-business combination, and neither the accounting profit or the taxable income (or deductible losses) will be affected when the transaction or event occurs; 3) for taxable temporary difference in relation to investment in subsidiaries or associates, the time for Notes to the financial statements – Page 155 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 reversal of the temporary difference can be controlled and the temporary difference is probably not reversed in a foreseeable future (3) When all of the following conditions are satisfied, deferred income tax assets and deferred income tax liabilities shall be presented on a net basis 1) An enterprise has the statutory right to settle the current income tax assets and current income tax liabilities at their net amounts; 2) The deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current income tax assets and current income tax liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled. 35. Lease On the commencement date of the contract, the Company evaluates whether the contract is a lease or contains a lease. If one party to a contract gives up the right to control the use of one or more identifiable assets for a period of time in exchange for consideration, the contract is a lease or contains a lease. (1) Splitting a lease contract When the contract contains a number of separate leases, the Company will split the contract into separate leases for accounting individually. When the contract contains both leasing and non-leasing parts, the Company will split the leasing and non-leasing parts. The leasing part shall be accounted for in accordance with the lease standards, and the non-leasing part shall be accounted for in accordance with other applicable accounting standards for business enterprises (2) Combination of lease contracts When two or more lease-containing contracts concluded by the Company with the same trader or its related parties at the same time or at a similar time meet one of the following conditions, the Company shall merge them into one contract for accounting: 1) Such two or more contracts are concluded for general commercial purposes and constitute a package of transactions. If these are not considered as a whole, these overall commercial purposes cannot be recognized. 2) The amount of consideration for a contract in such two or more contracts depends on the pricing or performance of other contracts. 3) The right-of-use assets transferred by such two or more contracts together constitute a separate lease (3) Accounting treatment for the Company as a lessee On the commencement date of lease term, the Company recognizes right-of-use assets and lease Notes to the financial statements – Page 156 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 liabilities for leases, in addition to short-term leases and low-value asset leases with simplified treatment (1) Short-term lease and low value lease Short-term lease refers to a lease that does not include purchase options and has a lease term not exceeding 12 months. Low-value asset lease refers to the lease with lower value when a single leased asset is a new asset The Company does not recognize right-of-use assets and lease liabilities for short-term lease and low value lease. The payment of such leases shall be charged to profit or loss using straight-line method or other systematic method. (2) Refer to Note IV. 22 and Note IV. 29 for accounting policies for right-of-use assets and lease liabilities. (4) Accounting treatment for the Company as a lessor 1) Classification of leases The Company divides leases into financial leases and operating leases on the start date of the lease. Financial lease refers to a lease that essentially transfers almost all of the risks and rewards related to the ownership of leased assets. Its ownership may or may not be transferred eventually. Operating leases refer to leases other than financial leases. If a lease has one or more of the following characteristics, the Company usually classifies it as a financial lease: 1) At the expiry of the lease term, the ownership of the leased assets is transferred to the lessee. 2) The lessee has the option to purchase the leased assets, and the purchase price set by the lessee is low enough compared with the expected fair value of the leased assets when exercising the option. Therefore, it can be reasonably determined on the lease start date that the lessee will exercise the option. 3) Although the ownership of the assets is not transferred, the lease term accounts for the majority of the life of the leased assets. 4) On the commencement date of the lease, the present value of the lease receipts is almost equal to the fair value of the leased assets. 5) The nature of leased assets is special. If there is no major transformation, only the lessee can use them If one or more of the following conditions exist in a lease, it may also be classified as a financial lease: 1) If the lessee stops the lease, the lessee shall bear the losses caused by the termination of the lease to the lessor. 2) The profits or losses caused by the fluctuation of the fair value of the balance of assets belong to the lessee. 3) The lessee can continue to lease far below the market level for the next period. (2) Accounting treatment for financial leases Notes to the financial statements – Page 157 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 On the commencement date of lease term, the Company recognizes the financial lease receivable on the financial leases and derecognizes the financial lease assets. When the initial measurement of the financial lease receivable is made, the book value of the financial lease receivable is the sum of the unsecured balance and the present value of lease receipts that have not yet been received at the beginning of the lease term discounted at the interest rate implicit in the lease. The lease receipts include: 1) Fixed payments and substantive fixed payments after deducting the relevant amount of lease incentives; 2) Variable lease payments depending on an index or rate; 3) In the case of reasonably determining that the lessee will exercise the purchase option, the lease receipts include the exercise price of purchase option; 4) If the lease term reflects that the lessee will exercise the option to terminate the lease, the lease receipts include the amount to be paid by the lessee in exercising the option to terminate the lease; 5) Guarantee residual value provided to the lessor by the lessee, the party concerned with the lessee and an independent third party with financial capacity to fulfill the guarantee obligation The Company calculates and recognizes the interest income for each period of the lease term based on the fixed interest rate implicit in the lease, and the variable lease payments which are obtained and not included in the net rental investment amount are included in the profit or loss of the period when they actually occur. (3) Accounting treatment for operating leases The Company adopts the straight line method or other systematic and reasonable method to recognize the lease receipts from operating leases as rental income during each period of the lease term. Capitalization of the initial direct expenses incurred in connection with operating leases shall be apportioned on the same basis as the recognition of rental income during the lease term, and shall be recorded in the profit or loss of the current period. Variable lease payments obtained in connection with operating leases that are not incorporated in the lease receipts shall be incorporated in the profit or loss of the period when they actually occur. 36. Termination of business The Company recognizes components as termination of business components if one of the following condition is met and that the component has already been disposed or classified as held-for-sale assets and identifiable. (1) The component represents a stand along major business or a stand along major area in conducting business. (2) The component is part of plan connecting to disposal of a stand along major business or major area of conducting business. (3) The component is a subsidiary that obtained specifically for resale. Notes to the financial statements – Page 158 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Operating profit or loss such as the impairment loss and the amount of reversal shall be presented in income statement as profit or loss from terminated business. 37. Re-purchase of shares Before written-off or transfer, the shares that the Company re-purchased are dealt as treasury shares. All expenses incurred for the re-purchase are charged in the cost of treasury shares. Consideration and transaction expenses paid during the share re-purchase shall decrease shareholder’s equity. No gain or losses shall be recognized during re-purchase, transfer or written-off of the Company’s shares. If the treasury shares is transferred, the difference between amount actually received and the share’s carrying amount shall be charged to capital reserve, if the capital reserve is not sufficient to offset, surplus reserve and retained earing shall be offset. If the treasury share is to written-off, the share capital shall be decreased based on the face value of shares and the difference between the carrying amount and its face value shall offset the capital reserve. If the capital reserve is not sufficient to offset, deducting surplus reserve and retained earnings. 38. Changes in significant accounting policies and accounting estimates (1) Changes in significant accounting policies Details of and reasons for the changes Approval process Note in accounting policies Accounting Standards for Business Approved by the 27th meeting of the 9th Enterprises No. 21 – Leases Session of the Board Other explanations: Impact on the Company from the adoption of the new lease standard The Company adopts Accounting Standards for Business Enterprises No. 21 – Leases from 1 January 2021. Refer to Note IV for details of revised accounting policies. For a contract which has existed before the initial execution date, the Company does not re-evaluate whether it is a lease or contains a lease at the initial execution date, and does not adopt the accounting policies below for the contract which is not identified as containing a lease under the original lease standards before the initial execution date, and adopts the accounting policies below only for the contract which is identified as a lease under the original lease standards before the initial execution date and the contract whose commencement date is later than the initial execution date Under the new lease standard, the Company choose to adjust the balance of retained earnings and other related items in the financial statements at the beginning of the year of initial adoption of such standard (1 January 2021) based on the cumulative effect of initial adoption of such standard, with no adjustment to the information for the comparable period. Upon adoption of the new lease standard, related items in the balance sheet as of 1 January 2021 are affected as follows: Item 31 December 2020 Cumulated affect (note) 1 January 2021 Other current assets 75,935,141.76 -8,078,503.09 67,856,638.67 Right-of-use assets 163,169,400.44 163,169,400.44 Notes to the financial statements – Page 159 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item 31 December 2020 Cumulated affect (note) 1 January 2021 Total assets 4,018,712,700.18 155,090,897.35 4,173,803,597.53 Non-current liabilities due 370,030.00 88,839,586.06 89,209,616.06 within one year Lease liabilities 77,439,579.30 77,439,579.30 Total liabilities 1,218,752,028.75 166,279,165.36 1,385,031,194.11 Undistributed profit 1,164,490,911.51 -11,188,268.01 1,153,302,643.50 Total shareholders’ equity 2,799,960,671.43 -11,188,268.01 2,788,772,403.42 Note: Only financial statement items that affected are list in above table, as a result, the figure of subtotal and total cannot be calculated based on figures list above. 1) Weighted average incremental loan interest rate for adopted by the Company: On 1 January 2021, The Company recognized lease liability of RMB166,279,165.36 and right-of-use asset of 163,169,400.44. For operating lease on the adoption date, the Company used the discounted value based on incremental loan interest rate to measure lease liabilities. The weighted average incremental loan interest rate is 4.40%. a) Difference of present value of minimum lease payment disclosed at the end of prior period and present value of lease liabilities on the first adoption date: The difference of lease liability recognized on 1 January 2021 and material lease commitment disclosed in 2020 financial statement is as follows: Item 1 January 2021 Note 1. Operating lease commitment as at 31 December 2020 138,864,123.57 Lease liability discounted using incremental loan interest on the 122,851,148.71 adoption date Plus: option to renew 44,798,990.43 Less: exemption – short-term lease 1,370,973.78 Lease liability recognized related to previous operating lease 166,279,165.36 2. Lease liabilities at 1 January 2021 166,279,165.36 Including: current liabilities 88,839,586.06 Non-current liabilities 77,439,579.30 (2) Changes in accounting estimates There were no changes in significant accounting estimates during the reporting period. V. Taxes 1. Main types of taxes and corresponding tax rates Tax type Basis Tax rate note Domestic sales, providing 13% manufacturing and repairing services Property leasing 9% VAT Other taxable services 6% Simplified method 5% Notes to the financial statements – Page 160 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Tax type Basis Tax rate note Consumption Luxury watches 20% tax Urban maintenance Turnover tax payable 7%、5% and construction tax Corporate Taxable income See below table income tax 70% or 80% of the original cost of Property tax property or rental income 1.2%、12% Corporate income tax of different entities: Name of entities CIT rate Shenzhen HARMONY World Watch Center 25% Co., Ltd.(①) FIYTA Sales Co., Ltd.(①) 25% Shenzhen FIYTA Precision Technology Co., 15% Ltd.(②③) Shenzhen FIYTA Technology Development 15% Co., Ltd.(②③) HARMONY World Watch Center(Hainan) Co., 20% Ltd.(⑥) Shenzhen Xunhang Precision Technology Co., Ltd. 25% Emile Choureit Timing (Shenzhen) Ltd. 25% Liaoning Hengdarui Commercial & Trade Co., 25% Ltd. EMPORAL (Shenzhen) Co., Ltd. 25% Shenzhen Harmony E-commerce Co., Ltd.(⑥) 20% FIYTA (Hong Kong) Ltd.(④) 16.5% Montres Chouriet SA(⑤) 30% Station 68(④) 16.5% Note ①:According to the regulations stated in “Interim Administration Method for Levy of Corporate Income Tax to Enterprise that Operates Cross-regionally”, the head office of the Company and its branch offices, the head office of HARMONY Company and its branch offices, and the head office of Sales Company and its branch offices adopt tax submission method of “unified calculation, managing by classes, pre-paid in its registered place, settlement in total, and adjustment by finance authorities”. Branch offices mentioned above share 50% of the enterprise income tax and prepay locally; and 50% will be prepaid by the head offices mentioned above. Note ②: According to “Notice of the Ministry of Finance, the State Administration of Taxation and Ministry of Science on Further Perfection of the Pre-tax Super Deduction Ratio of Research and Development Expenses” (Cai Shui (2021) No. 13) , if the research and development costs, which were incurred for developing new technologies, new products, and new processes by the Company, the Precision Technology Company and the Technology Company, are not capitalized as intangible assets but charged to current profit or loss, all of these entities can enjoy a 100% super deduction on top of the Notes to the financial statements – Page 161 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 R&D expenses that allowed to deduct before income tax since 1 January 2021. Note ③:The Company enjoyed for “Reduction and Exemption in Corporate Income Tax Rate for High and New Technology Enterprises that Require Key Support from the State”. Note ④: These companies are registered in Hong Kong and the income tax rate of Hong Kong applicable is 16.50% this year. Note ⑤: The comprehensive tax rate of 30% is applicable for Swiss Company as it registered in Switzerland. Note ⑥ These companies are small and low-profit enterprises, which enjoy 20% tax rate. 2. Preferential treatment and corresponding approval According to “Proclamation of Ministry of Finance and State Administration of Taxation in Implementing Preferential Tax Rate to Small and Low Profit Enterprises and Sole-proprietors” (Caishui (2021) No.12) and “Notice of Ministry of Finance and State Administration of Taxation on Implementation of the Inclusive Income Tax Deduction and Exemption Policies for Small Low-Profit Enterprises” (Cai Shui (2019) No.13) , the portion of annual taxable income of small low-profit enterprise that is below RMB1,000,000.00 will be included in taxable income at 12.5% and to be taxed at a rate of 20%; and for annual taxable income that is greater than RMB1,000,000.00 but not exceeding RMB3,000,000.00, of which 50% will be included in taxable income and to be taxed at 20%. According to “Notice of Ministry of Finance and State Administration of Taxation in Extending Expiration Period of Utilizing Losses for High-Tech Enterprises and Scientific Oriented Medium and Small Enterprises” (Cai Shui [2018] No. 76) , unutilized losses incurred in prior 5 years before obtaining the status of High and New Tech Enterprise can be carried forward and utilized in future years. The longest period was extended from 5 years to 10 years. VI. Notes to main items of the consolidated financial statements (Unless otherwise indicated, the currency unit is Renminbi Yuan and the opening balance refers to the balance as at 1 January 2021) Note 1. Monetary funds Item Closing balance Opening balance Cash on hand 108,612.08 183,759.72 Cash at bank 188,908,798.10 346,055,209.29 Other monetary funds 21,237,326.96 6,818,316.70 Total 210,254,737.14 353,057,285.71 Including: Total overseas deposits 1,724,651.93 3,412,028.94 Including: deposit in finance company 147,786,041.19 283,532,347.79 Deposit in finance company mainly deposited with AVIC Finance Co., Ltd. As at 31 December 2021, the Company does not have balance of cash or other monetary funds that are restricted because being pledged as security, guaranteed or blocked frozen or overseas balances Notes to the financial statements – Page 162 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 that have restriction on remittance back to the home country. Cash with restricted usage is as follows: Item Closing balance Opening balance Overseas deposit with restrictions remitting 1,724,651.93 3,412,028.94 back Note 2. Bill receivable 1. Presented by category Item Closing balance Opening balance Bank acceptance bills 2,989,331.70 16,813,464.36 Commercial acceptance bills 58,268,814.10 31,378,977.79 Total 61,258,145.80 48,192,442.15 2. Presented by ECL types Closing balance Type Carrying amount Provision Percentage Percentage Book value Amount Amount (%) (%) Notes receivable that provided expected credit losses on single basis Notes receivable that provided expected credit 64,324,925.49 100.00 3,066,779.69 4.77 61,258,145.80 losses on single basis Including: Commercial 61,335,593.79 95.35 3,066,779.69 5.00 58,268,814.10 acceptance bills Risk-free Bank 2,989,331.70 4.65 2,989,331.70 acceptance bills Total 64,324,925.49 100.00 3,066,779.69 4.77 61,258,145.80 Continued Opening balance Type Carrying amount Provision Percentage Percentage Book value Amount Amount (%) (%) Notes receivable that provided expected credit losses on single basis Notes receivable that provided expected credit 49,843,967.32 100.00 1,651,525.17 3.31 48,192,442.15 losses on single basis Including: Commercial 33,030,502.96 66.27 1,651,525.17 5.00 31,378,977.79 acceptance bills Risk-free Bank 16,813,464.36 33.73 - - 16,813,464.36 acceptance bills Total 49,843,967.32 100.00 1,651,525.17 3.31 48,192,442.15 3. Notes receivable with expected credit loss provided based on credit risk characteristic portfolio Notes to the financial statements – Page 163 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Closing balance Portfolio Carrying amount Provision Percentage (%) Bank acceptance bills 61,335,593.79 3,066,779.69 5.00 Commercial acceptance bills 2,989,331.70 Total 64,324,925.49 3,066,779.69 4.77 4. Bad debt movements in current period Movements Opening Closing Types Received or Other balance Accrual Written-off balance reversal changes Notes receivable that provided expected credit losses on single basis Notes receivable that provided expected credit 1,651,525.17 1,415,254.52 3,066,779.69 losses on single basis Including: Commercial 1,651,525.17 1,415,254.52 3,066,779.69 acceptance bills Risk-free Bank acceptance bills Total 1,651,525.17 1,415,254.52 3,066,779.69 5. Bills have been endorsed but not yet due at the end of the period. Item Amount de-recognized Amount not de-recognized Bank acceptance bills 3,064,791.21 Commercial acceptance bills 15,737,928.76 Total 3,064,791.21 15,737,928.76 6. Bill receivable that transferred to receivables due to issuer’s default at the end of the period Item Amount transferred to accounts receivable Commercial acceptance bills 918,150.83 Note 3. Accounts receivable 1. Presentation by aging Aging Closing balance Opening balance Within 1 year 411,327,173.23 489,913,393.98 1-2 years 4,211,418.24 10,509,894.86 2-3 years 7,582,641.50 6,142,706.69 Over 3 years 8,867,120.13 2,882,615.92 Subtotal 431,988,353.10 509,448,611.45 Less: provision for bad debt 43,102,751.82 33,849,926.57 Total 388,885,601.28 475,598,684.88 Notes to the financial statements – Page 164 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 2. Presentation by method of providing bad debt Closing balance Category Carrying amount Bad debt provision Percenta ECL rate Book value Amount Amount ge (%) (%) Accounts receivable that provided expected credit 41,742,982.67 9.66 32,056,051.67 76.79 9,686,931.00 losses on single basis Accounts receivable that 390,245,370.4 provided expected credit 90.34 11,046,700.15 2.83 379,198,670.28 3 losses on portfolio basis` Including: Receivable 390,245,370.4 90.34 11,046,700.15 2.83 379,198,670.28 from other customers 3 431,988,353.1 Total 100.00 43,102,751.82 9.98 388,885,601.28 0 Continued Opening balance Category Carrying amount Bad debt provision Percentag ECL rate Book value Amount Amount e (%) (%) Accounts receivable that 21,208,447.1 provided expected credit 4.16 19,133,975.43 90.22 2,074,471.70 3 losses on single basis Accounts receivable that 488,240,164. provided expected credit 95.84 14,715,951.14 3.01 473,524,213.18 32 losses on portfolio basis` Including: Receivable 488,240,164. 95.84 14,715,951.14 3.01 473,524,213.18 from other customers 32 509,448,611. Total 100.00 33,849,926.57 6.64 475,598,684.88 45 3. Accounts receivable that provided expected credit losses on single basis included in the closing balance Closing balance Name Bad debt ECL rate Carrying amount Reasons provision (%) Receivable from other 41,742,982.67 32,056,051.67 76.79 Chances of recovery is remote customers 4. In the portfolio, accounts receivable with expected credit loss provided based on credit risk characteristic portfolio Portfolio of receivable from other customers Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 388,921,400.94 10,135,084.14 2.61 1-2 years 215,868.25 21,586.83 10.00 2-3 years 439,498.81 221,426.75 50.38 Over 3 years 668,602.43 668,602.43 100.00 Total 390,245,370.43 11,046,700.15 2.83 Notes to the financial statements – Page 165 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 5. Movements of provision during the period Movements during the period Opening Closing Types Recovered or Other balance Accrual Written-off balance reversed movements Accounts receivable that provided expected credit 19,133,975.43 14,695,144.56 1,773,068.32 32,056,051.67 losses on single basis Accounts receivable that provided expected credit 14,715,951.14 259,752.80 3,906,028.92 -22,974.87 11,046,700.15 losses on portfolio basis` Including: Receivable from 14,715,951.14 259,752.80 3,906,028.92 -22,974.87 11,046,700.15 other customers Total 33,849,926.57 14,954,897.36 5,679,097.24 -22,974.87 43,102,751.82 Including: main recovery of bad debt provision in current period: Name Amount Way of recovery Note Hunan Chongsheng Jingzhu Group 1,063,041.16 Bank transfer Co., Ltd. 6. No actual write-off of accounts receivable during the current period 7. Top 5 receivable accounts Proportion in total closing Name Closing balance balance of Bad debt provision accounts receivable (%) Top 5 receivables accounts in total 153,286,032.19 35.48 17,111,402.62 Note 4. Prepayments 1. Presentation of prepayments by aging Closing balance Opening balance Aging Percentage Percentage Amount Amount (%) (%) Within one year 7,946,750.81 100.00 16,612,773.76 100.00 2. Top 5 prepayments Proportion in total closing balance of Name Closing balance prepayments (%) Top 5 prepayments in total 3,930,082.16 49.46 Note 5. Other receivables 1. Presentation of other receivables by aging Aging Closing balance Opening balance Notes to the financial statements – Page 166 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Aging Closing balance Opening balance Within one year 64,697,975.58 55,677,698.47 1 - 2 years 655,341.52 662,641.27 2- 3 years 484,750.05 11,101.80 Over 3 years 135,480.00 588,065.00 Subtotal 65,973,547.15 56,939,506.54 Less: bad debt provision 4,420,279.33 4,036,726.91 Total 61,553,267.82 52,902,779.63 2. Presented by nature Nature Closing balance Opening balance Security deposit 55,467,644.12 45,500,721.00 Petty cash 2,556,673.37 2,438,803.09 Others 7,949,229.66 8,999,982.45 Total 65,973,547.15 56,939,506.54 3. Presented according to three stages of financial assets impairment Closing balance Opening balance Item Carrying Bad debt Carrying Bad debt Book value Book value amount provision amount provision First stage 64,508,342.25 3,055,122.43 61,453,219.82 55,271,836.64 2,369,057.01 52,902,779.63 Second stage Third stage 1,465,204.90 1,365,156.90 100,048.00 1,667,669.90 1,667,669.90 Total 65,973,547.15 4,420,279.33 61,553,267.82 56,939,506.54 4,036,726.91 52,902,779.63 4. Presented by bad debt provision method Closing balance category Carrying amount Bad debt provision Percentage ECL rate Book value Amount Amount (%) (%) Other receivables that provided expected credit losses on single 1,465,204.90 2.22 1,365,156.90 93.17 100,048.00 basis Other receivables that provided expected credit losses on portfolio 64,508,342.25 97.78 3,055,122.43 4.74 61,453,219.82 basis Including: Security deposit 55,467,644.12 84.08 2,781,540.05 5.01 52,686,104.07 portfolio Petty cash portfolio 2,556,673.37 3.88 - - 2,556,673.37 Social security payment 483,396.42 0.73 - - 483,396.42 on-behalf portfolio Portfolio of others 6,000,628.34 9.09 273,582.38 4.56 5,727,045.96 Total 65,973,547.15 100.00 4,420,279.33 6.70 61,553,267.82 Continued Notes to the financial statements – Page 167 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Opening balance Category Carrying amount Bad debt provision Percentage ECL rate Book value Amount Amount (%) (%) Other receivables that provided expected credit losses on single 1,667,669.90 2.93 1,667,669.90 100.00 basis Other receivables that provided expected credit losses on portfolio 55,271,836.64 97.07 2,369,057.01 4.29 52,902,779.63 basis Including: Security deposit 45,500,721.00 79.91 2,281,728.51 5.01 43,218,992.49 portfolio Petty cash portfolio 2,438,803.09 4.28 2,438,803.09 Social security payment 792,711.42 1.39 792,711.42 on-behalf portfolio Portfolio of others 6,539,601.13 11.49 87,328.50 1.34 6,452,272.63 Total 56,939,506.54 100.00 4,036,726.91 7.09 52,902,779.63 5. Other receivables that provided expected credit losses on single basis included in the closing balance Closing balance Name ECL rate Carrying amount Bad debt provision Reason (%) Chances of recovery is Receivable from others 1,465,204.90 1,365,156.90 93.17 remote 6. In the portfolio, other receivables with expected credit loss provided based on credit risk characteristic portfolio (1) Security deposit portfolio Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 55,427,594.12 2,741,490.05 4.95 1 - 2 years 2- 3 years Over 3 years 40,050.00 40,050.00 100.00 Total 55,467,644.12 2,781,540.05 5.01 (2) Petty cash portfolio Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 2,536,236.70 1 - 2 years 6,311.62 2- 3 years 14,125.05 Over 3 years Total 2,556,673.37 Notes to the financial statements – Page 168 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 (3) Social security payment on-behalf portfolio Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 483,396.42 (4) Portfolio of others Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 6,000,628.34 273,582.38 4.56 7. Bad debt provision status First stage Second stage Third stage Lifetime expected Bad debt provision Expected credit Lifetime expected Total credit losses (no losses over the next credit losses (credit credit impairment 12 months impairment occurred) occurred) Opening balance 2,369,057.01 1,667,669.90 4,036,726.91 Opening balance movements in current -12,506.00 12,506.00 period —Transfer into the second stage —Transfer into the -12,506.00 12,506.00 third stage —Reverse back to the second stage —Reverse back to the first stage Accrual during the period 781,582.86 137,566.00 919,148.86 Reversed during the 82,616.73 452,585.00 535,201.73 period Recovered during the period Written-off during the period Other movements -394.71 -394.71 Closing balance 3,055,122.43 1,365,156.90 4,420,279.33 8. No other receivables were written-off during the period. 9. Top 5 other receivable accounts Closing balance Proportion to closing balance of Name Closing balance of bad debts other receivables (%) provision Top 5 other receivables in total 22,453,594.72 34.03 1,125,982.07 Note 6. Inventory 1. Classification Item Closing balance Opening balance Notes to the financial statements – Page 169 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Carrying amount Provision Book value Carrying amount Provision Book value Raw 181,764,220.90 17,693,135.85 164,071,085.05 179,270,879.56 19,017,726.57 160,253,152.99 material WIP 20,682,530.58 20,682,530.58 12,570,005.95 12,570,005.95 Stored 1,960,110,199.48 94,715,064.22 1,865,395,135.26 1,837,664,688.01 78,707,661.10 1,758,957,026.91 goods Total 2,162,556,950.96 112,408,200.07 2,050,148,750.89 2,029,505,573.52 97,725,387.67 1,931,780,185.85 2. Provision for inventory Increase in current Opening Decrease in current period Closing Item period balance balance Accrual Other Reversed Realized Others Raw 19,017,726.57 132,907.16 1,088,930.94 368,566.94 17,693,135.85 material Stored 78,707,661.10 26,817,418.34 10,775,684.06 34,331.16 94,715,064.22 goods Total 97,725,387.67 26,950,325.50 1,088,930.94 10,775,684.06 402,898.10 112,408,200.07 Notes to provision for inventory Item Evidence of determine NRV and future selling cost Reason for reversal or realized Estimated selling price less estimated cost to complete Factors that caused impairment has been Raw material and selling and distribution expenses and associated disappeared and the NAV is higher than its taxes carrying amount Estimated selling price less estimated selling and Inventory that already provided for was sold or Stored goods distributing expenses and associated taxes used in current period. Note 7. Other current assets Item Closing balance Opening balance Input VAT 20,468,630.65 15,817,909.96 Input VAT not yet certified 41,895,970.19 43,400,801.73 Prepaid corporate income tax 2,459,142.75 25,684.51 Others 7,874,949.13 8,612,242.47 Total 72,698,692.72 67,856,638.67 Note 8. Long-term equity investment Movements during the period Investment Opening Adjustment of Investee Addition/new gains and balance other investment Withdrawn losses comprehensive recognized by income equity method Associate Shanghai Watch Co., Ltd. 51,400,665.92 3,754,939.39 (Shanghai Watch) Continued Notes to the financial statements – Page 170 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Movements during the period Closing Cash Closing balance Investee Changes in Impairment dividend Others balance of other equity provision inventory declared Associate Shanghai Watch 55,155,605.31 Note 9. Other equity instrument investments 1. Details of other equity instrument investments Item Closing balance Opening balance Xi’an Tangcheng Limited 85,000.00 85,000.00 Note 10. Investment property 1. Details of investment property Item Property I. Original cost 1. Opening balance 609,605,406.79 2. Addition 1,281,008.88 Purchase Transferred from fixed assets 1,281,008.88 Other reasons 3. Decrease Disposal Other reasons 4. Closing balance 610,886,415.67 II. Accumulated depreciation 1. Opening balance 211,518,959.01 2. Increased in current period 15,941,540.31 Accrual 15,941,540.31 Transferred from fixed assets Other reasons 3. Decreased in current period Disposal Other reasons 4. Closing balance 227,460,499.32 III. Impairment provision 1. Opening balance 2. Increased in current period Accrual Notes to the financial statements – Page 171 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Property Transferred from fixed assets Other reasons 3. Decreased in current period Disposal Other reasons 4. Closing balance IV. Book value 1. Carrying amount at end of the period 383,425,916.35 2. Carrying amount at opening of the period 398,086,447.78 2. Notes to investment property During the reporting period, certain self-use property of the Company were changed to lease out and they were transferred from fixed assets to investment properties measured at cost model. Note 11. Fixed assets 1. Status of fixed assets Property and Transportatio Electronic Other Item Machinery Total buildings n vehicles devices equipment I. Original cost 1. Opening 399,020,198.9 101,896,803.9 15,166,013.4 45,435,251.5 45,782,206.3 607,300,474.2 balance 7 8 2 3 1 1 2. Increased in current 13,096,971.22 7,074,376.88 678,419.96 3,474,487.12 2,202,046.67 26,526,301.85 period Re-classificatio n Purchased 13,096,971.22 7,074,376.88 678,419.96 3,474,487.12 2,202,046.67 26,526,301.85 Transferred from CIP Translation difference Other increase 3. Decrease in current 3,929,461.13 1,503,080.00 1,063,923.00 2,592,290.12 1,096,983.04 10,185,737.29 period Disposal or 210,534.00 1,063,923.00 2,549,005.02 981,082.28 4,804,544.30 retired Transferred to investment 1,281,008.88 1,281,008.88 property Translation 2,648,452.25 1,292,546.00 43,285.10 115,900.76 4,100,184.11 difference Other decrease 4. Closing 408,187,709.0 107,468,100.8 14,780,510.3 46,317,448.5 46,887,269.9 623,641,038.7 balance 6 6 8 3 4 7 II. Accumulated depreciation 1. Opening 111,755,686.2 13,429,376.6 34,165,037.8 38,832,143.6 254,566,193.4 56,383,949.04 balance 4 3 6 8 5 Notes to the financial statements – Page 172 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Property and Transportatio Electronic Other Item Machinery Total buildings n vehicles devices equipment 2. Increased in current 11,861,411.82 7,755,938.59 428,821.03 4,106,119.29 2,310,544.40 26,462,835.13 period Re-classificatio n Accrual 11,861,411.82 7,755,938.59 428,821.03 4,106,119.29 2,310,544.40 26,462,835.13 Translation difference Other increase 3. Decrease in current 1,467,532.88 1,100,152.51 1,010,726.85 2,374,651.49 930,242.73 6,883,306.46 period Disposal or 199,668.69 1,010,726.85 2,345,731.03 826,766.35 4,382,892.92 retired Transferred to investment property Translation 1,467,532.88 900,483.82 28,920.46 103,476.38 2,500,413.54 difference Other decrease 4. Closing 122,149,565.1 12,847,470.8 35,896,505.6 40,212,445.3 274,145,722.1 63,039,735.12 balance 8 1 6 5 2 III. Impairment provision 1. Opening balance 2. Increase in current period Re-classificatio n Accrual Other increase 3. Decrease in current period Disposal or retired Transferred into investment property Other decrease 4. Closing balance IV. Book value 1. Carrying amount at 286,038,143.8 10,420,942.8 349,495,316.6 44,428,365.74 1,933,039.57 6,674,824.59 end of 8 7 5 period 2. Carrying amount at 287,264,512.7 11,270,213.6 352,734,280.7 45,512,854.94 1,736,636.79 6,950,062.63 beginning of 3 7 6 period Note: As of the period, fixed assets used to pledge for the Company’s loan amounted to Notes to the financial statements – Page 173 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 RMB11,490,566.65. 2. Fixed assets that do not have certificate for property right Item Book value Reason for not having certificate for property rights Property 255,135.96 Issues relating to property right Property 3,067,640.30 Not yet completed Note 12. Right-of-use assets Item Property I. Original cost 1. Opening balance 250,970,274.22 2. Increase in current period 98,622,544.53 Re-classification Lease 98,622,544.53 Other increase 3. Decrease in current period 36,014,185.11 Maturity of lease term Other decrease 36,014,185.11 4. Closing balance 313,578,633.64 II. Accumulated depreciation 1. Opening balance 87,800,873.78 2. Increase in the period 100,275,414.73 Reclassification Accrual 100,275,414.73 Other increase 3. Decrease in the period 22,430,130.29 Maturity of lease term Other decrease 22,430,130.29 4. Closing balance 165,646,158.22 III. Impairment provision 1. Opening balance 2. Increase in the period Reclassification Accrual Other increase 3. Decrease in the period Maturity of lease term Other decrease 4. Closing balance Notes to the financial statements – Page 174 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Property IV. Book value 1. Carrying amount at end of period 147,932,475.42 2. Carrying amount at beginning of period 163,169,400.44 Note 13. Intangible assets 1. Status Right to use Item Land-use right Software system Total trademarks I. Original cost 1. Opening 34,933,822.40 29,134,692.80 14,068,906.86 78,137,422.06 balance 2. Increase in the 1,151,727.41 1,186,718.72 2,338,446.13 period Purchase 1,151,727.41 1,186,718.72 2,338,446.13 Internal R&D Other source 3. Decrease in the period Disposal Other reasons 4. Closing balance 34,933,822.40 30,286,420.21 15,255,625.58 80,475,868.19 II. Accumulated amortization 1. Opening 15,048,815.45 18,612,740.91 6,616,549.19 40,278,105.55 balance 2. Increase in 733,553.28 4,165,730.97 1,263,147.96 6,162,432.21 the period Accrual 733,553.28 4,165,730.97 1,263,147.96 6,162,432.21 Other reasons 3. Decrease in the period Disposal Other reasons 4. Closing 15,782,368.73 22,778,471.88 7,879,697.15 46,440,537.76 balance III. Impairment provision 1. Opening balance 2. Increase in the period Accrual Other reasons 3. Decrease in the period Transfer Other reasons Notes to the financial statements – Page 175 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Right to use Item Land-use right Software system Total trademarks Other transfer 4. Closing balance IV. Book value 1. Book value at 19,151,453.67 7,507,948.33 7,375,928.43 34,035,330.43 end of the period 2. Book value at beginning of the 19,885,006.95 10,521,951.89 7,452,357.67 37,859,316.51 period Note 14. Long-term deferred expenses Opening Other Closing Item Increase Amortized balance decrease balance Counter fabrication 25,146,766.71 37,577,009.80 34,160,604.79 28,563,171.72 expenses Renovation 120,695,905.9 98,681,716.46 83,147,472.60 61,133,283.16 expenses 0 Others 6,189,104.82 16,981,131.74 8,638,980.74 14,531,255.82 130,017,587.9 137,705,614.1 103,932,868.6 163,790,333.4 Total 9 4 9 4 Note 15. Deferred tax assets and deferred tax liabilities 1. Detail of deferred tax assets before offsetting Closing balance Opening balance Item Deductible Deductible temporary Deferred tax assets temporary Deferred tax assets difference difference Impairment provision 148,079,831.14 31,562,627.52 122,763,597.44 24,130,990.19 Unrealized profit for related 96,716,186.61 24,021,244.01 135,402,764.86 33,674,974.92 party transactions Deductible losses 62,781,216.23 15,188,881.56 64,27s2,084.42 15,216,766.23 Restricted shares 17,502,152.62 4,121,326.77 10,011,227.40 2,398,201.09 Advertisement expenses that allowed to deduct in future 11,503,471.12 2,219,622.49 18,840,253.36 3,378,321.23 years Lease liabilities 147,888,578.26 36,972,144.57 Others 9,993,278.10 2,498,319.53 8,458,186.73 2,114,546.69 Total 494,464,714.08 116,584,166.45 359,748,114.21 80,913,800.35 2. Detail of deferred tax liabilities before offsetting Closing balance Opening balance Item taxable temporary Deferred tax Taxable temporary Deferred tax difference liabilities difference liabilities One-off deduction of fixed asset before Corporate 24,113,302.98 3,616,995.45 20,452,230.39 3,067,834.55 income tax Right-of-use asset 147,881,641.51 36,970,410.38 Total 171,994,944.49 40,587,405.83 20,452,230.39 3,067,834.55 Notes to the financial statements – Page 176 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 3. Net-off of deferred tax asset or liabilities Closing balance of Opening balance of Amount off-set at Amount off-set at Item deferred tax asset or deferred tax asset or current period prior period liability after off-set liability after off-set deferred tax asset 35,350,891.80 81,233,274.65 80,913,800.35 deferred tax 35,350,891.80 5,236,514.03 3,067,834.55 liabilities 4. Details of deductible temporary difference and deductible losses that does not recognize as deferred income tax asset Item Closing balance Opening balance Impairment provision 15,218,179.77 14,790,427.78 Deductible losses 54,139,145.45 61,104,363.07 Total 69,357,325.22 75,894,790.85 Note: Deductible losses of Swiss Company, which are subsidiaries of the Company, is not recognized as deferred income tax asset as it’s uncertain that the companies can get sufficient taxable income in future. Hong Kong Company, a subsidiary of the Company, does not need to recognize the deferred income tax assets for impairment provision according to the local tax policy. 5. Deductible losses that are not recognized as deferred tax asset will due in the following years: Year Closing balance Opening balance Note 2021 2022 2023 149,750.18 7,114,967.80 2024 11,684,299.22 11,684,299.22 2025 18,449,678.50 18,449,678.50 2026 23,855,417.55 23,855,417.55 Total 54,139,145.45 61,104,363.07 Note 16. Other non-current assets Closing balance Opening balance Item Carrying Carrying Provision Book value Provision Book value amount amount Prepayment for construction 42,680,753.78 42,680,753.78 13,536,307.13 13,536,307.13 and equipment Note 17. Short-term loan Item Closing balance Opening balance Guaranteed loans 15,737,928.76 142,195,227.88 Credit loans 250,000,000.00 400,000,000.00 Notes to the financial statements – Page 177 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Closing balance Opening balance Accrued interest payable 256,666.67 478,050.21 Total 265,994,595.43 542,673,278.09 Note 18. Notes payable Types Closing balance Opening balance Commercial bills payable 21,223.10 3,581,360.00 Note 19. Account payables Item Closing balance Opening balance Trade payables 232,841,934.81 284,050,848.79 Payables for material 20,513,993.11 15,679,531.11 purchased Payables for project 1,232,967.42 1,481,135.49 Total 254,588,895.34 301,211,515.39 Note 20. Advances from customer Item Closing balance Opening balance Rental received in advance 11,025,664.72 9,991,850.67 Note 21. Contract liabilities Item Closing balance Opening balance Advances for goods received 22,505,426.65 18,213,396.49 Note 22. Employee remuneration payable 1. Status Item Opening balance Increase Decrease Closing balance Short-term employee benefits 125,981,238.62 671,171,231.14 662,456,183.27 134,696,286.49 Post-employment benefits - 6,767,477.58 48,794,359.96 46,097,963.35 9,463,874.19 defined contribution plans Termination benefits 104,746.00 3,396,691.07 1,725,447.69 1,775,989.38 Total 132,853,462.20 723,362,282.17 710,279,594.31 145,936,150.06 2. Short-term employee benefits Item Opening balance Increase Decrease Closing balance Salaries, bonus, allowances 125,136,477.65 608,818,494.84 600,136,279.73 133,818,692.76 Staff welfare 3,805.46 11,377,936.46 11,381,033.12 708.80 Social insurances 22,210,707.38 22,190,086.72 20,620.66 Including:1.Medical insurance 20,788,454.25 20,767,833.59 20,620.66 2. Supplementary medical 26,898.00 26,898.00 insurance Notes to the financial statements – Page 178 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 3.Work-related injury 782,748.63 782,748.63 insurance 4.Maternity insurance 612,606.50 612,606.50 Housing Fund 2,932.00 19,839,787.30 19,815,615.30 27,104.00 Labor union fees and education 838,023.51 8,924,305.16 8,933,168.40 829,160.27 fee Short-term paid absences Other short-term employee benefits Total 125,981,238.62 671,171,231.14 662,456,183.27 134,696,286.49 3. Defined contribution plans Item Opening balance Increase Decrease Closing balance Basic pension insurance 295,976.45 40,964,893.15 41,034,054.05 226,815.55 Unemployment insurance 437.76 1,210,037.85 1,210,475.61 Annuity 6,471,063.37 6,619,428.96 3,853,433.69 9,237,058.64 Total 6,767,477.58 48,794,359.96 46,097,963.35 9,463,874.19 Note 23. Taxes payable Item Closing balance Opening balance VAT 46,711,341.16 36,028,888.63 Corporate income tax 15,663,227.68 29,488,177.68 Individual income tax 1,568,912.16 1,609,420.04 Urban maintenance and 1,624,353.62 631,469.18 construction tax Educational surcharges 1,161,292.58 450,946.60 Others 1,040,752.81 716,369.77 Total 67,769,880.01 68,925,271.90 Note 24. Other payables Item Closing balance Opening balance Dividends payable 5,015,026.30 1,639,513.77 Other payables 162,793,733.65 126,938,084.17 Total 167,808,759.95 128,577,597.94 Note: Other payables in above table refers to other payables excluding interest payable and dividends payable. 1. Dividends payable Reasons for not being Item Closing balance Opening balance paid Dividends for ordinary shares 5,015,026.30 1,639,513.77 unlock 2. Other payables (1) Other payables by nature Notes to the financial statements – Page 179 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Nature Closing balance Opening balance Security deposit 33,536,237.44 46,419,944.64 Shop activity fund 19,208,694.86 21,861,578.14 Decoration expenses 10,201,524.91 7,481,768.84 Repurchase liability for restricted shares 60,585,678.92 16,299,166.73 Other 39,261,597.52 34,875,625.82 Total 162,793,733.65 126,938,084.17 (2) Material other receivables with aging over 1 year Name Closing balance Reasons for not being paid Huazhu Hotel Management Co., Ltd 4,600,000.00 Undue Shenzhen Coman Medical Equipment Co., Ltd. 1,676,337.60 Undue Bilin Venture Capital (Shenzhen) Partnership LLP 1,442,275.27 Undue Yading (Shenzhen) Industrial Co., Ltd. 1,332,652.89 Undue Total 9,051,265.76 Note 25. Non-current liabilities due within one year Item Closing balance Opening balance Long-term loan due within one year 3,924,900.00 370,030.00 Lease liabilities due in one year 83,025,006.35 88,839,586.06 Total 86,949,906.35 89,209,616.06 Note 26. Other current liabilities Item Closing balance Opening balance Output VAT not yet realized 2,798,738.32 2,299,755.09 Note 27. Long-term loan Category Closing balance Opening balance Mortgage loans 3,924,900.00 4,440,360.00 Less: Long-term loan due within 3,924,900.00 370,030.00 one year Total 4,070,330.00 As of 31 December 2021, the carrying amount of fixed assets used in mortgage for the Company’s loan amounted to RMB11,490,566.65. Note 28. Lease liabilities Residual lease term Closing balance Opening balance Within 1 year 87,412,539.35 94,225,765.63 1 - 2 years 45,978,062.22 60,405,317.90 2 - 3 years 13,813,526.70 16,268,969.19 Notes to the financial statements – Page 180 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Over 3 years 7,720,317.07 2,896,760.13 Total lease payables 154,924,445.34 173,796,812.85 Less: financing expense not realized 6,980,716.89 7,517,647.49 PV of lease payables 147,943,728.45 166,279,165.36 Less: lease liabilities due in one year 83,025,006.35 88,839,586.06 Total 64,918,722.10 77,439,579.30 Interest expenses for lease liabilities recognized in current period was RMB6,486,982.37. Note 29. Deferred income Opening Closing Item Increase Decrease Reason balance balance Asset related government 2,377,718.35 584,884.45 1,792,833.90 See below table subsidy income related 538,628.08 538,628.08 See below table government subsidy Total 2,916,346.43 1,123,512.53 1,792,833.90 1. Deferred income related to government subsidy Include in Include in Offsetting Related to Opening non-operating Closing Item Addition other gains in expense asset balance income in balance current period or cost /income current period Special fund for Shenzhen Asset industrial design 551,309.04 161,185.89 390,123.15 related industry development Funding project for construction of 925,127.45 293,147.06 631,980.39 Asset related National Enterprise Technology Center Provincial Specialized Fund 901,281.86 130,551.50 770,730.36 Asset related for Industrial and Information Income Others 538,628.08 538,628.08 - related Total 2,916,346.43 1,123,512.53 1,792,833.90 Note 30. Share capital Movements: increase(+) , decrease(-) Closing balance Opening Capitalization Item Bonus balance Newly issued of capital Others Subtotal share reserves Total 428,091,88 7,660,000 -9,700,866 -2,040,866 426,051,015 shares 1 Notes to movements: 1. On 15 December 2020, pursuant to the examination and approval given by AVIC under “Reply to Examination and approval of Implementation of Second Phase of Restricted Share Incentive plan of Notes to the financial statements – Page 181 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 FIYTA Precision Technology Co., Ltd.” (Ren Zi [2020] No. 35) , and approved by the board of directors and shareholder’s general meeting, the Company implemented the incentive plan. On 15 January 2021, the restricted share incentive plan (second phase) had granted restricted A-shares of 7,660,000 shares to 135 incentive individuals. 2. Pursuant to the resolution of “Proposal of repurchase and de-registration part of restricted shares authorized under 2018 A-share Restricted Share Incentive Plan (First Phase) ”, and the resolution of ““Proposal of repurchase and de-registration part of restricted shares authorized under 2018 A-share Restricted Share Incentive Plan (Second Phase) ”, the Company repurchased and de-registered, in 2021, 706,780 A-share restricted shares that had been authorized but still under restriction period. Those shares were owned by 9 former incentive object that are resigned. 3. Pursuant to “The Resolution of Plan of Re-purchase B Shares” which was approved on the 19th meeting of the 9th Board of Directors and the 2nd extraordinary shareholder’s meeting of 2020, the Company was authorized to repurchase B Shares, using the Company’s fund, to reduce the registered capital. On 3 August 2021, confirmed by China Securities Depository and Clearing Co., Ltd Shenzhen Branch, the Company de-registered 8,994,086 B-shares. Note 31. Capital reserve Item Opening balance Increase Decrease Closing balance Share premium 996,986,711.73 54,257,795.84 41,135,973.76 1,010,108,533.81 Other capital reserve 24,503,676.05 13,667,981.68 7,371,997.41 30,799,660.32 Total 1,021,490,387.78 67,925,777.52 48,507,971.17 1,040,908,194.13 Notes to capital reserve 1. On 15 December 2020, pursuant to the examination and approval given by AVIC under “Reply to Examination and approval of Implementation of Second Phase of Restricted Share Incentive plan of FIYTA Precision Technology Co., Ltd.” (Ren Zi [2020] No. 35) , and approved by the board of directors and shareholder’s general meeting, the Company implemented the incentive plan. On 15 January 2021, the restricted share incentive plan (second phase) had granted restricted A-shares of 7,660,000 shares to 135 incentive individuals. The Company received share purchase payment of RMB58,216,000.00. Amongst, share capital increase by RMB7,660,000, and capital reserve increased by 50,556,000.00. At the same time, recognized share repurchase obligation in other payables amounting to RMB58,216,000.00 and corresponding treasury shares of RMB58,216,000.00. In 2021, the Company charged RMB12,106,904.32 into cost or expenses in change of incentive personnel’s service and increased the capital reserve by the same amount accordingly. 2. Pursuant to “The Resolution of Plan of Re-purchase B Shares” which was approved on the 19th meeting of the 9th Board of Directors and the 2nd extraordinary shareholder’s meeting of 2020, the Company was authorized to repurchase B Shares, using the Company’s fund, to reduce the registered capital. On 3 August 2021, confirmed by China Securities Depository and Clearing Co., Ltd Shenzhen Branch, the Company de-registered 8,994,086 B-shares, which in turn decreased the capital reserve by Notes to the financial statements – Page 182 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 RMB41,132,596.76. 3. Pursuant to the resolution of “Proposal of repurchase and de-registration part of restricted shares authorized under 2018 A-share Restricted Share Incentive Plan (First Phase) ”, and the resolution of ““Proposal of repurchase and de-registration part of restricted shares authorized under 2018 A-share Restricted Share Incentive Plan (Second Phase) ”, the Company repurchased and de-registered, in 2021, 706,780 A-share restricted shares that had been authorized but still under restriction period. Those shares were owned by 9 former incentive object that are resigned. Capital reserve of RMB3,670,201.57 was deducted accordingly. 4. Differences, caused by fair value different when unlock the restricted shares, between CIT deducted amount and cost or expenses recognized in vesting period increased the capital reserve by RMB1,561,077.36. 5. Pursuant to “The Resolution of Plan of Re-purchase B Shares” which was approved on the 19th meeting of the 9th Board of Directors and the 2nd extraordinary shareholder’s meeting of 2020, the Company incurred transaction cost of RMB 3,377 for the repurchase. The expenses of RMB3,377 was deducted from capital reserve. Note 32. Treasury shares Opening Closing Item Increase Decrease balance balance Share repurchase 45,368,941.80 4,757,740.96 50,126,682.76 58,216,000.0 Share based payment 16,264,588.68 13,894,909.76 60,585,678.92 0 62,973,740.9 Total 61,633,530.48 64,021,592.52 60,585,678.92 6 Notes to treasury shares: 1. As described in Note VI. 31. 1, the treasury shares increased by RMB58,216,000.00 due to issue of restricted shares. 2. As described in Note VI. 31. 2, the treasury shares decreased by RMB50,126,682.76 due to re-purchase of B-share. 3. As described in Note VI. 31. 3, the treasury shares decreased by RMB4,376,981.57 due to re-purchase of restricted shares. And cash dividend to the remaining restricted shares decreased treasury shares by RMB4,088,467.68. 4. In 2021, the Company re-purchased B-share of 847,685 shares. Consideration paid was HKD5,691,273.88 (excluding trading fee) , equivalent to RMB4,757,740.96. The treasury share increased by 4,757,740.96. 5. On 29 December 2021, Pursuant to the “Resolution of Fulfilling Unlocking Condition for the 2018 A-Share Restricted Share Incentive Plan (First Phase) ” passed on the 24th meeting of the 9th Board, the first unlocking condition was met. Based on the authorization of the General Meeting, the Board lifted restriction for 122 incentive individuals. The corresponding shares can be traded on 1 February 2021, of which the cash dividend decreased treasury shares by RMB5,429,460.51. Notes to the financial statements – Page 183 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Note 33. Other Comprehensive income Amount in current period Less: Less: Less: recorde recorde Less: recorde d in d in reserve d in OCI in OCI in of OCI in Attribute prior prior hedgin Less: prior to period Opening period g Attribute to movem Closing Item period Les non-contr and balance Pre-tax and transfer parent ents of balance and s: olling transfer amount transfer red to company defied transfer CIT sharehold red to red to related after tax benefit red to ers after retaine financia assets plan profit or tax d l assets or loss in earning at liabilitie current s in amortiz s period current ed cost period I. Other comprehe nsive income items which will not be reclassifie d subseque ntly to profit or loss II. Other comprehe nsive income items which may be reclassifie d subseque ntly to profit or loss translatio n 976,87 -8,635,21 -8,635,21 -7,658,34 differenc 1.41 7.81 7.81 6.40 e Notes to the financial statements – Page 184 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Note 34. Specific reserve Opening Item Increase Decrease Closing balance balance Safety production fee 1,421,605.68 358,874.55 1,062,731.13 Note 35. Surplus reserve Item Opening balance Increase Decrease Closing balance Statutory surplus 184,546,972.87 28,478,534.63 213,025,507.50 reserve Discretionary surplus 61,984,894.00 61,984,894.00 reserve Total 246,531,866.87 28,478,534.63 275,010,401.50 Notes to surplus reserve: Note: According to the Company Law and Articles of Association, the Company draws statutory surplus reserve at 10% of net profit. If the statutory surplus reserve is over 50% of the Company’s registered capital, drawing of statutory surplus reserve will be stopped. The Company can draw discretionary surplus reserve after drawing statutory surplus reserve. If approved, discretionary surplus reserve can be used to make up for losses in previous years or increase share capital. Note 36. Undistributed profit Item Current period Prior period Undistributed profit at the end of prior year 1,164,490,911.51 966,840,818.40 before adjustments Adjustments to undistributed profit at the beginning of year (“+” for increase and “-“ for -11,188,268.01 decrease) Undistributed profit at the beginning of year 1,153,302,643.50 966,840,818.40 after adjustment Plus: Net profit attributable to the owner of the 387,840,282.95 294,115,156.04 parent company for the year Less: statutory surplus reserve drawn 28,478,534.63 10,830,686.73 Dividends payable to ordinary shares 174,220,065.73 85,634,376.20 Undistributed profit at the end of year 1,338,444,326.09 1,164,490,911.51 Notes to adjusting undistributed profit at the beginning of year Opening undistributed profit was adjusted by -11,188,268.01 because of change in accounting policies. Refer to Note IV. 38 for details. Note 37. Operating income and operating cost 1.Operating income and operating cost Item Amount in current period Amount in prior period Notes to the financial statements – Page 185 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Amount in current period Amount in prior period Revenue Cost Revenue Cost Main business 5,224,836,384.30 3,283,434,432.96 4,226,992,193.44 2,632,869,284.16 Other business 18,897,156.63 2,221,796.17 16,447,759.15 6,360,252.90 2.Revenue generated by contract Types of contract Amount in current period Amount in prior period I. Types of goods Watch business 4,923,280,724.48 3,970,903,426.36 Precision manufacturing 150,094,350.20 138,806,456.76 Other business 18,897,156.63 16,447,759.15 II. Categorized based on timing of goods transfer At a point of time 5,078,899,659.72 4,115,090,762.09 During a period of time 13,372,571.59 11,066,880.18 Note: revenue generated by contract does not include lease income of RMB151,461,309.62 which is regulated under “CAS No.21 – Lease”. Note 38. Tax and surcharges Item Amount in current period Amount in prior period Urban maintenance and 13,898,225.16 10,068,664.42 construction tax Educational surcharge 5,907,693.68 4,314,874.91 Local education surcharges 3,923,712.57 2,840,421.94 Property tax 7,224,965.66 4,094,171.89 Stamp duty 4,156,804.98 3,347,384.62 Others 2,452,184.75 778,621.52 Total 37,563,586.80 25,444,139.30 Note 39. Selling and distribution expenses Item Amount in current period Amount in prior period Salary 433,505,654.18 359,485,012.85 Department store expense and rental 189,748,898.49 225,399,141.62 Market promotion expenses 161,389,740.20 129,846,038.05 Depreciation and amortization 191,787,912.35 93,520,422.84 Packaging expenses 8,739,319.16 8,931,806.05 Utilities and property management 22,588,777.26 19,596,237.03 expenses Shipping fees 8,530,775.41 5,316,601.90 Notes to the financial statements – Page 186 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Amount in current period Amount in prior period Office expenses 7,446,024.76 5,894,271.36 Travel expenses 7,279,500.39 6,384,080.73 Entertainment expenses 4,046,655.86 3,437,118.33 Others 14,834,965.22 12,903,168.56 Total 1,049,898,223.28 870,713,899.32 Note 40. Administrative expenses Item Amount in current period Amount in prior period Salary 202,675,218.51 196,350,562.99 Depreciation and amortization 24,544,056.69 25,865,228.70 Travel expenses 3,980,000.38 3,537,267.52 Office expenses 5,390,287.09 4,446,219.38 Agents fees 3,342,562.00 5,371,712.37 Rental and utilities 852,555.31 1,007,513.11 Entertainment expenses 1,494,588.12 1,269,440.44 Vehicle and transportation expenses 1,718,083.11 1,781,896.05 Telecommunication expenses 983,910.06 1,009,390.54 Others 16,645,501.14 15,919,896.13 Total 261,626,762.41 256,559,127.23 Note 41. R&D expenses Item Amount in current period Amount in prior period Salary 40,498,469.51 32,217,390.03 Sample and material expenses 1,557,455.43 1,561,063.66 Molding expenses 744,578.81 986,988.83 Depreciation and amortization 6,048,741.96 6,397,967.06 Technical cooperation fee 2,480,127.69 4,768,053.72 Others 6,473,195.77 5,557,860.19 Total 57,802,569.17 51,489,323.49 Note 42. Financial expenses Item Amount in current period Amount in prior period Interest expenses 23,159,963.74 21,315,119.78 Less: Interest income 3,589,649.85 4,941,334.19 Exchange gain or losses 634,406.96 3,896,579.87 Bank charges 14,472,352.80 13,178,910.95 Total 34,677,073.65 33,449,276.41 Notes to the financial statements – Page 187 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Note 43. Other income 1. Details Sources of other income Amount in current period Amount in prior period Government subsidy 21,328,673.21 25,170,397.09 2. Government subsidy included in other income Amount in current Amount in prior Asset or Item period period income related Quality and Branding Promotion Subsidy for 2020 Technique Multiplication Subsidy 1,960,000.00 2,400,000.00 Income related Plan Provincial industry and information special 130,551.50 130,551.48 Asset related subsidy Subsidy to promote consumption 420,000.00 Income related High precision watch technology innovation -160,000.00 Income related project Commission on IIT payment 502,644.31 370,789.08 Income related Guangming District specific subsidy for 200,000.00 Income related online market expanding State certified R&D center 293,147.06 293,147.06 Asset related Other subsidies 711,026.01 813,731.50 Income related R&D project subsidy 378,000.00 355,000.00 Income related 2019 Shenzhen Standard Special Fund 836,705.00 979,160.00 Income related Shenzhen post-doctoral subsidy 550,000.00 Income related Special fund for Shenzhen industrial 161,185.89 178,635.97 Asset related designing Corporate Research and Development 756,000.00 571,000.00 Income related Funding Special fund of Nanshan district to support 4,913,900.00 4,526,600.00 Income related self-innovation industry development Subsidy to assist high quality development 3,730,000.00 Income related of fashion industry Subsidy for stabilizing job position 833,013.44 3,743,398.00 Income related Subsidy to support sales promotion 3,500,000.00 1,000,000.00 Income related Government subsidy for R&D project 200,000.00 Income related Training subsidy 322,500.00 611,500.00 Income related Economic development special fund of Guangming District to support intellectual 1,090,000.00 677,000.00 Income related property right, standardization certification project 2019 Nanshan District self-innovation 209,500.00 Income related industry development subsidy Subsidy for SME to expanding market 176,920.00 Income related Plan to subsidy industrial internet 520,000.00 Income related development Guangdong Provincial Science and 1,000,000.00 Income related Technology Innovation Strategy Fund Nanshan Industrial and Information Bureau 100,000.00 Income related subsidy for rental Social insurance subsidy 101,300.00 Income related Notes to the financial statements – Page 188 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Headquarters enterprise award 2,872,900.00 Income related Special fund of Nanshan district Industrial and Information Bureau to support trading 2,592,300.00 Income related industry Special subsidy to Shenzhen intelligence 300,000.00 Income related property right area Associate subsidy to China patent 200,000.00 Income related excellence award Central government foreign trade 446,964.00 Income related development special fund Total 21,328,673.21 25,170,397.09 Note 44. Investment gain Amount in current Item Amount in prior period period Gain from long-term equity investments accounted 3,754,939.39 5,072,577.64 for using equity method Note 45. Credit impairment loss Item Amount in current period Amount in prior period Bad debt loss -11,075,001.77 -9,096,922.74 Note 46. Asset impairment loss Item Amount in current period Amount in prior period Inventory decline in value -25,861,394.56 -15,426,526.41 Note 47. Gains from assets disposal Item Amount in current period Amount in prior period Gains (losses) from assets disposal -134,543.49 -369,857.30 Gains (losses) from right-of-use 864,678.36 assets disposal Total 730,134.87 -369,857.30 Note 48. Non-operating income Amount in current Amount included in non-recurring gains Item Amount in prior period period or losses in current period Compensation 113,138.61 1,769,663.80 113,138.61 Payables cannot be paid 383,893.25 633,022.50 383,893.25 Others 130,403.17 708,727.34 130,403.17 Total 627,435.03 3,111,413.64 627,435.03 Note 49. Non-operating expense Amount in current Amount in prior Amount included in non-recurring gains Item period period or losses in current period Donation 300,000.00 300,000.00 Fine and penalty for late payment 698,864.04 1,032.09 698,864.04 Notes to the financial statements – Page 189 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Amount in current Amount in prior Amount included in non-recurring gains Item period period or losses in current period Payment for breach of agreement 2,507,649.06 331,373.75 2,507,649.06 Others 179,653.45 1,222,707.02 179,653.45 Total 3,686,166.55 1,555,112.86 3,686,166.55 Note 50. CIT expenses 1. Details Item Amount in current period Amount in prior period Current tax expense for the year 112,084,704.70 82,548,458.59 based on tax law and regulations Changes in deferred tax 2,382,671.18 -3,209,941.99 assets/liabilities Total 114,467,375.88 79,338,516.60 2. Reconciliation between income tax expenses and accounting profit is as follows: Item Amount in current period Profits before tax 502,327,716.11 Income tax calculated based on statutory tax rate 125,581,929.05 Effect of different tax rates applied by subsidiaries -7,919,551.34 Adjustment to income tax of previous years 765,383.02 Effect of non-taxable income -946,628.62 Effect of non-deductible costs, expenses and losses 4,388,679.47 Effect of using the deductible temporary differences or deductible -604,278.27 losses for which no deferred tax asset was recognized in prior period Effect of deductible temporary differences or deductible losses for which no deferred tax asset was recognized this year Effect of research and development expenses super deduction -6,798,157.43 Others Income tax expenses 114,467,375.88 Note 51. Notes to cash flow statement 1. Cash received from other operating activities Item Amount in current period Amount in prior period Security deposit 12,286,247.59 16,369,729.33 Government subsidy 22,985,857.32 29,643,860.40 Promotion expenses 13,582,651.81 12,486,890.27 Interest income 3,589,649.85 4,941,334.19 Return of petty cash 7,070,953.20 5,503,961.77 Others 25,872,097.79 9,056,036.49 Total 85,387,457.56 78,001,812.45 2. Cash paid for other operating activities Notes to the financial statements – Page 190 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Amount in current period Amount in prior period Security deposit 27,774,098.01 13,371,641.24 Petty cash advanced to employee 11,532,694.33 8,618,216.90 Current period expenses 436,157,747.82 433,410,006.32 Others 2,635,207.94 2,258,442.62 Total 478,099,748.10 457,658,307.08 3. Cash paid for other financing activities Item Amount in current period Amount in prior period Lease payment 115,532,289.07 Cash paid for re-purchase of shares 9,178,101.51 72,317,669.93 Total 124,710,390.58 72,317,669.93 Note 52. Supplement information to cash flow statement 1. Supplement to cash flow statement Amount in current Item Amount in prior period period 1. Reconciliation of net profit/loss to cash flows from operating activities: Net profit 387,860,340.23 294,122,102.24 Add: Credit impairment loss 11,075,001.77 9,096,922.74 Impairment for assets 25,861,394.56 15,426,526.41 Depreciation of fixed assets, and investment property 42,404,375.44 42,147,350.05 Depreciation of right-of-use assets 100,275,414.73 Intangible asset amortization 6,162,432.21 8,011,446.67 Amortization of long-term deferred expenses 103,932,868.69 107,402,300.57 Loss on disposal of fixed assets, intangible assets, -730,134.87 369,857.30 and other long-term assets (“-“ for gain) Loss on scrap of fixed assets (“-“ for gain) Loss on changes of fair value (“-“ for gain) Financial expenses (“-“ for income) 23,159,963.74 21,315,119.78 Investment loss (“-“ for gain) -3,754,939.39 -5,072,577.64 Decrease in deferred tax assets (“-“ for increase) -319,474.30 2,825,583.02 Increase in deferred tax liabilities (“-“ for decrease) 2,168,679.48 1,811,592.06 Decrease in inventories (“-“ for increase) -133,051,377.44 -137,479,263.64 Decrease in operating receivables (“-“ for increase) 59,770,087.01 -137,884,765.44 Increase in operating payables (“-“ for decrease) -77,565,523.41 156,118,311.75 Others Net cash flows from operating activities 547,249,108.45 378,210,505.87 2. Significant investment or financing activities not involving cash: Notes to the financial statements – Page 191 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Amount in current Item Amount in prior period period Debts converted to capital Convertible debts mature within one year Fixed assets acquired under finance leases 3. Net changes in cash and cash equivalents: Cash at end of year 210,254,737.14 353,057,285.71 Less: cash at beginning of year 353,057,285.71 315,093,565.09 Plus: cash equivalents at end of year Less: cash equivalents at beginning of year Net increase in cash and cash equivalents -142,802,548.57 37,963,720.62 2. Total cash outflows related to lease Total cash outflows related to lease amounted to RMB115,532,289.07. 3. Cash and cash equivalents Item Closing balance Opening balance I. Cash 210,254,737.14 353,057,285.71 Incl. Cash on hand 108,612.08 183,759.72 Bank deposit available for immediate 188,908,798.10 346,055,209.29 payment Other monetary funds available for 21,237,326.96 6,818,316.70 immediate payment II. Cash equivalents Including Bond investment due in three months III. Cash and cash equivalents at the end of year 210,254,737.14 353,057,285.71 Including Restricted cash and cash equivalents for the 1,724,651.93 3,412,028.94 Company and its subsidiaries Note 53. Assets with restricted ownership or usage rights Item Balance Reasons Bill receivables 15,737,928.76 Bill discounted Fixed asset 11,490,566.65 Pledged Total 27,228,495.41 Note 54. Monetary items denominated in foreign currency 1. Monetary items denominated in foreign currency Balance denominated Balance translated in RMB as at 31 Dec Item in foreign currency as at Exchange rate 2021 31 Dec 2021 Monetary fund 8,514,180.39 HKD 218.63 0.8176 178.75 USD 1,019,499.31 6.3757 6,500,021.75 Notes to the financial statements – Page 192 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Balance denominated Balance translated in RMB as at 31 Dec Item in foreign currency as at Exchange rate 2021 31 Dec 2021 EUR 277,768.92 7.2197 2,005,408.28 CHF 1,226.15 6.9776 8,571.61 Accounts receivable 6,478,102.53 HKD 1,321,668.61 0.8176 1,080,596.26 USD 727,349.65 6.3757 4,637,364.76 EUR 91,897.19 7.2197 663,470.14 CHF 13,854.53 6.9776 96,671.37 Other receivables 98,186.34 HKD 120,090.92 0.8176 98,186.34 Accounts payable 1,232,833.10 HKD 459,366.53 0.8176 375,578.07 CHF 122,858.15 6.9776 857,255.03 Other payables 232,536.98 HID 284,414.11 0.8176 232,536.98 Long-term loan (including 3,924,900.00 due in one year) CHF 562,500.00 6.9776 3,924,900.00 2. Overseas operational entity For main business location and recording currency of important overseas operating entities, refer to Note IV. 5. Note 55. Government subsidy 1. Status Amount included in Amount in current Types of government subsidy current period profit note period or loss Subsidy included in deferred income 1,123,512.53 Note VI 29 Subsidy included in other income 20,365,160.68 20,365,160.68 Note VI 43 Subsidy used to offset cost or expenses 2,620,696.64 2,620,696.64 Note 2 below Less: subsidy returned 633,183.35 633,183.35 Note 3 below Total 22,352,673.97 23,476,186.50 2. Subsidy used to offset cost or expenses Amount in current Amount in prior Item Type Cost or expenses offset period period subsidized interest State treasury 2,170,134.64 4,603,207.48 Financial expenses Subsidy for electricity expenses State treasury 450,562.00 860,524.00 Administrative expenses Total 2,620,696.64 5,463,731.48 Notes to the financial statements – Page 193 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 3. Subsidy returned Amount in Amount in prior Item Type Reasons for return current period period Over disbursement of subsidy and Income related 160,000.00 Over disbursement its interest Subsidized interest Income related 473,183.35 Not qualified Total 633,183.35 VII. Changes to the scope of consolidation Refer to Note II Scope of consolidation for information about entities that newly included or excluded in the consolidation scope. VIII. Interests in other entities 1. Equity in subsidiary (1) Composition of enterprise group Shareholding Place of Place of Nature of ratio (%) Name registrati Ways acquired operation business Indire on Direct ct Shenzhen Harmony World Shenzhe Shenzhe Commerce 100.00 incorporated or investment Watch Center Co., Ltd. n n Shenzhe Shenzhe FIYTA Sales Co., Ltd. Commerce 100.00 incorporated or investment n n Shenzhen FIYTA Precision Shenzhe Shenzhe Commerce 90.00 10.00 incorporated or investment Technology Co., Ltd. n n Shenzhen FIYTA Technology Shenzhe Shenzhe manufacturin 100.00 incorporated or investment Development Co., Ltd. n n g Harmony World Watch Center Sanya Sanya Commerce 100.00 incorporated or investment (Hainan) Co., Ltd. Shenzhen Xunhang Precision Shenzhe Shenzhe manufacturin 100.00 incorporated or investment Technology Co., Ltd. n n g Emile Choureit Timing Shenzhe Shenzhe Commerce 100.00 incorporated or investment (Shenzhen) Ltd. n n Liaoning Hengdarui Shenyan Shenyan Business combination Commerce 100.00 Commercial & Trade Co., Ltd. g g under common control TEMPORAL (Shenzhen) Co., Shenzhe Shenzhe Commerce 100.00 incorporated or investment Ltd. n n Shenzhen Harmony Shenzhe Shenzhe Commerce 100.00 incorporated or investment E-commerce Co., Ltd. n n Hong Hong FIYTA (Hong Kong) Ltd. Commerce 100.00 incorporated or investment Kong Kong manufacturin 100.0 Business combination not Montres Chouriet SA Swiss Swiss g 0 under common control Hong Hong Station 68 Commerce 60.00 incorporated or investment Kong Kong 2. Equity in joint arrangement or associates (1) Significant associates Nature Shareholding ratio Place of Place of of (%) Name registrat Accounting treatment operation busines ion Direct Indirect s Shangh Comme Shanghai Watch Co., Ltd. Shanghai 25% Equity method ai rcial Notes to the financial statements – Page 194 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 (2) Principal financial information of significant associate company Closing balance/Amount in Item Opening balance/Amount in prior period current period Current assets 143,367,298.98 142,137,359.85 Non-current assets 17,537,419.20 13,783,021.02 Total assets 160,904,718.18 155,920,380.87 Current liabilities 24,124,925.22 35,999,813.24 Non-current liabilities 1,839,467.79 Total liabilities 25,964,393.01 35,999,813.24 Non-controlling interest Equity attributable to parent company 134,940,325.17 119,920,567.63 Portion of net asset calculated based 33,735,081.29 29,980,141.91 on shareholding Adjustment matters 21,420,524.02 21,420,524.01 - Goodwill 21,420,524.02 21,420,524.01 - Unrealized profit or losses from internal transaction - Others Carrying value of investment to 55,155,605.31 51,400,665.92 associates Fair value of equity investment that has public quotation Operating income 150,929,452.87 96,146,565.15 Net profit 15,019,757.54 19,907,312.29 Net profit from discontinued operation Other comprehensive income Total comprehensive income 15,019,757.54 19,907,312.29 Dividends received from associated company during the year IX. Risk disclosure related to financial instrument The major financial instruments of the Company primarily include cash at bank and on hand, equity investments, borrowings, accounts receivable, accounts payables and bond payables. The Company is exposed to risks from various financial instruments in day-to-day operation, mainly including credit risk, liquidity risk and market risk. The risks in connection with such financial instruments and the risk management policies adopted by the Company to mitigate such risks are summarized as follows: The board of directors is responsible for planning and establishing the risk management structure for the Company, developing risk management policies and the related guidelines across the Company, and supervising the performance of risk management measures. The Company has developed risk management policies to identify and analyse risks exposed by the Company. These risk management policies have clear regulations over specific risks, covering various aspects of market risk, credit risk and liquidity risk management. The Company will evaluate the market environment and changes of the Company’s operating activities on a regular basis to decide whether to update the risk management policies and systems. Risk management of the Company is carried out by the Risk Management Notes to the financial statements – Page 195 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Committee based on the policies as approved by the board of directors. Risk Management Committee identifies, evaluates and mitigates related risks by working closely with other business divisions of the Company. Internal Audit Department of the Company will review the risk management control and process regularly, and submit the review results to Audit Committee of the Company. The Company spreads the risks of financial instruments through appropriate diversified investment and business portfolio, and mitigates the risk of focusing on any single industry, specific regions or counterparties by way of formulating the corresponding policies for risk management. 1. Credit risk Credit risk refers to the risk of financial losses to the Company as a result of the failure of performance of contractual obligations by the counterparties. The management has developed proper credit policies and continuously monitors credit risk exposures. The Company has adopted the policy of transacting with creditworthy counterparties only. In addition, the Company evaluates the credit qualification of customers and sets up corresponding credit term based on the financial status of customers, the possibility of obtaining guarantees from third parties, credit records and other factors such as current market conditions. The Company monitors the balances and recovery of bills and accounts receivable, and contract assets on a continual basis. As for bad credit customers, the Company will use the written reminders, shorten the credit term or cancel the credit term to ensure that the Company is free from material credit losses. In addition, the Company reviews the recovery of financial assets on each balance sheet date to ensure adequate expected credit loss provision is made for relevant financial assets.。 The Company’s other financial assets include currency funds and other receivables. The credit risk relating to these financial assets arises from the default of counterparties, but the maximum exposure to credit risk is the carrying amount of each financial asset in the balance sheet. The Company does not provide any other guarantee that may expose the Company to credit risk. The monetary funds held by the Company are mainly deposited with financial institutions such as state-owned banks and other large and medium-sized commercial banks. The management believes that these commercial banks have a higher reputation and assets, so there is no major credit risk and the Company would not have any significant losses caused by the default by these institutions. The Company’s policy is to control the amount deposited with these famous financial institutions based on their market reputation, operating size and financial background, to limit the credit risk amount of any single financial institution. As a part of its credit risk asset management, the Company assesses the credit loss of receivables using aging. The Company’s receivable and other receivables involve large amount of customers. Aging information can reflect the ability to repay and risk of bad debt of these customers. The Company determined expected loss rate by calculating historical bad debt rate for receivables with different aging based on historical data and also taking forecast of future economic condition into consideration such as GDP growth rate, state currency policy etc... For long-term receivables, the Company assesses expected Notes to the financial statements – Page 196 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 credit loss reasonably by considering settlement period, contracted payment terms, debtor’s financial situation and the economic situation of the debtor’s industry. As at 31 December 2021, the carrying amount of related assets and corresponding ECL is as follows: Aging Carrying amount Provision Bill receivable 64,324,925.49 3,066,779.69 Accounts receivable 431,988,353.10 43,102,751.82 Other receivable 65,973,547.15 4,420,279.33 Total 562,286,825.74 50,589,810.84 As the Company’s customer base is large, no material credit concentration risk. As at 31 December 2021, the balance of top 5 receivable accounts accounted for 35.48% of total accounts receivables (2020: 31.28%) . 2. Liquidity risk Liquidity risk refers to the risk of short of funds when the company performs its obligation of cash payment or settlement by other financial assets. The Company’s subordinate member companies are responsible for their respective cash flow projections. Based on the results thereof, the subordinate financial management department continually monitors its short-term and long-term capital needs at the company level to ensure adequate cash reserves; in the meantime, continually monitors the compliance with loan agreements and secures undertakings for sufficient reserve funds from major financial institutions, to address its short-term and long-term capital needs. Besides, the Company mainly signs financing agreements with banks that have business transactions to provide support to fulfill commercial bill obligation. As at 31 December 2021, the Company has financing facilities from several banks amounting to RMB1,112.53 million. Amongst, RMB419.58 million has already been used. As at 31 December 2021, the discounted contractual cash flows for financial liabilities and off-balance sheet guarantee that presented in maturity are as follows: Closing balance in ten thousands yuan Item Within 1 year 1 - 2 years 2 - 3 years Over 3 years Total Short term loan 26,846.35 26,846.35 Bills payable 2.12 2.12 Accounts payable 25,458.89 25,458.89 Other payables 16,380.23 200.79 99.93 99.93 16,780.88 Non-current liabilities due 392.49 392.49 in one year Total 69,080.08 200.79 99.93 99.93 69,480.73 3. Market risk (1) Exchange rate risk Except that the Company’s subsidiary in Hong Kong uses HKD as settlement currency and sub-subsidiary in Swiss used CHF as settlement currency, the principal places of operations of the Notes to the financial statements – Page 197 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Company are located in China and the major businesses are settled in RMB. However, the Company’s recognized foreign currency assets and liabilities as well as the foreign currency transactions in the future (the functional currencies of foreign assets and liabilities as well as the transactions are mainly HKD and CHF) remain exposed to exchange rate risk As at 31 December 2021, the RMB equivalent of financial assets and financial liabilities denominated in foreign currencies are as follows: Closing balance Item HKD USD EUR CHF Total Financial asset denominated in foreign currency: Monetary fund 178.75 6,500,021.75 2,005,408.28 8,571.61 8,514,180.39 Accounts receivable 1,080,596.26 4,637,364.76 663,470.14 96,671.37 6,478,102.53 Other receivables 98,186.34 98,186.34 11,137,386.5 Subtotal 1,178,961.35 2,668,878.42 105,242.98 15,090,469.26 1 Financial liabilities denominated in foreign currency: Accounts payables 375,578.07 857,255.03 1,232,833.10 Other payables 232,536.98 232,536.98 Non-current liabilities due in 3,924,900.00 3,924,900.00 one year Subtotal 608,115.05 4,782,155.03 5,390,270.08 Sensitivity analysis As at 31 December 2021, for financial assets and financial liabilities that denominated in foreign currency, if Renminbi appreciate or depreciate of 5% to foreign currency and other factors remain unchanged, the net profit will decrease or increase about RMB 485,000 (31 Dec 2020:RMB 2.55 million) . (2) Interest rate risk The interest rate risk of the Company mainly associates with bank borrowings, bonds payable, etc. Floating rate financial liabilities expose the Company to cash-flow interest rate risk, while fixed rate financial liabilities expose the Company to fair-value interest rate risk. The Company determines the comparative proportion of fixed rate contracts and floating rate contracts based on the then market conditions. The interest rate risk of the Company mainly associates with bank borrowings, bonds payable, etc. Floating rate financial liabilities expose the Company to cash-flow interest rate risk, while fixed rate financial liabilities expose the Company to fair-value interest rate risk. The Company determines the comparative proportion of fixed rate contracts and floating rate contracts based on the then market conditions. Sensitivity analysis: Notes to the financial statements – Page 198 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 As at 31 December 2021, it is estimated that a general increase or decrease 50 basis points in the borrowings with floating interest rates, with all other variables held constant, the Company’s net profit and shareholder’s equity for the year will decrease or increase by approximately RMB1,000,000.00 (2020: RMB 1,250,000.00) . The above sensitivity analysis assumes that interest rate changed on the balance sheet date and applicable to all loans with floating interest rate terms. X. Fair value 1. Financial instruments measured at fair value As at 31 December 2021, the Company does not have financial instruments measured at fair value. 2. Status of financial assets and financial liabilities not measured at fair value Financial assets and financial liabilities not measured at fair value include: accounts receivable, short-term loans, accounts payable, long-term loans due within one year, and equity instrument investment that does not have public quotation in an active market and its fair value cannot be measured reliably. The difference between fair value and carrying amount of the above financial assets and liabilities that not measured at fair value is insignificant. XI. Related party and related transaction 1. The parent company of the Company Shareholdi Registered ng ratio of capital parent Registration (in ten Ratio of vote right of parent Name Type of business company place thousand company to the Company% to the RMB) Company % CATIC Shenzhen Shenzhen Commercial 116,616.20 38.25 38.25 (1) Notes to the parent company CATIC Shenzhen is a subsidiary that 100% held, indirectly, by AVIC International, and AVIC directly holds 91.91% of the equity of AVIC International. (2) The ultimate controlling party of the Company is AVIC. 2. Refer to Note VIII. 1 for information about the Company’s subsidiaries 3. Refer to Note VIII. 2 for information about the Company’s material associates 4. Other related parties Name of other related parties Relationship Shenzhen CATIC Property Management Limited (CATIC Property Associate company of the controlling Management) shareholder Associate company of the controlling Shenzhen CATIC Building Equipment Co., Ltd. (CATIC Building Company) shareholder Notes to the financial statements – Page 199 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Name of other related parties Relationship Shenzhen CATIC Nanguang Elevator Engineering Co., Ltd. (CATIC Associate company of the controlling Nanguang) shareholder China Merchants Property Operation & Service Co., Ltd (China Merchants Associate company of the controlling Property OS) shareholder Associate company of the controlling CATIC Guanlan Property Development Co., Ltd. (CATIC Guanlan Property) shareholder China Merchants Jiufang Asset Management Limited (CATIC Jiufang Asset Associate company of the controlling Mgmt Company) shareholder Associate company of the controlling Shenzhen CATIC City Investment Co., Ltd (CATIC City Investment) shareholder Associate company of the controlling Ganzhou CATIC 9 Square Trading Co, Ltd (Ganzhou 9 Square Company) shareholder Associate company of the controlling CATIC City Estate (Kunshan) Co, Ltd (Kunshan Company) shareholder Associate company of the controlling Shenzhen AVIC Security Service Co., Ltd (AVIC Security Service) shareholder Jiujiang 9 Square Business Management Co., Ltd (Jiujiang 9 Square Associate company of the controlling Business Management) shareholder Associate company of the controlling Shenzhen CATIC Property Development Co., Ltd (CATIC Property) shareholder AVIC Shanxi Bocheng Aviation Instrument Co., Ltd. (AVIC Baocheng) Controlled by the same party Rainbow Digital Science Co., Ltd. and its associated companies (Rainbow Controlled by the same party Company) Shennan Circuits Co., Ltd. and its associated companies (Shennan Circuits) Controlled by the same party AVIC Lutong Co., Ltd.(AVIC Lutong) Controlled by the same party AVIC International Aero-Development Corporation(AVIC Int’l Aero Controlled by the same party Development) AVIC Huadong Photoelectric Co., Ltd.(AVIC Huadong Photoelectric) Controlled by the same party AVIC Xi’an Flight Automatic Control Research Institute(AVIC Xi’an Flight Controlled by the same party Institute) AVIC Jincheng Nanjing Engineering Institute of Aircraft System(AVIC Controlled by the same party Jincheng Nanjing Institute) AVIC Supply and Distribution Co., Ltd.(AVIC Supply and Distribution) Controlled by the same party Hubei AVIC Ye Steel Special Steel Sales Co., Ltd.(Hubei AVIC Ye Steel) Controlled by the same party AVIC (Chengdu) Drone System Co., Ltd. (AVIC Drone) Controlled by the same party AVIC Harbin Aircraft Industry Group Co., Ltd.(Harbin Aircraft) Controlled by the same party Shenzhen Grand Skylight Hotel Management Co., Ltd (Grand Skylight Hotel Controlled by the same party Management Company) Tianma Micro-electronics Co., Ltd. (Tianma) Controlled by the same party AVIC Securities Co., Ltd. (AVIC Securities Company) Controlled by the same party AVIC Training Center Controlled by the same party AVIC Finance Co., Ltd. (AVIC Finance Company) Controlled by the same party Gongqingcheng CATIC Culture Investment Co., Ltd (Gongqingcheng CATIC Controlled by the same party Culture Investment Company) China National Aero-Technology Shenzhen Co., Ltd. ( Controlled by the same party Beijing Hangtou Real-Estate Co., Ltd. (Beijing Hangtou) Controlled by the same party Avic Jonhon Optronic Technology Co., Ltd.(AVIC Jonhon) Controlled by the same party China Aviation International Simulation Technology Services Co., Ltd. (China Controlled by the same party Aviation International Simulation ) AVIC International Holdings (Zhuhai) Co., Ltd. (AVIC Zhuhai) Controlled by the same party China National Aero-technology Import & Export Corporation (CATIC) Controlled by the same party Notes to the financial statements – Page 200 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Name of other related parties Relationship China Aviation Industry General Aircraft Co., Ltd.(CAIGA) Controlled by the same party AVIC Capital Co., Ltd. (AVIC Capital) Controlled by the same party Company directors, managers, CFO, and secretary of the board Key management member 5. Related party transactions (1) Related transaction between subsidiaries and between parent company and subsidiaries which are in the scope of consolidation have already been offset. (2) Purchase good and receiving service Purchase good and receiving Purchase good and Amount in current Amount in prior period service receiving service period Property CATIC Property Management 10,672,790.93 11,112,069.09 management Department store expenses/ Rainbow Company 4,964,647.21 4,841,752.49 Commodity purchase AVIC Training Center Training fee 147,652.13 150,000.00 Department store Ganzhou 9 Square Company 178,484.53 182,754.97 expense CATIC City Estate (Kunshan) Department store 64,060.80 50,277.87 Company expense Department store Jiufang Business Management 86,305.01 84,262.98 expense Tianma Purchase of goods 538,699.11 CATIC Building Company Renovation 82,276.21 114,002.02 CATIC Shenzhen Company Purchase of goods 451,327.43 Elevator AVIC Nanguang Company 463,226.05 245,660.40 maintenance AVIC Jonhon Purchase of goods 76,667.61 Gongqingcheng CATIC Culture Departmental store 31,544.56 Investment Company expense Total 16,767,655.04 17,770,806.36 Notes: All amount listed above exclude tax (3) sale of goods and providing services Nature of Amount in current Related party period Amount in prior period transaction Beijing Hangtou Sale of product 3,504.42 Ganzhou 9 Square Product and service 23,850.44 Gongqingcheng CATIC Culture Investment Sale of product 461,064.03 398,249.10 Company 9 Square Business Sale of product 2,648.00 45,374.42 Management Sale of material Shennan Circuit 2,179,951.09 13,308,898.52 and providing Notes to the financial statements – Page 201 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 service Grand Skylight Hotel Sale of product 17,610.62 17,610.62 Management Company Grand Skylight Hotel Others 2,180.53 2,180.53 Product and Rainbow Company 79,467,519.77 75,021,802.86 service AVIC International Sale of product 28,237.17 87,484.05 AVIC Jonhon Sale of product 383,989.41 China Aviation International Simulation Sale of product 60,530.97 AVIC Zhuhai Sale of product 31,831.86 CATIC Sale of product 105,929.20 CAIGA Sale of product 1,319,881.42 AVIC Capital Sale of product 8,681.42 Share of Utilities CATIC Property and management 3,372,087.78 3,406,116.73 Management fee Shanghai Watch Sale of product 1,839,880.53 Harbin Aircraft Sale of product 36,398.23 AVIC Sale of product 84,132.74 Hubei AVIC Ye Steel Sale of product 17,212.39 AVIC Huadong Photoelectric Sale of product 266,371.68 AVIC Supply and Sale of product 41,504.42 Distribution AVIC Int’l Aero Development Sale of product 140,884.96 AVIC Lutong Sale of product 14,123.89 AVIC Jincheng Nanjing Sale of product 176,991.15 Institute AVIC Drone Sale of product 33,021.24 AVIC Xi’an Flight Institute Sale of product 7,061.95 Total 87,469,498.13 94,945,300.01 Notes: All amount listed above exclude tax (4) Related party lease 1) The Company as lessor Recognized rental Type of leased Lessee income in current Recognized rental income in prior year assets year CATIC Property Property 7,876,636.32 6,864,598.93 Management China Merchants Property Property 1,981,713.13 OS CATIC City Investment Property 285,138.58 AVIC Securities Company Property 1,377,399.99 1,328,714.31 Rainbow Company Property 931,939.92 1,428,372.22 Notes to the financial statements – Page 202 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Recognized rental Type of leased Lessee income in current Recognized rental income in prior year assets year CATIC 9 Square Asset Mgmt Property 1,829,906.11 Company AVIC Security Service Property 799,448.76 902,359.45 CATIC Guanlan Property Property 142,569.29 CATIC Property Property 286,326.66 Total 10,985,424.99 15,049,698.68 2) The Company as lessee Rental expenses Type of leased Lessor charged in current Rental expenses charged in prior year assets year Ganzhou 9 Square Company Property 951,348.60 913,674.48 Jiufang Business Property 508,577.07 431,504.72 Management Kunshan Company Property 137,142.84 111,047.63 Total 1,597,068.51 1,456,226.83 (5) Related party fund lending and borrowing 1) Borrowings from related parties Related Party Amount starting date Expiring date Note AVIC Finance Company 100,000,000.00 15 July 2021 27 July 2021 30 December AVIC Finance Company 100,000,000.00 14 December 2021 2021 Total 200,000,000.00 Note: The Company paid interest to AVIC Finance Company amounted to RMB283,888.89 during the year. (6) Remuneration to key management Item Amount in current period Amount in prior period Remuneration to key management 18,610,600.00 17,150,200.00 (7) Other related transactions The year-end balance of the Company’s cash that is deposited with AVIC Finance Company is RMB147,786,041.19. Interests received from the deposit during the year were RMB393,082.29. (8) Receivables from and payables to related parties 1) Receivables from related parties Closing balance Opening balance Item Related party Carrying Bad debt Carrying Bad debt provision amount provision amount Monetary fund 147,786,041.1 283,532,347.7 AVIC Finance 9 9 Notes to the financial statements – Page 203 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Closing balance Opening balance Item Related party Carrying Bad debt Carrying Bad debt provision amount provision amount Company Accounts receivable Ganzhou 9 Square 6,000.00 300.00 Gongqingcheng CATIC Culture Investment 10,536.96 303.21 58,834.76 Company Shennan Circuit 161,653.56 8,082.68 1,370,425.31 41,249.80 Rainbow Company 3,958,751.41 244,056.19 9,489,446.66 285,632.34 AVIC Jonhon 44,718.38 2,235.92 CAIGA 1,471,466.00 73,573.30 CATIC Property 0.30 40,947.74 Management AVIC Security Service 0.27 0.01 Harbin Aircraft 20,130.00 605.91 Bill receivable Shennan Circuit 308,698.46 15,434.92 5,083,025.01 0.00 AVIC Jonhon 187,090.69 9,354.53 Shanxi Bocheng 50,000.00 2,500.00 Other receivables Ganzhou 9 Square 192,064.00 9,603.20 189,432.77 8,126.67 Company Gongqingcheng CATIC Culture Investment 5,500.00 275.00 7,462.00 320.12 Company Jiufang Business 50,000.00 2,500.00 50,000.00 2,145.00 Management Rainbow Company 1,051,020.00 52,551.00 1,064,073.00 45,648.73 Kunshan Company 56,000.00 2,800.00 40,000.00 1,716.00 AVIC 49.32 2.47 11,101.80 476.27 AVIC Training Center 2,464.00 74.17 2) Payables to related parties Item Related party Closing balance Opening balance Accounts payable CATIC Building Company 41,283.89 Advances from customer Rainbow Company 16,537.50 AVIC Securities Company 123,540.00 Notes to the financial statements – Page 204 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Item Related party Closing balance Opening balance AVIC Huadong Photoelectric 10,500.00 Other payables: Rainbow Company 198,661.82 257,490.98 AVIC International 3,600.00 CATIC Property Management 2,307,322.31 1,717,018.14 AVIC Securities Company 247,080.00 238,560.00 CATIC Nanguang 34,430.13 CATIC Building Company 31,270.67 47,732.93 AVIC Security Service 226,603.44 226,603.44 China Merchants Property OS 442,407.92 CATIC City Investment 309,732.00 CATIC Property 51,014.88 CATIC Guanlan Property 25,401.60 XII. Share-based payments 1. General information about share-based payments Total equity instrument granted 7,660,000.00 during current period Total equity instrument exercised 1,357,641.00 during current period Total equity instruments voided in current period Scope of outstanding share option exercise price and Not applicable remaining contract term Scope of outstanding other equity instrument exercise price and remaining contract term. 2. Equity settled share-based payment Method of determining fair value of equity Close price of share on grant date instrument on grant date Evidence to determine the number of Term of employee service, status of target completion, and exercisable equity instrument personal performance assessment Reasons for significant difference between current period estimation and prior period Nil estimation Accumulated amount charged to capital reserve for equity settled share-based 22,118,131.72 payment Total expenses for equity settled share-based payment recognized in 12,106,904.32 current period XIII. Commitment and contingencies 1. Significant commitments Notes to the financial statements – Page 205 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 (1) Lease contract that already signed or prepared to fulfil and its financial effect Refer to Note XV for details. 2. Contingencies on balance sheet date The Company does not have material contingent events that need to be disclosed XIV. Post balance sheet date events 1. Profit distribution Cash dividend of RMB3.00 (tax inclusive) for every 10 shares Profit distributions or dividends proposed held 2. Other events after the balance sheet date (1) Share repurchase Pursuant to “The Resolution of Plan of Re-purchase B Shares” which was approved on the 2nd meeting of the 10th Board of Directors on 25 October 2021 and the 5th extraordinary shareholder’s meeting of 2021 on 30 November 2021, the Company repurchased B Shares in total of 3,176,824 shares as of 8 March 2022, accounted for 0.75% of the Company’s total shares. Total consideration paid was HKD 24,370,456.90 (excluding stamp duty and commission) . (2) Financing and guarantee after the balance sheet date 1) On 8 March 2022, pursuant to approval by the 6th meeting the 10th Board of directors, the Company proposed to apply for financing facility of no more than RMB1,200 million by means of credit, pledge and mortgage in 2022. The resolution is pending for approval by the shareholder’s meeting. 2) On 8 March 2022, pursuant to approval by the 6th meeting the 10th Board of directors, the Company proposed to provide guarantee for the Company’s wholly-owned subsidiary to borrow from banks of no more than RMB600 million in 2022. The credit line is included in the actual usage limit of RMB1,200 million mentioned above. The resolution is waiting approval from the shareholder’s meeting. (3) Others As at 8 March 2022, the Company does not have other post-balance sheet events that need to be disclosed. XV. Disclosure regarding lease The Company as a lessor: 1. Lease activities All lease of the Company is property lease, including short-term lease and other leased that recognized right-of-use asset and lease liabilities. 2. Short-term lease Short-term leases are treated using simplified method. Short-term leases include lease term that is shorter than 12 month and no renew options attached, and leases that will be matured in 12 month after first adoption of CAS 21 – Lease. Short-term lease expenses charged to profit or loss was RMB1,370,973.78. Notes to the financial statements – Page 206 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 3. Future potential cash outflows that does not included in lease liabilities (1) Variable lease payment The lessee leased a lot of retail shops which contains variable lease payment terms in connection with sales. Many of the Company’s property lease contain variable lease payment terms in connection with sales. In most circumstances, the Company uses these terms to matches lease payment to shops that can generate more cash flows lease payment. For standalone shops, variable can reach 100% of all lease payment at most and that the scope of percentage of sales used is quite large. In some circumstances, variable payment terms include annual bottom payment and upper limit. In 2021, the amount of variable lease payments included in the current profit and loss was 122,274,272.28 yuan. (2) Option to renew Many lease contracts entered by the Company has option to renew. The Company has already estimated the option to renew reasonably when determining lease terms in measuring lease liabilities. (3) Option to discontinue lease Some of the lease contract entered by the Company has option to discontinue. The Company has already estimated the option to discontinue reasonably when determining lease terms in measuring lease liabilities. (4) Residual value guarantee The Company’s lease does not involve residual value guarantee. (5) Lease that the lessee has already made commitment but not yet started The Company does not have lease that has already made commitment but not yet started. Disclosure as a lessor: 1. Lease activities The Company’s leases are all properties. 2. Risk management strategy of retaining rights over lease assets To reduce risks of lease, the Company normally asks lessee to pay rental in advance and collects 1-3 months rental as deposit. XVI. Other material information 1. Segments Operating segments of the Company are identified on the basis of internal organization structure, management requirements and internal reporting system. An operating segment represents a component of the Company that satisfied the following criteria simultaneously: (1) Its business activities are engaged to earn revenue and incur expenses; (2) Its operating results are regularly reviewed by the Company’s management to make decisions on resources allocation and performance assessment; Notes to the financial statements – Page 207 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 (3) Its financial conditions, operating results, cash flow and related accounting information are available to the Company. The Company determines the reporting segment based on the operating segment, and the operating segment that meets any of the following conditions is determined as the reporting segment: (1) The segment income of the operating segment accounts for 10.00% or more of total income of all segments; (2) The absolute amount of profits (losses) of the segment account for 10.00% or more of the higher of the absolute amount of total profits of the profiting segment and the absolute amount of total losses of the unprofitable segment. The Company’s business is simple. The business mainly involves manufacturing and sales of watch. The management considers the business as a whole in implementing management and assessing its performance. As a result, no segment information is disclosed in this financial statement. 2. Other material events As at 31 December 2021, the Company does not have other significant matters that require to disclose. XVII. . Notes to the parent company’s financial statement Note 1. Accounts receivables 1. Presented by aging Aging Closing balance Opening balance Within 1 year 132,980.92 1,633,186.27 Over 1 year 3,942.90 143,415.84 Subtotal 136,923.82 1,776,602.11 Less: bad debt provision 7,043.34 311,803.32 Total 129,880.48 1,464,798.79 2. Presentation by method of providing bad debt Closing balance Category Carrying amount Bad debt provision Percenta Book value Amount Amount ECL rate (%) ge (%) Accounts receivable that provided expected credit losses on single basis Accounts receivable that provided expected credit 136,923.82 100.00 7,043.34 5.14 129,880.48 losses on portfolio basis` Including: Receivable 136,923.82 100.00 7,043.34 5.14 129,880.48 from other customers Continued Opening balance Category Carrying amount Bad debt provision Book value Notes to the financial statements – Page 208 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Percenta ECL rate Amount Amount ge (%) (%) Accounts receivable that provided expected credit losses on single basis Accounts receivable that provided expected credit 1,776,602.11 100.00 311,803.32 17.55 1,464,798.79 losses on portfolio basis` Including: Receivable 1,776,602.11 100.00 311,803.32 17.55 1,464,798.79 from other customers 3. In the portfolio, accounts receivable with expected credit loss provided based on credit risk characteristic portfolio (1) Portfolio of receivable from other customer Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 132,980.92 6,649.05 5.00 Over 1 year 3,942.90 394.29 10.00 Total 136,923.82 7,043.34 5.14 4. Movements of provision during the period Movements during the period Opening Closing Category Recovered or Other balance Accrual Written-off balance reversed movements Accounts receivable that provided expected credit losses on single basis Accounts receivable that provided 311,803.32 304,759.98 7,043.34 expected credit losses on portfolio basis` Including: Receivable 311,803.32 304,759.98 7,043.34 from other customers 5. No actual write-off of accounts receivable during the current period. 6. Top 5 receivable accounts Proportion in total closing Name Closing balance balance of Bad debt provision accounts receivable (%) Top 5 receivables accounts in 107,840.25 78.76 5,557.26 total Note 2. Other receivables 1. Presentation of other receivables by aging Aging Closing balance Opening balance Within 1 year 717,341,673.50 621,369,363.48 1 - 2 years 177,475.90 2- 3 years 11,697.43 Notes to the financial statements – Page 209 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Aging Closing balance Opening balance Over 3 years 40,050.00 40,050.00 Subtotal 717,381,723.50 621,598,586.81 Less: bad debt provision 198,584.50 85,906.12 Total 717,183,139.00 621,512,680.69 2. Presented by nature Nature Closing balance Opening balance Related party in scope of 713,813,300.99 620,792,324.27 consolidation Security deposit 3,117,526.90 217,525.90 Others 450,895.61 588,736.64 Total 717,381,723.50 621,598,586.81 3. Presented according to three stages of financial assets impairment Closing balance Opening balance Item Carrying Bad debt Carrying Bad debt Book value Book value amount provision amount provision 717,381,723.5 717,183,139.0 621,598,586.8 First stage 198,584.50 85,906.12 621,512,680.69 0 0 1 Second stage Third stage 717,381,723.5 717,183,139.0 621,598,586.8 Total 198,584.50 85,906.12 621,512,680.69 0 0 1 4. Presented by bad debt provision method Closing balance Category Carrying amount Bad debt provision Book value Percenta ECL rate Amount Amount ge (%) (%) Other receivables that provided expected credit losses on single basis Other receivables that provided expected credit losses on portfolio 717,381,723.50 100.00 198,584.50 0.03 717,183,139.00 basis Including: Security deposit portfolio 3,117,526.90 0.44 193,923.85 6.22 2,923,603.05 Social security payment 357,682.66 0.05 357,682.66 on-behalf portfolio Receivables from related 713,813,300.99 99.50 713,813,300.99 parties within scope of consolidation Portfolio of others 93,212.95 0.01 4,660.65 5.00 88,552.30 Total 717,381,723.50 100.00 198,584.50 0.03 717,183,139.00 Continued Opening balance Category Carrying amount Bad debt provision Book value Notes to the financial statements – Page 210 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Percentag Amount Amount ECL rate (%) e (%) Other receivables that provided expected credit losses on single basis Other receivables that provided 621,598,586.8 expected credit losses on portfolio 100.00 85,906.12 0.01 621,512,680.69 1 basis Including: Security deposit portfolio 217,525.90 0.03 45,116.69 20.74 172,409.21 Social security payment 392,074.21 0.06 392,074.21 on-behalf portfolio Receivables from related 620,792,324.2 99.88 620,792,324.27 parties within scope of consolidation 7 Portfolio of others 196,662.43 0.03 40,789.43 20.74 155,873.00 621,598,586.8 Total 100.00 85,906.12 0.01 621,512,680.69 1 5. In the portfolio, other receivables with expected credit loss provided based on credit risk characteristic portfolio (1) Security deposit portfolio Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 3,077,476.90 153,873.85 5.00 1 - 2 years 2- 3 years Over 3 years 40,050.00 40,050.00 100.00 Total 3,117,526.90 193,923.85 (2) Social security payment on-behalf portfolio Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 357,682.66 (3) Receivables from related parties within scope of consolidation Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 713,813,300.99 (4) Portfolio of others Closing balance Aging Carrying amount Bad debt provision ECL rate (%) Within 1 year 93,212.95 4,660.65 5.00 6. Bad debt provision status Bad debt provision First stage Second stage Third stage Total Notes to the financial statements – Page 211 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Lifetime expected Expected credit Lifetime expected credit losses (no losses over the next credit losses (credit credit impairment 12 months impairment occurred) occurred) Opening balance 85,906.12 85,906.12 Opening balance movements in current period —Transfer into the second stage —Transfer into the third stage —Reverse back to the second stage —Reverse back to the first stage Accrual during the period 148,807.16 148,807.16 Reversed during the 36,128.78 36,128.78 period Recovered during the period Written-off during the period Other movements Closing balance 198,584.50 198,584.50 7. No other receivables were written-off during the period. 8. Top 5 other receivable accounts Proportion to closing balance of Bad debt provision Name Closing balance other receivables (%) Closing balance Top 5 other receivables in total 713,813,300.99 99.50 Note 3. Long-term equity investment Closing balance Opening balance Nature Carrying amount Provision Book value Carrying amount Provision Book value Investment in 1,486,912,339.7 1,486,912,339.7 1,478,014,522.36 1,478,014,522.36 subsidiaries 2 2 Investment in 55,155,605.31 55,155,605.31 51,400,665.92 51,400,665.92 associates 1,542,067,945.0 1,542,067,945.0 Total 1,529,415,188.28 1,529,415,188.28 3 3 1. Investment in subsidiaries Provision Addition/new Closing Opening Withdra accrued Investee investment Closing balance balance of balance wn in current provision period Shenzhen Harmony 604,067,211.2 World Watch Center 3,617,300.95 607,684,512.15 0 Co., Ltd. Shenzhen Harmony 11,684,484.39 11,684,484.39 E-commerce Co., Ltd. Shenzhen FIYTA 99,800,505.05 1,448,702.83 101,249,207.88 Precision Technology Notes to the financial statements – Page 212 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Provision Addition/new Closing Opening Withdra accrued Investee investment Closing balance balance of balance wn in current provision period Co., Ltd. Shenzhen FIYTA Technology 50,245,552.53 529,670.23 50,775,222.76 Development Co., Ltd. 137,737,520.0 FIYTA (Hong Kong) Ltd. 137,737,520.00 0 TEMPORAL 5,000,000.00 5,000,000.00 (Shenzhen) Co., Ltd. 453,130,819.7 FIYTA Sales Co., Ltd. 2,660,752.60 455,791,572.32 2 Liaoning Hengdarui Commercial & Trade 36,867,843.96 36,867,843.96 Co., Ltd. Emile Choureit Timing 79,480,585.51 641,390.75 80,121,976.26 (Shenzhen) Ltd. 1,478,014,522.3 Total 6 8,897,817.36 1,486,912,339.72 2. Investment in associates Movements in current period Opening Addition/new Investment gain Investee balance investment Withdrawn recognized under Adjustment to OCI equity method Associates 51,400,665.9 Shanghai Watch 3,754,939.39 2 Continued Movements in current period Cash Impairme Closing balance of Investee dividends Closing balance Other equity nt provision declared or Others movements provision distribution of accrual profit Associates Shanghai Watch 55,155,605.31 Note 4. Operating income and operating cost Amount in current period Amount in prior period Item Revenue Cost Revenue Cost Main business 175,936,431.09 38,852,252.32 134,821,552.25 36,497,097.45 Other business 3,519,281.62 2,560,243.70 Note 5. Investment gain Amount in current Item Amount in prior period period Gain from long-term equity investments accounted for using equity 3,754,939.39 4,976,828.07 method Gain from long-term equity investments accounted for using cost 259,918,496.56 100,000,000.00 method Notes to the financial statements – Page 213 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 Amount in current Item Amount in prior period period Total 263,673,435.95 104,976,828.07 XVIII. Supplementary information 1. Details of non-recurring gain or loss for the year Item Amount Note Disposal gain or loss of non-current assets 730,134.87 Overridden approval, or without official approval document, or incidental tax return or exemption Government grants included in current profit or loss (except for the fixed or quantitative government grants, enjoyed in a consecutive way, which closely related to the enterprise 23,476,186.50 businesses and according to nation policies) Charges for the possessions of funds collected from non-monetary enterprises Gain from investment in subsidiaries, joint venture and cooperative enterprises when cost of investment is less than the profit incurred in identifiable net asset fair value of invested unit when investment Profit and loss of non-monetary assets exchange Profit and loss from entrusting others to invest or manage assets Asset impairment provision accrued due to force majeure such as natural disasters Profit and loss of debt restructuring Enterprise restructuring expenses, such as expenses for arranging employees, integrating cost Profit and loss over fair value part accrued in transactions of unreasonable transaction price Current net profit and loss of subsidiaries from business combination under common control from the opening period to combination date Profit and loss incurred contingent matters unrelated to normal operating business Except for effective hedging business related to normal operating business, profit and loss from changes in fair value incurred in financial assets and financial liabilities, and the investment gain from disposal of financial assets, financial liabilities and available-for-sale financial assets Impairment provision reversal of accounts receivable under standalone impairment test 2,225,653.32 Profit and loss obtained in external entrusting loans Profit and loss incurred in fair value change of investment property subsequently measured in fair value mode Influence on current profit and loss caused by one-off adjustment according to requirements of laws and regulations about taxation and accounting Income from trustee fee obtained by trusting operation Other non-operating income and expenses other than the above items -3,058,731.52 Profit and loss items pursuant to the definition of non-recurring profit and loss Effect of income tax of non-recurring profit or loss 4,951,715.05 Less: Effect of non-recurring profit or losses attributable to minority shareholders (after tax) Total 18,421,528.12 2. Return on Equity (ROE) and Earnings per share (EPS) EPS Profit of the reporting period Weighted average ROE % Basic EPS Diluted EPS Notes to the financial statements – Page 214 FIYTA Precision Technology Co., Ltd. Notes to the Financial Statements For the year ended 31 December 2021 EPS Profit of the reporting period Weighted average ROE % Basic EPS Diluted EPS Net profit attributable to ordinary shareholders of 13.39 0.90 0.90 the Company Net profit attributable to ordinary shareholders of the Company after deducting non-recurring profit 12.76 0.86 0.86 or loss FIYTA Precision Technology Co., Ltd. Board of Directors March 10, 2022 Notes to the financial statements – Page 215