FIYTA Precision Technology Co., Ltd.

2026 Interim Report

August 21, 2026

Section I Important Notice, Table of Contents and Definitions

The Board of Directors, Directors, and Senior Executives of the Company guarantee that the contents of this Interim Report are true, accurate, and complete, contain no false representations, misleading statements, or material omissions, and accept individual and joint legal liability.

Zhou Jinqun, the person in charge of the Company, Song Yaoming, the Chief Financial Officer, and Jiang Haiming, the Head of Accounting Department (Accounting Supervisor), hereby declare that they guarantee the truthfulness, accuracy, and completeness of the financial report in this Interim Report.

All Directors attended the Board meeting at which this Interim Report was considered.

The forward-looking statements in this Interim Report concerning future plans, development strategies, etc. do not constitute any substantive commitment by the Company to investors. Investors are advised to be aware of the investment risks.

The risk factors that the Company may face are described in detail in this report. Please refer to the content on the risks facing the Company and the corresponding countermeasures in Section III Management Discussion and Analysis.

The Company does not plan to distribute cash dividends, issue bonus shares, or convert capital reserve into share capital for the reporting period.

This report is prepared in both Chinese and English. In the event of any discrepancy in the interpretation of this report, the Chinese version shall prevail.

Table of Contents

Section I Important Notice, Table of Contents and Definitions....2

Section II Company Profile and Financial Highlights....7

Section III Management Discussion and Analysis....10

Section IV Corporate Governance, Environmental and Social Responsibilities....19

Section V Significant Events....21

Section VI Changes in Shares and Shareholder Information....30

Section VII Bonds....36

Section VIII Financial Report....37

Documents Available for Reference

I. Financial statements signed and stamped by the Legal Representative, Chief Financial Officer, and Head of Accounting Department.

II. Originals of all company documents and public announcements disclosed on media designated by the CSRC during the reporting period.

III. The 2026 Interim Report (Full Text) signed by the Legal Representative.

Definitions

Section II Company Profile and Financial Highlights

I. Company Profile

II. Contact Persons and Contact Information

III. Other Information

1. Contact Information of the Company

The registered address, office address, postal code, website, email address, etc. of the Company remained unchanged during the reporting period. For details, please refer to the 2025 Annual Report.

2. Information Disclosure and Place of Maintenance

3. Other Relevant Information

Whether other relevant information changed during the reporting period Not applicable

IV. Key Accounting Data and Financial Highlights

Whether the Company needs to retrospectively adjust or restate accounting data of previous years No

V. Differences in Accounting Data Under Domestic and Foreign Accounting Standards

1. Differences in net profit and net assets in financial reports disclosed simultaneously under IFRS and CAS

Not applicable

2. Differences in net profit and net assets in financial reports disclosed simultaneously under foreign accounting standards and CAS

Not applicable

VI. Non-recurring Profit or Loss Items and Amounts

Unit: RMB

Specific circumstances of other profit or loss items that meet the definition of non-recurring profit or loss:

Not applicable

Explanation of defining non-recurring profit or loss items listed in "Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Securities to the Public — Non-recurring Profit or Loss" as recurring profit or loss items

Not applicable

Section III Management Discussion and Analysis

I. Principal Businesses of the Company During the Reporting Period

(I) Principal Business Activities

The Company ’s founding and development are rooted in aviation precision technology and materials science. Guided by the mission of “carrying forward the spirit of ‘aviation serving the nation’ and creating a quality life,” the Company has dedicated itself to the horology industry for many years. It has established a core business structure characterized by the synergy between its proprietary watch brands and comprehensive luxury watch services. The Company is committed to becoming a leader in China’s watch industry while promoting aviation culture and Chinese culture. In recent years, leveraging its precision technology and industrial expertise, and adhering to the principles of “technology homology, industrial synergy, and value alignment,” the Company has strategically cultivated emerging businesses in precision technology and actively promoted technological innovation and business transformation.

The Company has continuously built its capabilities in professional watchmaking and brand operations, establishing a full industry chain covering research and development, design, manufacturing, and sales. It owns proprietary watch brands such as “FIYTA” and “Emile Chouriet,” as well as the licensed brand “Beijing,” covering market segments ranging from mid-to-high-end and mass-market to fashion. The core brand “FIYTA” is positioned on the integration of “ aviation precision + oriental aesthetics, ” adhering to the application of aviation technology and materials while incorporating oriental aesthetic design concepts to build a differentiated national brand.

To capitalize on opportunities in the domestic luxury watch market, the Company launched “ Harmony ” a comprehensive service channel for luxury timepieces. Harmony specializes in the distribution and servicing of worldrenowned watches and has established close partnerships with numerous high-end and mainstream luxury watch brands. Committed to becoming “ the premier comprehensive service provider for luxury watches, ” Harmony has become one of the leading high-end professional watch retail chains in China, distinguished by its solid operationa management, customer service capabilities, and best practices adopted from leading international brand operations.

To seize opportunities in emerging industries, the Company has increased investments in precision technology capabilities. It has gradually developed comprehensive capabilities in the design, development, and manufacturing o precision components. While consolidating its existing businesses in lasers and optical communications, the Company is strategically targeting key sectors such as robotics to accelerate the development of its emerging business portfolio.

(II) Industry Overview

In the first half of 2026, China’s total retail sales of consumer goods increased by 1.3% year-on-year, with the share of service consumption continuing to rise and structural divergence in consumption upgrades becoming more pronounced. The domestic watch consumption industry, in which the Company operates, remained under pressure due to weak consumer demand. According to data from the Federation of the Swiss Watch Industry, the total value of Swiss watch exports to mainland China decreased by 5.0% year-on-year from January to June

Meanwhile, the high-tech manufacturing sector— toward which the Company is transforming— has maintained robust growth. According to the National Bureau of Statistics, the value-added output of large-scale high-tech manufacturing enterprises increased by 13.3% year-on-year in the first half of the year. The rapid development o artificial intelligence-related industries has driven up demand across industrial chains such as robot reducers, with the output of robot reducers surging by 57.3% year-on-year during the January–June period.

2、Core Competitiveness Analysis

(I) End-to-End Brand Operation and Management Capabilities Across the Entire Industrial Chain

The Company possesses fully integrated operational management capabilities spanning R&D, design, manufacturing, sales, and service. Through resource integration and business synergy, it continuously reinforces the differentiated brand identity and market competitiveness of its core proprietary brand, "FIYTA". During the reporting period, the "FIYTA" brand was awarded the title of "Pioneer Brand" for FY2026 by Tmall and named "Consumers Favorite Brand of 2025" by JD.com

(II) Omnichannel Refined Operational Management Capabilities

The Company boasts refined channel operational capabilities. By pursuing high-quality development of offline channels and steadily advancing online-offline integration, channel structure has been continuously optimized, and operational efficiency has steadily improved. It has established a multi-dimensional channel network covering both online and offline channels across domestic and overseas markets.

(III) Core Technical Capabilities in Precision Technology

As a National Demonstration Enterprise for Technological Innovation, the Company hosts a National Corporate Technology Center and a National Industrial Design Center. Leveraging its expertise in watch movements and aerospace timing equipment, it has developed micron-level ultra-precision manufacturing processes and possesses strong capabilities in small-size, high-precision component manufacturing and solution provision. The Company ha also achieved independent R&D and mass production capabilities for medium- and small-modulus gears and precision reducers. Its core products are primarily applied in robotics, lasers, optical communications, aerospace, and other advanced industrial sectors.

(IV) High-Efficiency Digitalized Operational Management Capabilities

The Company possesses diversified digital retail systems and digital management platforms that empower operations and employees. By continuously deepening digital applications across management, manufacturing, sales, and customer service, it fosters cross-business synergies and enhances operational efficiency.

(V)Professional Talent Pool Building Capabilities

Based on the philosophy of "Value Creation", the Company continuously invests in workforce building, maintaining a sound talent selection, cultivation, and promotion system, as well as a professional and stable talent pool. Through innovative incentive mechanisms and diverse incentive tools, it has fostered numerous industry-leading professionals in core areas such as design, R&D, and manufacturing.

3. Analysis of Principal Businesses

Overview

In the first half of 2026, situated in a pivotal phase of transformation and upgrading, the Company focused on talent development, precision manufacturing, and digitalization, continuously enhanced organizational capabilities, deepened its core watch business, and accelerated strategic layout in emerging industries. During the reporting period, the Company achieved operating revenue of RMB 1,840.4803 million, up 3.16% year-on-year; total profit was RMB 131.6645 million, up 24.73% year-on-year. Meanwhile, the Company deepened structural adjustments, strengthened risk control, and steadily improved operational efficiency, with inventory balance decreasing by RMB 265.4821 million from the end of last year.

During the reporting period, the Company's primary operational initiatives were as follows:

(I)Consolidating the fundamentals of the watch business, optimizing business structure, and enhancing operating quality and efficiency

"FIYTA" defined its brand positioning as "Aviation Precision + Oriental Aesthetics", continually cultivating brand differentiation. It optimized product structure, enhanced innovative product design, launched new product series such as "Chinese Ginkgo" and "Oriental Beauty", and steadily advanced product and brand rejuvenation. It optimized store portfolio, focusing on increasing store productivity of flagship offline stores, strictly managing ROI online, and strengthening refined operations. It executed integrated marketing campaigns, hosting nationwide dual-theme roadshows featuring Aviation Precision and Oriental Aesthetics, celebrity events, and Ru porcelain cultural crossover IP collaborations, enhancing omnichannel brand influence.

"Harmony" focused deeply on top-tier brands and prime channels, practiced lean operations, and tightened inventory risk control, achieving substantial improvements in inventory turnover and asset efficiency. By deepening customer service, the Company achieved a marked increase in repeat purchase volume from existing customers, further strengthening customer loyalty.

(II) Accelerating the Development of Emerging Businesses, Increasing Key Investments, and Building Core Capabilities

Building on its existing precision technology business, the Company is focusing on emerging sectors such as robotics, pursuing a premium, high-impact strategy. It is establishing a core talent pipeline and dedicated product lines for precision manufacturing and robotics to solidify its capability foundation. By strengthening internal and externa resource coordination, the Company is prioritizing the development of core products and key customer accounts to secure an early-mover advantage in its business layout. As of the disclosure date, the Company has completed the 100% equity acquisition of Changkong Gear. It is steadily advancing deep integration and business empowerment, leveraging Changkong Gear’s technological expertise and product strengths in precision gears and precision reducers to accelerate the development of its robotics business.

(III) Comprehensively Strengthening Organizational Capabilities, Building a High-Caliber Talent Pool, and Enhancing Management Effectiveness

The Company adheres to a talent- and management-driven approach to improve business quality and efficiency. Aligning with its business development strategy, it has refined its systems for talent acquisition, integration, and development, bringing in specialized professionals for key roles in R&D, production, process engineering, and marketing. The Company has improved its closed-loop management mechanism covering strategic formulation, decomposition, and performance evaluation to ensure the effective execution of strategic objectives. It is advancing integrated control and functional support functions while deepening the integration of business and finance operations. Additionally, digital transformation initiatives in production and operations are being implemented to enhance overal operational efficiency.

Year-on-Year Changes in Major Financial Data

Unit: RMB

Significant changes in the Company's profit composition or profit sources during the reporting period

Not applicable

Composition of Operating Revenue

Unit: RMB

Not applicable

Industries, products, or regions accounting for over 10% of the Company's operating revenue or operating profit Unit: RMB

If the statistical scope of the Company's principal business data was adjusted during the reporting period, the Company's principal business data for the most recent period adjusted according to the scope at the end of the reporting period

4. Analysis of Non-Principal Businesses

Not applicable

V. Analysis of Assets and Liabilities

1. Significant Changes in Asset Composition

Unit: RMB

2. Major Overseas Assets

Not applicable

3. Assets and Liabilities Measured at Fair Value

Not applicable

4. Restricted Asset Rights as of the End of the Reporting Period

Not applicable

VI. Investment Analysis

1. Overview

2. Significant Equity Investments Acquired During the Reporting Period

Not applicable

3. Significant Non-Equity Investments in Progress During the Reporting Period Not applicable

4. Financial Asset Investments

(1) Securities Investments

Not applicable

(2) Derivative Investments

Not applicable

5. Use of Proceeds

Not applicable

VII. Material Asset and Equity Sales

1. Material Asset Sales

Not applicable

2. Material Equity Sales

Not applicable

VIII. Analysis of Major Subsidiaries and Investees

Major subsidiaries and investees with an impact of 10% or more on the Company's net profit

Unit: RMB

Acquisition and Disposal of Subsidiaries During the Reporting Period

Not applicable

Description of Major Subsidiaries and Investees

1. Net profit of Shenzhen Harmony World Watch Center Co., Ltd. increased by RMB 41,674,794.50 year-on-year, mainly due to the growth in luxury watch sales revenue and the reduction in period expenses during the reporting period.

IX. Structured Entities Controlled by the Company

Not applicable

X．Risks Facing the Company and Countermeasures

1. Consumer Market Risk

Currently, the Company faces market risks arising from softened demand in the domestic traditional watch consumer market. The Company will continue to build differentiated proprietary brands, optimize brand, product, and channel structures, adhere to customer-oriented strategies, consolidate refined operations and customer services, and enhance customer recognition. Concurrently, it will increase resource allocation and capability development in emerging industries, driving strategic transformation, upgrading, and business growth.

2. Core Technology Risk

Currently, the Company faces technological challenges across multiple fields, including traditional watchmaking, emerging industries, and digital applications. In response, the Company will increase investment in core technica talent and digitalization, strengthening frontier technological breakthroughs and practical applications in proprietary movement R&D, key component manufacturing, specialized precision manufacturing lines, and digital factory construction, thereby driving technological innovation and business growth.

XI. Formulation and Implementation of Market Value Management System and Valuation Enhancement Plan

Whether the Company has formulated a market value management system.

Yes

Whether the Company has disclosed a valuation enhancement plan.

No

The 13th meeting of the 11th Board of Directors held on January 29, 2026 reviewed and approved the "Proposa on Formulating the Company's <Market Value Management System>". To strengthen market value management, promote the enhancement of investment value, and boost investor returns, the Company formulated the "Market Value Management System" in accordance with regulations such as the "Regulatory Guidelines for Listed Companies No. 10 — Market Value Management". For details, please refer to the full text of the system disclosed on Cninfo on January 31, 2026.

Whether the Company has disclosed the announcement on the Action Plan for "Dual Enhancement of Quality and Return".

No

Section IV Corporate Governance, Environmental and Social

Responsibilities

I. Changes in Directors and Senior Executives of the Company

II. Profit Distribution and Conversion of Capital Reserve into Share Capital During the Reporting Period

The Company does not plan to distribute cash dividends, issue bonus shares, or convert capital reserve into share capital for the reporting period.

III. Implementation of Equity Incentive Plans, Employee Stock Ownership Plans, or Other Employee Incentive Measures

Not applicable

IV. Environmental Information Disclosure

Whether the listed company and its major subsidiaries are included in the list of enterprises subject to mandatory

disclosure of environmental information No

V. Social Responsibility

The Company has actively fulfilled its corporate social responsibilities over the years. For details on recent developments, please refer to the "2025 Environmental, Social and Governance (ESG) Report" disclosed on Cninfo (www.cninfo.com.cn) on March 14, 2026.

Section V Significant Events

I. Commitments Completed During the Reporting Period and Overdue Commitments as of the End of the Reporting Period by De Facto Controllers, Shareholders, Related Parties, Acquirers, the Company, and Other Related Parties

Not applicable

II. Non-Operating Capital Occupation by Controlling Shareholders and Other Related Parties

Not applicable

III. Non-Compliant External Guarantees

Not applicable

IV. Appointment and Dismissal of Accounting Firm

Whether the interim financial report has been audited

No

V. Explanations of the Board of Directors on the "Non-Standard Audit Report" Issued by the Accounting Firm for the Reporting Period

Not applicable

VI. Explanations of the Board of Directors on Matters Related to the "Non-Standard Audit Report" of the Previous Year

Not applicable

VII. Matters Related to Bankruptcy Reorganization

Not applicable

VIII. Litigation Matters

Material Litigation and Arbitration

Not applicable

Other Litigation Matters

Not applicable

IX. Penalties and Rectifications

Not applicable

X. Integrity Status of the Company and Its Controlling Shareholder and De Facto Controller

Not applicable

XI. Material Related-Party Transactions

1. Related-Party Transactions Related to Daily Operations

Not applicable

2. Related-Party Transactions from Asset or Equity Acquisition and Disposal

Note: As of June 30, 2026, the acquisition of 100% equity in Changkong Gear had not been completed. On July 14, 2026, the Company completed the acquisition of 100% equity in Changkong Gear. Changkong Gear completed the industrial and commercial registration of changes for the equity transfer and obtained the "Business License" issued by the Administrative Approval Service Bureau of Nanzheng District, Hanzhong City. For details, please refer to the "Announcement on the Completion of Industrial and Commercial Registration of Changes for the Acquisition of 100% Equity in Shaanxi Changkong Gear Co., Ltd. and Related-Party Transaction 2026-033" disclosed on Cninfo (www.cninfo.com.cn) on July 15, 2026.

3. Related-Party Transactions of Joint External Investmen

Not applicable

4. Related-Party Claims and Debts

Not applicable

5. Transactions with Associated Finance Companies

Deposit Business

Loan Business

Credit Facility or Other Financial Services

During the reporting period, the maximum daily balance of deposits and loans between the Company and AVIC Finance did not exceed the limits specified in the Financial Services Agreement. No credit facilities or other financial business occurred. Concurrently, the Company issues an interim "Risk Continuous Assessment Report on Related-Party Deposits and Loans with AVIC Finance Co., Ltd.".

6. Transactions Between Finance Companies Controlled by the Company and Related Parties

Not applicable

7. Other Significant Related-Party Transactions

The 14th meeting of the 11th Board of Directors held on March 12, 2026 and the 16th meeting of the 11th Board of Directors held on April 29, 2026 respectively reviewed and approved the "Proposal on the Expected Daily Related-Party Transactions for 2026" and the "Proposal on Increasing the Expected Daily Related-Party Transactions for 2026". The above proposals were approved at the 2025 Annual General Meeting held on May 20, 2026. During the reporting period, the cumulative transaction amounts of various related-party transactions associated with daily operations were within the estimated annual limits.

Relevant Inquiries on Websites Disclosing Temporary Reports on Significant Related-Party Transactions

XII. Material Contracts and Their Performance

1. Custody, Contracting, and Leasing Matters

(1) Custody

Not applicable

(2) Contracting

Not applicable

(3) Leasing

Not applicable

2. Material Guarantees

Unit: RMB 10,000

Specific explanations on combined guarantees Not applicable

3. Entrusted Wealth Management

Not applicable

4. Other Material Contracts

Not applicable

XIII. Registration Form of Research, Communication, Interviews and Other Activities During the Reporting Period

XIV. Description of Other Material Events

Not applicable

XV. Material Events of Subsidiaries

Not applicable

Section VI Changes in Shares and Shareholder Information

I. Changes in Shares

1. Statement of Changes in Shares

Unit: Share

Reason for share changes

During the reporting period, due to adjustments in transferable quotas for outgoing executives, restricted shares increased by 122,914 shares (with a corresponding decrease in unrestricted shares), while the Company's total share capital remained unchanged.

Approval of share changes

Not applicable

Transfer of share changes

Not applicable

Implementation progress of share repurchase

Not applicable

Progress of reducing repurchased shares via centralized bidding

Not applicable

Impact of share changes on basic and diluted earnings per share, net assets per share attributable to ordinary shareholders, and other financial indicators for the most recent year and the latest period

Not applicable

Other information deemed necessary by the Company or required by securities regulatory authorities Not applicable

2. Changes in Restricted Shares

Unit: Share

II. Issuance and Listing of Securities

Not applicable

III. Number of Shareholders and Shareholding Status

Unit: Share

Share lending via refinancing business by shareholders holding 5% or more shares, top 10 shareholders, and top 10 unrestricted circulating shareholders

Not applicable

Changes in top 10 shareholders and top 10 unrestricted circulating shareholders compared to the prior period due to share lending/return via refinancing

Not applicable

Whether the top 10 ordinary shareholders and top 10 unrestricted ordinary shareholders engaged in agreed repurchase transactions during the reporting period

No

IV. Changes in Shareholding of Directors and Senior Executives

Not applicable

The shareholdings of Directors and Senior Executives remained unchanged during the reporting period. For details, please refer to the 2025 Annual Report.

V. Changes in Controlling Shareholder or De Facto Controller

If the Company previously disclosed plans for a change in control by the de facto controller that have not been completed, please explain the progress of the change in control.

Not applicable

Change in controlling shareholder during the reporting period

Not applicable

Change in de facto controller during the reporting period

Not applicable

VI. Preferred Shares

Not applicable

Section VII Bonds

Not applicable

Section VIII Financial Report

I. Audit Report

Whether the Interim Report has been audited No

II. Financial Statements

The unit in the notes to the financial statements is: RMB

1. Consolidated Balance Sheet

Prepared by: FIYTA Precision Technology Co., Ltd.

June 30, 2026 Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department:

Jiang Haiming

2. Balance Sheet of the Parent Company

Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department: Jiang Haiming

3. Consolidated Income Statement

Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department: Jiang Haiming

4. Income Statement of the Parent Company

Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department: Jiang Haiming

5. Consolidated Cash Flow Statement

Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department: Jiang Haiming

6. Cash Flow Statement of the Parent Company

Unit: RMB

Legal Representative: Zhou Jinqun Chief Financial Officer: Song Yaoming Head of Accounting Department: Jiang Haiming

7. Consolidated Statement of Changes in Owners' Equity

Amount in Current Period

Unit: RMB

Amount in Previous Year

Unit: RMB

Chief Financial Officer: Song Yaoming

Legal Representative: Zhou Jinqun Jiang Haiming Head of Accounting Department:

8. Statement of Changes in Owners' Equity of the Parent Company

Amount in Current Period

Unit: RMB

Amount in Previous Year Unit: RMB

Chief Financial Officer: Song Yaoming

Legal Representative: Zhou Jinqun Jiang Haiming Head of Accounting Department:

III. Basic Information of the Company

1. Domicile, Organizational Form, and Address of the Company

FIYTA Precision Technology Co., Ltd. (hereinafter referred to as the "Company" or "our Company") was restructured from "Shenzhen FIYTA Timepiece Industry Company", with China National Aero-Technology Import & Export Shenzhen Industry & Trade Center (subsequently renamed "China National Aero-Technology Shenzhen Co., Ltd.") as the promoter, upon approval by the General Office of Shenzhen Municipal People's Government under document Shen Fu Ban Fu [1992] No. 1259 dated December 25, 1992. The Company was listed on the Shenzhen Stock Exchange on June 3, 1993, and currently holds a business license with the Unified Social Credit Code of 91440300192189783K.

Following years of bonus share distributions, rights issues, capitalizations of reserve, and additional share issuances, as of June 30, 2026, the Company had an aggregate issued share capital of 405,764,007 shares, with a registered capital of RMB 405.764007 million. Registered address: FIYTA Technology Building, Gaoxin South 1s Avenue, Nanshan District, Shenzhen, Guangdong Province. Its parent company is Shentian Technology Holding (Shenzhen) Co., Ltd., and its ultimate controlling party is Aviation Industry Corporation of China, Ltd.

2. Nature of Business and Principal Operating Activities

The business nature and principal operating activities of the Company and its subsidiaries include: sale of timepieces; manufacturing of timepieces and timing instruments; sale of timepieces and timing instruments; wholesale of jewelry; retail of jewelry; manufacturing of smart wearable devices; sale of smart wearable devices; leasing of nonresidential real estate; professional design services; sale of household appliances; sale of satellite mobile communications terminals. (Except for items subject to approval according to law, operating activities are carried out autonomously according to law with the business license)

3. Scope of Consolidated Financial Statements

A total of 12 subsidiaries are included in the scope of consolidation for the current period. For details, please refer to Note X. Interests in Other Entities. The entities included in the scope of consolidated financial statements in the current period remained unchanged compared with the previous period

4. Approval of Financial Statements

Date of approval for issuance of financial statements: These financial statements were approved for issuance by resolution of the Board of Directors of the Company on August 19, 2026.

IV. Basis of Preparation of Financial Statements

1. Basis of Preparation

The Company prepares its financial statements on a going concern basis, based on transactions and events that have actually occurred, and in accordance with the recognition and measurement requirements of the Accounting Standards for Business Enterprises (CAS), Application Guidance, and Interpretations. In addition, the Company also discloses relevant financial information in accordance with CSRC's "Compilation Rules for Information Disclosure by Companies Offering Securities to the Public No. 15 — General Provisions on Financial Reports (Revised in 2023)".

2. Going Concern

The Company assessed its ability to continue as a going concern for the 12 months from the end of the reporting period and found no events or conditions that cast significant doubt on its ability to continue as a going concern. It is reasonable for the Company to prepare the financial statements on a going concern basis.

V. Significant Accounting Policies and Accounting Estimates

Notes on specific accounting policies and accounting estimates:

1. The Company determines specific accounting policies and accounting estimates based on its production and operational characteristics, primarily reflected in the methods for measuring expected credit losses on receivable (Note V.12, Note V.13, Note V.15), inventory valuation methods (Note V.17), depreciation of investment properties, depreciation of fixed assets, and amortization of intangible assets (Note V.23, Note V.24, Note V.29), revenue recognition (Note V.37), etc.

2. The Company continuously evaluates the significant accounting estimates and key assumptions adopted, based on historical experience and other factors, including reasonable expectations of future events. Material changes in the following significant accounting estimates and key assumptions may have a material impact on the carrying amounts of assets and liabilities in subsequent accounting years:

(1) Provision for bad debts on accounts receivable and other receivables. Management estimates the impairment provision for accounts receivable and other receivables based on its judgment of expected credit losses. If any even or change in circumstances indicates that the Company may not recover the relevant balances, estimates are required to accrue provisions for accounts receivable and other receivables. If the expected figures differ from the origina estimates, the difference will affect the carrying amount of accounts receivable and other receivables, as well as the impairment charges in the period in which the estimate changes.

(2) Estimation of inventory impairment. Inventories are measured at the lower of cost and net realizable value at the balance sheet date. The calculation of net realizable value requires the use of assumptions and estimates. If management revises the estimated selling prices and the costs and expenses to be incurred upon completion, it wil affect the estimate of the net realizable value of inventories, and such difference will impact the accrued inventory write-down provision.

(3) Estimation of impairment of long-term assets. When judging whether long-term assets are impaired, management assesses and analyzes primarily from the following aspects: 1) whether events affecting asset impairment have occurred; 2) whether the present value of expected future cash flows from continuous use or disposa of the assets is lower than their carrying amount; and 3) whether the significant assumptions used in the present value of expected future cash flows are appropriate.

If relevant assumptions adopted by the Company for determining impairment—such as profitability, discount rates, and growth rates used in the present value of future cash flows method—change, they may have a material impact on the present value used in impairment testing and result in impairment of the Company's long-term assets.

(4) Depreciation and amortization. The Company estimates the useful lives and net residual values of investment properties, fixed assets, and intangible assets based on the historical actual useful lives and net residual values of assets of a similar nature and function. During the use of assets, the economic environment, technologica environment, and other circumstances in which they operate may have a significant impact on their useful lives and estimated net residual values. If the estimated useful life and net residual value of an asset differ from the original estimates, management will adjust them appropriately.

(5) Deferred income tax assets. Deferred income tax assets shall be recognized for all unused tax losses to the extent that it is probable that sufficient taxable profits will be available against which the losses can be utilized. This requires management to exercise significant judgment to estimate the timing and amount of future taxable profits, combined with tax planning strategies, to determine the amount of deferred income tax assets to be recognized.

(6) Income tax. In normal operating activities, the ultimate tax treatment of many transactions and events involves uncertainties. Significant judgment is required when accruing for income tax. If the final determination of these tax matters differs from the amounts initially recorded, such difference will impact the tax amount in the period during which such final determination is made.

1. Statement of Compliance with Accounting Standards for Business Enterprises

The financial statements prepared by the Company comply with the requirements of the Accounting Standards for Business Enterprises, and truly and completely reflect the financial position, operating results, changes in owners' equity, cash flows, and other relevant information of the Company.

2. Accounting Period

The accounting year of the Company is from January 1 to December 31 of the Gregorian calendar.

3. Operating Cycle

The normal operating cycle of the Company is one year.

4. Functional Currency

The Company and its domestic subsidiaries adopt RMB as their functional currency. FIYTA (Hong Kong) Limited, an overseas subsidiary of the Company, determines HKD as its functional currency according to the primary economic environment in which it operates; Montres Chouriet SA, a subsidiary of FIYTA (Hong Kong) Limited, determines CHF as its functional currency according to the primary economic environment in which it operates. Their financia statements are translated into RMB when preparing consolidated financial statements. The presentation currency adopted by the Company for preparing these financial statements is RMB.

5. Method for Determining Materiality Criteria and Basis of Selection

6. Accounting Treatment of Business Combinations Under Common Control and Not Under Common Control

(1) Business combinations under common control

Assets and liabilities acquired by the Company in a business combination are measured at the merger date based on their carrying amounts in the consolidated financial statements of the ultimate controlling party. Where the accounting policies and accounting periods adopted by the combinee differ from those of the Company prior to the merger, the accounting policies and periods are unified based on the materiality principle; that is, the carrying amounts of the combinee's assets and liabilities are adjusted in accordance with the Company's accounting policies and accounting periods. Any difference between the carrying amount of net assets acquired and the carrying amount o consideration paid is adjusted against capital reserve (capital premium or share premium); if the capital reserve (capital premium or share premium) is insufficient to offset the difference, the remaining balance is adjusted agains surplus reserve and undistributed profits sequentially.

(2) Business combinations not under common control

Identifiable assets and liabilities of the acquiree acquired by the Company in a business combination are measured at fair value on the acquisition date. Where the accounting policies and accounting periods adopted by the acquiree differ from those of the Company prior to the merger, the accounting policies and periods are unified based on the materiality principle; that is, the carrying amounts of the acquiree's assets and liabilities are adjusted in accordance with the Company's accounting policies and accounting periods. The excess of the combination cost over the fair value of the acquiree's identifiable net assets acquired on the acquisition date is recognized as goodwill; if the combination cost is less than the fair value of the acquiree's identifiable net assets acquired, the Company first reevaluates the combination cost and the fair value of the acquiree's identifiable assets and liabilities. If the cost remains lower than the fair value of identifiable net assets acquired after review, the difference is recognized in current profit or loss.

(3) Treatment of transaction fees in business combinations

Intermediary fees such as auditing, legal services, valuation, and consulting fees and other related administrative expenses incurred for business combinations are recognized in profit or loss when incurred. Transaction fees for issuing equity securities or debt securities as combination consideration are included in the initial recognition amount of such equity or debt securities.

7. Criteria for Determining Control and Compilation Method of Consolidated Financial Statements

(1) Criteria for determining control and scope of consolidation

Control refers to the power the Company has over the investee, whereby it is exposed to, or has rights to, variable returns from its involvement with the investee, and has the ability to use its power over the investee to affect the amount of its returns. The definition of control contains three basic elements: first, the investor has power over the investee; second, the investor enjoys variable returns through involvement in the investee's related activities; third, the investor has the ability to use its power over the investee to affect the amount of its returns. When the Company's investment in an investee meets all three elements, it indicates that the Company controls the investee.

The scope of consolidated financial statements is determined on the basis of control, encompassing not only subsidiaries determined based on voting rights (or similar rights) alone or in combination with other arrangements, bu also structured entities governed by one or more contractual arrangements.

A subsidiary refers to an entity controlled by the Company (including enterprises, divisible parts of investees, and structured entities controlled by the enterprise, etc.). A structured entity refers to an entity designed so that voting rights or similar rights are not the dominant factor in deciding who controls the entity (sometimes referred to as a special purpose entity).

(2) Compilation method of consolidated financial statements

The Company prepares consolidated financial statements based on its own financial statements and those of its subsidiaries, and using other relevant information.

In preparing consolidated financial statements, the Company treats the entire corporate group as a single accounting entity, reflecting the group's overall financial position, operating results, and cash flows in accordance with unified accounting policies and periods pursuant to CAS recognition, measurement, and presentation requirements.

① Consolidating items of assets, liabilities, owners' equity, revenue, expenses, and cash flows of the parent company and its subsidiaries.

② Offsetting the parent company's long-term equity investment in subsidiaries against its share of owners' equity in subsidiaries.

③ Offsetting the effects of internal transactions between the parent company and subsidiaries, and among subsidiaries. Where internal transactions indicate impairment losses on relevant assets, such losses shall be recognized in full.

④ Adjusting special transaction matters from the perspective of the enterprise group.

(3) Special considerations in consolidation elimination

① Long-term equity investments held by subsidiaries in the Company shall be regarded as treasury shares of the Company, presented as a deduction in owners' equity under the item "Less: Treasury shares" in the consolidated balance sheet.

Long-term equity investments held between subsidiaries shall be eliminated by offsetting the long-term equity investment against the corresponding share of owners' equity in the investee subsidiary, mutatis mutandis to the Company's elimination method for subsidiaries.

② Since "Special reserve" and "General risk reserve" are neither paid-in capital (or share capital) nor capita reserve, and differ from retained earnings and undistributed profits, they are restored based on the share attributable to owners of the parent company after the elimination of long-term equity investments and owners' equity o subsidiaries.

③ If temporary differences arise between the carrying amounts of assets and liabilities in the consolidated balance sheet and their tax bases in the respective taxable entities due to the elimination of unrealized internal sales profits and losses, deferred income tax assets or deferred income tax liabilities are recognized in the consolidated balance sheet, with income tax expense in the consolidated income statement adjusted accordingly, except for deferred income taxes related to transactions recognized directly in equity or business combinations.

④ Unrealized internal transaction profits and losses arising from the Company's sale of assets to subsidiaries shall be fully offset against "Net profit attributable to owners of the parent company". Unrealized internal transaction profits and losses arising from subsidiaries' sales of assets to the Company shall be allocated and offset between "Ne profit attributable to owners of the parent company" and "Non-controlling interests" in proportion to the Company's allocation ratio to the subsidiary. Unrealized internal transaction profits and losses arising from sales of assets between subsidiaries shall be allocated and offset between "Net profit attributable to owners of the parent company" and "Non-controlling interests" in proportion to the Company's allocation ratio to the selling subsidiary.

⑤ Where the current loss shared by non-controlling shareholders of a subsidiary exceeds their share in the beginning owners' equity of the subsidiary, the excess shall still be deducted from non-controlling interests.

8. Classification of Joint Arrangements and Accounting Treatment for Joint Operations

A joint arrangement refers to an arrangement under the joint control of two or more parties. The Company's joint arrangements are classified into joint operations and joint ventures.

(1) Joint operations

A joint operation refers to a joint arrangement whereby the Company has rights to the assets and obligations for the liabilities relating to the arrangement.

The Company recognizes the following items in relation to its share of interest in a joint operation and accounts for them in accordance with relevant CAS:

① Recognize solely-held assets and jointly-held assets according to its share;

② Recognize solely-incurred liabilities and jointly-incurred liabilities according to its share;

③ Recognize revenue from the sale of its share of output arising from the joint operation;

④ Recognize its share of revenue from the sale of output by the joint operation;

⑤ Recognize solely-incurred expenses and jointly-incurred expenses according to its share.

(2) Joint ventures

A joint venture refers to a joint arrangement whereby the Company only has rights to the net assets of the arrangement.

The Company accounts for investments in joint ventures in accordance with the equity method provisions for long-term equity investments.

9. Determination Criteria for Cash and Cash Equivalents

Cash refers to cash on hand and deposits that can be readily drawn upon for payments. Cash equivalents refer to short-term (generally maturing within three months from the acquisition date), highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value.

10. Foreign Currency Transactions and Translation of Foreign Currency Statements

(1) Determination of exchange rates for foreign currency transactions

Foreign currency transactions of the Company are translated into the functional currency at initial recognition using the spot exchange rate on the transaction date or an exchange rate determined through a systematic and rational method that approximates the spot rate on the transaction date (hereinafter referred to as "approximate spot rate").

(2) Translation of foreign currency monetary items at the balance sheet date

At the balance sheet date, foreign currency monetary items are translated using the spot exchange rate at the balance sheet date. Exchange differences arising from differences between the spot rate at the balance sheet date and the spot rate at initial recognition or the previous balance sheet date are recognized in current profit or loss. Foreign currency non-monetary items measured at historical cost are still translated using the spot exchange rate on the transaction date; foreign currency non-monetary items measured at fair value are translated using the spot exchange rate on the date when the fair value is determined. For financial assets measured at fair value through profi or loss, the difference between the translated functional currency amount and the original functional currency amoun is recognized in current profit or loss.

(3) Translation method for foreign currency statements

Before translating the financial statements of overseas operations, the accounting period and accounting policies of overseas operations are adjusted to align with those of the Company, and financial statements in the respective currency (other than functional currency) are prepared based on adjusted accounting policies and periods, followed b translation under the following rules:

① Assets and liabilities items in the balance sheet are translated using the spot exchange rate at the balance sheet date; owners' equity items, except for "Undistributed profits", are translated using the spot exchange rate at the time of occurrence.

② Income and expense items in the income statement are translated using the spot exchange rate or approximate spot rate on the transaction date.

③ Foreign currency cash flows and cash flows of overseas subsidiaries are translated using the spot exchange rate or approximate spot rate on the date of cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement as a reconciling item.

④ Resulting foreign currency statement translation differences are presented under "Other comprehensive income" within owners' equity in the consolidated balance sheet when compiling consolidated financial statements.

Upon disposal of an overseas operation resulting in loss of control, the foreign currency translation differences related to that overseas operation presented under owners' equity in the balance sheet are reclassified into current profit or loss in full or in proportion to the disposal.

11. Financial Instruments

A financial instrument refers to a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

(1) Recognition and derecognition of financial instruments

The Company recognizes a financial asset or financial liability when it becomes a party to the contractua provisions of the instrument.

A financial asset is derecognized when meeting one of the following conditions:

① The contractual rights to receive cash flows from the financial asset expire;

② The financial asset has been transferred and meets the criteria for derecognition of financial assets below.

A financial liability (or part thereof) is derecognized when its present obligation has been discharged. Where an agreement is signed between the Company (debtor) and the lender to replace the existing financial liability by assuming a new financial liability with substantially different contractual terms, the existing financial liability is derecognized and a new financial liability is recognized simultaneously. Where the Company makes substantia modifications to the contractual terms of an existing financial liability (or part thereof), the existing financial liability is derecognized and a new financial liability is recognized in accordance with modified terms.

Purchases or sales of financial assets in a regular way are recognized and derecognized on the trade date. Regular way purchases or sales of financial assets refer to deliveries of financial assets within the time frame established by regulation or market convention according to contract terms. Trade date refers to the date on which the Company commits to purchase or sell a financial asset.

(2) Classification and measurement of financial assets

At initial recognition, based on the business model for managing financial assets and the contractual cash flow characteristics of financial assets, the Company classifies financial assets into: financial assets measured at amortized cost, financial assets measured at fair value through profit or loss (FVTPL), and financial assets measured at fair value through other comprehensive income (FVOCI). Unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in business model, financial assets shall not be reclassified after initial recognition.

Financial assets are measured at fair value at initial recognition. For financial assets measured at FVTPL, relevant transaction costs are directly recognized in profit or loss; for other categories of financial assets, relevant transaction costs are included in their initial recognition amounts. Notes receivable and accounts receivable arising from the sale of goods or rendering of services that do not contain or consider significant financing components are initially measured at the transaction price defined in the revenue standard

Subsequent measurement of financial assets depends on their classification:

① Financial assets measured at amortized cost

Financial assets meeting both of the following conditions are classified as financial assets measured at amortized cost: the Company manages the financial assets under a business model whose objective is to collect contractua cash flows; the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI). For such financial assets, the effective interest method is used for subsequent measurement at amortized cost. Gains or losses arising from derecognition, amortization using the effective interest method, or impairment are recognized in profit or loss.

② Financial assets measured at fair value through other comprehensive income (FVOCI)

Financial assets meeting both of the following conditions are classified as financial assets measured at FVOCI: the Company manages the financial assets under a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI). For such financial assets, subsequent measurement is performed at fair value. Except for impairment losses or gains and exchange differences recognized in profit or loss, fair value changes of such financial assets are recognized in other comprehensive income until the financial asset is derecognized, whereupon its cumulative gains or losses are transferred to profit or loss. However, interest income calculated using the effective interest method is recognized in profit or loss.

The Company irrevocably designates certain non-trading equity instrument investments as financial assets measured at FVOCI; only relevant dividend income is recognized in profit or loss, while fair value changes are recognized in other comprehensive income, and cumulative gains or losses are transferred to retained earnings upon derecognition.

③ Financial assets measured at fair value through profit or loss (FVTPL)

Financial assets other than those measured at amortized cost and FVOCI are classified as financial assets measured at FVTPL. For such financial assets, subsequent measurement is performed at fair value, and all fair value changes are recognized in profit or loss.

(3) Classification and measurement of financial liabilities

The Company classifies financial liabilities into: financial liabilities measured at FVTPL, loan commitments for below-market-rate loans and financial guarantee contract liabilities, and financial liabilities measured at amortized cost. Subsequent measurement of financial liabilities depends on their classification:

① Financial liabilities measured at fair value through profit or loss (FVTPL)

Such financial liabilities include trading financial liabilities (including derivatives classified as financial liabilities) and financial liabilities designated as measured at FVTPL. After initial recognition, such financial liabilities are subsequently measured at fair value; except for those related to hedge accounting, gains or losses (including interes expense) are recognized in profit or loss. However, for financial liabilities designated as measured at FVTPL, the amount of change in fair value caused by changes in the Company's own credit risk is recognized in other comprehensive income; upon derecognition, cumulative gains or losses previously recognized in other comprehensive income are transferred to retained earnings.

② Loan commitments and financial guarantee contract liabilities

A loan commitment is a commitment provided by the Company to a customer to provide a loan under predetermined contractual terms within the commitment period. Impairment losses for loan commitments are accrued according to the expected credit loss model.

A financial guarantee contract refers to a contract that requires the Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee contract liabilities are subsequently measured at the higher o the loss allowance determined in accordance with financial instrument impairment principles and the initial recognition amount less cumulative amortization recognized under revenue principles.

③ Financial liabilities measured at amortized cost

After initial recognition, other financial liabilities are measured at amortized cost using the effective interest method.

Except in special circumstances, financial liabilities and equity instruments are distinguished according to the following principles:

① If the Company cannot unconditionally avoid delivering cash or another financial asset to settle a contractua obligation, the contractual obligation meets the definition of a financial liability. Although some financial instruments do not explicitly contain terms and conditions requiring delivery of cash or another financial asset, they may indirectly create contractual obligations through other terms and conditions.

② If a financial instrument will or may be settled in the Company's own equity instruments, it is necessary to consider whether the Company's equity instruments used to settle the instrument are used as substitutes for cash or other financial assets, or to enable the holder to enjoy the residual interest in the issuer's assets after deducting al liabilities. If the former, the instrument is a financial liability of the issuer; if the latter, the instrument is an equity instrument of the issuer. Under certain circumstances, where a contract requires or allows the Company to settle a financial instrument with its own equity instruments, and the contractual right or obligation amount equals the quantity of equity instruments to be received or delivered multiplied by their fair value at settlement, the contract is classified as a financial liability, regardless of whether the amount is fixed or varies based on variables other than the market price of the Company's own equity instruments (e.g., interest rate, commodity price, or financial instrument price).

(4) Derivative financial instruments and embedded derivatives

Derivative financial instruments are initially measured at fair value on the date the derivative contract is signed and subsequently measured at fair value. A derivative financial instrument with a positive fair value is recognized as an asset, and one with a negative fair value is recognized as a liability.

Gains or losses arising from changes in the fair value of derivatives are directly recognized in profit or loss, except for the effective portion of cash flow hedges, which is recognized in other comprehensive income and reclassified into profit or loss when the hedged item affects profit or loss.

For hybrid instruments containing embedded derivatives, if the host contract is a financial asset, the hybrid instrument as a whole applies the classification rules for financial assets. If the host contract is not a financial asset and the hybrid instrument is not accounted for at FVTPL, an embedded derivative is bifurcated from the host contract and treated as a standalone derivative if its economic characteristics and risks are not closely related to those of the host contract, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the fair value of the embedded derivative cannot be measured reliably on the acquisition date or subsequent balance sheet dates, the hybrid instrument as a whole is designated as a financial asset or financia liability at FVTPL.

(5) Impairment of financial instruments

The Company recognizes loss allowances on the basis of expected credit losses (ECL) for financial assets measured at amortized cost, debt investments measured at FVOCI, contract assets, lease receivables, loan commitments, and financial guarantee contracts.

① Measurement of expected credit losses

Expected credit losses refer to the weighted average of credit losses of financial instruments weighted by the risk of default. Credit loss refers to the difference between all contractual cash flows receivable under the contract and al cash flows expected to be received, discounted at the original effective interest rate—namely, the present value of al cash shortfalls. Among them, for purchased or originated credit-impaired (POCI) financial assets, discounting is performed using the credit-adjusted effective interest rate.

Lifetime expected credit losses refer to the expected credit losses that result from all possible default events over the expected life of a financial instrument.

12-month expected credit losses refer to the portion of lifetime expected credit losses that result from defaul events on a financial instrument that are possible within 12 months after the balance sheet date (or the expected life i less than 12 months).

At each balance sheet date, the Company measures expected credit losses for financial instruments at differen stages. Where credit risk has not increased significantly since initial recognition, the instrument is in Stage 1, and the loss allowance is measured at an amount equal to 12-month ECL; where credit risk has increased significantly since initial recognition but is not credit-impaired, the instrument is in Stage 2, and the loss allowance is measured at an amount equal to lifetime ECL; where the financial instrument is credit-impaired since initial recognition, the instrumen is in Stage 3, and the loss allowance is measured at an amount equal to lifetime ECL.

For financial instruments with low credit risk at the balance sheet date, the Company assumes that credit risk has not increased significantly since initial recognition and measures the loss allowance at an amount equal to 12-month ECL.

For financial instruments in Stage 1, Stage 2, and those with low credit risk, interest income is calculated based on the gross carrying amount (without deducting impairment allowance) and the effective interest rate. For financial instruments in Stage 3, interest income is calculated based on the amortized cost (gross carrying amount less impairment allowance) and the effective interest rate.

For notes receivable and accounts receivable, whether containing a significant financing component or not, the Company always measures the loss allowance at an amount equal to lifetime ECL.

A. Receivables

For notes receivable, accounts receivable, and other receivables with objective evidence of impairment or applicable for individual assessment, individual impairment tests are conducted to recognize ECL and accrue individual impairment allowances. For notes receivable, accounts receivable, and other receivables without objective evidence of impairment, or when information on ECL cannot be assessed at a reasonable cost for an individual asset, the Company groups them into portfolios based on credit risk characteristics and calculates ECL on a collective basis. The basis for determining portfolios is as follows:

Basis for determining portfolios of notes receivable:

Notes receivable portfolio 1: Commercial acceptance bills

Notes receivable portfolio 2: Bank acceptance bills

For notes receivable categorized into portfolios, the Company calculates ECL based on exposure at default and the lifetime ECL rate, referencing historical credit loss experience, combined with current conditions and forecasts of future economic conditions.

Basis for determining portfolios of accounts receivable:

Accounts receivable portfolio 1: Receivables from customers

For accounts receivable categorized into portfolios, the Company prepares an aging schedule and lifetime ECL rate matrix to calculate ECL, referencing historical credit loss experience, current conditions, and forecasts of future economic conditions.

Basis for determining portfolios of other receivables:

Other receivables portfolio 1: Deposits and security deposits receivable

Other receivables portfolio 2: Employee petty cash receivable

Other receivables portfolio 3: Other receivables

For other receivables categorized into portfolios, the Company calculates ECL based on exposure at default and the 12-month or lifetime ECL rate, referencing historical credit loss experience, current conditions, and forecasts of future economic conditions.

The aging calculation method for determining credit risk characteristic portfolios is: aging for notes receivable, accounts receivable, and other receivables is determined from the booking date to the balance sheet date.

B. Debt investments, other debt investments

For debt investments and other debt investments, the Company calculates ECL based on the nature of the investment, counterparties, and types of exposures, using exposure at default and the 12-month or lifetime ECL rate.

② Low credit risk

A financial instrument is deemed to have low credit risk if the default risk is low, the borrower has a strong capacity to meet its contractual cash flow obligations in the short term, and adverse changes in economic and business conditions in the longer term will not necessarily reduce the borrower's ability to fulfill its contractual cash flow obligations.

③ Significant increase in credit risk

The Company assesses whether credit risk has increased significantly since initial recognition by comparing the probability of default over the expected life of the financial instrument at the balance sheet date with that determined at initial recognition to determine the relative change in default probability.

In determining whether credit risk has increased significantly since initial recognition, the Company considers reasonable and supportable information available without undue cost or effort, including forward-looking information. Information considered by the Company includes:

A. Significant changes in internal price indicators resulting from changes in credit risk;

B. Adverse changes in business, financial, or economic conditions that are expected to cause a significant change in the debtor's ability to meet its debt obligations;

C. Actual or expected significant changes in the operating results of the debtor; Significant adverse changes in the regulatory, economic, or technological environment of the debtor;

D. Significant changes in the value of collateral supporting the obligation or in the quality of third-party guarantees or credit enhancements. These changes are expected to reduce the debtor's economic incentive to pay within contractual terms or affect the probability of default;

E. Significant changes in the expected economic incentive of the debtor to make repayments according to the contractual terms;

F. Expected changes in loan contracts, including whether anticipated contractual breaches might lead to covenant waivers or amendments, grace periods, interest rate step-ups, collateral/guarantee additions, or other changes to the contractual framework;

G. Significant changes in the expected performance and payment behavior of the debtor;

H. Whether contractual payments are overdue for more than (inclusive of) 30 days.

Depending on the nature of the financial instruments, the Company evaluates whether credit risk has increased significantly on an individual basis or a collective basis. When evaluated on a portfolio basis, financial instruments may be grouped based on shared credit risk characteristics, such as delinquency information and credit risk ratings.

Generally, if overdue for more than 30 days, the Company determines that the credit risk of the financial instrument has increased significantly. Unless the Company can obtain reasonable and supportable information without undue cost or effort demonstrating that credit risk has not increased significantly since initial recognition despite being overdue for more than 30 days.

④ Credit-impaired financial assets

The Company assesses at the balance sheet date whether financial assets measured at amortized cost and debt investments measured at FVOCI have become credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence of credit impairment includes observable data about the following events:

Significant financial difficulty of the issuer or debtor; A breach of contract by the debtor, such as a default or delinquency in interest or principal payments; The creditor, for economic or contractual reasons relating to the debtor's financial difficulty, granting a concession that would not otherwise be considered; It becoming probable that the debtor will enter bankruptcy or other financial reorganization; The disappearance of an active market for that financial asse because of financial difficulties of the issuer or debtor; The purchase or origination of a financial asset at a deep discount that reflects incurred credit losses.

⑤ Presentation of ECL allowance

To reflect changes in the credit risk of financial instruments since initial recognition, the Company remeasures ECL at each balance sheet date. The resulting increase or reversal of the loss allowance is recognized in profit or loss as an impairment loss or gain. For financial assets measured at amortized cost, the loss allowance offsets the carrying amount of the financial asset presented in the balance sheet; for debt investments measured at FVOCI, the Company recognizes the loss allowance in other comprehensive income without reducing the carrying amount of the financia asset.

⑥ Write-off

The Company writes down the gross carrying amount of a financial asset directly when it no longer has a reasonable expectation of recovering the contractual cash flows in whole or in part. Such a write-down constitutes a derecognition of the related financial asset. This usually occurs when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amount subject to write-off.

Subsequent recoveries of financial assets previously written off are recognized in profit or loss in the period o recovery as a reversal of impairment loss.

(6) Transfer of financial assets

Transfer of financial assets refers to the following two scenarios:

A. Transferring the contractual rights to receive cash flows from the financial asset to another party;

B. Transferring the financial asset in whole or in part to another party while retaining the contractual rights to receive cash flows, but assuming a contractual obligation to pay those cash flows to one or more recipients.

① Derecognition of transferred financial assets

A financial asset is derecognized if the Company has transferred substantially all the risks and rewards of ownership of the financial asset to the transferee, or has neither transferred nor retained substantially all the risks and rewards of ownership, but has relinquished control over the financial asset.

In determining whether control over the transferred financial asset has been relinquished, focus is placed on the transferee's practical ability to sell the financial asset. If the transferee has the practical ability to sell the transferred financial asset in its entirety to an unrelated third party without attaching additional restrictions, the Company has relinquished control over the asset.

The Company focuses on the substance of financial asset transfers when judging whether derecognition criteria are met.

If a transfer of an entire financial asset satisfies the conditions for derecognition, the difference between the following two amounts is recognized in profit or loss:

A. The carrying amount of the transferred financial asset;

B. The sum of consideration received from the transfer and the cumulative amount of fair value changes previously recognized directly in other comprehensive income corresponding to the derecognized part (where the transferred financial asset is classified as measured at FVOCI under Article 18 of CAS 22 - Recognition and Measurement of Financial Instruments).

If a partial transfer of a financial asset satisfies the derecognition conditions, the total carrying amount of the transferred asset is allocated between the derecognized part and the retained part (where retained servicing assets are treated as part of the continuing financial asset) based on their relative fair values on the transfer date, with the difference between the following two amounts recognized in profit or loss:

A. The carrying amount of the derecognized part on the derecognition date;

B. The sum of consideration received for the derecognized part and the cumulative amount of fair value changes previously recognized in other comprehensive income corresponding to the derecognized part (where the transferred asset is classified as measured at FVOCI under Article 18 of CAS 22).

② Continuing involvement in transferred financial assets

If the Company neither transfers nor retains substantially all the risks and rewards of ownership and has not relinquished control, it recognizes the financial asset to the extent of its continuing involvement and recognizes an associated liability accordingly.

The extent of continuing involvement refers to the extent to which the enterprise is exposed to changes in the value of the transferred financial asset.

③ Continued recognition of transferred financial assets

If the Company retains substantially all the risks and rewards of ownership of the transferred financial asset, it continues to recognize the entire financial asset and recognizes the consideration received as a financial liability.

The financial asset and the recognized associated liability shall not be offset. In subsequent accounting periods, the enterprise continues to recognize income (or gains) arising from the asset and expenses (or losses) incurred on the liability.

(7) Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. However, they are presented on a net basis in the balance sheet if both of the following conditions are met:

The Company has a legally enforceable right to set off the recognized amounts, and such legal right is currently enforceable;

The Company plans to settle on a net basis, or to realize the financial asset and settle the financial liability simultaneously.

For transfers of financial assets that do not meet derecognition conditions, the transferor shall not offset the transferred financial asset and the related liability.

12. Notes Receivable

Basis for determining portfolios of notes receivable:

Notes receivable portfolio 1: Commercial acceptance bills

Notes receivable portfolio 2: Bank acceptance bills

For notes receivable categorized into portfolios, the Company calculates ECL based on exposure at default and the lifetime ECL rate, referencing historical credit loss experience, combined with current conditions and forecasts of future economic conditions.

13. Accounts Receivable

Basis for determining portfolios of accounts receivable:

Accounts receivable portfolio 1: Receivables from customers

For accounts receivable categorized into portfolios, the Company prepares an aging schedule and lifetime ECL rate matrix to calculate ECL, referencing historical credit loss experience, current conditions, and forecasts of future economic conditions.

14. Receivables Financing

Not applicable

15. Other Receivables

Method for Determining Expected Credit Losses and Accounting Treatment of Other Receivables

Basis for determining portfolios of other receivables:

Other receivables portfolio 1: Deposits and security deposits receivable

Other receivables portfolio 2: Employee petty cash receivable

Other receivables portfolio 3: Other receivables

For other receivables categorized into portfolios, the Company calculates ECL based on exposure at default and the 12-month or lifetime ECL rate, referencing historical credit loss experience, current conditions, and forecasts of future economic conditions.

16. Contract Assets

The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between the fulfillment of performance obligations and customer payments. The Company's right to consideration for goods or services transferred to customers (where such right depends on factors other than the passage of time) is presented as contract assets. The Company's obligation to transfer goods or services to customers for consideration received or receivable from customers is presented as contract liabilities.

For the method of determining expected credit losses and accounting treatment of contract assets, please refer to Note V.11.

Contract assets and contract liabilities are presented separately in the balance sheet. Contract assets and contract liabilities under the same contract are presented on a net basis. If the net amount is a debit balance, it is presented under "Contract assets" or "Other non-current assets" based on its liquidity; if the net amount is a credi balance, it is presented under "Contract liabilities" or "Other non-current liabilities" based on its liquidity. Contrac assets and contract liabilities under different contracts cannot be offset against each other.

17. Inventories

(1) Classification of inventories

Inventories refer to finished goods or commodities held for sale in the ordinary course of business, work in progress in the production process, and materials and supplies consumed in the production process or rendering o services, including raw materials, work in progress, and finished goods (merchandise inventories).

(2) Valuation method for delivered inventories

The weighted average method is used upon delivery of raw materials and merchandise inventory (excluding luxury brand watches), while the specific identification method is used for luxury brand watch inventories.

(3) Inventory system

The Company adopts a perpetual inventory system and conducts physical counts at least once a year. Inventory surpluses and shortages are recognized in current profit or loss.

(4) Recognition criteria and provision method for inventory write-downs

Inventories are measured at the lower of cost and net realizable value at the balance sheet date. If the cost exceeds net realizable value, an inventory write-down provision is recognized in profit or loss.

In determining net realizable value, reliable evidence obtained is taken as the basis, taking into account the purpose of holding inventories, the impact of post-balance sheet events, and other factors.

① For inventories directly held for sale, such as finished goods, merchandise, and materials for sale, net realizable value is determined in the ordinary course of business by the estimated selling price less estimated selling expenses and related taxes. For inventories held to satisfy sales contracts or service contracts, the contract price serves as the basis for calculating net realizable value; if the quantity held exceeds the order quantity in the sales contract, the net realizable value of the excess is based on general selling prices. For materials held for sale, marke prices serve as the basis for calculating net realizable value.

② For material inventories requiring processing, net realizable value is determined in the ordinary course of business by the estimated selling price of finished products less estimated costs to completion, estimated selling expenses, and related taxes. If the net realizable value of the finished products produced from the materials exceeds cost, the materials are measured at cost; if a decline in material prices indicates that the net realizable value o finished products is below cost, the materials are measured at net realizable value, and an inventory write-down provision is accrued for the difference.

③ The Company generally accrues inventory write-down provisions on an individual inventory item basis; for inventories with large quantities and low unit prices, provisions are accrued by inventory category.

④ If the factors causing previous write-downs of inventory value no longer exist at the balance sheet date, the written-down amount is restored and reversed within the original inventory write-down provision, with the reversed amount recognized in current profit or loss.

18. Assets Held for Sale

Not applicable

19. Debt Investments

Not applicable

20. Other Debt Investments

Not applicable

21. Long-Term Receivables

Not applicable

22. Long-Term Equity Investments

The Company's long-term equity investments include equity investments where it exercises control or significan influence over investees. An investee over which the Company can exert significant influence is an associate of the Company.

(1) Basis for determining significant influence over investees

Significant influence refers to the power to participate in the financial and operating policy decisions of the investee, but without control or joint control over the formulation of those policies. In determining significant influence, consideration is given to the voting shares held directly or indirectly by the investor in the investee, as well as the effec of currently exercisable potential voting rights held by the investor and other parties assumed to be converted into equity, including warrants, share options, and convertible corporate bonds issued by the investee.

When the Company directly or indirectly holds 20% or more (inclusive) but less than 50% of the voting shares o an investee, it is generally considered to have significant influence, unless there is clear evidence indicating that i cannot participate in operating decisions and thus does not exert significant influence.

(2) Determination of initial investment cost

① For long-term equity investments formed through business combinations, investment cost is determined as follows:

A. In a business combination under common control where consideration is paid in cash, transfer of non-cash assets, or assumption of debt, the initial investment cost is the share of carrying amount of the combinee's owners equity in the consolidated financial statements of the ultimate controlling party on the merger date. Any difference between the initial investment cost and the carrying amount of cash paid, non-cash assets transferred, and debts assumed is adjusted against capital reserve; if capital reserve is insufficient, it is adjusted against retained earnings;

B. In a business combination under common control where equity securities are issued as combination consideration, the initial investment cost is the share of carrying amount of the combinee's owners' equity in the consolidated financial statements of the ultimate controlling party on the merger date. The aggregate par value o shares issued is recognized as share capital; the difference between the initial investment cost and the aggregate par value is adjusted against capital reserve; if capital reserve is insufficient, it is adjusted against retained earnings;

C. In a business combination not under common control, the combination cost—determined as the fair value o assets given, liabilities incurred or assumed, and equity securities issued on the acquisition date to gain control—is recognized as the initial investment cost. Intermediary fees such as auditing, legal services, valuation, and consulting fees and other related administrative expenses incurred by the acquirer for business combinations are recognized in profit or loss when incurred.

② For long-term equity investments acquired other than through business combinations, investment cost is determined as follows:

A. For long-term equity investments acquired by cash payment, the actual purchase price paid is recognized as the investment cost. Initial investment cost includes expenses, taxes, and other necessary expenditures directly related to the acquisition;

B. For long-term equity investments acquired by issuing equity securities, the fair value of the issued equity securities is recognized as the initial investment cost;

C. For long-term equity investments acquired through non-monetary asset exchanges, if the exchange has commercial substance and the fair value of the asset received or surrendered can be measured reliably, the initial cost is based on the fair value of the surrendered asset plus related taxes, with any difference between fair value and book value recognized in profit or loss; if both conditions are not met, the carrying amount of the surrendered asset plus related taxes is recognized as the initial investment cost.

D. For long-term equity investments acquired through debt restructuring, the initial carrying amount is based on the fair value of claims waived and directly attributable taxes and other costs, with the difference between the fair value and carrying amount of waived claims recognized in profit or loss.

(3) Subsequent measurement and recognition of profit or loss

Long-term equity investments where the Company can exercise control over investees are accounted for using the cost method; long-term equity investments in associates are accounted for using the equity method.

① Cost method

For long-term equity investments accounted for using the cost method, the cost is adjusted when adding or recovering investments; cash dividends or profits declared by the investee are recognized as current investment income.

② Equity method

For long-term equity investments accounted for under the equity method, general accounting treatments are:

If the initial investment cost exceeds the Company's share of the fair value of the investee's identifiable net assets at acquisition, the initial cost is not adjusted; if the initial investment cost is less than the Company's share of the fair value of the investee's identifiable net assets at acquisition, the difference is recognized in profit or loss and the cost of the investment is adjusted accordingly.

The Company recognizes investment income and other comprehensive income based on its share of net profit/loss and other comprehensive income realized by the investee, while adjusting the carrying amount of the longterm equity investment; the carrying amount of the investment is reduced by the Company's share of profits or cash dividends declared by the investee; for changes in owners' equity of the investee other than net profit or loss, other comprehensive income, and profit distribution, the carrying amount is adjusted and recognized in owners' equity. In recognizing its share of the investee's net profit/loss, net profit is adjusted based on the fair value of the investee's identifiable net assets upon acquisition. If accounting policies and periods of the investee differ from those of the Company, the financial statements of the investee are adjusted to conform to the Company's accounting policies and periods before recognizing investment income and other comprehensive income. Unrealized profits and losses from internal transactions between the Company and its associates/joint ventures are eliminated in proportion to the share attributable to the Company, upon which investment gains/losses are recognized. Where unrealized interna transaction losses between the Company and investees represent asset impairment losses, they are recognized in full.

Where significant influence or joint control (without control) over an investee is obtained due to additiona investments, the initial cost under the equity method is the sum of the fair value of previously held equity plus new investment costs. If the previously held equity investment was classified as an investment in other equity instruments, the difference between fair value and carrying amount, along with cumulative gains or losses previously recognized in OCI, is transferred to retained earnings in the period of adopting the equity method.

Upon loss of joint control or significant influence due to partial disposal of equity, the remaining equity is measured at fair value, with the difference between its fair value and carrying amount on the date of losing joint control or significant influence recognized in profit or loss. Other comprehensive income recognized under the equity method is accounted for on the same basis as would be required if the investee had directly disposed of the related assets or liabilities upon discontinuing the equity method.

(4) Impairment test method and provision for impairment

For methods of accruing asset impairment for investments in subsidiaries and associates, please refer to Note V.30.

23. Investment Properties

Measurement Model for Investment Properties

Cost model measurement

Depreciation or Amortization Method

(1) Classification of investment properties

Investment property refers to real estate held to earn rentals, for capital appreciation, or both. It primarily includes:

① Land use rights leased out.

② Land use rights held and intended to be transferred after appreciation.

③ Buildings leased out.

(2) Measurement model for investment properties

The Company adopts the cost model for subsequent measurement of investment properties; for the impairment provision method, please refer to Note V.30.

The Company calculates depreciation or amortization on a straight-line basis based on cost less accumulated impairment and net residual value. The depreciation periods and annual depreciation rates determined by category, estimated useful life, and estimated net residual value rate are as follows:

24. Fixed Assets

(1) Recognition criteria

Fixed assets are recognized at actual cost upon acquisition when both of the following conditions are met:

① It is probable that economic benefits associated with the fixed asset will flow to the enterprise.

② The cost of the fixed asset can be reliably measured.

Subsequent expenditures incurred on fixed assets meeting recognition criteria are included in the cost of fixed assets; those not meeting recognition criteria are recognized in profit or loss when incurred.

(2) Depreciation methods

The Company accrues depreciation using the straight-line method starting from the month following the date the fixed asset reaches its intended usable state, determining depreciation periods and annual rates by category, estimated useful life, and estimated net residual value rate.

For fixed assets with impairment provisions accrued, the accumulated impairment provision is deducted when calculating depreciation.

At each year-end, the Company reviews the useful life, estimated net residual value, and depreciation method of fixed assets. If the estimated useful life differs from previous estimates, the useful life of the fixed asset is adjusted.

25. Construction in Progress

(1) Construction in progress is accounted for separately by approved project.

(2) Criteria and timing for transferring construction in progress to fixed assets

The carrying amount of fixed assets transferred from construction in progress comprises all expenditures incurred before the asset reaches its intended usable state. This includes construction costs, original cost of machinery and equipment, other necessary expenses incurred to bring the project to its intended usable state, as well as borrowing costs on specific borrowings and general borrowings incurred before reaching the intended usable state. The Company transfers construction in progress to fixed assets upon installation or construction completion reaching the intended usable state. Fixed assets constructed that have reached the intended usable state but have not yet finalized final accounts of completed projects are transferred to fixed assets based on estimated values derived from projec budgets, construction costs, or actual costs, and depreciated according to the Company's depreciation policy from the date of reaching usable state. Upon finalization of final accounts, the estimated value is adjusted to actual cost, while previously accrued depreciation is not adjusted.

26. Borrowing Costs

(1) Recognition principles and capitalization period for borrowing costs

Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets are capitalized as part of the asset cost when all of the following conditions are met:

① Asset expenditures have been incurred;

② Borrowing costs have been incurred;

③ Acquisition, construction, or production activities necessary to prepare the asset for its intended use or sale have commenced.

Other borrowing interest, discount or premium amortization, and exchange differences are recognized in current profit or loss.

If the acquisition, construction, or production of a qualifying asset is interrupted abnormally and the interruption lasts continuously for more than 3 months, capitalization of borrowing costs is suspended.

Capitalization of borrowing costs ceases when the qualifying asset reaches its intended usable or salable state; subsequent borrowing costs are recognized as expenses in the period incurred.

(2) Calculation method of capitalization rate and capitalization amount of borrowing costs

For specific borrowings borrowed for the acquisition, construction, or production of qualifying assets, the capitalization amount is the actual interest expense incurred on the specific borrowings during the period, less interest income from unutilized funds deposited in banks or investment income from temporary investments.

Where general borrowings are utilized for the acquisition, construction, or production of qualifying assets, the interest amount to be capitalized on general borrowings is determined by multiplying the weighted average of accumulated asset expenditures exceeding specific borrowings by the capitalization rate of the general borrowings utilized. The capitalization rate is calculated and determined based on the weighted average interest rate of genera borrowings.

27. Biological Assets

Not applicable

28. Oil and Gas Assets

Not applicable

29. Intangible Assets

(1) Useful life, determination basis, estimation, amortization method, or review procedures

1) Valuation method of intangible assets

Recorded at actual cost upon acquisition.

2) Useful life and amortization of intangible assets

① Estimation of useful life for intangible assets with finite useful lives:

At each year-end, the Company reviews the useful life and amortization method of intangible assets with finite useful lives. Upon review, the useful lives and amortization methods of intangible assets at the end of the period showed no difference from previous estimates.

② Intangible assets whose period of bringing economic benefits to the enterprise is unforeseeable are regarded as intangible assets with indefinite useful lives. For intangible assets with indefinite useful lives, the Company reviews their useful lives at each year-end; if still determined as indefinite upon review, impairment tests are conducted at the balance sheet date.

③ Amortization of intangible assets

For intangible assets with finite useful lives, the Company determines their useful lives upon acquisition and amortizes them systematically and rationally over their useful lives using the straight-line method, with the amortization amount recognized in current profit or loss or included in the cost of related assets based on beneficiary items. The amortizable amount is its cost less estimated residual value. For intangible assets with impairment provisions accrued, the accumulated impairment provision is also deducted. The residual value of an intangible asset with a finite usefu life is treated as zero, unless: a third party has committed to purchase the asset at the end of its useful life, or estimated residual value information can be obtained from an active market that is likely to exist at the end of its usefu life.

Intangible assets with indefinite useful lives are not amortized. At each year-end, the useful lives of intangible assets with indefinite useful lives are reviewed; if evidence indicates that the useful life is finite, the useful life is estimated and amortized systematically and rationally over the estimated useful life.

(2) Scope of R&D expenditure collection and related accounting treatments

1) Scope of R&D expenditure collection

The Company collects expenses directly related to R&D activities as R&D expenditures, including employee compensation for R&D personnel, direct input costs, depreciation expenses and long-term prepaid expenses, design fees, equipment commissioning fees, amortization of intangible assets, outsourced R&D fees, other expenses, etc.

2) Criteria for distinguishing research stage and development stage of internal R&D projects

① The Company treats data collection and preparatory activities for further development as the research stage; expenditures in the research stage are recognized in profit or loss when incurred.

② Development activities conducted after the completion of the research stage are treated as the development stage.

3) Specific conditions for capitalizing development stage expenditures

Expenditures during the development stage are recognized as intangible assets only when all of the following conditions are met:

A. It is technically feasible to complete the intangible asset so that it will be available for use or sale;

B. There is an intention to complete the intangible asset and use or sell it;

C. The manner in which the intangible asset will generate economic benefits, including demonstrating the existence of a market for the output of the intangible asset or the intangible asset itself, or, if it is to be used internally, the usefulness of the intangible asset;

D. Availability of adequate technical, financial, and other resources to complete the development and to use or sel the intangible asset;

E. Ability to measure reliably the expenditure attributable to the intangible asset during its development stage.

30. Impairment of Long-Term Assets

Impairment of long-term equity investments in subsidiaries and associates, investment properties measured under the cost model, fixed assets, construction in progress, right-of-use assets, and intangible assets is determined as follows:

The Company assesses at the balance sheet date whether there are indications of asset impairment; if any such indication exists, the Company estimates the recoverable amount and conducts impairment tests. Goodwill arising from business combinations, intangible assets with indefinite useful lives, and intangible assets not yet ready for use are tested for impairment annually, regardless of whether there is any indication of impairment.

The recoverable amount is determined at the higher of the asset's fair value less costs of disposal and the presen value of the estimated future cash flows of the asset. The Company estimates the recoverable amount on an individua asset basis; if it is difficult to estimate the recoverable amount of an individual asset, the recoverable amount of the asset group to which the asset belongs is determined. An asset group is identified based on whether major cash inflows generated by the asset group are largely independent of cash inflows from other assets or asset groups.

When the recoverable amount of an asset or asset group is lower than its carrying amount, the Company writes down its carrying amount to the recoverable amount, recognizing the write-down in profit or loss and accruing a corresponding asset impairment provision.

In impairment testing, if there is an indication of impairment for an asset group or combination of asset groups related to goodwill, an impairment test is first performed on the asset group or combination excluding goodwill to calculate the recoverable amount and recognize corresponding impairment loss. Subsequently, an impairment test is performed on the asset group or combination including goodwill by comparing its carrying amount with its recoverable amount; if the recoverable amount is lower than the carrying amount, an impairment loss for goodwill is recognized.

Once recognized, asset impairment losses shall not be reversed in subsequent accounting periods.

31. Long-Term Prepaid Expenses

Long-term prepaid expenses account for expenditures already incurred with an amortization period exceeding one year to be borne by the current and subsequent periods, and are amortized evenly over the benefit period.

32. Contract Liabilities

The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between the fulfillment of performance obligations and customer payments. The Company's right to consideration for goods or services transferred to customers (where such right depends on factors other than the passage of time) is presented as contract assets. The Company's obligation to transfer goods or services to customers for consideration received or receivable from customers is presented as contract liabilities.

For the method of determining expected credit losses and accounting treatment of contract assets, please refer to Note V.11.

Contract assets and contract liabilities are presented separately in the balance sheet. Contract assets and contract liabilities under the same contract are presented on a net basis. If the net amount is a debit balance, it is presented under "Contract assets" or "Other non-current assets" based on its liquidity; if the net amount is a credi balance, it is presented under "Contract liabilities" or "Other non-current liabilities" based on its liquidity. Contrac assets and contract liabilities under different contracts cannot be offset against each other.

33. Employee Benefits

(1) Accounting treatment of short-term employee benefits

① Basic employee compensation (salaries, bonuses, allowances, subsidies)

During the accounting period in which employees render services, the Company recognizes short-term employee benefits actually incurred as liabilities and in current profit or loss, unless other accounting standards require or permi inclusion in asset costs.

② Employee welfare expenses

Employee welfare expenses incurred by the Company are recognized in current profit or loss or related asset costs based on actual amounts when incurred. Non-monetary employee benefits are measured at fair value.

③ Social insurances such as medical, work-related injury, and maternity insurance, housing provident funds, trade union funds, and employee education funds

Social insurances (medical, work-related injury, maternity insurance), housing provident funds, trade union funds, and employee education funds paid by the Company are calculated and recognized as liabilities and in profit or loss or asset costs during the service period based on statutory accrual bases and proportions.

④ Short-term paid absences

The Company recognizes employee benefits related to accumulating paid absences when employees render services that increase their entitlement to future paid absences, measuring them at the additional amount expected to be paid as a result of unused entitlements. Employee benefits related to non-accumulating paid absences are recognized in the accounting period in which absences actually occur.

⑤ Short-term profit-sharing plans

The Company recognizes relevant employee benefits payable under a profit-sharing plan when all of the following conditions are met:

A. The enterprise has a present legal or constructive obligation to make payments as a result of past events;

B. The amount of obligation under the profit-sharing plan can be reliably estimated.

(2) Accounting treatment of post-employment benefits

① Defined contribution plans

During the accounting period in which employees render services, the Company recognizes the payable contribution calculated under the defined contribution plan as a liability and in current profit or loss or asset costs.

If contributions are not expected to be settled wholly before twelve months after the end of the reporting period in which employees render the related service, the Company discounts the total contributions payable to present value (using discount rates matched to government bonds or high-quality corporate bonds) to measure employee benefits payable.

② Defined benefit plans

A. Determining the present value of defined benefit obligations and current service cost

Using the projected unit credit method, unbiased and mutually compatible actuarial assumptions are applied to estimate demographic and financial variables, measuring obligations under defined benefit plans and attributing benefits to periods of service. Obligations under defined benefit plans are discounted at market yields of governmen bonds or high-quality corporate bonds at the balance sheet date to determine the present value of obligations and current service cost.

B. Recognizing net defined benefit liability or asset

When plan assets exist, the deficit or surplus resulting from the present value of defined benefit obligations less the fair value of plan assets is recognized as a net defined benefit liability or net asset.

If a surplus exists, the net defined benefit asset is measured at the lower of the surplus in the defined benefit plan and the asset ceiling.

C. Determining amounts recognized in asset costs or profit or loss

Service cost comprises current service cost, past service cost, and gains or losses on settlement. Except for current service costs permitted or required by other standards to be included in asset costs, service costs are recognized in profit or loss.

Net interest on the net defined benefit liability (asset), comprising interest income on plan assets, interest cost on defined benefit obligations, and interest on the effect of the asset ceiling, is recognized in profit or loss.

D. Determining amounts recognized in other comprehensive income

Remeasurements of the net defined benefit liability (asset) comprise:

(a) Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions;

(b) Return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset);

(c) Changes in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).

Such remeasurements are recognized directly in other comprehensive income and are not reclassified to profit or loss in subsequent periods; upon termination of the plan, all amounts previously recognized in OCI are transferred to undistributed profits within equity.

(3) Accounting treatment of termination benefits

The Company recognizes a liability and expense for termination benefits at the earlier of the following dates:

① When the enterprise can no longer unilaterally withdraw the offer of those benefits;

② When the enterprise recognizes costs for a restructuring that involves the payment of termination benefits.

If termination benefits are not expected to be settled wholly within twelve months after the end of the annua reporting period, they are discounted at market yields of matched bonds to measure employee benefits payable.

(4) Accounting treatment of other long-term employee benefits

① Meeting criteria for defined contribution plans

Where other long-term employee benefits meet the criteria of defined contribution plans, employee benefits payable are measured at discounted total contributions payable

② Meeting criteria for defined benefit plans

At the end of the reporting period, the Company recognizes employee benefit costs arising from other long-term employee benefits as the following components:

A. Service cost;

B. Net interest on the net liability (asset) of other long-term employee benefits;

C. Changes from remeasurement of the net liability (asset) of other long-term employee benefits.

To simplify accounting treatments, the net total of the above items is recognized in profit or loss or relevant asset costs.

34. Provisions

(1) Recognition criteria for provisions

The Company recognizes an obligation related to a contingency as a provision when all of the following conditions are met:

① The obligation is a present obligation assumed by the Company;

② It is probable that an outflow of economic benefits will be required to settle the obligation;

③ The amount of the obligation can be reliably measured.

(2) Measurement method for provisions

Provisions are initially measured at the best estimate of the expenditure required to settle the present obligation, taking into account risks, uncertainties, and the time value of money related to contingencies. The carrying amount o provisions is reviewed at each balance sheet date. If there is clear evidence that the carrying amount does not reflec the current best estimate, it is adjusted to the current best estimate.

35. Share-Based Payments

(1) Types of share-based payments

The Company's share-based payments include cash-settled share-based payments and equity-settled sharebased payments.

(2) Determination of fair value of equity instruments

① For shares granted to employees, fair value is measured at the market price of the Company's shares, adjusted for terms and conditions (excluding vesting conditions other than market conditions) upon which the shares were granted. ② For share options granted to employees, market prices are often unavailable. If no traded options with similar terms and conditions exist, the Company selects an appropriate option pricing model to estimate the fair value of granted options.

(3) Basis for determining the best estimate of exercisable equity instruments

At each balance sheet date during the vesting period, the Company makes best estimates based on newly obtained information such as changes in the number of vesting employees, revising the number of equity instruments expected to vest.

(4) Accounting treatment for implementation of share-based payment plans

Cash-settled share-based payments

① For cash-settled share-based payments immediately exercisable after grant, the fair value of liabilities assumed by the Company is recognized in costs or expenses on the grant date, with a corresponding increase in liabilities. The fair value of the liability is remeasured at each balance sheet date and settlement date before settlement, with changes recognized in profit or loss.

② For cash-settled share-based payments exercisable only after completing vesting services or meeting performance conditions, services received are recognized in costs/expenses and liabilities at each balance sheet date during the vesting period based on the best estimate of vesting conditions and the fair value of liabilities assumed.

Equity-settled share-based payments

① For equity-settled share-based payments for employee services immediately exercisable after grant, the fair value of equity instruments is recognized in costs/expenses on the grant date, with a corresponding increase in capita reserve.

② For equity-settled share-based payments for employee services exercisable only after completing vesting services or meeting performance conditions, services received are recognized in costs/expenses and capital reserve at each balance sheet date during the vesting period based on the best estimate of vesting equity instruments at grantdate fair value.

(5) Accounting treatment for modifications to share-based payment plans

When the Company modifies a share-based payment plan, if the modification increases the fair value of equity instruments granted, the increase in services received is recognized based on the incremental fair value; if the modification increases the number of equity instruments granted, the fair value of additional equity instruments is recognized as an increase in services received. Incremental fair value refers to the difference between the fair values of modified and original equity instruments on the modification date. If the modification reduces the total fair value o share-based payments or alters terms and conditions unfavorably to employees, the Company continues to account for services received as if the modification had not occurred, unless part or all of the granted instruments are canceled.

(6) Accounting treatment for cancellations/terminations of share-based payment plans

If granted equity instruments are canceled or settled during the vesting period (other than cancellations due to failure to meet vesting conditions), the Company:

① Treats the cancellation or settlement as an acceleration of vesting and immediately recognizes the amount tha otherwise would have been recognized over the remainder of the vesting period;

② Treats all payments made to employees on cancellation or settlement as repurchases of equity interests, recognizing any excess of payment over the fair value of equity instruments at repurchase date in current expenses.

If the Company repurchases vested equity instruments from employees, it is deducted from owners' equity; any excess of payment over the fair value at repurchase date is recognized in profit or loss.

36. Preferred Shares, Perpetual Bonds, and Other Financial Instruments

Not applicable

37. Revenue

Disclosure of Accounting Policies for Revenue Recognition and Measurement by Business Type

(1) General principles

Revenue is the gross inflow of economic benefits arising in the course of the Company's ordinary activities that results in an increase in owners' equity, other than contributions from equity holders.

The Company recognizes revenue when performance obligations in a contract are satisfied, i.e., when the customer obtains control of the relevant goods or services. Obtaining control over relevant goods or services means being able to direct the use of, and obtain substantially all of the remaining economic benefits from, the goods or services.

If a contract contains two or more performance obligations, the Company allocates the transaction price to each individual performance obligation at contract inception in proportion to the relative standalone selling prices of promised goods or services, measuring revenue based on allocated transaction prices.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to customers, excluding amounts collected on behalf of third parties. In determining transaction prices, if variable consideration exists, the Company determines the best estimate using the expected value or most likely amount, including it in the transaction price only to the extent that it is highly probable that a significant reversal in cumulative revenue recognized will not occur when uncertainty is resolved. If a significan financing component exists in a contract, the transaction price is determined based on the cash price that would have been paid upon obtaining control. The difference between the transaction price and contract consideration is amortized over the contract term using the effective interest method; financing components are not considered if the transfer of control and payment interval is one year or less.

A performance obligation is satisfied over time if one of the following criteria is met; otherwise, it is satisfied at a 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 asset as it is created or enhanced during the Company's performance;

③ Goods produced during performance have no alternative use to the Company and the Company has an enforceable right to payment for performance completed to date throughout the contract period.

For performance obligations satisfied over time, the Company recognizes revenue over time according to the progress of performance, except where progress cannot be reasonably determined. The Company determines performance progress using the input method (or output method). When performance progress cannot be reasonably determined, if incurred costs are expected to be recovered, revenue is recognized to the extent of costs incurred unti progress can be reasonably determined.

For performance obligations satisfied at a point in time, the Company recognizes revenue when the customer obtains control over the relevant goods. In judging whether the customer has obtained control over goods or services, the Company considers indicators including:

① The Company has a present right to payment, i.e., the customer has a present obligation to pay;

② The Company has transferred legal title of the goods to the customer, i.e., the customer has legal title;

③ The Company has transferred physical possession of the goods to the customer, i.e., the customer has physical possession;

④ The Company has transferred significant risks and rewards of ownership to the customer, i.e., the customer has acquired significant risks and rewards of ownership;

⑤ The customer has accepted the goods.

Sales with a Right of Return

For sales with a right of return, when the customer obtains control of the relevant goods, the Company recognizes revenue based on the amount of consideration to which it expects to be entitled in exchange for transferring the goods, and recognizes a provision (estimated liability) based on the amount expected to be refunded due to sales returns; at the same time, an asset (cost of return receivables) is recognized based on the carrying amount of the goods expected to be returned at transfer, less expected costs to recover those goods (including impairment in value o returned goods). Cost of sales is carried forward based on the carrying amount of transferred goods less the ne amount of the aforementioned asset cost. At each balance sheet date, the Company re-estimates future sales returns and remeasures the aforementioned assets and liabilities.

Warranties

The Company provides warranties for goods sold, projects constructed, etc. in accordance with contractual terms and statutory requirements. For assurance-type warranties assuring that goods sold comply with agreed-upon specifications, the Company accounts for them in accordance with "CAS 13 — Contingencies". For service-type warranties that provide a distinct service in addition to assuring compliance with agreed-upon specifications, the Company treats them as separate performance obligations, allocating a portion of the transaction price based on the relative standalone selling prices of the goods and the service-type warranty, and recognizing revenue when the customer obtains control of the service. In assessing whether a warranty provides a distinct service beyond assurance of compliance with agreed specifications, the Company considers factors such as statutory requirements, warranty period, and the nature of tasks promised by the Company.

Principal vs. Agent

The Company assesses whether it is a principal or an agent based on whether it controls the specified goods or services before they are transferred to the customer. If the Company controls the goods or services before transfer to the customer, it acts as a principal and recognizes revenue at the gross amount of consideration received or receivable. Otherwise, the Company acts as an agent and recognizes revenue at the amount of fee or commission to which it expects to be entitled, determined on a net basis after deducting amounts payable to third parties, or based on predetermined commission amounts or percentages.

Consideration Payable to Customers

Where consideration is payable to a customer, unless it is paid in exchange for a distinct good or service received from the customer, the Company offsets such payable against the transaction price, reducing current revenue at the later of when the related revenue is recognized and when the Company pays (or promises to pay) the consideration.

Unexercised Customer Rights (Breakage)

When the Company receives advance payments for goods or services from customers, it first recognizes them as liabilities and reclassifies them as revenue upon fulfilling the performance obligations. When advance payments are non-refundable and customers may waive all or part of their contractual rights, if the Company expects to be entitled to breakage amounts, it recognizes such amounts as revenue in proportion to the pattern of rights exercised by the customer; otherwise, the Company reclassifies the remaining liability balance to revenue only when the likelihood o the customer demanding performance of the remaining obligations is remote.

Contract Modifications

When contract modifications occur in construction contracts with customers:

1) If the modification adds distinct construction services and contract price, and the incremental price reflects standalone selling prices of the additional services, the Company accounts for the contract modification as a separate contract;

② If not falling under (1) above, and the construction services transferred up to the modification date are distinc from those not yet transferred, the Company treats the modification as a termination of the original contract and creates a new contract combining unperformed parts and modified parts;

③ If not falling under (1) above, and the construction services transferred are not distinct from those not yet transferred, the Company accounts for the modification as part of the existing contract, adjusting current revenue on the modification date for the cumulative catch-up impact on recognized revenue.

Circumstances Where Similar Businesses Adopt Different Operating Models Involving Different Revenue Recognition and Measurement Methods

(2) Specific methods

The specific revenue recognition methods of the Company are as follows:

1) Watch sales business

The Company's watch sales business constitutes performance obligations satisfied at a point in time.

A. Online sales

Revenue is recognized when goods are dispatched and acknowledged/signed for by customers, and payments have been collected by e-commerce platforms.

B. Offline sales

Revenue is recognized when goods are delivered to and accepted by customers, payments have been received or the right to receive payment has been obtained, and it is probable that associated economic benefits will flow to the Company.

C. Consignment sales (as consignor)

Under the consignment sales model, the Company recognizes revenue upon receiving sales lists from consignees and confirming that control over goods has been transferred to purchasers.

D. Commissioned consignment sales (as consignee)

Under the commissioned consignment sales model, the Company recognizes revenue on a net basis when delivered third-party consignment products to customers and confirming that control has been transferred to buyers.

2) Precision manufacturing business

The Company's precision manufacturing sales business constitutes performance obligations satisfied at a point in time. Domestic sales revenue is recognized when products are delivered to contractually designated locations and accepted by customers, payments are received or the right to collect payment is established, and associated economic benefits are probable to flow to the Company. Export sales revenue is recognized when products are cleared through customs under contract terms, bills of lading are obtained, payments are received or the right to collect payment is established, and associated economic benefits are probable to flow to the Company

3) Property leasing business

For specific accounting policies, please refer to Note V.41 Accounting Treatment with the Company as Lessor.

38. Contract Costs

Contract costs comprise contract performance costs and contract acquisition costs.

Costs incurred by the Company to fulfill a contract are recognized as an asset (contract performance costs) when all of the following criteria are met:

① The cost relates directly to a contract or an anticipated contract, including direct labor, direct materials, manufacturing overheads (or similar expenses), costs explicitly chargeable to the customer, and other costs incurred solely because of entering into the contract;

② The cost generates or enhances resources of the Company that will be used in satisfying performance obligations in the future;

3) The cost is expected to be recovered.

Incremental costs incurred by the Company to obtain a contract are recognized as an asset (contract acquisition costs) if they are expected to be recovered.

Assets recognized for contract costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods or services to which the asset relates; however, if the amortization period of contract acquisition costs is one year or less, the Company recognizes them in profit or loss when incurred.

An impairment loss is recognized in profit or loss to the extent that the carrying amount of an asset related to contract costs exceeds the difference between the following two items, with further assessment of whether provisions for onerous contracts should be recognized:

1) The remaining amount of consideration that the Company expects to receive in exchange for the goods or services to which the asset relates;

2) The estimated costs that relate directly to transferring those goods or services.

If the impairment provision is subsequently reversed, the increased carrying amount of the asset shall not exceed the carrying amount that would have been determined had no impairment provision been recognized on the reversal date.

Contract performance costs recognized as assets are presented under "Inventories" if the amortization period at initial recognition is one year or one normal operating cycle or less, and under "Other non-current assets" if exceeding one year or one normal operating cycle.

Contract acquisition costs recognized as assets are presented under "Other current assets" if the amortization period at initial recognition is one year or one normal operating cycle or less, and under "Other non-current assets" if exceeding one year or one normal operating cycle.

39. Government Grants

(1) Recognition of government grants

Government grants are recognized only when both of the following conditions are met:

1) The Company can comply with the conditions attached to the government grant;

2) The Company is able to receive the government grant.

(2) Measurement of government grants

Government grants in monetary assets are measured at the amount received or receivable. Government grants in non-monetary assets are measured at fair value; if fair value cannot be reliably determined, they are measured at a nominal amount of RMB 1.

(3) Accounting treatment of government grants

1) Asset-related government grants

Government grants acquired by the Company for purchasing, constructing, or otherwise forming long-term assets are classified as asset-related government grants. Asset-related government grants are recognized as deferred income and recognized in profit or loss on a systematic and rational basis over the useful life of the related asset. Government grants measured at nominal amounts are directly recognized in current profit or loss. If the related asse is sold, transferred, scrapped, or damaged before the end of its useful life, the unallocated balance of deferred income is transferred to profit or loss in the period of asset disposal.

2) Income-related government grants

Government grants other than asset-related government grants are classified as income-related governmen grants. Income-related government grants are accounted for as follows depending on circumstances:

Grants used to compensate for related costs, expenses, or losses in subsequent periods are recognized as deferred income and recognized in current profit or loss in the period in which the related costs, expenses, or losses are recognized;

grants used to compensate for related costs, expenses, or losses already incurred are directly recognized in current profit or loss.

For government grants containing both asset-related and income-related portions, they are accounted for separately; if difficult to distinguish, they are classified entirely as income-related government grants.

Government grants related to daily operating activities of the Company are recognized in other income based on economic substance. Government grants unrelated to daily operating activities are recognized in non-operating income and expenses.

3) Policy-based preferential loan interest subsidies

Where fiscal authorities allocate interest subsidies to lending banks, and lending banks provide loans to the Company at policy preferential interest rates, the actual loan amount received is recognized as the entry value, with borrowing costs calculated based on loan principal and preferential rates.

Where fiscal authorities allocate interest subsidies directly to the Company, the Company offsets the subsidies against relevant borrowing costs.

4) Repayment of government grants

When a recognized government grant needs to be refunded, if it was offset against the carrying amount of the related asset upon initial recognition, the asset carrying amount is adjusted; if there is a related deferred income balance, it is offset against the deferred income balance, and any excess is recognized in current profit or loss; in other cases, it is recognized directly in current profit or loss.

40. Deferred Income Tax Assets / Deferred Income Tax Liabilities

The Company generally uses the balance sheet liability method to recognize and measure the income tax effects of taxable temporary differences or deductible temporary differences as deferred income tax liabilities or deferred income tax assets based on the differences between the carrying amounts of assets and liabilities and their tax bases at the balance sheet date. The Company does not discount deferred income tax assets and deferred income tax liabilities.

(1) Recognition of deferred income tax assets

For deductible temporary differences, deductible losses, and tax credits that can be carried forward to subsequent years, the income tax effect is calculated at the tax rates expected to apply in the period of reversal and recognized as deferred income tax assets, to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, deductible losses, and tax credits can be utilized.

The income tax effect of deductible temporary differences arising from initial recognition of assets or liabilities in transactions or events possessing both of the following characteristics is not recognized as deferred income tax assets: A. The transaction is not a business combination;

B. At the time of the transaction, it affects neither accounting profit nor taxable profit (or deductible loss).

However, for single transactions meeting both of the above conditions where initial recognition of assets and liabilities results in equal taxable and deductible temporary differences, the initial recognition exemption for deferred income tax liabilities and assets does not apply. For taxable and deductible temporary differences arising from initia recognition of assets and liabilities in such transactions, the Company recognizes corresponding deferred tax liabilities and assets at transaction occurrence.

For deductible temporary differences related to investments in subsidiaries, associates, and joint ventures, the tax effect is recognized as deferred tax assets only when both of the following conditions are met:

A. It is probable that the temporary difference will reverse in the foreseeable future;

B. It is probable that taxable profit will be available against which the deductible temporary difference can be utilized;

At the balance sheet date, if there is solid evidence that sufficient taxable profits will be available in future periods to utilize deductible temporary differences, previously unrecognized deferred income tax assets are recognized.

At each balance sheet date, the Company reviews the carrying amount of deferred income tax assets. If it is probable that sufficient taxable profits will not be available in future periods to allow the benefit of deferred income tax assets to be utilized, the carrying amount of deferred income tax assets is written down. Any such write-down is reversed to the extent that it becomes probable that sufficient taxable profit will be available.

(2) Recognition of deferred income tax liabilities

All taxable temporary differences of the Company are measured for their tax effects at tax rates expected to apply in the period of reversal and recognized as deferred income tax liabilities, except for:

1) Tax effects of taxable temporary differences arising from the following transactions/events are not recognized as deferred income tax liabilities:

A. Initial recognition of goodwill;

B. Initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither accounting profit nor taxable profit (or deductible loss).

2) For taxable temporary differences related to investments in subsidiaries, joint ventures, and associates, the tax effect is generally recognized as deferred tax liabilities, except where both of the following conditions are met:

A. The Company is able to control the timing of the reversal of the temporary difference;

B. It is probable that the temporary difference will not reverse in the foreseeable future.

(3) Recognition of deferred tax liabilities or assets involved in specific transactions

1) Deferred tax liabilities or assets related to business combinations

For taxable or deductible temporary differences arising from business combinations not under common control, the recognized deferred tax liabilities or assets and related deferred tax expenses (or income) generally adjust goodwill recognized in the combination.

② Items directly recognized in owners' equity

Current and deferred income taxes related to transactions or events recognized directly in owners' equity are recognized in owners' equity. Transactions or events whose temporary difference tax effects are recognized in owners equity include: other comprehensive income from fair value changes of other debt investments, adjustments to beginning retained earnings under retrospective adjustment for accounting policy changes or retrospective restatement for prior-period errors, and compound financial instruments containing both liability and equit components recognized in owners' equity at initial recognition

3) Tax losses and tax credits

A. Recoverable tax losses and tax credits arising from the Company's own operations

Deductible losses refer to losses determined in accordance with tax laws that are permitted to be carried forward to offset taxable profits in subsequent years. Unused tax losses (deductible losses) and tax credits that can be carried forward under tax laws are treated as deductible temporary differences. When it is probable that sufficient taxable profits will be available in future periods against which recoverable losses or tax credits can be utilized, corresponding deferred income tax assets are recognized up to the probable taxable profits, reducing income tax expense in current profit or loss.

B. Deductible unutilized losses of combinees arising from business combinations

In a business combination, deductible temporary differences of the acquiree obtained by the Company that do no meet deferred tax asset recognition criteria on the acquisition date are not recognized. If, within 12 months after the acquisition date, new or further information indicates that relevant conditions already existed on the acquisition date and the economic benefits of deductible temporary differences are expected to be realized, deferred income tax assets are recognized with a corresponding reduction in goodwill; if goodwill is insufficient, the difference is recognized in current profit or loss; in circumstances other than the above, deferred income tax assets related to business combinations are recognized in current profit or loss.

4) Temporary differences arising from consolidation eliminations

In preparing consolidated financial statements, if temporary differences arise between the carrying amounts o assets and liabilities in the consolidated balance sheet and their tax bases in individual taxable entities due to elimination of unrealized internal sales profits/losses, deferred tax assets or liabilities are recognized in the consolidated balance sheet and income tax expense is adjusted in the consolidated income statement, except for deferred taxes related to transactions recognized directly in equity or business combinations.

5) Equity-settled share-based payments

If tax laws permit tax deductions for expenses related to share-based payments, during the period in which costs and expenses are recognized under accounting standards, the Company estimates the tax-deductible amount based on information obtained at the end of the accounting period to determine tax bases and resulting temporary differences, recognizing related deferred tax when recognition criteria are met. If the estimated future tax-deductible amoun exceeds the cumulative costs and expenses recognized under accounting standards, the tax effect of the excess is recognized directly in owners' equity.

(4) Basis for presenting deferred income tax assets and liabilities on a net basis

The Company presents deferred income tax assets and liabilities on a net basis after offsetting when both of the following conditions are met:

1) The Company has a legally enforceable right to settle current income tax assets and current income tax liabilities on a net basis;

2) Deferred income tax assets and 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 tax assets and liabilities on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significan amounts of deferred tax assets or liabilities are expected to be reversed.

41. Leases

(1) Accounting treatment of leases as lessee

1) Accounting treatment of the Company as lessee

At the commencement date of the lease, the Company recognizes a lease with a lease term of 12 months or less and containing no purchase option as a short-term lease; a lease of an underlying asset that is of low value when new is recognized as a lease of a low-value asset. If the Company subleases or expects to sublease an underlying asset, the head lease is not recognized as a lease of a low-value asset.

For all short-term leases and low-value asset leases, the Company recognizes lease payments in related asset costs or current profit or loss on a straight-line basis over each period of the lease term.

Except for short-term leases and low-value asset leases subject to simplified treatment, the Company recognizes right-of-use assets and lease liabilities at the lease commencement date.

1) Right-of-use assets

A right-of-use asset refers to a lessee's right to use an underlying asset for the lease term.

At the commencement date, the right-of-use asset is initially measured at cost. This cost comprises:

• The initial measurement amount of the lease liability;

• Lease payments made at or before the commencement date, less any lease incentives received;

• Initial direct costs incurred by the lessee;

• Estimated costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located, or restoring the underlying asset to the condition required by the terms and conditions of the lease. The Company recognizes and measures such costs according to the criteria and methods for provisions in Note V.34. Costs incurred to produce inventories are included in the cost of inventories.

Right-of-use assets are depreciated by category using the straight-line method. Where ownership of the underlying asset is reasonably certain to be obtained at the end of the lease term, the depreciation rate is determined over the remaining useful life of the underlying asset based on asset category and estimated net residual value rate; where ownership cannot be reasonably determined to be obtained at lease expiry, depreciation is calculated over the shorter of the lease term and the remaining useful life based on asset category.

2) Lease liabilities

Lease liabilities are initially measured at the present value of lease payments unpaid at the commencement date. Lease payments include the following five components:

• Fixed payments and in-substance fixed payments, less any lease incentives receivable;

• Variable lease payments that depend on an index or a rate;

• Exercise price of a purchase option, provided that the lessee is reasonably certain to exercise that option;

• Payments for terminating the lease, provided that the lease term reflects the lessee exercising an option to terminate the lease;

• Amounts expected to be payable by the lessee under residual value guarantees.

In calculating the present value of lease payments, the interest rate implicit in the lease is used as the discoun rate; if that rate cannot be readily determined, the Company's incremental borrowing rate is used. The difference between lease payments and their present value is treated as unrecognized financing charges, with interest expense recognized in profit or loss across each period of the lease term using the discount rate determined for discounting lease payments. Variable lease payments not included in the measurement of lease liabilities are recognized in profi or loss when actually incurred.

After commencement date, upon changes in in-substance fixed payments, expected amounts payable under residual value guarantees, indices or rates used to determine payments, or reassessments/actual exercises of purchase, renewal, or termination options, the Company remeasures lease liabilities at the present value of revised lease payments and adjusts the carrying amount of right-of-use assets accordingly.

2) Accounting treatment of lease modifications

1) Lease modification accounted for as a separate lease

A lease modification is accounted for as a separate lease if both of the following conditions are met: A. The modification increases the scope of the lease by adding the right to use one or more underlying assets; B. The consideration for the lease increases by an amount commensurate with the standalone price for the increase in scope and any appropriate adjustments to that standalone price to reflect the circumstances of the particular contract.

2) Lease modification not accounted for as a separate lease

A. The Company as lessee

At the effective date of the lease modification, the Company redetermines the lease term and remeasures the lease liability by discounting the revised lease payments using a revised discount rate. In calculating the present value of revised payments, the interest rate implicit in the lease for the remainder of the term is used; if that rate cannot be determined, the lessee's incremental borrowing rate at the effective date of the modification is used.

The effects of lease liability adjustments are accounted for according to the following scenarios:

• If the modification decreases the scope of the lease or shortens the lease term, the carrying amount of the rightof-use asset is reduced, and gains or losses relating to the partial or full termination of the lease are recognized in profit or loss;

• For other lease modifications, the carrying amount of the right-of-use asset is adjusted accordingly.

3) Sale and leaseback transactions

The Company evaluates and determines whether the transfer of an asset in a sale and leaseback transaction qualifies as a sale in accordance with Note V.37.

The Company as seller (lessee)

If the transfer does not qualify as a sale, the Company continues to recognize the transferred asset and recognizes a financial liability equal to the transfer proceeds, accounting for the liability in accordance with Note V.11. If the transfer qualifies as a sale, the Company measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount of the asset that relates to the right of use retained, recognizing only the amount of any gain or loss that relates to the rights transferred to the lessor.

(2) Accounting treatment of leases as lessor

1) Accounting treatment of the Company as lessor

At the inception date, the Company classifies a lease as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset; otherwise, it is classified as an operating lease.

1) Operating leases

The Company recognizes lease receipts from operating leases as rental income on a straight-line basis over each period of the lease term. Initial direct costs incurred are capitalized, amortized on the same basis as rental income recognition, and recognized in profit or loss in installments. Variable lease payments received relating to operating leases that are not included in lease receipts are recognized in profit or loss when actually incurred.

2) Finance leases

At the commencement date, the Company recognizes finance lease receivables based on the net investment in the lease (the sum of unguaranteed residual value and lease receipts not received at commencement date discounted at the interest rate implicit in the lease) and derecognizes the finance lease asset. Over each period of the lease term, the Company calculates and recognizes interest income using the interest rate implicit in the lease.

Variable lease payments received that are not included in the measurement of the net investment in the lease are recognized in profit or loss when actually incurred.

2) Accounting treatment of lease modifications

1) Lease modification accounted for as a separate lease

A lease modification is accounted for as a separate lease if both of the following conditions are met: A. The modification increases the scope of the lease by adding the right to use one or more underlying assets; B. The consideration for the lease increases by an amount commensurate with the standalone price for the increase in scope and any appropriate adjustments to that standalone price to reflect the circumstances of the particular contract.

2) Lease modification not accounted for as a separate lease

B. The Company as lessor

Where an operating lease is modified, the Company accounts for it as a new lease from the effective date of the modification, treating advances or receivables relating to the original lease as receipts for the new lease.

If a finance lease modification is not accounted for as a separate lease, the Company treats the modified lease as follows: if the lease would have been classified as an operating lease had the modification been effective at inception, the Company accounts for it as a new lease from the effective date of modification, measuring the asset's carrying amount at the net investment in the lease immediately before modification; if the lease would have been classified as a finance lease had the modification been effective at inception, the Company accounts for it in accordance with provisions on contractual amendments or renegotiations.

3) Sale and leaseback transactions

The Company evaluates and determines whether the transfer of an asset in a sale and leaseback transaction qualifies as a sale in accordance with Note V.37.

2) The Company as buyer (lessor)

If the transfer of an asset in a sale and leaseback transaction does not qualify as a sale, the Company does not recognize the transferred asset, but recognizes a financial asset equal to the transfer amount, accounting for it under Note V.11. If the transfer qualifies as a sale, the Company accounts for the purchase of the asset in accordance with applicable CAS and accounts for the lease of the asset.

42. Other Significant Accounting Policies and Accounting Estimates

Not applicable

43. Changes in Significant Accounting Policies and Accounting Estimates

(1) Changes in significant accounting policies

Not applicable

(2) Changes in significant accounting estimates

Not applicable

(3) Adjustments to relevant financial statement items at the beginning of the year of first adoption of new accounting standards starting from 2026

Not applicable

44. Other

Not applicable

VI. Taxes

1. Major Tax Categories and Tax Rates

Disclosure of Taxable Entities with Different Enterprise Income Tax Rates

Note: ① In accordance with the "Interim Measures for the Administration of Collection of Enterprise Income Tax for Cross-Regional Consolidated Taxpaying Enterprises" issued by the State Taxation Administration, the headquarter and branch offices of these companies implement the consolidated EIT payment method of "unified calculation, hierarchical management, local prepayment, consolidated settlement, and fiscal treasury adjustment". 50% is allocated and prepaid among branch offices, and 50% is allocated and prepaid by the head office;

② These companies enjoy the preferential enterprise income tax rate reduction for "High-tech Enterprises Supported by the State";

③ The company is registered in Hong Kong and subject to Hong Kong profits tax, with an applicable tax rate of 16.50% this year;

④ The company is registered in Switzerland, and according to the local tax rates of its domicile, the comprehensive effective tax rate this year is 30%;

⑤ These companies are small and micro-sized enterprises and pay enterprise income tax at a rate of 20%.

2. Tax Preferences

According to the "Enterprise Income Tax Law of the People's Republic of China", high-tech enterprises supported by the state are subject to a reduced EIT rate of 15%. The Company's subsidiary Shenzhen FIYTA Precision Technology Co., Ltd. was recognized as a High-tech Enterprise in 2024 (Certificate No.: GR202444200965, valid for 3 years) and was subject to an EIT rate of 15% from 2024 to 2026; the Company's subsidiary Shenzhen FIYTA Technology Development Co., Ltd. was recognized as a High-tech Enterprise in 2025 (Certificate No.: GR202544201002, valid for 3 years) and is subject to an EIT rate of 15% from 2025 to 2027.

Pursuant to the "Announcement of the Ministry of Finance and the State Taxation Administration on Preferentia Income Tax Policies for Small and Micro Enterprises and Individual Industrial and Commercial Households" (Cai Shu [2023] No. 6), the taxable income of small and micro enterprises is calculated at a reduced rate of 25%, and enterprise income tax is paid at a rate of 20%.

Pursuant to the "Notice of the Ministry of Finance and the State Taxation Administration on Extending the Loss Carryforward Period for High-tech Enterprises and Science and Technology SMEs" (Cai Shui [2018] No. 76), starting from January 1, 2018, unrecovered losses incurred in the 5 accounting years prior to obtaining high-tech enterprise qualification are allowed to be carried forward to subsequent years, with the maximum carryforward period extended from 5 years to 10 years.

Pursuant to the "Announcement of the Ministry of Finance and the State Taxation Administration on Further Improving the Policy for Pre-tax Super Deduction of R&D Expenses" (Cai Shui [2023] No. 7), for actual R&D expenses incurred by enterprises that do not form intangible assets and are included in current profit or loss, an extra 100% o the actual amount incurred is deducted before tax starting from January 1, 2023, on top of actual deductions; for those forming intangible assets, they are amortized before tax at 200% of the intangible asset cost starting from January 1, 2023.

Starting from 2019, Hong Kong implemented a two-tiered profits tax rate regime, under which the profits tax rate for the first HKD 2 million of assessable profits for Hong Kong companies is reduced to 8.25%, with remaining profits taxed at 16.5%.

3. Other

Not applicable

VII. Notes to Items in Consolidated Financial Statements

1. Cash and Cash Equivalents

Unit: RMB

Other Notes

Note 1: Funds deposited in finance companies mainly represent funds deposited in AVIC Finance;

Note 2: As of June 30, 2026, the Company had no funds pledged, frozen, or subject to potential recovery risks.

The details of funds deposited overseas with restricted repatriation are as follows:

2. Financial Assets Held for Trading

Not applicable

3. Derivative Financial Assets

Not applicable

4. Notes Receivable

(1) Classification of notes receivable

Unit: RMB

(2) Disclosure by bad debt provision method

Unit: RMB

Category of bad debt provision on a portfolio basis: Commercial acceptance bills portfolio Unit: RMB

Basis for determining the portfolio: Receivables of the same type share similar credit risk characteristics.

Category of bad debt provision on a portfolio basis: Bank acceptance bills portfolio

Unit: RMB

Basis for determining the portfolio: The issuers have high credit ratings, have had no historical bill defaults, present extremely low credit loss risk, and possess strong capacity to meet contractual cash flow payment obligations in the short term. If the general expected credit loss model is adopted for notes receivable bad debt provision:

Not applicable

(3) Bad debt provision accrued, recovered, or reversed in current period

Accrual of bad debt provisions in current period:

Unit: RMB

Including significant recoveries or reversals of bad debt provisions in current period: Not applicable

(4) Notes receivable pledged by the Company at the end of the period

Not applicable

(5) Notes receivable endorsed or discounted but not yet matured at the balance sheet date Not applicable

(6) Notes receivable actually written off in current period

Not applicable

5. Accounts Receivable

(1) Disclosure by aging

Unit: RMB

(2) Disclosure by bad debt provision method

Unit: RMB

Category of individual bad debt provision: Receivables from customers

Unit: RMB Category of portfolio bad debt provision: Receivables from customers portfolio

Unit: RMB

Basis for determining the portfolio: Receivables of the same type share similar credit risk characteristics. If the general expected credit loss model is adopted for accounts receivable bad debt provision:

Not applicable

(3) Bad debt provision accrued, recovered, or reversed in current period

Accrual of bad debt provisions in current period:

Unit: RMB

Including significant recoveries or reversals of bad debt provisions in current period: Not applicable

(4) Accounts receivable actually written off in current period

Not applicable

(5) Top five accounts receivable and contract assets grouped by debtor at period-end

Unit: RMB

6. Contract Assets

Not applicable

7. Receivables Financing

Not applicable

8. Other Receivables

Unit: RMB

(1) Interest receivable

1) Classification of interest receivable

Not applicable

2) Significant overdue interest

Not applicable

3) Disclosure by bad debt provision method

Not applicable

4) Bad debt provision accrued, recovered, or reversed in current period

Not applicable

5) Interest receivable actually written off in current period

Not applicable

(2) Dividends receivable

1) Classification of dividends receivable

Not applicable

2) Significant dividends receivable aged over 1 year

Not applicable

3) Disclosure by bad debt provision method

Not applicable

4) Bad debt provision accrued, recovered, or reversed in current period

Not applicable

5) Dividends receivable actually written off in current period

Not applicable

(3) Other receivables

1) Classification of other receivables by nature

Unit: RMB

2) Disclosure by aging

Unit: RMB

3) Disclosure by bad debt provision method

Unit: RMB

Category of individual bad debt provision: Other receivables

Unit: RMB Category of portfolio bad debt provision: Deposits and security deposits portfolio

Unit: RMB Basis for determining the portfolio: Receivables of the same nature share similar credit risk characteristics.

Category of portfolio bad debt provision: Employee petty cash portfolio Unit: RMB

Basis for determining the portfolio: Receivables of the same nature share similar credit risk characteristics.

Category of portfolio bad debt provision: Other receivables portfolio

Unit: RMB

Basis for determining the portfolio: Receivables of the same nature share similar credit risk characteristics. Bad debt provision accrued under the general expected credit loss model:

Unit: RMB

Basis for stage division and bad debt provision accrual ratios

Stage 1 represents bad debt provisions for other receivables aged within 1 year; Stage 2 represents bad debt provisions for other receivables aged over 1 year without individual assessment; Stage 3 represents bad debt provisions accrued on an individual assessment basis.

Significant changes in gross carrying amounts affecting changes in loss allowances

Not applicable

4) Bad debt provision accrued, recovered, or reversed in current period

Accrual of bad debt provisions in current period:

Unit: RMB

Including significant reversals or recoveries of bad debt provisions in current period:

Not applicable

5) Other receivables actually written off in current period

Not applicable

Explanation of reasons for non-settlement of significant prepayments aged over 1 year: Not applicable

6) Top five other receivables grouped by debtor at period-end

Unit: RMB

7) Presented in other receivables due to centralized cash management

Not applicable

9. Prepayments

(1) Presentation of prepayments by aging

Unit: RMB

(2) Top five prepayments grouped by payee at period-end

The aggregated ending balance of the top five prepayments grouped by payee in the current period was RMB 25,444,410.11, accounting for 96.19% of the total ending balance of prepayments.

10. Inventories

Whether the Company needs to comply with real estate industry disclosure requirements No

(1) Classification of inventories

Unit: RMB

(2) Data resources recognized as inventories

Not applicable

(3) Provision for inventory depreciation and contract performance cost impairment

Unit: RMB

Provision for inventory depreciation accrued on a portfolio basis Not applicable

(4) Description of capitalized borrowing costs in ending inventory balances

Not applicable

(5) Description of contract performance costs amortized in current period

Not applicable

11. Assets Held for Sale

Not applicable

12. Non-Current Assets Due Within One Year

Not applicable

(1) Debt investments due within one year

Not applicable

(2) Other debt investments due within one year

Not applicable

13. Other Current Assets

Unit: RMB

14. Debt Investments

Not applicable

15. Other Debt Investments

Not applicable

16. Other Equity Instrument Investments

Not applicable

17. Long-Term Receivables

(1) Long-term receivables overview

Not applicable

(2) Disclosure by bad debt provision method

Not applicable

(3) Bad debt provision accrued, recovered, or reversed in current period

Not applicable

(4) Long-term receivables actually written off in current period

Not applicable

18. Long-Term Equity Investments

Unit: RMB

Recoverable amount determined at fair value less costs of disposal

Not applicable

Recoverable amount determined at present value of estimated future cash flows

Not applicable

Reasons for significant discrepancies between the above information and information used in prior years' impairment tests or external information

Not applicable

Reasons for significant discrepancies between information used in prior years' impairment tests and actual currentyear conditions

Not applicable

Other Notes

Not applicable

19. Other Non-Current Financial Assets

Not applicable

20. Investment Properties

(1) Investment properties measured under the cost model

Unit: RMB

Recoverable amount determined at fair value less costs of disposal

Not applicable

Recoverable amount determined at present value of estimated future cash flows

Not applicable

Reasons for significant discrepancies between the above information and information used in prior years' impairment tests or external information

Not applicable

Reasons for significant discrepancies between information used in prior years' impairment tests and actual currentyear conditions

Not applicable

Other Notes

Not applicable

(2) Investment properties measured under the fair value model

Not applicable

(3) Transferred to investment properties and measured at fair value

Not applicable

(4) Investment properties without property title certificates

Not applicable

21. Fixed Assets

Unit: RMB

(1) Fixed assets breakdown

Unit: RMB