中鲁Ｂ(200992)ST2005年年度报告摘要（英文版）

Stock code: 200992 Short form of stock: ST ZHONGLU B No.: 2006-004 SHANDONG ZHONGLU OCEANIC FISHERIES CO., LTD. SUMMARY OF ANNUAL REPORT 2005 §1. Important Notice 1.1 Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. The summary of annual report 2005 is abstracted from the full text of annual report; the investors are suggested to read the full text of the Annual Report to understand more details. 1.2 No director supervisor and senior executive stated that they couldn’t ensure the correctness, accuracy and completeness of the contents of the Annual Report or have objection for this report. 1.3 Name of absent directors: Name of absent Name of entrusted Reason for absence director person Liu Changsuo Resignation No Shao Shijie Business on trip due to work Li Wenyi 1.4 Horwath International CPA Limited (China Hubei) issued unqualified Auditors’ Report with paragraph of emphasis matters. 1.5 Wang Zhao’an, Principal of the Company; Zhang Jinqing, CFO of the Company, and Wu Shuxian, Person in Charge of Accounting Organ( Accounting Officer) hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. §2. Company Profile 2.1 Basic information Short form of the stock ST ZHONGLU B Stock code 200992 Listed stock exchange Shenzhen Stock Exchange Registered address: No. 43, Heping Road, Jinan, Registered address and office address Shandong Office address: No. 43, Heping Road, Jinan, Shandong Post code Post code of registered address: 250014 Post code of office address: 250014 Internet web site of the Company - E-mail of the Company zlzqb@163.com 2.2 Contact person and method Secretary of the Board of Directors Representative in charge of Securities Affairs Name Zhou Feng Jiang Peng Contact address No. 43, Heping Road, Jinan, Shandong No. 43, Heping Road, Jinan, Shandong Telephone (86)531-86553278 (86)531-86553276 Fax (86)531-86943084 (86)531-86943084 E-mail zlzqb@163.com zqbjp@163.com §3. Summary of Accounting Data and Financial Indexes 3.1 Major accounting data Unit: RMB Increase/decrease 2005 2004 2003 over last year（％） Income from main operations 167,184,320.00 224,089,193.00 -25.39% 318,865,044.00 Total profit -43,744,983.00 4,105,404.00 -1,165.55% -215,140,076.00 Net profit -47,520,147.00 3,398,218.00 -1,498.38% -213,472,451.00 Net profit after deducting -53,483,373.00 -29,186,637.00 -83.25% -193,771,219.00 non-recurring gains and losses Net cash flow arising from 18,718,672.00 40,447,712.00 -53.72% - operating activities Increase/decrease At the end of At the end of At the end of from the end of 2005 2004 2003 previous year（％） Total assets 467,801,859.00 507,835,721.00 -7.88% 562,738,775.00 Shareholder’s equity (excluding 30,953,977.00 76,749,570.00 -59.67% 72,396,580.00 minority interests) 3.2 Major financial indexes Unit: RMB Increase/decrease 2005 2004 2003 over last year（％） Earnings per share -0.18 0.01 -1,900.00% -0.80 Earnings per share (Note) -0.18 - - - Return on equity -153.52% 4.43% -157.95% 294.87% Return on equity as calculated based on net profit after deducting non-recurring -24.83% -38.03% 13.20% -267.65% gains and losses Net cash flow per share arising from 0.07 0.15 -53.33% -0.08 operating activities Increase or decrease At the end At the end At the end of from the end of of 2005 of 2004 2003 previous year（％） Net assets per share 0.12 0.29 -58.62% 0.27 Net assets per share after adjustment 0.11 0.29 -62.07% 0.25 Note: Earrings per share calculated base on new share capital if share capital was changed from the end of the report period to the disclosure date. Items of non-recurring gains and losses: √Applicable □Inapplicable Unit: RMB Items of non-recurring gains and losses Amount Switching back of reserve for bad debts 6,169,083.00 Switching back of reserve for depreciation of inventories 299,148.00 Switching back of reserve for impairment of fixed assets 0.00 Non-operating incomes 43,108.00 Including: Net income received from the disposal of fixed assets 27,191.00 Other incomes 15,917.00 Non-operating expenses 548,113.00 Including: Net losses received from the disposal of fixed assets 523,978.00 Other expenses 24,135.00 Total 5,963,226.00 3.3 Difference of net profit as audited by Chinese Accounting Standard (CAS) and International Accounting Standard (IAS) √Applicable □Inapplicable Unit: RMB CAS IAS Net profit -47,520,147.00 -47,520,147.00 Explanation on the difference No difference §4. Changes in Share Capital and Particulars about Shareholders 4.1 Statement of change in share capital Unit: share Increase/Decrease Before the change After the change in this time Amount Proportion Subtotal Amount Proportion I Unlisted shares 128,071,320 48.13% 0 128,071,320 48.13% i Sponsors’ shares 128,071,320 48.13% 0 128,071,320 48.13% Including: State-owned shares 127,811,320 48.04% 0 127,811,320 48.04% Domestic legal person’s shares 260,000 0.10% 0 260,000 0.10% Foreign legal person’s shares 0 0.00% 0 0 0.00% Others 0 0.00% 0 0 0.00% ii Raised legal person’s shares 0 0.00% 0 0 0.00% iii Inner employees’ shares 0 0.00% 0 0 0.00% iv Preference shares or others 0 0.00% 0 0 0.00% II Listed shares 138,000,000 51.87% 0 138,000,000 51.87% i Ordinary RMB shares 0 0.00% 0 0 0.00% ii Domestically listed foreign shares 138,000,000 51.87% 0 138,000,000 51.87% iii Overseas listed foreign shares 0 0.00% 0 0 0.00% iv Others 0 0.00% 0 0 0.00% III Total shares 266,071,320 100.00% 0 266,071,320 100.00% 4.2 Statement of shares held by the top ten shareholders and the top ten shareholders of circulation share Unit: share Total number of shareholders at the end of report year 17,886 Particulars about shares held by the top ten shareholders Nature of shareholders Number of share (State-owned Proportion Shares held Non-circulating Full name of Shareholders pledged/ shareholder/fo (%) (share) shares frozen (share) reign shareholder) SHANDONG GROUP CORPORATION OF State-owned 47.25% 125,731,320 125,731,320 125,731,320 FISHERY ENTERPRISES shareholder Foreign XU XINHU 1.35% 3,603,745 0 0 shareholder Foreign LIU DAN 0.85% 2,266,433 0 0 shareholder Foreign LIANG YUZHEN 0.75% 1,996,900 0 0 shareholder CHINA HEAVY AUTOMOBILE GROUP State-owned 0.73% 1,950,000 1,950,000 0 JINAN TRUCK COMPANY LIMITED shareholder SAHGNHAI WANGUO SECURITIES HONG Foreign 0.56% 1,479,431 0 0 KONG LIMITED shareholder Foreign LIU YUAN 0.49% 1,295,417 0 0 shareholder Foreign YI YING 0.41% 1,078,200 0 0 shareholder Foreign WANG JINGHU 0.34% 900,000 0 0 shareholder Foreign HANG WENJIAN 0.32% 853,000 0 0 shareholder Particulars about shares held by the top ten shareholders of circulation share Full name of the shareholders Circulating shares held at the year-end Type of shares (A, B, H or other) XU XINHU 3,603,745 Domestically listed foreign shares LIU DAN 2,266,433 Domestically listed foreign shares LIANG YUZHEN 1,996,900 Domestically listed foreign shares SAHGNHAI WANGUO SECURITIES HONG 1,479,431 Domestically listed foreign shares KONG LIMITED LIU YUAN 1,295,417 Domestically listed foreign shares YI YING 1,078,200 Domestically listed foreign shares WANG JINGHU 900,000 Domestically listed foreign shares HAN WENJIAN 853,000 Domestically listed foreign shares WU YANG 775,708 Domestically listed foreign shares HUANG JIAYI 758,779 Domestically listed foreign shares Explanation on associated relationship among Among the top ten shareholders, Shandong Group Corporation of Fishery Enterprises and China the top ten shareholders or consistent action Heavy Automobile Group Jinan Truck Co., Ltd. are sponsor’s shareholders of the Company, there exists no associated relationship between them, or they do not belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies; the other shareholders are ones of domestically listed foreign shares, the Company is unknown whether there exists associated relationship, or whether the rest shareholders belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. It is unknown whether there exists associated relationship among the top ten shareholders of circulation share and between the top ten circulation shareholders and the top ten shareholders in the Company. 4.3 Particulars about controlling shareholders and actual controller of the Company 4.3.1 Particulars about change in controlling shareholders and actual controller of the Company □Applicable √Inapplicable 4.3.2 Introduction of especial situation for controlling shareholder and other actual controller Name of the controlling shareholder: Shandong Group Corporation of Fishery Enterprises Legal representative: Liu Changsuo Date of foundation: Nov. 1988 Registered capital: RMB 380,000,000 Nature of Company: state-owned enterprise Structure of equity: the State-owned Assets Supervision and Administration Commission of Shandong Province Government holds 100% equity of Fishery Enterprise Business scope: marine catching, aquiculture, resource development and technical service of aquatic product; sales of aquatic products and fishery resource (excluding special operating products); import and export business with the approval scope; sales of steels and woods; sending of work personnel of the fishery business to overseas. In the report year, the controlling shareholder of the Company remained unchanged. 4. 3. 3 Property right and controlling relationships between the actual controller of the Company and the Company is as follows: The State-owned Assets Supervision and Administration Commission of Shandong Province Government 100% Shandong Group Corporation of Fishery Enterprises 47.25% The Company §5. Particulars about Directors, Supervisors, Senior Executives 5.1 Particulars about changes in shares and remunerations held by directors, supervisors and senior executives Total Draw the Share remuneration remuneration Shares held Reason held drew from the from other Name Title Sex Age Term office at the of at the Company in the shareholder units year-begin change year-end report period or associates or (RMB’0000) not Chairman Liu May 30, 2003 – of the Male 55 0 0 12.00 No Changsuo Sep. 16,2005 Board Wang General Sep.16 ,2002 – Male 55 0 0 12.00 No Zhao’an Manager Sep.16 ,2005 Sep. 16,2002 – Li Wenyi Director Male 50 0 0 10.50 No Sep.16 ,2005 Sep.16 ,2002 – Shao Shijie Director Male 60 0 0 4.05 Yes Sep.16 ,2005 Wang Independent Sep16., 2002 – Male 46 0 0 3.00 No Hanmin Director Sep.16 ,2005 Independent May 30, 2003 – Jiang Jin Male 37 0 0 3.00 No Director Sep. 16,2005 Independent March 29 ,2004 – Jiang Lu Male 47 0 0 3.00 No Director Sep.16 ,2005 Secretary of Sep.16, 2002 – Zhou Feng Male 51 0 0 9.00 No the Board Sep.16 ,2005 Chief Zhang July 29 ,2003 – Financial Male 51 0 0 9.00 No Jinqing Sep.16, 2005 Supervisor Chairman of the Mar.29 ,2004 – Li Ming Male 41 0 0 9.00 No Supervisor Sep. 16,2005 Committee March 29, 2004 – Chi Ming Supervisor Female 42 0 0 3.19 No Sep.16 ,2005 Sep.16, 2002 – Yin Jixian Supervisor Male 46 0 0 3.49 Yes Sep. 16,2005 Sep. 16,2002 – Huang Qi Supervisor Male 33 0 0 2.73 No Sep.16 ,2005 Shang Oct.29, 2003 - Supervisor Female 36 0 0 2.19 No Qinghua Sep. 16,2005 Total - - - - 0 0 - 86.15 - §6. Report of the Board of Directors 6.1 Discussion and analysis to the whole operation in the report period In 2005, in order to maintain the industry of Shandong Oceanic Fisheries, assure the benign development of the Company after reorganization and keep the leading position in Shandong fisheries, the Company operated around the working targets of normal running of the Company, united with each other, overcame the difficulties, made endeavors in normal operation, structural adjustment, enterprise reform, increasing incomes and reducing expenses, systematic management of the Company; and obtained good effects. In 2005, the fishing volume amounted to 18318 tons, among which 4951.12 tons of tuna seiner and 1414.21 tons of tuna longline fishing, and the volume of tow net amounted to11953.07. Comparing to last period, the volume decreased 24336.55 tons with -57.05%; the operating incomes realized amounted to RMB 167,180,000, RMB -56,910,000 decreased with -25%; the main business profit was amounting to RMB 20,790,000, RMB 27,580,000 decreased with -57%. In the report period, the net profit the Company realized RMB -47,250,000. The main reasons for decreasing: 1st, the national strike of Argentina sailors resulted in stopping production of Tai’an boat for half year, and influenced the launching out and the output decreased; 2nd, the repair of Tuna seiner held up the production and the incomes reduced; 3rd, Qingdao Refrigeration subsidiary of Zhonglu was listed in the Companies of significant securities hazards in Qingdao, and was gradually took measures on stopping production pf the Company, and the income from refrigeration reduced; 4th, the transferring of the whole assets of Trading subsidiary corporation in former of report period and logout of it resulted in the reduction of operating income of aquatic products; 5th, the bank sealed up the account of the Company, which resulted in halting in trading business of the Headquarters; 6th, the price of diesel rose up and the fishing cost increased. In order to maintain the production of the Company, the Company made every endeavor to negotiate with the suppliers and customs, and strove for deferred payment for the suppliers and extending the sales to get funds. In the report period, the net cash flow of operating activities was amounting to RMB 18,720,000. 6.2 Statement of main operations classified according to industries or products Unit: RMB’0000 Main operations classified according to industries Increase/decre Increase/decrease Gross ase in cost of Increase/decreas Classified according Income Cost of in income from profit main e in gross profit to industries or from main main main operations ratio operations ratio over the products operations operations over the last year (%) over the last last year (%) (%) year (%) Fishery 16,718.00 14,516.00 13.18% -25.39% -16.79% -8.97% Main operations classified according to products Tunny 8,715.81 8,605.70 1.26% -8.45% 20.02% -23.42% Other fish goods 2,312.78 1,919.06 17.02% -72.64% -74.11% 4.72% 6.3 Particulars about main operations classified according to areas Unit: RMB’0000 Income from main Increase/decrease in income from main Areas operations (RMB) operations over the last year (%) Mainland of China 1,982.98 -66.52% Taiwan of China 7,409.78 1.83% Nigeria 484.25 -72.60% Japan 6,287.64 0.29% Argentina 189.34 597.64% Korea 364.44 -55.96% Total 16,718.43 -25.39% 6.4 Application of the raised proceeds □Applicable √Inapplicable Particulars about the changed projects □Applicable √Inapplicable 6.5 Application of the proceeds not raised through shares offering □Applicable √Inapplicable 6.6 Explanation of the Board of Directors on the “Qualified Opinion” made by the CPAs √Applicable □Inapplicable We completely agreed with accountant’s auditing opinion. In the light of accountant’ emphasizing the existing uncertainty in sustainable operation capacity of the Company, the Company plan to adopt the following measures to improve sustainable operation capacity: 1. With the support of local government, further accelerating external assets reorganization.. In Dec. 2004, controlling shareholder of the Company, Shandong Group Corporation of Fishery Enterprises (hereinafter referred to as “SGCFE”) signed the Agreement of Shares Transfer of Shandong Zhonglu Oceanic Fisheries Co., Ltd. and the Supplementary Agreement of Shares Transfer of Shandong Zhonglu Oceanic Fisheries Co., Ltd. with Shandong Luxin Investment Holding Co., Ltd. (hereinafter referred to as “Luxin Holding”), SGCFE transferred its 33.07% equity of the Company to Luxin Holding. At the same time, Luxin Holding and SGCFE issued together the Plan of Debt Refund and the Supplementary Explanation on Plan of Debt Refund: SGCFE repaid the partial debts to the Company with the funds received from auction after SGCFE auctioned its partial effective assets. After finishing the aforesaid debts paying duties, SGCFE still could not liquidate its debts and guarantee completely, but Luxin Holding could refund and liquidate in cash instead of SGCFE. From the date of purchasing finished, Luxin Holding amortized the relevant debts instead of SGCFE and its affiliated companies to the Company and ensured the amount of capital occupation occurred due to non-operating current of SGCFE and its affiliated companies and the actual amount of debts occurred due to the Company providing guarantee for SGCFE and its affiliated companies has decreased 30% at least in every fiscal year. At the same time, SGCFE promised to refund accounts receivable of RMB 10,006,511 of SGCFE and its affiliated companies received by the Company ended Sep. 30, 2004 completely before finishing assets reorganization by means of the Commitment Letter. On Dec. 29, 2005, State-owned Assets Supervision & Administration of Commission of the State Council GZCQ [2005] No. 1593 Reply on Relevant Issues on State-owned Share Transfer of Shandong Zhonglu Oceanic Fisheries Limited Company, agreed that SGCFE transfer its shares up to 33.07% (amounting to 88,000,000) held from the Company to Luxin Holding. In addition, based on LRCZ 2005 No. [013] Written Confirmation for successful bidding promulgated by Shandong Qilu Ruifeng Auction Co., Ltd, Luxin Holding won the bidding for judicial frozen shares of the Company amounting to 37,731,320 (accounting for 14.18%) held by SGCFE at a price of RMB 8,760,000 on June 7, 2005. After finishing the said process of transferring ownership for share transfer, Luxin Holding became controlling shareholder of the Company due to holding 125m731, 320 shares (accounting for 47.25%) of the Company. In 2006, the Company would further promote and quicken implementation of the aforesaid assets reorganization plan with the support of local government. 2. Strengthening inner management and improving. In the light of actual operation situation of the Company, the Company would enhance inner management in 2006. To make adjustment for vessels having long ages, high cost and low benefit, continuously promote to Liumu fish with master seiner; support to subsidiaries with high earnings power, to expand its throughput, carrying out redcing or ceasing production for subsidiary with poor operation and deficit profit so as to decrease deficit amount; meanwhile endlessly to promote control measure for cost and three expenses and improve earnings power. In addition, through negotiation with supplier and customer, the Company could obtain finance by delaying paying for supplier on the one hand, on the other hand, accelerate sales retrieves so as to reduce account receivable amounting to 16,532,969 the period-end to the period-begin. 3. Actively enhancing communication with credit bank so as to gain the support of bank for the Company In 2006, with the support of the local government, the Company actively enhances communication with credit bank; make use of arrearage repaid by large shareholder to repay partial bank loans and obtain capital support for the Company from bank by means of new shareholder guarantee, so as to release repaying pressure from bank and capital pressure of the Company’s normal operation. The Company thinks, after accomplishment of essential reorganization in 2006, the Company could gain necessary Capital support, efficiently solve risks of paying debts of the Company; through strengthening inner management to perfect operation situation of the Company and improve earnings power. The said measures could ensure normal operating activities of the Company in 2006, as well as sustainable operating capacity through successful operation in the future. 6.7 The preplan of profit distribution and capitalization of capital public reserve of the Board of Directors □Applicable √Inapplicable The Company didn’t appropriate share distribution preplan though the Company achieved the profit in the report period □Applicable √Inapplicable §7 Significant Events 7.1 Purchase of assets √Applicable □Inapplicable Unit: RMB’0000 Assets ownership Debts and Contribution to net Explaining involved in Liabilities profit of the Related principle of Transaction The assets Purchase the assets involved in Date of purchase Company of the transaction or pricing parties purchased price transferred the assets assets sold from the no or not transferred date of purchase or not 25.85% equity of Yantai Foods Equity Co., Ltd. was Setting price purchasing of held by May 30, 2005 746.05 3.21 Yes Yes Yes by agreement HABITAT SHANSHUI ENTERPRISE PTY LTD 7.2 Sales of assets √Applicable □Inapplicable Unit: RMB’0000 Contribution to Debts and net profit of the Profit Assets ownership Liabilities The Company of the Transaction Date of Sale or loss involved in the involved in assets assets sold from Related Explaining parties sale price from assets transferred the assets sold the transaction principle of sale or not transferred year-beginning to or no pricing or not the date of sale Zhoushan Dongyi Taihui Apr. 10, Setting price by 99.30 -32.15 -51.74 No Yes Yes Shipping Vessel 2005 agreement Co., Ltd. 7.1, 7.2 Influence on consistence of business and stability of managers caused by the issues interfered in purchase and sale The accomplishment of the above transactions had no impacts on consistence of business and stability of managers. 7.3 Significant guarantees √Applicable □Inapplicable Unit: RMB’0000 Particulars about the external guarantee of the Company (Barring the guarantee for the controlling subsidiaries) Date of Guarantee Name of the Complete happening (date Amount of Guarantee for related Company Guarantee term Implementation of signing guarantee type party (yes guaranteed or not agreement) or not) Qingdao Haiyu Fishery Co., Aug.31,2002 2,151.00 Guarantee Aug.31,2002-Jul.29,2003 No Yes Ltd.. Qingdao Double Whale Jul.24,2002 2,000.00 Guarantee Jul.24,2002-Jul.24,2006 No No Pharmaceuticals Co., Ltd Qingdao Double Whale Feb.9,2003 1,500.00 Guarantee Feb.9,2003- Feb.10,2006 No No Pharmaceuticals Co., Ltd Qingdao Double Whale Feb.9,2003 500.00 Guarantee Feb.9,2003- Jul.24,2006 No No Pharmaceuticals Co., Ltd Qingdao Double Whale Jul.4,2003 1,000.00 Guarantee Jul.4,2003-May.4,2006 No No Pharmaceuticals Co., Ltd Total amount of guarantee in the report period 0.00 Total balance of guarantee at the end of the report period 7,151.00 Guarantee of the Company for the controlling subsidiaries Total amount of guarantee for controlling subsidiaries in the report 0.00 period Total balance of guarantee for controlling subsidiaries at the end of 0.00 the report period Particulars about the external guarantee of the Company (Including the guarantee for the controlling subsidiaries) Total amount of guarantee 7,151.00 The proportion of the total amount of guarantee in the net assets of 231.02% the Company Including: Total amount of guarantee for other related parties, the actual 2,151.00 shareholder and the related parties The debts guarantee amount provided for the guarantee of which 2,151.00 the assets-liability ratio exceeded 70% Total amount of guarantee in net assets of the Company exceeded 5,603.50 50% Total amount of guarantee above 5,603.50 7.4 Significant related transactions 7.4.1 Related purchase and sale √Applicable □Inapplicable Unit: RMB’0000 Selling products and Purchasing products and providing labor force to accepting labor force to related related parties parties Proportion Related parties Proportion in in the same Transaction the same kind Transaction kind of amount of transaction amount transaction amount amount Prodesur S. A. 32.26 100.00% 0.00 0.00% Qingyu Haifeng Shipping 8.09 100.00% 0.00 0.00% Company Total 40.35 100.00% 0.00 0.00% Including: In the report period, the amount of the listed Company sold the products or provided labor forces to/for controlling shareholders and its subsidiaries was amounting to RMB 403, 50. 7.4.2 Current related credits and liabilities √Applicable □Inapplicable Unit: RMB’0000 Related parties supplied funds to the Supply funds to related parties Related parties Company Occurred amount Balance Occurred amount Balance Shandong Group Corporation of Fishery 0.00 0.03 0.00 0.00 Enterprises (accounts receivable) .Qingdao Oceanic Fishery Company 3.15 25.25 6.04 0.00 (accounts receivable) Qingdao Fishery Aquatic Foods Processing 0.00 9.64 0.00 0.00 Plant (accounts receivable) Prodesur S.A. (accounts receivable) 157.07 718.85 0.00 0.00 Qingyu Haifeng Shipping Company 6.45 39.53 14.33 0.00 (accounts receivable) Shandong Group Corporation of Fishery 1.87 15,855.03 746.05 0.00 Enterprises (other receivables) Shandong Longkou Fishery Comprehensive 0.00 1,071.82 2.75 0.00 Company (other receivables) Qingdao Oceanic Fishery Company (other 101.62 5,338.95 125.92 0.00 receivables) SGCFE S. A. (other receivables) 0.00 2,236.25 0.00 0.00 Qingdao Anning Shipping Engineering Co., 0.00 166.62 0.00 0.00 Ltd. (other receivables) Qingdao Fishery Aquatic Foods Processing 0.00 776.14 0.00 0.00 Plant (other receivables) Qingdao Meilai Foods Co., Ltd. (other 21.61 386.46 13.56 0.00 receivables) Qingdao Haiyu Fishery Co., Ltd. (other 0.00 803.72 0.00 0.00 receivables) Prodesur S.A. (other receivables) 211.19 792.99 0.00 0.00 Longkou Tenglong Aquatic Foods Co., Ltd. 0.00 1,405.78 0.00 0.00 Qingdao Animal Pharmaceutical Co., Ltd. 0.00 34.55 0.00 0.00 Qingyu Haifeng Shipping Company 0.00 50.04 0.00 0.00 .Qingdao Lubao Fishery Foods Co., Ltd. 0.00 40.28 0.00 0.00 Qingdao Haiyu Fishery Co., Ltd. 0.00 3.80 0.00 0.00 Aquatic Sea-farming Company of Shandong Group Corporation of Fishery 145.36 145.36 0.00 0.00 Enterprises(other receivable) Shandong Zhonglu Oceanic (Yantai) Foods 643.77 138.53 878.89 0.00 Co., Ltd.(other receivable) Habit Internaional Corporation(other 0.00 1,117.83 206.46 0.00 receivable） Total 1,292.09 31,157.45 1,994.00 0.00 Including: In the report period, the amount of capital of the listed company provided for controlling shareholders and its subsidiaries was RMB 12,920,900, and the balance was RMB 311,574,500. Use of funds and plan on paying off the debt √Applicable □Inapplicable 1. Procession of funds of listed company by controlling shareholder and other related party The Company existed procession of funds by controlling shareholder and other related party due to assets reorganization when the Company was founded and various current business after foundation. Ended as of Dec., 31, 2005, procession of funds by controlling shareholder and other related party amounting to RMB 299,011,000, in addition, violated guarantee amounting to RMB 21.51 million supplied for controlling shareholder and other related party has not been dissolved due to historical reason, 2. Plan for pay off debts Because of serious insolvency of controlling shareholder of the Company, SGCFE, it had no ability to completely repay procession of funds, with the support of province government, the Company started with reorganization in 2004, hope to solve procession of funds and violation guarantee through reorganization. At present the work is under way. In view of current condition the Company made a safety plan for pay-off debts: (1) Before June 2006, by means of judicial auction and arbitration, etc., 5% of share equity of Shandong Zhonglu Aquatic Products Shipping Co., Ltd amounting to RMB 1.47 million and 17.31% of share equity of Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. amounting to RMB 9 million held by SGCFE which had been judicially frozen by the Company had been used to repay the liability of the Company amounting to RMB 10.47 million; (2) Before August 2006, by means of judicial auction and arbitration, etc., office building owned by SGCFE amounting to RMB 55 million which had been judicially frozen by the Company had been used to repay the liability of the Company amounting to RMB 55 million. (3) For paying off the rest procession of funds amounting to RMB 233,541,000, the only is to quickening reorganization to realize it. Luxin Group and SGCFE have report the severe difficulty against reorganization, claim for strong support of government and take care of relevant policy, based on fulfillment of refunds through various measures, accelerate general reorganization so as to reach the target of paying off full debts before 2006. The plan could be settled down use of funds before the end of 2006 totally or not □Yes □No √Inapplicable 7.5 Entrusted assets management □ Applicable √Inapplicable 7.6 Implementation of commitment items 7.6.1 Commitment on Date of Share Merger Reform □ Applicable √Inapplicable 7.6.2 Other Commitments √Applicable □Inapplicable In the report period, the holding shareholder of the Company Shandong Fishery Group promised: the receivables amounting to RMB 10,006,511 of the Company from Shandong Fishery Group and its affiliated enterprises would be paid back before Mar. 31, 2005. By the disclosure day of this report, this commitment had still not been performed. 7.7 Significant lawsuit and arbitrations √Applicable □Inapplicable (I) In the report period, due to the loan contract dispute between the Company and Jinan Pearl Spring Subbranch of China Construction Bank (Jinan Construction Bank) and according to (2004) JMSCZI No. 175 Civil Judgment issued by Jinan Intermediate People’s Court, the Company should pay up the loan principal amounting to RMB 28 million and the interest RMB 539,069.24 to Construction Bank within 10 days from the day when the judgment takes effect. The litigation fee of the case totaling RMB 152,855 and the cost of property preservation amounting to RMB 143,215 should be paid jointly by the two defendants. (II) In the report period, due to the loan contract dispute between the Company and Jinan Branch of Bank of China, according to (2004) JMSCZI No. 87 Civil Order issued by Shandong Province Jinan Intermediate People’s Court, adjudged that the Company repay the loan principal amounting to RMB 4 million with interest RMB182,613.42 to Jinan Bank of China and compensate for economic losses amounting to RMB 20,000; Shanhai Trade Co. shall assume joint responsibility for payoff. The litigation fee of the case totaling RMB 30,050 and the cost of property preservation amounting to RMB 21,270 should be paid jointly by the Company and Shanhai Trade Co. The public notice on the aforesaid two lawsuits has been published on Secirities Times and Hong Kong Ta Kung Pao dated Feb., 19, 2005 and also disclosed in 2005 Semi-annual Report of the Company, which lawsuits had a certain impact on profit in and after the period. (III) In the report period, due to case of loan dispute between the Company and controlling shareholder Shandong Group Corporation of Fishery Enterprises (“Aquatic Products Group”), 5% of share equity of Shandong Group Corporation of Fishery Enterprises held from Shandong Zhonglu Aquatic Products Marine Co., Ltd. was sealed up according to (2005) TMYCZI No. 127 Civil Ruling issued by People’s Court in Tianqiao District, Jinan. (IV) In the report period, due to case of loan dispute between the Company and Shandong Group Corporation of Fishery Enterprises and Shandong Longkou Fishery Comprehensive Company, the land of Shandong Longkou Shandong Group Corporation of Fishery Enterprises Company amounting to 48133.45 sq.m located Huanhai Road No. 27-2, Long kou City was sealed up according to (2005) TMYCZI No. 243 Civil Ruling issued by People’s Court in Tianqiao District, Jinan. The aforesaid two lawsuits has been disclosed in 2005 1st Quarterly Report and 2005 Semi-annual Report, which made for interests of the Company and shareholders, produced no impact on profit of the period and few impact on profit after the period. (V) In the report period, due to case of loan contract dispute between Qingdao Fishing Branch of the Company and the 2nd Branch of South District of Qingdao of Agricultural Bank of China (plaintiff), according to (2005) NCZI No.20493 Civil Ruling issued by South District of Qingdao People’s Court, adjudged Qingdao Fishing Branch of the Company as follows: 1. to repay loan principal RMB 1 million and overdue penalty from March 21, 2003 to date of the judge taking effect to plaintiff within 10 days after the judge taking effect; 2. to pay lawyer agency fee amounting to RMB 30,000 within one day after the judge taking effect. 3. Qingdao Double Whale Pharm. Co., Ltd. assumes joint responsibility for payoff; 4. The litigation fee of the case totaling RMB 15,010 should be paid jointly by Qingdao Fishing Branch of the Company and Qingdao Double Whale Pharm. Co., Ltd. (VI) in the report period, due to case of loan contract dispute between Qingdao Refrigeration Branch of the Company and sales department of Qingdao Branch of Agricultural Bank of China (plaintiff), according to (2005) NCZI No.20487 Civil Ruling issued by Qingdao People’s Court, adjudged Qingdao Refrigeration Branch of the Company as follows: 1. to repay loan principal RMB 3 million and overdue penalty from Dec., 21, 2003 to date of the judge taking effect to plaintiff within 10 days after the judge taking effect; 2. to pay lawyer agency fee amounting to RMB 90,000 within one day after the judge taking effect. 3. Qingdao Double Whale Pharm. Co., Ltd. assumes joint responsibility for payoff; 4. The litigation fee of the case totaling RMB 25,010 should be paid jointly by Qingdao Refrigeration Branch of the Company and Qingdao Double Whale Pharm. Co., Ltd. (VII) In the report period, due to case of loan contract dispute between Qingdao Fishing Branch of the Company and the 2nd Branch of South District of Qingdao of Agricultural Bank of China (plaintiff), according to (2005) NCZI No.20488 Civil Ruling issued by South District of Qingdao People’s Court, adjudged Qingdao Fishing Branch of the Company as follows: 1. to repay loan principal RMB 2 million and overdue penalty from March 21, 2003 to date of the judge taking effect to plaintiff within 10 days after the judge taking effect; 2. to pay lawyer agency fee amounting to RMB 60,000 within one day after the judge taking effect. 3. Qingdao Double Whale Pharm. Co., Ltd. assumes joint responsibility for payoff; 4. The litigation fee of the case totaling RMB 20,010 should be paid jointly by Qingdao Fishing Branch of the Company and Qingdao Double Whale Pharm. Co., Ltd. The aforesaid lawsuits have been disclosed in 2005 Semi-Annual Report of the Company, which had no impact on profit in this period and little impact on profit after the period. (VIII) In the report period, due to case of loan dispute between the Company and Jinan Branch of Bank of China (Jinan BC), according to Civil Ruling (2005) QHFHSCZI No. 27 issued by Qingdao Maritime Court, the judges as follows: 1. the Company should repay loan principal RMB 30 million to plaintiff Jinan BC with interest totaling RMB 2,099,769.28. 2. The Company carrying out amortization, auction and selling-off for “TAIPING” Vessel as well as Zhonglu Marine for “TAINING” Vessel and “TAIXING” Vessel should legally give refund priority to plaintiff Jinnan BC within various vessels’ highest amount of mortgage. The Company should pay off the said amounts within 10 days of the date of judge taking effect and doubly repay the liability interest during delaying implementation if overdue. The litigation fee of the case totaling RMB 160,010 and financial cost of preservation amounting to RMB 150,520 should be assumed by the Company. The progression of the aforesaid lawsuits has been dislosed on Securities Times and Ta Kung Pao dated Sep., 26, 2005, which had a certain impact on profit of the Company in and after the period. §8. Report of the Supervisory Committee √ Applicable □Inapplicable The Supervisory Committee had expressed independent opinions on the following issues. 1. The Company’s operation according to law In the report period, process of decision-making of the Company was legal, inner control system was going to perfect, it found no directors and mangers of the Company violating laws, regulations and Articles of Association or damaging interest of the Company when exerting its post in the Company. 2. Inspection of the financial status of the Company During the report period, the Supervisory Committee carried out inspection to financial system and financial condition of the Company and thought that financial & accounting inner control system of the Company was sound and there existed no significant omits or false record in accounting. The financial report audited by accountant truly reflected financial condition and operation performances of the Company in 2005 and the Supervisory Committee had no objection. 3. Related transactions In the report period, the related transactions the Company had involved in were mainly equity purchase, normal purchases and sales of goods, advance money for another and the continuance of former management on a commission basis. We believed that the above-mentioned transactions had abided by the principle of being fair and square, and no deeds that would do harm to the interests of the Company had ever been discovered. However, the problems left over by history as of huge amounts of related transaction arrearage by large shareholders had still not been finally resolved. 4. The use of raised proceeds of the Company In the report period, the Company had neither use of raised proceeds nor delayed use of raised proceeds from previous report period to the report period. 5. Purchases and sales of assets As to the sales of assets of the Company occurred in the report period, it was believed that the resolutions had been reasonable and the transactions fair. No insider dealings had ever been discovered; no harm had ever been done to the shareholders’ rights or interests; no loss had occurred to the assets. 6. Opinion on the Board of Director special explanation on events concerned with accountant auditing opinion. In 2005 our engaged accountant organ audited the financial report and issued unqualified with emphasized paragraph of modified report. The Board of Director had made a special explanation on it and made a solving scheme. The Supervisory Committee agreed with explanation of the Board and would actively cooperate and urge it to adopt strong measures to improve sustainable operation capacity of the Company and release operation risks. 7. Examining opinion on 2005 Annual Report During weaving and drafting the 2005 Annual Report, relevant persons of the Supervisory Committee actively took part in it. The Supervisory Committee thinks that procedure of the 2005 Annual Report’ weaving and drafting was in compliance with related rules of laws, regulations and Articles of Association; the content and format of the report meet related requirements of Shenzhen Stock Exchange, its contents could truly reflects production operation and financial condition of the Company in 2005; there are no material omissions or errors which would render any statement misleading, it found no violated action against secret rules for people participating weaving and examination of the Annual Report before presenting this opinion. §9. Financial Report 9.1 Report of Auditors Auditor’s opinions: an unqualified opinion with emphasized matters （2006）No.0251 Audited by Da Xin CPA Ltd. THE AUDITOR’S REPORT To the shareholders of Shandong Zhonglu Oceanic Fisheries Co., Ltd., We were engaged to audit the accompanying consolidated balance sheet, 2005 consolidated profit statement, 2005 consolidated profit distribution statement, 2005 consolidated cash flows statement of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2005 and the related consolidated income statement, statement of changes in shareholders’ equity and cash flow statement for the year then ended. These consolidated financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audits of these statements in accordance with International Standards on Auditing, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2005 and the consolidated result of its operations and its consolidated cash flows for the year then ended, in accordance with International Financial Reporting Standards. We would mention the investors who may use these consolidated financial statements to notice that the consolidated financial statements are prepared on the basis of going concern assumption. As set forth in the section II, “GOING CONCERN ASSUMPTION”, at the end of 2005, the accumulated deficit was RMB 460,945, 076. On Dec. 31, 2005, the Group’s current liabilities exceeded its current assets RMB 214,466,180. In addition, the major shareholders and related parties keep occupying the company’s capital for long time, and the amount was RMB 299,010,985. By Dec. 31, 2005, the company’s overdue bank loans had been amounting to RMB 218,323,857, and part of the fixed assets have been mortgaged. Although the group has disclosed intended improvement measures in the section “GOING CONCERN ASSUMPTION”, it still exist uncertainty for the Group’s ability to continue as a going concern. However, this section does not influence the audit opinion stated above. HORWATH CHINA (HUBEI) CPA: Hu Yonghua Certified Public Accountants CPA: Li Wen Wuhan, P.R.C March 28, 2006 9.2 Financial statement 9.2.1 Consolidated Balance sheet CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands) Note 2005 2004 ASSETS Non-current assets Leasehold lands 8 8,843 9,079 Property, plant and equipment 9 259,302 277,133 Intangible assets 10 60 93 Long-term investments 11 - 3,300 268,205 289,605 Current assets Inventories, net 12 49,677 43,613 Due from related parties, net 23(c) 86,661 83,459 Prepayments and other current assets 4,040 4,858 Other receivables, net 13 23,912 34,922 Trade receivables, net 14 11,989 29,369 Trading investments 15 38 45 Restricted bank deposits 22(b) Cash and cash equivalents 22(b) 23,280 21,977 199,597 218,243 Total Assets 467,802 507,848 EQUITY AND LIABILITIES Shareholders’ equity Share capital 19 266,071 266,071 Reserves 20 (234,785) (189,321) Foreign currency re-translated diffierence (331) 30,955 76,750 Minority interests 21 10,679 16,983 LIABILITIES Non-current liabilities Long-term bank borrowings, non-current portion 18 12,105 24,830 Long-term payables 12,105 24,830 Current liabilities Current portion of long-term bank borrowings 18 35,307 23,794 Taxes payable 2,849 2,092 Due to related parties 23(c) 1,155 1,155 Other payables and accruals 16 108,838 96,813 Dividends payable 7 459 459 Advances from customers 510 305 Trade payables 34,224 24,498 Short-term borrowings 17 230,721 240,169 414,063 389,285 Total liabilities 426,168 414,115 Total Equity and Liabilities 467,802 507,848 Approved by the Board of Directors on 28 March 2006 Wang Zhao An Zhang Jin Qing Director & General Manager Director & Finance Controller The accompanying notes are an integral part of the financial statements. 9.2.2 Consolidated Income Statement CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands, except for (losses) earnings per share) Note 2005 2004 Sales, net 2 165,949 222,831 Cost of sales 145,157 174,456 Gross profit 20,792 48,375 Other operating income 1,479 1,255 Distribution costs 9,849 10,277 Administrative expenses 34,592 23,464 Other operating expenses 499 364 (Loss) profit from operations (22,669) 15,525 Finance cost, net 3 21,076 11,424 Investment income from trading and long-term investments 0 4 Gain on disposal of investment in a subsidiary 0 0 Subsidy income 0 0 (Loss) profit before tax and minority interests 4 (43,745) 4,105 Income tax expense 5 515 292 (Loss) profit before minority interests (44,260) 3,813 Minority interests 21 (3,260) (415) Net (loss) profit (47,520) 3,398 (Losses) earnings per share - Basic 6 (RMB0.17) RMB0.01 - Diluted The accompanying notes are an integral part of the financial statements. 9.2.3 Consolidated Cash Flow Statement CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2005 (All amounts in RMB thousands) Note 2005 2004 CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations 22(a) 21,262 47,977 Income taxes paid (2,715) (8,198) Interest expenses paid (3,559) (10,810) Net cash generated from operating activities 14,988 28,969 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property, plant and equipment (2,512) (1,941) Purchase of intangible assets 0 (48) Cash paid for trading investments (6) Proceeds from disposal of subsidiary, net of cash disposed 0 (839) Proceeds from investment income of trading investments Proceeds from investment income of long-term investments 0 4 Proceeds from disposal of trading investments 1 1 Proceeds from disposal of property, plant and equipment 330 2,302 Interest income received 172 668 Net cash used in investing activities (2,009) 141 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Net (decrease) increase in borrowings (10,902) (23,724) Proceeds from capital injection of minority shareholder Proceeds from acquisition of a subsidiary others Net cash generated from financing activities (10,902) (23,724) Currency translation difference (775) (197) Net decrease in cash and cash equivalents 1,302 5,189 Cash and cash equivalents, beginning of year 21,977 16,788 Cash and cash equivalents, end of year 22(b) 23,279 21,977 The accompanying notes are an integral part of the financial statements. 9.3 Explanation on changes of accounting policy, accounting estimation and settlement compared with the latest annual report □Applicable √Inapplicable 9.4 Contents, correct amount, reason and its influence of significant accounting errors □Applicable √Inapplicable 9.5 Explanation on change of consolidated scope compared with the latest annual report √Applicable □Inapplicable Zhonglu Trading Corporation did not exist in the consolidated scope in the report period.