中鲁Ｂ(200992)2008年年度报告（英文版）

山东省中鲁远洋渔业股份有限公司 2008 年度报告 2008 年度报告 2008 ANNUAL REPORT 山东省中鲁远洋渔业股份有限公司 2009/3/3 1 2 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. CONTENTS Ⅰ. IMPORTANT NOTES----------------------------------------------------------------------------------------3 Ⅱ. COMPANY PROFILE----------------------------------------------------------------------------------------3 Ⅲ. SUMMARY ACCOUNTING HIGHLIGHT AND BUSINESS HIGHLIGHT---------------------5 Ⅳ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--------7 Ⅴ. PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES-------------------------------------------------------------------------------------------------------10 Ⅵ. ADMINISTRATIVE STRUCTURE----------------------------------------------------------------------- 14 Ⅶ. BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING---------------------------------------18 Ⅷ. REPORT OF BOARD OF DIRECTORS-----------------------------------------------------------------18 Ⅸ. REPORT OF SUPERVISORY COMMITTEE----------------------------------------------------------31 Ⅹ. SIGNIFICANT EVENTS-------------------------------------------------------------------------------------33 Ⅺ. FINANCIAL REPORT----------------------------------------------------------------------------------------36 Ⅻ. DOCUMENTS AVAILABLE FOR REFERENCE-----------------------------------------------------110 [中鲁 B] 2 3 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SECTION I. IMPORTANT NOTES Board of Directors, Supervisory Committee, all directors, supervisors and senior executives of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (hereinafter referred to as the Company) hereby confirm that there are no any fictitious statements, misleading statements, or important omissions carried in this report, and shall take all responsibilities, individual and/or joint, for the reality, accuracy and completion of the whole contents. 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. Da Xin Certified Public Accountants Ltd. issued standard unqualified Auditors’ Report for the Company. Wang Zhao’an, Principal of the Company; Fu Jiguang, CFO of the Company, and Wu Shuxian, Person in Charge of Accounting Organ hereby confirm that the Financial Report enclosed in the Annual Report is true and complete. SECTION II. COMPANY PROFILE 1. Legal Name of the Company: In Chinese: 山东省中鲁远洋渔业股份有限公司 In English: Shandong Zhonglu Oceanic Fisheries Company Limited 2. Legal Representative of the Company: Wang Zhao’an 3. Secretary of Board of Directors: Zhou Feng Authorized Representative in charge of Securities affairs: Li Ying, Li Feng Contact Address: No. 43, Heping Road, Jinan, Shandong Tel: (86) 531-86553278, 86553276 Fax: (86) 531-86982906 E-mail: zlzqb@163.com 4. Registered Address: No. 43, Heping Road, Jinan, Shandong Office Address: No. 43, Heping Road, Jinan, Shandong Post Code: 250014 The Company’s E-mail: zlzqb@163.com 5. Newspapers Chosen for Disclosing the Information of the Company: Domestic: China Securities International: Hong Kong Wen Wei Po Internet Web Site Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn [中鲁 B] 3 4 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. The Place Where the Annual Report is Prepared and Placed: Office of the Board of Directors 6. Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: ZHONGLU B Stock Code: 200992 7. Other information about the Company Initial registration date: July 23, 1999 Registration date after recent change: May 16, 2007 The registration place after change: Shandong Province Administration for Industry and Commerce Registered number for business license of corporation: 3700001803000 Registered number of taxation: National Revenue: 370102863043102 Code of organization institution: 863043102 Name of the Certified Public Accountants engaged by the Company: Da Xin Certified Public Accountants Ltd. Address: 15/F, Institute International bldg., No. 1 Zhichun Road, Haidian District, Beijing 8. Paraphrase: Barring referring to other meanings in the context, the following paraphrases in this report possess the meanings as follow: “The Company” or “Company” Shandong Zhonglu Oceanic Fisheries Company Limited Shandong State-owned Assets Investment Holding SDGZK Company Limited “Luxin Group” or “Luxin Holding Luxin Investment Holding Company Limited “Shandong Group” and Shandong Group Corporation of Fishery Enterprises “Shandong Fishery Group” State-owned Assets Supervision and Administration “SDGZW” Commission of Shandong Provincial Government State-owned Assets Supervision and Administration “GZW” Commission of the State Council “CSRC” China Securities Regulatory Commission “SDZJJ” CSRC, Shandong Regulatory Bureau “The report” 2008 Annual Report compiled by the Company [中鲁 B] 4 5 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SECTION III. FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT 1. Main profit data as of the year 2008 Unit: RMB Items Amount Operating profit 253,452,476.60 Total profit 22,555,626.14 Net profit attributable to the shareholders of the listed company 22,555,626.14 Net profit attributable to the shareholders of the listed company after 20,539,186.43 deducting non-recurring gains and losses Net cash flow arising from operating activities 11,974,309.74 Items of non-recurring gains and losses Unit: RMB Items of non-recurring gains and losses Amount Gains and losses from the disposal of non-current asset -888,084.99 Governmental subsidy calculated into current gains and losses, while closely related with the business of the Company, excluding the 571,585.06 fixed-amount or fixed-proportion governmental subsidy according to the unified national standard Gains/losses from debts restructuring 2,469,005.18 Other non-operating income and expenditure beside for the above items -136,065.54 Total 2,016,439.71 2. Major accounting data and financial indexes over the past three years ended by the report period (1) Main accounting data Unit: RMB Increase/decrease this year 2008 2007 compared with that last 2006 year (%) Operating income 253,452,476.60 216,283,413.05 17.19% 191,558,600.36 Total profit 22,555,626.14 55,015,100.64 -59.00% 155,008,391.82 Net profit attributable to shareholders of the listed 22,555,626.14 55,015,100.64 -59.00% 152,954,244.21 company Net profit attributable to shareholders of the listed company after deducting 20,539,186.43 41,459,045.64 -50.46% -59,652,556.85 non-recurring gains and losses Net cash flow arising 11,974,309.74 42,125,250.01 -71.57% 151,066,316.86 from operating activities Increase/decrease at the At the end of 2008 At the end of 2007 At the end of 2006 end of this year compared [中鲁 B] 5 6 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. with that at the end of last year (%) Total assets 494,773,011.16 411,212,048.16 20.32% 421,918,403.70 Owners’ equity(or 339,351,974.13 316,248,870.87 7.31% 183,812,456.05 Shareholders’ equity) Share capital 266,071,320.00 266,071,320.00 0.00% 266,071,319.79 (2) Main financial indexes Unit: RMB Increase/decrease this year 2008 2007 compared with that last 2006 year (%) Basic earnings per share (RMB/Share) 0.08 0.21 -61.90% 0.57 Diluted earnings per share 0.08 0.21 -61.90% 0.57 (RMB/Share) Basic earnings per share after deducting non-recurring gains and 0.08 0.16 -50.00% -0.22 losses (RMB/Share) Fully diluted return on equity (%) 6.65% 17.40% -10.75% 83.21% Weighted average return on equity (%) 6.89% 26.03% -19.14% 142.38% Fully diluted return on equity after deducting non-recurring gains and 6.05% 13.11% -7.06% -32.45% losses (%) Weighted average return on equity after deducting non-recurring gains and 6.27% 19.62% -13.35% -55.49% losses (%) Net cash flow per share arising from 0.05 0.16 -68.75% 0.57 operating activities (RMB/Share) Increase/decrease at the At the end end of this year compared At the end of 2007 At the end of 2006 of 2008 with that at the end of last year (%) Net asset per share attributable to shareholders of listed company 1.28 1.19 7.56% 0.69 (RMB/Share) [中鲁 B] 6 7 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SECTION IV. CHANGES IN SHARES CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS I. Changes in share capital 1. Statement of changes in shares Unit: Share Before the change Increase/decrease of this time (+, - ) After the change Addit Capitalizati Rationed Bonus ional Other Proporti Amount Proportion on of public Amount share shares issuan s on reserve ce I. Unlisted Shares 128,071,320 48.13% 128,071,320 48.13% 1. Promoters’ shares 128,071,320 48.13% 128,071,320 48.13% Including: State-owned 127,811,320 48.04% 127,811,320 48.04% shares Domestic legal person’s 260,000 0.10% 260,000 0.10% shares Foreign legal person’s shares Others 2. Raised legal person’s shares 3. Inner employees’ shares 4. Preference shares or others II. Listed shares 138,000,000 51.87% 138,000,000 51.87% 1. RMB ordinary shares 2. Domestically listed 138,000,000 51.87% 138,000,000 51.87% foreign shares 3. Overseas listed foreign shares 4. Others III. Total shares 266,071,320 100.00% 266,071,320 100.00% 2. Issuance and listing of shares (1) Ended by the end of the report period, there existed no particulars about listing of shares or derivative securities over all previous three years in the Company. (2) Changes on shares in the report period In the report period, there existed no bonus share, capitalization of public reserve, allotted share, additionally issue new shares, privately issued shares, warrant strike, implementing equity incentive plan, enterprises mergers, capitalization of transferable bond of the Company, decreasing capital, inner employee’s listing and issuing bonds, and the total number of the share capital and structure remains unchanged. (3) About inner employee’s share There existed no inner employee’s share. II. Particulars about shareholders (1) Total number of shareholders in the report period [中鲁 B] 7 8 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Total number of 16,906 shareholders Particulars about shares held by the top ten shareholders Number of share Nature of Non-circulating Full name of Shareholders Proportion Shares held pledged/ shareholders shares frozen SHANDONG STATE-OWNED ASSETS State-owned 33.07% 88,000,000 88,000,000 0 INVESTMENT HOLDING legal person CO., LTD. SHANDONG LUXIN State-owned INVESTMENT HOLDINGS 14.18% 37,731,320 37,731,230 0 legal person GROUP CO., LTD. Foreign nature CHEN QIAN FEN 1.26% 3,343,888 0 0 person Foreign nature LI LEON ZHAN WEI 1.16% 3,083,600 0 0 person CHINA HEAVY State-owned AUTOMOBILE GROUP 0.73% 1,950,000 1,950,000 0 legal person JINAN TRUCK CO., LTD. YONGSHENG Foreign nature 0.53% 1,420,000 0 0 INDUSTRIAL CO., LTD. person Foreign nature YI YING 0.41% 1,078,200 0 0 person Foreign nature HE LEI 0.34% 906,400 0 0 person Foreign nature HUANG JIA YI 0.34% 904,180 0 0 person Foreign nature WANG DONG SHENG 0.30% 798,500 0 0 person Particulars about shares held by the top ten shareholders of circulation share Full name of the shareholders Circulating shares held Type of shares CHEN QIAN FEN 3,343,888 Domestically listed foreign share LI LEON ZHAN WEI 3,083,600 Domestically listed foreign share YONGSHENG INDUSTRIAL CO., LTD. 1,420,000 Domestically listed foreign share YI YING 1,078,200 Domestically listed foreign share HE LEI 906,400 Domestically listed foreign share HUANG JIA YI 904,180 Domestically listed foreign share WANG DONG SHENG 798,500 Domestically listed foreign share ZHANG YOU MEI 674,580 Domestically listed foreign share LUO WEI DONG 618,900 Domestically listed foreign share QI FENG 560,100 Domestically listed foreign share Explanation on associated Among the top ten shareholders, Both SDGZK and Luxin Group belong to provincial [中鲁 B] 8 9 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. relationship or accordant state-owned enterprises controlled by Shandong Provincial State-owned Assets action among the top ten Supervision and Administration Commission, and China Heavy Automobile Group shareholders of circulation Jinan Truck Co., Ltd. are sponsor shareholders of the Company. There exists no share associated relationship among the aforesaid shareholders, and 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 circulating ones of domestically listed foreign shares, and the Company is not aware of whether there exists associated relationship, or they belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. (2) The controlling shareholder of the Company Name of the controlling shareholder: Shandong State-owned Assets Investment Holding Co., Ltd. Legal representative: Liu Changsuo Date of foundation: March 25, 1994 Registered capital: RMB 1,600,000,000 Business scope: operation and management of state-owned property equity and disposal of bad assets; investment and management of industry project; asset management and capital operation; entrusted operation and investment consultation which were all authorized by State-owned Assets Supervision and Administration Commission of Shandong Provincial Government. (3) The actual controller of the controlling shareholder of the Company Name of the actual controller: the State-owned Assets Supervision and Administration Commission of Shandong Provincial Government Legal representative: Tan Chengyi Date of foundation: June 18, 2004 Nature of the unit: specific established organization directly under Shandong Provincial Government Main business: to implement the responsibility of subscriber, to supervise the inflation proof savings deposits and increment of the supervised state-owned assets, etc. The State-owned Assets Supervision and Administration Commission of Shandong Provincial Government 100% Shandong State-owned Assets Investment Holding Co., Ltd. 33.07% The Company [中鲁 B] 9 10 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. (4)Other legal person shareholder holding over 10% (including 10%) of the Company’s total shares Name of the actual controller: Shandong Luxin Investment Holdings Group Co., Ltd. Legal representative: Zhao Kui Date of foundation: January 31, 2002 Registered capital: RMB 3 billion Business scope: external investment (excluded restrained industries by laws and regulations) and management; investment consultation(excluded securities and futures’ consultation); asset management; entrusted operation; capital operation; warranty; hotel management; housing lease and property management. SECTION V. PARTICULAR ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES (I) Basic information on directors, supervisors and senior executives I. Basic information Total Draw the remuneration remuneration Shares Shares held drew from the from other Beginning date Terminating date held Reason of Names Titles Sex Age at the Company in the shareholder of office term of office term at the change year-end report period units or year-begin (RMB’0000)(be associates or fore tax) not Chairman of Wang Zhao’an Male 58 April 26, 2007 April 26, 2010 0 0 Naught 13.60 No the Board Li Wenyi GM Male 53 April 26, 2007 April 26, 2010 0 0 Naught 13.60 No Song Wenjian Director Male 53 April 26, 2007 April 26, 2010 0 0 Naught 10.88 No Xi Jianbin Director Male 44 April 26, 2007 April 26, 2010 0 0 Naught 0.00 Yes Liu Zhihui Director Male 45 April 26, 2007 April 26, 2010 0 0 Naught 0.00 Yes Sun Shaojie Director Male 40 April 26, 2007 April 26, 2010 0 0 Naught 0.00 Yes Independent Wang Hanmin Male 49 April 26, 2007 April 26, 2010 0 0 Naught 4.00 No Director Independent Jiang Jin Male 40 April 26, 2007 April 26, 2010 0 0 Naught 4.00 No Director Independent Jiang Lu Male 50 April 26, 2007 April 26, 2010 0 0 Naught 4.00 No Director Secretary of Zhou Feng Board of Male 54 April 26, 2007 April 26, 2010 0 0 Naught 10.88 No Directors Li Ming Deputy GM Male 44 April 26, 2007 April 26, 2010 0 0 Naught 10.88 No Fu Jiguang CFO Male 40 April 26, 2007 April 26, 2010 0 0 Naught 10.88 No Wu Zongchang Supervisor Male 46 April 26, 2007 April 26, 2010 0 0 Naught 0.00 Yes Chi Ming Supervisor Female 45 April 26, 2007 April 26, 2010 0 0 Naught 5.44 No Yi Yu Supervisor Male 38 April 26, 2007 April 26, 2010 0 0 Naught 0.00 Yes Song Jinghai Supervisor Male 48 April 26, 2007 April 26, 2010 0 0 Naught 5.44 No Shang Qinghua Supervisor Female 39 April 26, 2007 April 26, 2010 0 0 Naught 3.94 No [中鲁 B] 10 11 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Total - - - - - 0 0 - 97.54 - II. Particulars about directors, supervisors and senior executives holding the positions in share-controlling companies Name Share-controlling company Title Office term Secretary of Party Committee, Shandong State-owned Assets Vice President and Secretary of Nov., 2005 till Wu Zongchang Investment Holding Co., Ltd. the Discipline Inspection now Committee Shandong State-owned Assets Chief of Capital Operation June, 2006 till Xi Jianbing Investment Holding Co., Ltd. Department now Vice Chief of Auditing Shandong State-owned Assets Sep., 2007 till Liu Zhihui (Discipline Inspection) Investment Holding Co., Ltd. now Department Shandong International Trust Feb., 2007 till Sun Shaojie Deputy General Manager & Investment Corporation now Shandong International Trust Business Manager of Planning April 2006 till Yi Yu & Investment Corporation & Financing Department now III. Main work experiences and position and concurrently post of present directors, supervisors and senior executives in the units barring the shareholders units in recent five years (1) Members of the Board of Directors Wang Zhao’an, a member of the Communist Party with technical secondary school degree, ever took the post of member of the Communist Party, deputy general manager of Shandong Fishery Group and general manager of the Company over the latest five years; Now, he is secretary of Party Committee, general manager of Shandong Fishery Group; and took the post of director of the Company since July, 1997 and chairman of the Company since March, 2006. Li Wenyi, a member of the Communist Party with junior college degree, ever took the post of principal chief of personnel and labor department and deputy general manager of Shandong Fishery Group and deputy general manager and secretary of the Board of the Company over the latest five years. Now he is in charge of a member of the Communist Party and deputy general manager of Shandong Fishery Group; and took the post of director of the Company since July, 1999 and general manager of the Company since March, 2006. Xi Jianbing, senior accountant, member of Communist Party with bachelor degree, China CPA, he took the vice section chief of Enterprise Allocation Office and Reorganization and Transformation of Enterprises Office of the State-owned Assets Supervision and Administration Commission of Shandong Province Government over the latest five years; now, he is chief of capital operation department of Shandong State-owned Assets Investment Holding Co., Ltd and concurrently the Chairman of Shandong Land Property Exchange. Since April 2007, he took the post of director of the Company. [中鲁 B] 11 12 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Liu Zhihui, member of Communist Party with bachelor degree, assistant accountant, vice section chief, section chief and deputy general manager of Shandong Traffic Development Investment Co., Ltd. over the latest five years.; he ever took the business manager of capital operation department of Shandong State-owned Assets Investment Holding Co., Ltd, now he is vice section chief of inspection(discipline) department. Since April 2007, he took the director of the Company. Song Wenjian, senior economist with MBA, he took the deputy general manager of Shandong Luxin Industrial Group Co., Ltd., standing deputy general manager of Shandong Hehua Electronic Information Group Co., Ltd and senior business manager of Shandong International Entrustment & Investment Co., Ltd over the latest five years. Since April 2007, he took the posts of director and deputy general manager of the Company. Sun Shaojie, senior economist with bachelor degree, he ever took the posts of senior business manager of Fund Investment Management Department, general manager of Fund Investment Management Department, manager and senior business management of Investment Banking department of Shandong International Entrustment & Investment Co., Ltd over the latest five years. Now, he is the deputy general manager of Shandong International Entrustment & Investment Co., Ltd. Since April 2007, he took the director of the Company. Wang Hanmin, China CPA with Master of Economics and independent director of the Company. He ever took the post of vice president of MBA School of Shandong College of Economics over the latest five years. Now, he is auditing professor, instructor to master graduate of Shandong College of Economics, member of Institute of Internal Auditors, Accounting Association of China and Chinese Youth Research Association on Finance & Cost. And he took the post of independent director of the Company since September 2002. Jiang Jin, China finance economist with bachelor degree, He ever worked in China Construction Bank Yangzhou Branch, China Construction Bank Trust and Investment Co., Ltd., China Southern Fund Management Co., Ltd., Shandong Pioneer Investment Developing Co., Ltd over the latest five years. Now, he is vice chairman of Shandong Huaju Energy Co., Ltd. And he took the post of independent director of the Company since April 2003. Jiang Lu, senior lawyer with law bachelor degree, Over the latest five years, he was the copartner of Shandong Junyida Law Firm. And he took the post of director of the Company since May 2004. (2) Members of supervisors: Wu Zongchang, a member of Communist Party with MBA, he took the member of Communist Party Committee and deputy general manager of Shandong Traffic Development Investment Co., Ltd.; now, he is the member of Communist Party Committee, vice president and secretary of discipline inspection committee of Shandong State-owned Assets Investment Holding Co., Ltd. Since April 2007 he took the Chairman of Supervisory Committee of the Company. Yi Yu, economist with bachelor degree. He took the business manager of planning and finance department and business department of Internal Audit and Legal Department of Shandong International Trust & Investment Corporation. Now, he is the business manager [中鲁 B] 12 13 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. of planning and finance department of Shandong International Trust & Investment Corporation. Since April 2007, he took the post of supervisor of the Company. Chi Ming, a member of Communist Party with bachelor degree, she ever took the post of section chief of personnel and labor department, deputy chief of human resources department of Shandong Fishery Group over the latest five years, and now she is in charge of human resources department of the Company. She took the post of employee supervisor of the Company since May 2005. Song Jianghai, a member of Communist Party with 3-year college degree, he ever took the deputy general manager of trade operation department of the Company over the latest five years, now he is the general manager of trade operation department of the Company. He took the post of employee supervisor of the Company since April 2007. Shang Qinghua, a member of Communist Party with bachelor degree, She ever took the posts of accountant of Finance Department and vice section chief of finance department of the Company over the latest five years, and now she is in charge of section chief of finance department of the Company. She took the post of employee supervisor of the Company since Nov. 2003. (3) Senior executives: Zhou Feng, a member of the Communist Party with bachelor degree, ever took the post of general manager and securities representative of the Securities Department of the Company over the five latest years. He took the post of the Secretary of the Board of Directors since Sep. 2002; since April 2007 deputy general manager and concurrently director of office of Board of Directors of the Company. Li Ming, China economist with bachelor degree, member of Communist Party. In the recent five years, took the position of manger of management department and Chairman of the Supervisory Committee of the Company; since April 2007 he took the post of deputy general manager and concurrently manger of management department of the Company. Fu Jiguang, senior economist, China CPA with Master of Management degree. He took the post of business manager of Business Department, deputy general manager(preside the works) of Business Department, deputy general manager(preside the works) of Internal Audit and Legal Department, general manager of risks management department and senior business manager of Shandong International Trust & Investment Corporation; he ever took the post of CFO of the Company since April 2007. IV. About annual remuneration 1. The decision-making procedure and confirmation basis of remuneration: The remuneration of directors, supervisors and senior executives were still paid according to the relevant regulations and standards released by Notional Labor Department. Therein, the operating leaders of chairman of the Board, general manger, deputy general manager, financial chief supervisor and secretary of the Board, etc. implement annual pay system which includes basic wage and performance annual salary. Confirmation of the remuneration refer to detailed manipulation rules on enterprise performance evaluation by Ministry of Finance and enforcement measures of annual pay of enterprise operator of other provinces or municipalities and so on documents, and methods of other listed [中鲁 B] 13 14 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. company of Shandong province. The decision-making procedure of the remuneration is that the Board of Directors stipulated the plan and reports to be approved by the shareholders’ general meeting of the Company. 2. The total annual remuneration of the independent directors of the Company was RMB 40,000(including tax); at the same time, paid each independent director allowance amounting to RMB 300 per day while they performed their duties on presenting meetings of Board of Directors or Shareholders’ General Meeting. V. In the report period, there were no directors, supervisors elected or leaving posts; no senior executives engaged or dismissed (II) About employees Ended the report year, the Company had totally 513 on-the-job employees. The Company needs to bear the expenses of 33 persons waiting for jobs and early retirement, and 240 retirees. And the structure of employees was as follows: 1. Professional constitution Profession Number Production personnel 348 Salespersons 17 Technicians 43 Financial personnel 25 Administrative personnel 80 2. Education background Education Number Proportion Bachelor degree and above 44 8.6% 3-years regular college graduate 93 18.1% Senior high school graduate, technical secondary school and polytechnic school 376 73.3% graduate SECTION VI. ADMINISTRATIVE STRUCTURE I. Administration of the Company (I) Particulars about administration of the Company in the report period Board of Directors of the Company continuously strengthened and perfected the corporation administration structure, promoted the regular operations of the Company strictly according to The Company Law, the Security Law and requirements of relevant laws and regulations promulgated by CSRC. In the report period, through developing special activities of governance, the Company got some obvious effects and was provided powerful policies and organization guarantee. Along with the work implementing by professional committees, the scientific decision making level have been improved further; meanwhile, the effects of independent directors have been strengthened that they worked as [中鲁 B] 14 15 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. different professional committee convenors, and important events of the Company only can be sent to the Board of Directors by being checked firstly by different professional committees. Compared to the relevant laws and regulations promulgated by CSRC, the Board of the Directors think our administration particulars goes with the requirements of Code of Corporate Governance for Listed Companies in China. (II) Particulars about Special Activities for Corporate Governance According to the spirits of CSRC (2008) No. 27 and the requirement of Notice of Further Promoting Special Activities for Corporate Governance in 2008 issued by Shandong Securities Regulatory Bureau, the Company established self-inspection group with chairman of the board as leader, general manager, CFO, secretary of board of directors and relevant depertment pricipals as members to strengthen special activities for governance. Compared with relevant contents in Self-inspection Report and Reform Plan on Special Activities for Corporate Governance and the problems pointed by Shandong Securities Regulatory Bureau when inspecting, this group further made self-inspection carefully, increased working force, paid much attention on the implementation of reform and got obvious effects which were mainly respresented as follows: 1. Internal system was gradually perfected, and management measures were constanly intensified. 2. Functions of each professional committee were exerted. 3. The regular management level of managing subsidiary companies was totally improved. 4. The internal audit personnel could formally with completed equipment. 5. The working force of directors and upervisors’ study and training was obviously improved. The Company seriouly made conclusion on the activity, and put in Explanation for Self-inspection Report and Reform Plan on Special Activities for Corporate Governance of Shandong Zhonglu Oceanic Fisheries Company Limited to Shandong Securities Regulatory Bureau. After Shandong Securities Regulatory Bureau approved, Board of Directors diclosed it as resolution on the Stock Exchange website, China Securities, Hong Kong Wen Wei Po on Jul. 19, 2008. II. Particulars about independent directors carrying out their responsibilities During the report period, in accordance with the relevant regulations released by Company Articles of Association, Working System of Independent Director and CSRC, the three independent directors of the Company fully brought their particular skills into play and implemented their responsibilities loyally, diligently and independently. They presented at every meeting of the Board of Directors and the General Meetings timely and gave their independent opinions on the significant events on the basis of independent estimation. They played active roles in the scientific decision of the Board of Directors and criterion operation, maintaining the integrated interests of the Company and the legal interest of medium and small shareholders. (I)Particulars about independent directors attending the board’s meeting Name of Times are Entrusted independent supposed to attend Presence in person Absence presence directors this year Wang Hanmin 8 8 0 0 [中鲁 B] 15 16 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Jiang Jin 8 7 1 0 Jiang Lu 8 8 0 0 (II) Particulars about the objections on the relevant matters of The Company from the Independent Directors In the report period, there are no any objections on the relevant matters of The Company from Independent Directors. III. Particulars about The Company’s separation from the control shareholder in respect of business, personnel, assets, organization and finance: 1. In respect of personnel: The Company has independent management system of labor, personnel and salary, Chairman, General Manager, Deputy General Manager, Chief Financial Officer and Chief Economist and Secretary of the Board of The Company drew the salary from The listed Company. 2. In respect of assets: as an independent corporation, The Company has integrated legal person property rights, during the initial stages of foundation, the assets invested by the controlling shareholder were transacted the change procedure of ownership. 3. In respect of finance: The Company has established independent financial department and financial personnel, owned independent and complete accounting system; financial personnel and financial system were completed independent from its controlling shareholder, The Company produced accounting statement according to the relevant regulations of the Ministry of Finance, and paid the tax in compliance with the laws. 4. In respect of organization: The Company’s Board of Directors, Supervisory Committee and the other Inner organization independently operated; the controlling shareholder recommended director and supervisor through the legal procedure, and didn’t meddle in personnel appointment and removal of listed company. 5. In respect of business: The Company was completely independent from the controlling shareholder, has independent and integrated business and autonomous operation capacity. There was no competition with the controlling shareholder in the same trade. IV. Evaluation and encouragement mechanism of performance of senior executives In the report period, The Company obeyed the principals of the operator’s remuneration connecting with responsibility, risks, performance of the operation, embodied modern enterprise distribution system of distribution according to work and more pay for more work, implement the annual pay system in the operation group. V. Particulars about internal controlling policies (I) The whole instructions to internal control According to the requirements of Basic Standard for Enterprise Internal Control and Guidelines for Internal Control of Listed Companies and combined with self conditions, the Company respectivily established procedures rules of Three Meetings, administration rules including Working Instructions of Strategy Committee, Working Instructions of Audit Committee, Working Instructions of NominationCommittee, Working Instructions of Remuneration and Appraisal Committee, and internal control system, which contented [中鲁 B] 16 17 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. finance management, production operation, related transaction, external guaranty, fund collecting management and information disclosure. The Company basically established effective risk-protecting system and could withstand unexpected risk better. The Company set audit supervisory office, which independently audited and suypervised production operation and internal control with the leading of board of directors to ensure effective implementation of internal control system. The Company engaged lawyer as perennial counselor-in-law to guarantee regular operation and legal benefit of the Company. (II) Board of Directors’ Self-Estimation for The Company Internal control (Details can be seen in the Self-Estimation Report of Internal Control of Shandong Zhonglu Oceanic Fishery Co., Ltd) Accord to the relevant requirements of CSRC and Shenzhen Exchange, following basic principles of internal control and self-condition, the Company established and perfected internal control system and implemented effectively, and exerted control and preventing function in the key tache of enterprise management, so that ensured regualr and orderly operation of the Company. On the whole, the internal control system of the Company basically represented integrality, rationality and validity, which accorded with relevant requirements of CSRC and Shenzhen Exchange. (III) Opinions given by Supervisory Committee on Self-aestimation for the Company’s Internal Control Details can be seen in the 2nd item of supervisory committee report: independent opinion for supervisory committee (IV) Independent Opinion given by Independent Board of Directors on Self-estimation for the Company’s Internal Control In order to further fulfilling relevant spirits of Notice of Strengthening Special Activities on Corporate Goverance of Listed Company (ZJGSZi (2007) No. 28) by CSRC, Guidelines for Internal Control of Listed Companies by Shenzhen Exchange and Notice (2008) No. 27 on Jun. 12, 2008 by CSRC, constantly improve governance level, promote standard operation, perfect internal control system and intensify the inspection of internal control, the Company offered Self-estimation Report of Internal Control of Shandong Zhonglu Oceanic Fishery Co., Ltd., which made estimation on the establishment, implementation, the completeness and validity of internal control in 2008. On the basis of independent judgment; independent directors made careful checking on internal control of the Company and made the following independent opinions: 1. The internal control policy conformed to relevant laws and requirements of stock supervisory department, and also went well with the present particulars for company operation. 2. The internal control method of the Company had good effects on the control of every procedure and every part of enterprise management. 3. The Self-estimation Report of Internal Control of the Company objectively reflected the real situation of the internal control of the Company and has a comparatively complete summary of the internal control. Also, the disclosure for the existed problems was deep. The report also has a clear target in the effort of strengthening the internal control. We all agreed the Report. [中鲁 B] 17 18 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SECTION VII. BRIEF INTRODUCTION OF THE SHAREHOLDERS’ GENERAL MEETING In the report period, the Company held one Shareholders’ General Meeting. 2007 Annual Shareholder’s General Meeting. was held on Mar. 18, 2008, and the relevant resolution was published on China Securities and Hong Kong Wen Wei Po dated Mar. 19, 2008. SECTION VIII. REPORT OF THE BOARD OF DIRECTORS I. Review on the operation of the Company in the report period (1) Overall review on the operation of the Company in the report period In 2008, with the active cooperation and together effort of whole directors and senior executives, the board of directors seriously implemented the duties in Articles of Association, strictly accorded with relevant regulations of Procedure Rules of Board of Directors, and made decission seriously and worked steadily, with the aim of pursuing benefit maximization of the Company and equities of the whole shareholders. Facing many unfaverable factors in operation, the board of directors always accorded with the working idea of “steadiness, adjustment, development and improvement”, led the whole staff, continued to develop the spirit of hardish fearlessness and being brave to combat, and finally realized operation aim set in the year-begin after overcoming many difficulties. In the report period, the Company realized operating income of RMB 253.45 million, with an increase rate of 17.191% over the same period of last year; operating cost of RMB 217.15 million, with an increase rate of 32.15% over the same period of last year; gross profit of RMB 36.3 million, with a decrease of 30.14% over last year, and the net profit attributable to shareholders of listed company of RMB 22.56 million with a decrease of 59% over the last year. In the report period, the Company continued to engage in fishing in the middle and top grounds of oceans, the processing export of aquatic products, and tenancy and management of refrigerated cargo vessel. For a whole year, the amount of ocean fisheries reached 8,885 tons; aquatic products’ refrigeration throughput reached 33,000 tons, processing various fishes reached 7,100 tons; 5 oceanic refrigeration vessels averagely sailed 341 days in one year with high shipping rate. (2)Main business and operation of the Company 1. Scope of main operations The Company is an enterprise featuring in oceanic fisheries and its main operation consist of oceanic catch, tenancy of catch vessel, tenancy of refrigerated transport vessel, import and export of aquatic products, and processing, refrigeration and other business of aquatic products. 2. The income from main operations and profit from main operations is listed as follows: (1) Classified according to industries and varieties (Unit: RMB’0000) Main operations classified according to industries [中鲁 B] 18 19 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Increase/decre Increase/decre Increase/decrea Operating Operating ase of ase of Industry or variety Operating cost se of operating income profit rate (%) operating operating cost profit rate（%） income（%） （%） Oceanic fishing 9,898.69 8,319.12 15.96% -11.91% 6.92% -14.80% Aquatic products trade 208.66 206.19 1.18% 24.36% 49.48% -16.61% Lease and management 4,931.65 3,782.35 23.30% 18.11% 17.32% 0.51% of refrigerated vessel Processing, cold storage of aquatic products and 10,101.57 9,240.89 8.52% 71.72% 79.60% -4.01% others Main operations classified according to products Tunny 9,898.69 8,319.12 15.96% -11.91% 6.92% -14.80% (2) Classified according to areas Increase/decrease on operating Areas Operating income income over the same period of last year（%） Mainland of China 3,549.08 162.84% Taiwan of China 11,409.23 -0.34% U.S.A 428.63 544.47% Japan 7,866.84 5.73% Singapore 169.65 -81.57% Ghana 624.41 Other 1,092.73 (3) Particulars about main supplier and clients In the report period, the sales amount for the top 5 customers was 191,368,003.02 which took 76.12% of the total sales amount of the Company. The amount for purchase from the top 5 suppliers is RMB 87,691,775.62 which takes 58.48% of the total purchase amount of the Company. (4) Particulars about the asset structure of the Company and its change during the report period. Particulars about the asset structure: Unit: RMB Items December 31, 2008 December 31, 2007 Increase/decrease (%) Monetary fund 74,452,404.48 48,341,638.29 54.01 Accounts receivable 15,298,645.02 9,669,104.85 58.22 Account paid in advance 6,868,073.62 4,071,282.89 68.70 Other receivable 3,886,607.26 8,765,291.92 -55.66 Inventory 96,005,904.65 55,534,765.68 72.88 [中鲁 B] 19 20 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Investment property 42,184,436.72 0.00 100.00 Construction in process 10,624,925.46 -100.00 Short-term loans 70,003,800.00 21,500,000.00 225.60 Accounts payable 62,182,658.42 39,593,414.09 57.05 Accounts received in 2,740,134.66 895,046.92 206.14 advance Wage payable 7,045,268.14 14,237,415.56 -50.52 Others payable 14,163,899.74 17,853,658.61 -20.67 Tax payable 424,312.31 -377.73 -1,178,440.82 Notes: 1. Monetary fund increased 54.01% at this period-end compared to that of the same period of last year, which was mainly due to the net flow-in of the cash flow arising from operation of the Company. 2. Net accounts receivable increased 58.22% at this period-end compared to that of the same period of last year, which was mainly due to that Yantai Grocey Co., Ltd. increased the payment reveivable for selling goods in the current period. 3. Account paid in advance increased 68.70% at this period-end compared to that of the same period of last year, which was mainly due to that Haiwei Branch increased fishing entering fee paid in advance in the current period in the current period. 4. Net other receivable decreased 55.66% at this period-end compared to that of the same period of last year, which was mainly due to that it leased and operated YAW ADDO FISHERIES CO., LTD. in March of 2008, which was brought into consolidation and offset the exchange account. 5. Net inventory increased 72.88% at this period-end compared to that of the same period of last year, which was mainly due to the increasing business of processing imported-material of Yantai Grocery Co., Ltd, which brought increase of raw materials purchased and inventory articles. 6. Net investment property was RMB 42,184,436.72 at the period-end, and RMB 0 at the end of last year with an increase of RMB 42,184,436.72; the main reason was that part of self-used office building was put out to lease in this period. 7. Construction in process decreased 100% at this period-end compared to that of the same period of last year, which was mainly due to that the phase II refrigerator project of Yantai Grocery Subsidiary was transferred to fixed assets since finished. 8. Short-term loans increased 225.60% at this period-end compared to that of the same period of last year, which was mainly due to the newly-increased bank loans of the Company in the current period. 9. Accounts payable increased 57.05% at this period-end compared to that of the same period of last year, which was mainly due to the increasing account payable for raw materials of Yantai Grocery Subsidiary in the current period. 10. Accounts received in advance increased 206.14% at this period-end compared to that of the same period of last year, which was mainly due to increasing accounts received in advance of Yantai Grocery Subsidiary from its customers for payment for goods. 11. Wage payable decreased 50.52% at this period-end compared to that of the same period of last year, which was mainly due to that the Company extended the wages related to performance withdrawed in last year in the current period. 12. Others payable decreased 20.67% at this period-end compared to that of the same period of last year, which was mainly due to the decreasing others payable of the Company [中鲁 B] 20 21 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. because of debt restructure in the current period. 13. Tax payable decreased 377.73% at this period-end compared to that of the same period of last year, which was mainly due to that Yantai Grocery Company purchased goods and the value added tax offset purchase tax increased in the current period. (5) Explanation of significant change year on year in main financial data during the report period. Main financial data: Unit: RMB Items 2008 2007 Increase/decrease (%) Operating income 253,452,476.60 216,283,413.05 17.19 Operating cost 217,151,090.76 164,320,589.78 32.15 Administrative expenses 21,563,024.93 24,228,685.45 -11.00 Asset impairment losses 1,653,908.15 -6,729,104.37 124.58 Investment income 517,555.53 3,774,447.09 -86.29 Operating profit 916,586.43 25,819,045.64 -96.45 Non-operating income 23,468,160.59 32,038,420.33 -26.75 Non-operating expenditure 1,829,120.88 2,842,365.33 -35.65 Total profit 22,555,626.14 55,015,100.64 -59.00 Net profit 22,555,627.14 55,015,101.64 -59.00 Notes: 1. Operating income of this period increased 17.19% compared to that of the same period of last year, and reasons were listed as follows: the Company strengthened power in repairing vessels because of its sufficient circulating funds, which raised the sailing-convenience rate of vessels; the subsidiary of the Company-Yantai Grocery Company had a rise in business of processing input materials and purchasing oceanic self-catched fish then processing for export, and income from export sales increased RMB 30,940,000 compared to that of the same period of last year, with an increase rate of 66%; the subsidiary HIC newly purchased refrigeration transport vessel Xinmaoxing which brought increasing income for the whole year. 2. Operating cost of this period increased 32.15% compared to that of the same period of last year, and reasons were listed as follows: the subsidiary of the Company-Yantai Grocery Company had a rise in business of processing input materials and purchasing oceanic self-catched fish then processing for export, the subsidiary HIC newly purchased refrigeration transport vessel Xinmaoxing which brought in increasing operation cost; expense increase in repairing the vessels Taifu 102 and Taihong of the Company in the current period, and fuel expense increase for the increasing price of fuel in the first half year. 3. Administrative expenses of this period decreased 11% compared to that of the same period of last year, and reasons were listed as follows: the Company intensified power in budget management, strictly controlled expense index; meanwhile, retirement welfare occurred in last year while not for this year. 4. Asset impairment losses: asset impairment losses withdrawn for this period was RMB 1,650,000, asset impairment losses RMB 6,730,000 of the same period of last year was transferred back, the Company strictly estimated and calculated asset impairment losses [中鲁 B] 21 22 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. according to accounting standard, bad debt reserve was transferred back for arrearage and payment from sales were received back, account receivable and book age of particular account paid in advance increased this year and withdrawed bad debt reserve. 5. Investment income of this period decreased 86.29% compared to that of the same period of last year: investment income all came from transfer income from subscribing new stock. Because of the execution of the investment project of the Company, the rest unused funds decreased; and also due to that new shares were stoped to be issued in market for a long time. 6. Non-operating income of this period decreased 26.75% compared to that of the same period of last year: the main reasons were: the Company received fuel subsidy RMB 17.39 million, fiscal interest discount RMB 1.78 million, special fund RMB 452,600 for external economic and technology cooperation, tax RMB 570,000 were drawn back for buying state-produced equipment, and RMB 2.47 million from debt restructure in this period. In the same period of last year, the Company received income RMB 3.33 million in disposing fixed assets and RMB 12 million switched back from projected liabilities. 7. Non-operating expenditure of this period decreased 35.65% compared to that of the same period of last year, which was mainly due to that the Company had an expense of RMB 2.13 million for wholly stripping off assets and persons of Longkou Branch in the same period of last year. 8. Net profit of this period decreased 59% compared to that of the same period of last year, which was mainly due to those reasons: operation cost increased; expense increase in repairing the vessels Taifu 102 and Taihong of the Company in the current period, and fuel expense increase for the increasing price of fuel in the first half year; debt reserve withdrawn this period increased; projected liability RMB 12 million was switched back in the same period of last year. (6)Particulars about measurement of fair value during the report period The company took measurement according to the regulated accounting measurement attributes. There was no change happened in measurement attributes during the report period. When making measurement to accounting elements, the company generally took the principle of historical cost. As to those measured by replacement cost, net realizable value, present value, and fair value, the accounting element amount which could be confirmed and available was taken as the basis. (7) Constitution of cash flows in the report period Unit: RMB Items December 31, 2008 December 31, 2007 Increase/decrease (%) Net cash flow arising from operating activities: 11,974,309.74 42,125,250.01 -71.57 Including: Cash received from sale of goods or 251,439,200.02 206,306,239.75 21.88 rendering of services Other cash received relating to operating activities 25,642,741.04 16,340,773.97 56.92 Minus: (1) Cash paid for goods and services 197,546,366.07 113,113,967.76 74.64 (2) Cash paid to and on behalf of employees 45,948,356.74 33,988,098.95 35.19 (3) Payments of all types of taxes 3,609,428.44 2,893,681.55 24.73 (4) Other cash paid relating to operating 19,422,960.82 30,526,015.45 -36.37 [中鲁 B] 22 23 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. activities Net cash flow arising from investment activities: -30,467,696.99 -1,028,946.40 -2,861.06 Cash received from taking back investments 1,731.81 -100.00 Cash received from returns on investments 517,555.53 3,774,447.09 -86.29 Net Cash received from disposal of fixed assets, 5,773,210.60 7,632,491.79 -24.36 intangible assets and other long-term assets Net cash flow arising from financing activities: 34,604,153.44 -48,450,214.45 171.42 Cash received from loans 74,159,797.43 Minus: Cash paid for debt 25,583,910.02 45,841,955.91 -44.19 Cash paid for bonus, profit or interest 3,971,733.97 2,608,258.54 52.28 Net increase in cash and cash equivalents 16,110,766.19 -7,353,910.84 319.08 Notes: 1. Net cash flow arising from operating activities of the Company in this period decreased 71.57% compared to that of the same period of last year, which was mainly due to that Yantai Grocery Company purchased lots of inventories at the year-end. 2. Net cash flow arising from investment activities of the Company in this period decreased 2861.06%% compared to that of the same period of last year, which was mainly due to that vessels Taihong 1 and Taihong 2 were purchased and income from subscribing new shares decreased in this period. 3. Net cash flow arising from financing activities of the Company in this period increased 171.42% compared to that of the same period of last year, which was mainly due to that bank loans were newly increased in this period. (8) Operation and operating performance of the holding subsidiaries and joint stock subsidiaries of the Company Unit: RMB Items Marine HIC Yantai Grocery Total assets 24,683,484.50 104,978,422.02 169,649,986.85 Net assets 14,380,008.13 68,171,187.92 74,134,540.77 Registered capital 22,505,600.00 12,476,146.00 75,593,300.00 Equity proportion(%) 100.00 100.00 100.00 Investing amount 22,505,600.00 12,476,146.00 75,593,300.00 Undertake to transport Self-running Freezing, refrigerating, Business character international shipping, business of processing and sales of marine and main product or refrigeration, marine refrigerated products, birds and beast and service products transportation melon and fruits, etc. Operating income 18,533,107.70 30,783,372.53 101,316,229.77 Operating profit -6,167,086.80 11,423,964.03 602,213.75 Net profit -7,478,206.68 11,423,964.03 1,205,904.86 (9) Main advantages and difficulties of the Company 1. The oceanic fisheries field which the Company is engaged plays an essential part in our [中鲁 B] 23 24 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. ocean strategy, so, our party and government keep close eyes on oceanic fisheries. The current implemented policy such as Three Exemption and Four Subsidies just symbolize support from the state for oceanic fisheries field. The requirments of continuous supports and strengthening oceanic fisheries were definitely brought forward in the No.1 documents of the Party Central Committee in 2009, Shandong Provincial Government issued Opinion about Fastening the Development of Ocean Fisheries, and conducted fiscal interest discount for purchasing and reconstructuring of big-type oceanic catch vessel and subsidy policy for training special agriculture technical personnel, actively supported development of provincial oceanic fisheries enterprise abroad. As the heading enterprise in the provincial oceanic fisheries field, the Company is certainly to gain profit and development. Analysed from the self-view, the Company is a comprehensive fisheries enterprise engaging in oceanic fisheries, oceanic transport, refrigeration and process in normal and unltra-low temperature as well as import and export business. Its business covers substantial fields in oceanic fisheries. At present, the Company has complete industry chain, comparatively rational industry pattern, and richful experience of its management and sales men in oceanic fisheries field. Besides, with good credit for its products and steady customer basis, the Company can keep comparatively strong stability and risk-fighting ability when facing lots of disadvantage factors in production and operation. Difficulities and countermeasurements in the production and operation of the Company during the report period: 1. Influenced by various factors, fish catch output sharply decreased. Particularly under the disadvantage factors of resource, technical operation and appertain equipments, for purse net production of tunny, the catch turnout decreased 2,736 tons compared to the same period of last year, falling 27%. Countermeasurement: the Company would intensify power in scientifical management, improve fish-exploring equipment, strengthen personnel training, scientifically manage shipping route and working area of fish-catching vessels, bring down energy consumption for unit output and strive to obviously enhance working efficiency of fish catch, 2. Many vessels were landed for repairment, which decreased effective working time, influenced production and increased cost. Vessel Taifu 102 went back home for unloading in the first half year and it took 3 months for repairment; working alone in the sea, Vessel Taifu 101 was influenced with its output because of ineffective information; and Vessel Taihong was repaired interiorly in the later half year thus reduced sea working time. Countermeasurement: the Company would take more measurements to increase effective working time and bring up catch output, such as intensifying normal maintainance for vessels, solving problems as soon as possible, rejecting any ignorance, and trying any method to maintain normal operation of vessels. 3. Influenced by international financial crisis and US dollar depreciation, market demand fell down; besides, Japanese market discriminated Chinese products just for the Poison Dumpling Affair. Thus, the export order declined in large degree. Meanwhile, the export business settled in USD also experienced an obvious loss in exchange. Countermeasurements: the Company adopted many ways in looking for new external market and enlarging export; increased cost payment of US dollar loans and US dollar [中鲁 B] 24 25 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. pricing, thus to offset the influence over profit brought by US dollar income; worked hard in developing domestic market to reduce export burden and increase new profit-increasing-spot. 4. Unsuccessful financing channel restricted scale development of the Company. Influenced by its self-feature several years before, and bank was influenced by financial crisis, the Company was more cautions in its loan willing and financing was still very difficult. In addition, reform for B shares hasn’t started off still, the hope that financing through capital market still can’t be implemented. Therefore, the aforesaid factors restricted further development of the Company. Countermeasurements: the Company contacted several banks, paid attention to cultivate its credit to enlarge its credit limit in bank, and tried the best to fulfill its capital demand for production and operation. Meanwhile, the Company took close eyes on the policy arrangement of CSRC for recovering financing function of B shares market. Prepared with plan and arrangement, since policy admitted, the Company strived to finance the capital required for its development through newly issuing shares. (10) Analysis on the continuity and stability of the Company’s operating and profit-making ability In the report period, the Company continued to intensify power in structure adjustment, optimize internal resource, sell and dispose part seriously-aged and low profit-making ability vessels, which brought continuous optimization of the quality of present assets. Meanwhile, it strengthened unified attemper and management of assets, assuring capital demand for its production and operation; strengthened power in repairing vessels, focused on sailor’s training and further enhanced catch ability of vessels. Yantai Grocery Phase II project which was invested by the Company had already been completed abd put into operation. Taking that as basis, the national tunny transaction center was set there, increasing new profit-making spot; the newly-purchased refrigerated transport vessel with storage of 10,000 tons performed excellently in profit-making; and the two tunny longline fishing vessels worked normally. The aforesaid significant production and operation items would offer powerful guarantee for continuity and stability of operation and profit-maiking ability of the Company in the report period. (II) Prospects on future development of the Company (1)Development trend in field of fisheries and competition layout the company faces Oceanic fisheries, the main industry of the Company, are an industry exploring the water resources from the foreign coast or public sea, thus, the international competition is very furious. Due to late stepping in oceanic fisheries, China is located in a comparatively weak position in international field competition layout, with experience and strength waiting for improvement. Therefore, through releasing many assistance policies, the nation encouraged those powerful enterprises to actively engage in oceanic fisheries, thus enhance the integrated power in this field for our nation as soon as possible. At present, as the coastal countries of the world have been strengthening the Supervision System to the foreign fishing vessels which come into their territory, and some developed countries set various obstacles for our nation’s oceanic fisheries relying on their own [中鲁 B] 25 26 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. market. Besides, recently, due to that the international fiancial crisis has impacted the whole world’s economy; the Chinese oceanic fisheries enterprises including the Company will face more difficulities and challenges. (2)Future development strategy of the Company Our country’s oceanic fisheries are still in an initial developing state and have a strong potential in oceanic fisheries. Although faced with many challenges, the nation also has good opportunity. In view of future development, the Company will continue to follow the working spirit of “Steadiness, Adjustment, Development and Improvement”; adequately enlarges asset, continuously strengthen integrated power, improves scale efficiency and scientifical management with the national policy assistance in oceanic fisheries. And also, the Company seeks for opportunity and development in crisis, remains and advances its competition position in this field. (III) Working plan for the coming year The integrated economic situation for 2009 is very complicated with many unpredictable uncertainties, which means that the production and operation of the Company will experience an abnormal furious challenge. For that, steadiness is still the focus topic for the 2009 meeting of the Board. It requires development and improvement on the basis of steadiness. All members of the Board will unify thoughts, strengthen responsibility and carry out work in strict accordance to the requirements of Code of Corporate Governance for Listed Companies presented by CSRC. The general working route for 2009 is: enlarge measurement, deepen reform adjustment, perfect legal administration structure, improve standardized operation level; trying hard to overcome various difficulities, ensure the normal operation of the main business; develop financing channel and conquer capital restriction; take the right time to expand excellent asset and increase new profit-making spot. On the basis of ensuring realization of whole year working goal, the Company brings the quality, efficiency and scientifical management of economic operation into a new step. 1. Continue to intensify governing of the Company and perfect internal control system. According to requirements for modern enterprise, gradually complete decision-making, incentive as well as supervision mechanisms and assure normal operation of the three mechanisms. Relyig on the strict internal control system, make sure that the various risks occurred in production and operation could be effectively kept away. Play function of the various special committees of the Board, make every disicion in procedure, democratically and scientifically, guarantee standardized operation of the Company. 2. Seek for development in stability by particularly focusing on main business and adequately enpanding the advantage industry. On the basis of good operation of the original asset scale, the Company adequately expands its advantage asset and adds new profit-making spot. Unltra low temperature longline fishing vessel should be kept as the original scale-5 vessels; taking the right time, the Company could bring in 2 to 3 teams of purse net fishing-catching vessel, expand the scale, try hard to bring up the catch amount of purse net vessels and then improve scale efficiency; continue to well program the development of oceanic transport vessel, especially probe and bring in transport vessel in bulk. Taking financing ability and the actual operation into consideration, the Company [中鲁 B] 26 27 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. takes opportunity to expand asset scale rapidly and improve profit-making ability of the enterprise. However, at the same time, we should also keep sober to avoid the deadly hurt brought by blind investment. 3. Make full use of the various favour assistance policies presented by the nation, advances healthy development of the Company. The various fisheries subsidies and favour measurement released by the nation and some local governments are strong support for the healthy developmeny of the enterprise. The Company should actively organize power, and entrust particular person to take responsibility, carefully make research as well, to make sure that the various favour policies could be used in the largest degree, which means taking opportunity of policy for development. 4. Quicken the construction of the largest national tunny trade center and advance the integrated profit-making ability of Yantai Grocery. The advantage of super low temperature refrigeration processing base in Yantai Grocery should be fully taken. On the basis of prior operation, the Company continues to strive for support from the relevant national and local departments, aiming to figure Zhonglu Yantai Grocery into national tunny transaction center. Take full advantage of the platform, to advance export and domestic demand, and further exploit the international and national markets to figure our product Higgins raw eating tunny series into a real big famous brand. Improve capital income and expand tunny market. 5. Intensify financing work to offer capital guarantee for the Company’s development. Continue to strengthen communication with commercial bank to enlarge credit limit and obtain necessary loan support. Meanwhile, the Company takes close eyes on the policy arrangement of CSRC for recovering financing function of B shares market. Prepared with plan and arrangement, since policy admitted, the Company strives to finance the capital required for its development through newly issuing shares. (IV)Application plan of future capital of the Company In order to accomplish operation plan and work goal for 2009, the Company has to assure capital demand required for various aspects of production and operation. Capital comes from the following channels: 1. Use the self-owned capital of the Company; 2. Take loans from commercial bank; 3. If possible, raise capital through directionally privately issuing shares. III. Investment (I) Application of raised proceeds In the report period, the Company didn’t raise proceeds to invest projects and there were no raised proceeds in last report period used till the report period. (II) Significant projects invested with the non-raised proceeds in the report period 1. Discussed and finally passed by the second meeting of the third session Board of Directors of the Company, the Company increased amount of RMB 18.8 million investing in expanding the second phase project of unltra-low-temperature refrigerator storage of Shandong Zhonglu Oceanic (Yantai) Grocery Co., Ltd, which had been finished and put [中鲁 B] 27 28 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. into production in this report period. RMB 18.8 million was expected to use for this investment, while actually RMB 20.33 million was used. 2. Discussed and finally passed by the sixth meeting of the third session Board of Directors of the Company, HABITAT Company purchased a new refrigeration transport vessel with the capacity of 10,000 tons, which had been finished and put into operation in this report period. RMB 30.12 million was expected to use for this investment, while actually RMB 30.42 million was used. 3. Discussed and finally passed by the sixth meeting of the third session Board of Directors of the Company, the Company purchased 2 new tunny unltra low temperature longline fishing vessels, which had been finished and put into production in this report period. RMB 33.8 million was expected to use for this investment, while actually RMB 33.301 million was used. IV. The Board of the Company holds that: the standard unqualified auditor’s report issued by Daxin CPAs reflects the 2008 financial condition and operation achievement of the Company really and objectively. V. Routine work of the Board (I) Meetings and resolution of the Board of Directors in the report period In the report period, the Company totally held eight meetings: On Feb 14th of 2008, the Board held the 7th meeting of the 3rd board of directors on spot. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Feb 18th of 2008. On Apr 16th of 2008, the Board held the 8th meeting of the 3rd board of directors on spot. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Apr 18th of 2008. On May 7th of 2008, the Board held the 9th meeting of the 3rd board of directors in way of communication. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated May 8th of 2008. On Jun 26th of 2008, the Board held the 10th meeting of the 3rd board of directors in way of communication. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Jun 27th of 2008. On Jun 27th of 2008, the Board held the 11th meeting of the 3rd board of directors on spot. On Jul 18th of 2008, the Board held the 12th meeting of the 3rd board of directors in way of communication. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Jul 19th of 2008. On Aug 26th of 2008, the Board held the 13th meeting of the 3rd board of directors on spot. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Aug 28th of 2008. On Oct 23rd of 2008, the Board held the 14th meeting of the 3rd board of directors in way of communication. Relevant resolution of the meeting had been published on China Securities and Hong Kong Wen Wei Po dated Oct 24th of 2008. (II) Implementation of resolutions of the Shareholders’ General Meeting by the Board of [中鲁 B] 28 29 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Directors In 2008, the Board of Directors strictly implemented various resolutions of the Shareholders’ General Meeting according to responsibilities endowed by Articles of Association, and confirmed the audit fee for the accountants according to the authorization of Shareholders’General Meeting. VI. Preplan on the profit distribution in 2008 Audited by Daxin CPAs Co., Ltd., the net profit realized by the Company in 2008 was RMB 22,555,626.14 and the profit available for distribution for all shareholders in current year was RMB -230,420,103.14. Therefore, there conducted neither to distribute profits nor convert capital reserve into share capital in this year. The said preplan should still be submitted to the 2008 Annual Shareholders’ General Meeting for approval. Particulars about the cash bonus of the Company in previous three years Unit: RMB Net profit attributable to Ratio of net profit attributable to Amount of cash bonus owners of parent company owners of parent company in (tax included) in consolidated statement consolidated statement 2007 0.00 55,015,100.64 0.00% 2006 0.00 152,954,244.21 0.00% 2005 0.00 -47,520,145.47 0.00% VII. Explanation for why there is no profit distribution preplan though profit has been made in the report period and usage for the undistributed profit. Because the profit made in the report period is still not enough to compensate for the losses accumulated in the last years, according to the articles of association of the Company, no profit distribution preplan has been presented this year. VIII. Particulars about the performance of the Audit Committee of the Board of Directors In the report period, the Audit Committee of the Board of Directors of the Company totally held four meetings, discussing in affairs of period reports and related affairs: 1. On Feb 3rd of 2008, the Audit Committee held the 1st meeting of 2008. The following resolutions were examined and approved in this meeting: the 2007 Financial Settlement Report, the 2007 Profit Distribution Preplan, the 2007 Annual Report, Self-estimation Report on Internal Control of the Company, Proposal on Reengaging Accountant, Audit Procedure of the Audit Committee for the Annual Financial Report, and Summary on the 2007 Audit Work of Daxin CPAs Co., Ltd. It was agreed to submit the proposals to the Board for examination according to procedure. 2. On Apr 16th of 2008, the Audit Committee of the Board of the Company held the 2nd meeting of 2008. The 2007 Annual Report was examined and approved in this meeting and was agreed to submit to the Board for examination. 3. On Aug 14th of 2008, the Audit Committee of the Board of the Company held the 3rd meeting of 2008. The 2008 Semi-annual Report was examined and approved in this [中鲁 B] 29 30 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. meeting and was agreed to submit to the Board for examination. 4. On Oct 22nd of 2008, the Audit Committee of the Board of the Company held the 4th meeting of 2008. The 2008 Third Quarterly Report was examined and approved in this meeting and was agreed to submit to the Board for examination. Besides, the Audit Committee of the Board did lots of work during the 2008 audit period and formed Summary Report on the Audit Work of Daxin CPAs Presented by the Audit Committee. According to requirements of Doing Well in 2008 Annual Report and Related Work of Listed Company issued by CSRC, the Audit Committee harmonized and supervised Daxin CPA to carry out the following 2008 audit work: 1. Confirm the 2008 annual audit plan and carefully check the financial statements of the Company Before the audit by the registered accountants from Daxin CPAs Co., Ltd, the independent directors, the Audit Committee and the CPAs Co., Ltd confirmed the arrangement for the audit work of 2008 with negotiation. At the same time, the independent directors and the Audit Committee checked the financial statements prepared by the Company for 2008. It was thought that the Company could make financial calculation according to regulations of new accounting standards and didn’t find any significant artificial facts in the annual report; the financial statements of 2008 prepared by the Company basically reflected the balance particulars and operating performance till Dec 31, 2008. And it was agreed to take these statements as the basis to carry out the financial audit work of 2008. 2. Supervise and urge the CPA to carry out relavant work according to plan On Feb 1st of 2009, the CPA went in for audit officially. During the period, by ways of written and telephone, the Audit Committee demanded the CPA to finish the work in time according to the audit work plan, and communicate with the Audit Committee with the whole audit process and any problems in audit work. 3. Holding communication meeting to pay more attention to audit development On Feb.16, 2009, Daxin CPA Co., Ltd. offered preniminary audit opinion, and the main member of Audit Committee called independent directors, CPA and the Company to hold the communication meeting about annual report audit. In the meeting, the general manager introduced operation of the Company in 2008 and significant events development, Audit Committee member rechecked the financial report, discussed about items mentioned by independents and CPA and formed written opinion: thought that the relevant data in 2008 Financial Report basically reflected the assets liability and operation achievement of the Company till Dec.31, 2008, and approved to compile Annual Report 2008 according to the report. At the same time, required CPA complete the audit work as soon as possible according to audit plan to ensure that the board of directors could disclose the Annual Report on time. 4. Holding Audit Committee’s meeting to discuss relevant proposals in annual report On Feb. 27, 2009, CPA completed and offered audit report with standard unqualified opinions. On Feb. 24, Audit Committee held the 1st meeting in 2009, and passed Financial Settlement Report 2008, Profit Distribution Preplan 2008, Self-estimation Report of [中鲁 B] 30 31 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Internal Control, Proposal on Reengaged Accountant, Regulations of Financial Report Audit by Audit Committee and Conclusion of 2008 Audit Working by Daishin CPAs Co., Ltd., and formed proposal on Applying thr Board of Directors to Renengaged Dashin CPAs Co., Ltd. as Finance Audit Institution in 2009. Till then, the audit working in 2008 had completed. IX. Implementation of Remuneration and Appraisal Committee The meeting of Remuneration and Appraisal Committee was held in Conference Room in 10/Floor on Feb. 13, 2008. The meeting passed two proposals – proposal on adjusting the remuneration of independent directors and proposal on adjusting the remuneration of directors and senior executivess, and approved to put relevant proposals in the board of directors according to procedure. The committee checked the remuneration of directors, supervisors and senior executives disclosed in Annual Report 2008, and thought that the present remuneration system was established according to decission-making procedure, their remuneration payment accorded with regulations, and the remuneration of relevant personnel disclosed in Annual Report 2008 were true and accurate. SEXTION IX. REPORTOF THE SUPERVISORY COMMITTEE I. Meetings of the Supervisory Committee in the report period In the report period, the Supervisory Committee of the Company held totally four meetings: (I) On Feb. 14, 2008, the Company held the 4th meeting of the 3rd Supervisory Committee. The meeting examined and approved proposals as follows: 1. 2007 Work Report of the Supervisory Committee; 2. 2007 Financial Settlement Report; 3. 2007 Profit Distribution Preplan; 4. Self-estimation Report of Internal Control; 5. Text and summary of 2007 Annual Report. The resolutions of the meeting have been published on China Securities and Hong Kong Wen Wei Po dated Feb. 16, 2008. (II) On Apr. 16, 2008, the Company held the 5th meeting of the 3rd Supervisory Committee. The meeting examined and approved 2008 the First Quarterly Report. (III) On Aug. 26, 2008, the Company held the 6st meeting of the 3rd Supervisory Committee. The meeting examined and approved the Text and Summary of 2008 Semi-annual Report. (IV) On Oct. 23, 2008, the Company held the 7st meeting of the 3rd Supervisory Committee. The meeting examined and approved 2008 the Third Quarterly Report. II. The Supervisory Committee had expressed independent opinions on the following issues: The Supervisory Committee exerted authority according with the Company Law and Articles of Association, and seriously inspected and supervised the finance management, internal control system, implementation of resolution of shareholders’ general meeting, [中鲁 B] 31 32 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. business decission-making, decission-making and operation of board of directors and senior executives. Now express independent opinions as follows: (I) The operation of the Company according to laws 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. (II) Inspection of the financial status of the Company During the report period, the Supervisory Committee carried out inspection to financial system and financial conditions of the Company and thought the audit opinion expressed by Daishin CPAf Co., Ltd. was prudent and objective. The financial report audited by accountant truly reflected financial condition and operation performances of the Company in 2008 and the Supervisory Committee had no objection. (III) Related transactions With the completeness of the restructure of the company in 2008, no new related transaction has occurred and the problem of liquidation of great arrearage occurred from related transaction with big shareholder historically has been fundamentally solved. (IV) The use of raised proceeds of the Company In the report period, the Company had neither invested project of raised proceeds nor delayed use of raised proceeds from previous report period to the report period. (V) Purchases and sales of assets The investment in the report period implemented legal procedure according to the regulations, and got expected investment income in line wieth plan; matters on sales of assets, the decisions were rational and the trade was fair; there was no secret transaction and any hurt of shareholder’s benefit or losses of the Company’s assets (6) Self-estimation in internal control According to the relevant regulations of Basic Standard for Enterprise Internal Control, Articles of Association and Notice on Doing Well 2008 Annual Report by Shenzhen Exchange, the Supervisory Committee checked the establishing and performing of internal management system and internal control system. Now express opinions on self-estimation report of internal control offered by the board of directors as follows: 1. In accordance with the relevant regulation of CSRC and Shenzhen Securities Exchange, the Company strictly follows the basic principles of internal control, and establishes a wholesome internal control system which covers every aspect of the Company on the basis of the actual situation of the Company, providing a guarantee for the normal operation of business activities and safety and completeness of the Company’s assets. 2. The Company has an integrity internal control organization and internal audit department, which provide strong support in the execution and supervise of significant activities of the internal control of the Company. 3. In 2008, there is no circumstance violating Guidance to Listed Company Internal Control of Shenzhen Stock Exchange and the internal control system of the Company. Above all, The Supervisory Committee concludes that the internal control of the company is complete, real, and accurate, and reflects the actual situation of the internal control of the company. [中鲁 B] 32 33 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. (7) Examining opinion on 2008 Annual Report The Supervisory Committee thinks that procedure of the 2008 Annual Report’s 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 CSRC and Shenzhen Stock Exchange, its contents could truly reflects production operation and financial condition of the Company in current year; 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. Daishin CPAs Co., Ltd. made a comprehensive audit of 2008 Financial Report and offered auditor’s report with standard unqualified opinion Daxin SZ [2009] No. 0018. The Supervisory Committee thought that the report really reflected the finacial condition and operation achievement, which was fair, objective, true and belivable. The Supervosory Committee would continued to implement own duty strictly according to regulations of the Company Law, Articles of Association and relevant regulations and policies of the state to further promote regular operation. SECTION X. SIGNIFICANT EVENTS I. There were no significant lawsuits and arbitrations in this year. II. There was no bankruptcy and relevant issues. III. There was no share holding for other listed companies, share participating of commercial banks, securities companies, insurances companies, trust and futures companies and other financial enterprises’ share. IV. Briefs on the purchases and sales of assets, takeovers and mergers in the report period, their process as well as influence on The Company (I) In the report period, the Company had contact with Fujian Fu’an Guojiang Fishery Co. Ltd. for selling ‘Taize’ vessel of RMB 1.68 million in June. This deal had RMB 146,400 income, all the money had been get back till the end of the report period and the ownership transfer had been completed yet. (II) In the report period, the Company had contact with Croft Sales and Distribution Ltd. for selling ‘Taizhong’ vessel of RMB 4,107,000 in Augest. This deal had RMB 1,027,500 loss, all the money had been get back till the end of the report period and the ownership transfern had been completed yet. V. Detailed implementations of equity incentives plan in the report period In the report period, the Company had no detailed implementations of equity incentives plan. VI. Significant related transactions (I) Related transaction concerned with routine operation [中鲁 B] 33 34 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. There was no routine operation transaction in the report period. (II) Related transaction occurred in asset purchase and sale transactions There was no related transaction occurred in purchase and sale transactions in the report period. (III) Related transaction occurring in joint investment with related party There was no related transaction occurring in joint investment with related party in the report period. (IV) Credit and liability transaction, and guarantees of related parties There was no credit and liability transaction and guarantees of related parties in the report period. (V) No other significant related transactions. VII. Significant contract and its implementation (I) There was no entrustment, contracting and leasing in the report period or the former ones lasted to this report period. (II) Significant guarantee In the report period, no new external guarantee occurred. The Company supplied guarantee for RMB 15 million bank credit loan of the subsidiary Yantai Grocery Co., Ltd; the Company pledged its bank deposit of RMB 21.6 million to supply guarantee for USD 3 million bank credit loan of the subsidiary HIC. Ended the report period, the accumulative external guarantee of the Company totaled to RMB 71.6 million, in which the total guarantee for the controlling subsidiary was RMB 21.6 million accounting for 21.10% net asset of the Company ended as Dec. 31, 2008. The Company offered long-term guarantee RMB 50 million for its original subsidiary company - Qingdao Shuangjing Pharmaceutical Co., Ltd. (was transferred in Aug., 2003). Due to the Company sold the equity of Shuangjing Pharmaceutical, this guarantee was transferred to external guarantee. The Company always paid much ateention to guarantee solution working, and had established new scheme and seriously implemented. At present, the production and operation of Qingdao Shuangjing Pharmaceutical Co., Ltd. were regular, and creditor bank did not implead. At the same time, the related parts all expressed great sincerity, agreed to resolve problems as soon as possible with the principles of mutual understanding and mutual accommodation, and the gurantee resolution working was in progress. The Company had ever explained for this in special inspection activity by Shangdong Securities Regulatory Bureau and gained the understanding of supervisory department. (III) In the report period, the Company had not entrusted others with cash assets management. VIII. Commitments There existed no commitments in the report period or lasting till the report period for the shareholders who held above 5%. IX. Engagement and disengagement of Certified Public Accountants In the report period, The Company continued to engage Daxin Certified Public Accountants [中鲁 B] 34 35 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Co., Ltd as the 2008 financial auditing institution with the approval of 2007 Shareholders’ General Meeting. This was the 6th year that the auditing institution had provided auditing services to the Company. X. Briefs on the public criticisms from CSRC and Stock Exchange In the report, The Company and its Board of Director received no inspection, administrative penalty and criticism by circulating a notice from China Securities Regulatory Commission and public censure from Stock Exchange. XI. The research and interview received In report period, in accordance with the requirement of Guidelines on Fair Information Disclosure of Companies Listed on Shenzhen Stock Exchange, when received the research and interview, The Company relevant parties taking responsibility for information disclosure strictly followed the principle of fair information disclosure, haven’t implemented the different treatment policy, haven’t selectively or privately disclosed, revealed or exposed non-public information ahead to specifically objects. The received visits of The Company were mainly in two ways: one is telephone reception; the other is face-to-face interview with shareholders. Since one year ago, The Company received shareholders over 10 times in Jinan and Shenzhen respectively, answered the questions the shareholders concerned about patiently and elaborately, and provided relevant data that publicly disclosed by the Company for shareholders. Reception Reception Reception Reception Discussing matter and offered time place way object information Telephone Individual Operations of the Company and Feb. 18, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Feb. 20, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Apr. 18, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Apr. 21, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Apr. 22, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Oct. 24, 2008 Jinan communication investment no materials were supplied. Telephone Individual Operations of the Company and Oct. 27, 2008 Jinan communication investment no materials were supplied. Hong Kong Operations of the Company and Dec. 2, 2008 Jinan Spot reception Zhongjin no materials were supplied. Company XII. Information index of other significant events In the report period, the significant events of the Company were pulished on China Securities, Hong Kong Wen Wei Po and Juchao website (http: //www.cninfo.com.cn). [中鲁 B] 35 36 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Details were as follows: Notice No. Notice contents Date of notice 2008-001 Notice on Changing Domestic Information Feb. 2, 2008 Disclosure Newspaper 2008-002 Notice on Resolution of the 7th Meeting of the 3rd Feb. 18, 2008 Board of Directors 2008-003 Summary of 2007 Annual Report Feb.18, 2008 2008-004 Notice on Resolution of the 4th Meeting of the 3rd Feb. 18, 2008 Supervisory Committee 2008-005 Notice on 2007 Shareholders’ General Meeting Feb. 18, 2008 2008-006 Notice on Applying Cancelling Other Special Feb. 21, 2008 Treatment 2008-007 Notice on Cancelling Other Special Treatment Feb. 29, 2008 2008-008 Notice on Resolution of 2007 Shareholders’ General Mar. 19, 2008 Meeting 2008-009 Notice on Resolution of the 8th Meeting of the 3rd Apr. 18, 2008 Board of Directors 2008-010 Summary of the First Quaterly Report 2008 Apr. 18, 2008 2008-011 Notice on Resolution of the 9th Meeting of the 3rd May 8, 2008 Board of Directors 2008-012 Notice on Offering Guarantee to Subsidiary May 8, 2008 Companies 2008-013 Notice on Resolution of the 10th Meeting of the 3rd Jun. 27, 2008 Board of Directors 2008-014 Notice on Offering Guarantee to Loan of Subsidiary Jun. 27, 2008 Companies 2008-015 Notice on Resolution of the 12th Meeting of the 3rd Jul. 19, 2008 Board of Directors 2008-016 Business Performance in Semi-Annual of 2008 Jul. 19, 2008 2008-017 Summary of Semi-annual Report 2008 Aug. 28, 2008 2008-018 Notice on Resolution of the 13th Meeting of the 3rd Aug. 28, 2008 Board of Directors 2008-019 Business Performance in Third Quarter of 2008 Oct. 6, 2008 2008-020 Summary of the Third Quarterly Report 2008 Oct. 24, 2008 2008-021 Notice on Performance Projection of Year 2008 Oct. 24, 2008 SECTION XI. FINANCIAL REPORT I. Auditors’ report Independent Auditors' Report Daxin Shen Zi [2009] No.0018 [中鲁 B] 36 37 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. To the Shareholders of Shandong Zhonglu Oceanic Fisheries Co., Ltd.: We have audited the accompanying financial statements of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (“the Company”), including balance sheet and consolidated balance sheet as of December 31, 2008, income statement and consolidated income statement, statements of changes in equity and consolidated statements of changes in equity, cash flow statement and consolidated cash flow statement, and notes to the financial statements for the year then ended. I. Management's responsibility for the financial statements The Company's management is responsible for the preparation of the financial statements in accordance with the Enterprises Accounting Standards. The responsibility includes: (1) designing, implementing and maintaining an internal control system for the preparation of the financial statements so that they are free of material misstatement due to frauds or errors; (2) choosing and applying appropriate accounting principles; (3) making reasonable accounting estimates. II. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the Chinese Auditing Standards. Those standards require that we comply with professional ethics, plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on test basis, evidence supporting the amounts and disclosures in the financial statements. The testing methods and procedures are based on auditor's judgment, including the evaluation of the risk of material misstatement due to frauds or errors. When evaluating risk, we consider the internal control system in relating to financial statements in order to design auditing procedures, but not for the purpose of expressing an opinion on the system’s effectiveness. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that we have obtained sufficient and appropriate evidence to [中鲁 B] 37 38 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. provide a reasonable basis for our audit opinion. III. Auditing opinion In our opinion, the Company’s financial statements have been prepared in accordance with the Enterprises Accounting Standards, and they fairly present, in all material respects, the financial position of the Company as of December 31, 2008, and the results of its operations and its cash flows for year then ended. DaXin Certified Public Accountants Co., Ltd Chinese Certified Public Accountant: Wuhan · China Chinese Certified Public Accountant: February 14, 2008 [中鲁 B] 38 39 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Consolidated Balance Sheet Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Monetary unit: RMB YUAN Item Notes December 31,2008 January 1,2008 Current assets: Monetary funds V.1 74,452,404.48 48,341,638.29 Notes receivable Accounts receivable V.2 15,298,645.02 9,669,104.85 Accounts in advance V.3 6,868,073.62 4,071,282.89 Interest receivable 27,977.50 Dividend receivable Other receivables V.4 3,886,607.26 8,765,291.92 Inventories V.5 96,005,904.65 55,534,765.68 Non-current asset due within 1 year Other current assets Total current assets 196,539,612.53 126,382,083.63 Non-current assets: Available-for-sale financial assets Held-to-maturity securities Long-term account receivable Long-term equity investment V.6 Investment property V.7 42,184,436.72 Fixed assets V.8 247,793,466.65 265,822,821.18 Construction in progress V.9 10,624,925.46 Engineering material Disposal of fixed assets Bearer biological assets Oil and gas assets Intangible assets V.10 8,255,495.26 8,382,217.89 Expense on research and development Goodwill Deferred tax assets Other non-current asset Total non-current assets 298,233,398.63 284,829,964.53 Total assets 494,773,011.16 411,212,048.16 Corporate representative: Chief accountant: Person in charge of accounting department: Consolidated Balance Sheet(Cont.) [中鲁 B] 39 40 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Monetary unit: RMB YUAN Item Notes December 31,2008 January 1,2008 Current liabilities: Short-term loans V.12 70,003,800.00 21,500,000.00 Financial liabilities held for trading Notes payable Accounts payable V.13 62,182,658.42 39,593,414.09 Advance from customer V.14 2,740,134.66 895,046.92 Wage payable V.15 7,045,268.14 14,237,415.56 Taxes payable V.16 -1,178,440.82 424,312.31 Interest payable Dividend payable 459,329.80 459,329.80 Other payables V.17 14,163,899.74 17,853,658.61 Non-current liabilities due within 1 year Other current liabilities Total current liabilities 155,416,649.94 94,963,177.29 Non-current liabilities: Long-term loans Bonds payable Long-term accounts payable Special payable Contingent liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 155,416,649.94 94,963,177.29 Owners' equity: Share capital V.18 266,071,320.00 266,071,320.00 Capital reserves V.19 281,245,215.96 281,245,215.96 Less:treasury stock Surplus reserves V.20 21,908,064.19 21,908,064.19 Undistributed profits V.21 -230,420,103.14 -252,975,729.28 Balance difference of foreign currency translation 547,477.12 Total owner's equity attributable to parent company 339,351,974.13 316,248,870.87 Minority interests 4,387.09 Total owner's equity 339,356,361.22 316,248,870.87 Total liabilities and owner's equity 494,773,011.16 411,212,048.16 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 40 41 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Consolidated Income Statement Made by:Shandong Zhonglu Oceanic Fisheries Co., Ltd year 2008 Monetary unit: RMB YUAN Item Notes 2008 2007 I.Operating Revenue 253,452,476.60 216,283,413.05 Include: Revenue from principal operations V.22 253,452,476.60 216,283,413.05 Interest income Less:Operating cost 253,053,445.70 194,238,814.50 Operating cost V.22 217,151,090.76 164,320,589.78 Operating taxes and extras V.23 1,368,194.72 1,481,656.38 Sales expenses 7,218,843.38 6,931,676.70 General and administrative expenses 21,563,024.93 24,228,685.45 Financial expenses V.24 4,098,383.76 4,005,310.56 Loss of devaluation of assets V.25 1,653,908.15 -6,729,104.37 Add:Increase in fair value Investment income V.26 517,555.53 3,774,447.09 Including: investment income on affiliated company and joint venture Foreign currency translation income II.Operating profit 916,586.43 25,819,045.64 Add: Non-operating income V.27 23,468,160.59 32,038,420.33 Less: Non-operating expenses V.27 1,829,120.88 2,842,365.33 Including: disposal loss of non-current asset III.Total profit 22,555,626.14 55,015,100.64 Less: income tax IV.Net profit 22,555,626.14 55,015,100.64 Net profit attributable to parent company's owner 22,555,626.14 55,015,100.64 Profit and loss of minority interests V.Earnings per share i.Basic earnings per share V.28 0.08 0.21 ii.Diluted earnings per share V.28 0.08 0.21 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 41 42 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Balance Sheet (Parent) Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Monetary unit: RMB YUAN Item Notes December 31,2008 January 1,2008 Current assets: Monetary funds 49,281,486.67 37,419,712.13 Financial assets held for trading Notes receivable Accounts receivable VI.1 5,756,691.53 643,921.56 Accounts in advance 6,283,327.65 1,278,493.31 Interest receivable 27,977.50 Dividend receivable Other receivables VI.2 31,955,724.32 24,052,254.63 Inventories 28,114,077.03 23,559,330.32 Non-current asset due within 1 year Other current assets Total current assets 121,419,284.70 86,953,711.95 Non-current assets: Available-for-sale financial assets Held-to-maturity securities Long-term account receivable VI.3 7,501,383.23 Long-term equity investment VI.4 90,793,844.22 86,893,844.22 Investment property 42,184,436.72 Fixed assets 108,032,188.60 142,573,681.87 Construction in progress 2,082,542.24 Engineering material Disposal of fixed assets Bearer biological assets Oil and gas assets Intangible assets 108,366.69 Expense on research and development Goodwill Long-term unamortized expenses Deferred tax assets Other non-current asset Total non-current assets 248,620,219.46 231,550,068.33 Total assets 370,039,504.16 318,503,780.28 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 42 43 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Balance Sheet (Parent)(Cont.) Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Monetary unit: RMB YUAN Item Notes December 31,2008 January 1,2008 Current liabilities: Short-term loans 30,000,000.00 Financial liabilities held for trading Notes payable Accounts payable 11,658,674.93 16,798,329.60 Accounts receivable in advance 439,863.72 408,197.05 Wage payable 4,010,534.86 11,262,249.92 Taxes payable -178,239.02 57,901.95 Interest payable Dividend payable 459,329.80 459,329.80 Other payables 27,644,094.97 15,491,480.10 Non-current liabilities due within 1 year Other current liabilities Total current liabilities 74,034,259.26 44,477,488.42 Non-current liabilities: Long-term loans Bonds payable Long-term accounts payable Special payable Contingent liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities 74,034,259.26 44,477,488.42 Owners' equity: Share capital 266,071,320.00 266,071,320.00 Capital reserves 279,130,089.16 279,130,089.16 Less: treasury stock Surplus reserves 19,184,672.34 19,184,672.34 Undistributed profits -268,380,836.60 -290,359,789.64 Minority interests Total owner's equity 296,005,244.90 274,026,291.86 Total liabilities and owner's equity 370,039,504.16 318,503,780.28 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 43 44 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Income Statement (Parent) Made by:Shandong Zhonglu Oceanic Fisheries Co., Ltd year 2008 Monetary unit: RMB YUAN Item Notes 2008 2007 I.Operating income VI.5 110,463,965.95 115,525,513.49 Less:Operating cost VI.6 91,417,957.90 80,625,752.65 Operating taxes and extras 360,384.94 219,934.44 Sales expenses 6,351,932.10 5,685,541.40 General and administrative expenses 13,949,230.51 16,859,406.56 Financial expenses -839,114.57 2,099,513.78 Loss of devaluation of assets 108,646.04 -6,932,213.08 Add:Increase in fair value Investment income VI.7 517,555.53 3,774,447.09 Including: investment income on affiliated company and joint venture II.Operating profit -367,515.44 20,742,024.83 Add: Non-operating income 22,797,513.73 31,992,650.17 Less: Non-operating expenses 451,045.25 2,132,848.11 Including: disposal loss of non-current asset III.Total profit 21,978,953.04 50,601,826.89 Less: income tax IV.Net profit 21,978,953.04 50,601,826.89 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 44 45 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Consolidated Cash Flow Statement Made by:Shandong Zhonglu Oceanic Fisheries Co., Ltd year 2008 Monetary unit: RMB YUAN Item Notes 2008 2007 I.Cash flows from operating activities: Cash received from sales of goods or rendering of services 251,439,200.02 206,306,239.75 Refunds of taxes 1,419,480.75 Cash received relating to other operating activities 25,642,741.04 16,340,773.97 Sub-total of cash inflows 278,501,421.81 222,647,013.72 Cash paid for goods and services 197,546,366.07 113,113,967.76 Cash paid to and on behalf of employees 45,948,356.74 33,988,098.95 Payments of all types of taxes 3,609,428.44 2,893,681.55 Cash paid relating to other operating activities 19,422,960.82 30,526,015.45 Sub-total of cash outflows 266,527,112.07 180,521,763.71 Net cash flows from operating activities 11,974,309.74 42,125,250.01 II.Cash flows from investing activities: Cash received from return of investments 1,731.81 Cash received from return on investments 517,555.53 3,774,447.09 Net cash received from the sale of fixed assets, intangible assets and other long-term assets 5,773,210.60 7,632,491.79 Net cash received from selling subsidiary company and joint venture Cash received relating to other investing activities 42,000,000.00 Sub-total of cash inflows 6,290,766.13 53,408,670.69 Cash paid to acquire fixed assets, intangible assets and other long-term assets 36,758,463.12 40,840,025.54 Cash paid to acquire investments Net cash paid to purchase subsidiary company and joint venture Cash paid relating to other investing activities 13,597,591.55 Sub-total of cash outflows 36,758,463.12 54,437,617.09 Net cash flows from investing activities -30,467,696.99 -1,028,946.40 III.Cash flows from financing activities: Cash received from investments by others Including: cash received from subsidary company absorbing minority's investment Cash received from borrowings 74,159,797.43 Sub-total of cash inflows 74,159,797.43 Cash repayments of amounts borrowed 25,583,910.02 45,841,955.91 Cash paid for distribution of dividends or profits and for interest expenses 3,971,733.97 2,608,258.54 Including: dividend or profit that subsidiary company pays to minority Cash paid relating to other financing activities 10,000,000.00 Sub-total of cash outflows 39,555,643.99 48,450,214.45 Net cash flows from financing activities 34,604,153.44 -48,450,214.45 IV.Effect of foreign exchange rate changes on cash V.Net increase in cash and cash equivalents 16,110,766.19 -7,353,910.84 Add:balance of cash and cash equivalents at the beginning of the year 48,341,638.29 55,695,549.13 VI.Balance of cash and cash equivalents at the end of the year 64,452,404.48 48,341,638.29 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 45 46 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Cash Flow Statement (parent) Made by:Shandong Zhonglu Oceanic Fisheries Co., Ltd year 2008 Monetary unit: RMB YUAN Item Notes 2008 2007 I.Cash flows from operating activities: Cash received from sales of goods or rendering of services 105,307,559.98 116,083,924.60 Refunds of taxes Cash received relating to other operating activities 30,333,447.39 16,846,687.93 Sub-total of cash inflows 135,641,007.37 132,930,612.53 Cash paid for goods and services 88,152,359.47 58,452,494.49 Cash paid to and on behalf of employees 24,615,027.99 16,584,109.44 Payments of all types of taxes 1,773,685.94 555,368.95 Cash paid relating to other operating activities 9,826,721.91 46,698,198.35 Sub-total of cash outflows 124,367,795.31 122,290,171.23 Net cash flows from operating activities 11,273,212.06 10,640,441.30 II.Cash flows from investing activities: Cash received from return of investments 1,731.81 Cash received from return on investments 517,555.53 3,774,447.09 Net cash received from the sale of fixed assets, intangible assets and other long-term assets 1,801,352.45 7,601,539.79 Net cash received from selling subsidiary company and joint venture Cash received relating to other investing activities 42,000,000.00 Sub-total of cash inflows 2,318,907.98 53,377,718.69 Cash paid to acquire fixed assets, intangible assets and other long-term assets 26,332,870.33 2,409,405.61 Cash paid to acquire investments 3,900,000.00 10,100,000.00 Net cash paid to purchase subsidiary company and joint venture Cash paid relating to other investing activities 13,597,591.55 Sub-total of cash outflows 30,232,870.33 26,106,997.16 Net cash flows from investing activities -27,913,962.35 27,270,721.53 III.Cash flows from financing activities: Cash received from investments by others Cash received from borrowings 30,000,000.00 Cash received relating to other financing activities Sub-total of cash inflows 30,000,000.00 Cash repayments of amounts borrowed 41,541,955.91 Cash paid for distribution of dividends or profits and for interest expenses 1,497,475.17 931,265.74 Cash paid relating to other financing activities 10,000,000.00 Sub-total of cash outflows 11,497,475.17 42,473,221.65 Net cash flows from financing activities 18,502,524.83 -42,473,221.65 IV.Effect of foreign exchange rate changes on cash V.Net increase in cash and cash equivalents 1,861,774.54 -4,562,058.82 Add:balance of cash and cash equivalents at the beginning of the year 37,419,712.13 41,981,770.95 VI.Balance of cash and cash equivalents at the end of the year 39,281,486.67 37,419,712.13 Corporate representative: Chief accountant: Person in charge of accounting department: [中鲁 B] 46 47 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Consolidated Statement of Changes in Equity Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Owner's equity in 2008 Total owner's equity attributable to parent company Foreig Item currenc Share capital Capital reserves Surplus reserves Undistributed profits exchang differen I.Amount at the end of last year 266,071,320.00 281,245,215.96 21,908,064.19 -252,975,729.28 Add: amount because the change of accounting policy amount because correction of accounting error Others II.Amount at the beginning of this year 266,071,320.00 281,245,215.96 21,908,064.19 -252,975,729.28 III.Increment and decrement of this year 22,555,626.14 547,47 1.Net profit 22,555,626.14 2.Profit and loss through owner's equity directly 547,47 (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4)Foreign currency exchange difference 547,47 (5) Other Sub-total of above 1 and 2 22,555,626.14 547,47 3.Owners invest or reduce capital (1) Owners invest capital (2) Share-based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Draw general risk provision (3) Distribute to owners (shareholders) (4) Other 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV.Amount at the end of this year 266,071,320.00 281,245,215.96 21,908,064.19 -230,420,103.14 547,47 Corporate representative: Chief accountant: Person in charge of accounting d [中鲁 B] 47 48 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Consolidated Statement of Changes in Equity（Cont.) Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2007 Owner's equity in 2007 Total owner's equity attributable to parent company Foreig Item currenc Share capital Capital reserves Surplus reserves Undistributed profits Other exchang differen I.Amount at the end of last year 266,071,319.79 204,465,756.09 21,908,064.19 -307,962,077.07 -641,854.10 Add: amount because the change of accounting policy -28,752.85 amount because correction of accounting error Other II.Amount at the beginning of this year 266,071,319.79 204,465,756.09 21,908,064.19 -307,990,829.92 -641,854.10 III.Increment and decrement of this year 0.21 76,779,459.87 55,015,100.64 641,854.10 1.Net profit 55,015,100.64 2.Profit and loss through owner's equity directly 0.21 76,779,459.87 641,854.10 (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4)Foreign currency exchange difference (5) Other 0.21 76,779,459.87 641,854.10 Sub-total of above 1 and 2 0.21 76,779,459.87 55,015,100.64 641,854.10 3.Owners invest or reduce capital (1) Owners invest capital (2) Share-based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Draw general risk provision (3) Distribute to owners (shareholders) (4) Other [中鲁 B] 48 49 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV.Amount at the end of this year 266,071,320.00 281,245,215.96 21,908,064.19 -252,975,729.28 Corporate representative: Chief accountant: Person in charge of acco [中鲁 B] 49 50 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Statement of Changes in Equity (Parent) Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2008 Owner's equity in 2008 Item Share capital Capital reserves Surplus reserves Undistribute I.Amount at the end of last year 266,071,320.00 279,130,089.16 19,184,672.34 -290,35 Add: amount because the change of accounting policy amount because correction of accounting error Other II.Amount at the beginning of this year 266,071,320.00 279,130,089.16 19,184,672.34 -290,35 III.Increment and decrement of this year 21,97 1.Net profit 21,97 2.Profit and loss through owner's equity directly (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4) Other Sub-total of above 1 and 2 21,97 3.Owners invest or reduce capital (1) Owners invest capital (2) Share-based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Distribute to owners (shareholders) (3) Other 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV.Amount at the end of this year 266,071,320.00 279,130,089.16 19,184,672.34 -268,38 Corporate representative: Chief accountant: Person in charge of acco [中鲁 B] 50 51 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Statement of Changes in Equity (Parent) (Cont.) Made by: Shandong Zhonglu Oceanic Fisheries Co., Ltd Dec 31,2007 Owner's equity in 2007 Item Share capital Capital reserves Surplus reserves Undistributed profits I.Amount at the end of last year 266,071,319.79 202,350,629.29 19,184,672.34 -305,238,685.2 Add: amount because the change of accounting policy -35,722,931.3 amount because correction of accounting error Other II.Amount at the beginning of this year 266,071,319.79 202,350,629.29 19,184,672.34 -340,961,616.5 III.Increment and decrement of this year 0.21 76,779,459.87 50,601,826.8 1.Net profit 50,601,826.8 2.Profit and loss through owner's equity directly 0.21 76,779,459.87 (1) Net changing amount of fair value of available-for-sale financial assets (2) Influence of other owner's equity change of invested enterprise under equity method (3) Relating income tax effect through owner's equity items (4) Other 0.21 76,779,459.87 Sub-total of above 1 and 2 0.21 76,779,459.87 50,601,826.8 3.Owners invest or reduce capital (1) Owners invest capital (2) Share-based payment recorded into owner's equity (3) Other 4. Profit distribution (1) Draw surplus reserves (2) Distribute to owners (shareholders) (3) Other 5. Inner rotation within owner's equity (1) Capital reserves transfer to share capital (2) Surplus reserves transfer to share capital (3) Surplus reserves offset loss (4) Other IV.Amount at the end of this year 266,071,320.00 279,130,089.16 19,184,672.34 -290,359,789.6 Corporate representative: Chief accountant: Person in charge of acco [中鲁 B] 51 52 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SHANDONG ZHONGLU OCEANIC FISHERIES CO., LTD Notes to the Financial Statements Year 2008 (All amounts are stated in RMB Yuan unless otherwise stated) I. Company profile. Shandong Zhonglu Oceanic Fisheries Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China on July 30, 1999 according to the documentation of Lu Ti Gai Zi [1999] No.85 issued by Shandong 52 Development and Reform Commission, and the holding company of the Company is Shandong Fisheries Enterprise Group General Corporation. On June 26, 2000, the Company issued 120 million domestic listed foreign shares (B shares) to foreign investors with face value of one RMB Yuan per share according to the documentation of Zheng Jian Fa Xing Zi [2000] No.82 issued by the China Securities Regulatory Commission. The B shares have been listed on the Shenzhen Stock Exchange since July 24, 2000. On August 22, 2000, by the Company’s authorization, lead underwriters fully exercised the 15% over-allotment option and issued 18 million B shares to foreign investors with face value of one RMB Yuan per share, and then the Company's total issued share capital is 266,071,320.00 Yuan. Since year 2003, 125,731,320 state-owned legal person shares (occupying 47.25% of the total share capital of the Company) held by Shandong Fisheries Enterprise Group General Corporation (“Fisheries Group”) have been frozen by the judiciary, including: A. Fisheries Group provided guarantee for the loan of 11,700,000 Yuan for a subordinate company, but the subordinate company failed to repay the loan on time, so Shandong Yantai Intermediate People's Court froze 8,000,000 shares (occupying 3% of the total share capital). B. Fisheries Group borrowed 73,580,680 Yuan from the Agricultural Bank of China Jinan Lixia branch, and Jinan Lixia Court froze 80,000,000 shares (occupying 30.07% of the total share capital). On December 10, 2006, 88,000,000 shares held by Fisheries Group were auctioned publicly. According to the auction transaction confirmation (Lu Yin Pai Cheng Zi [2006] No.96) of Shandong Silver Star Auction Ltd., Shandong State-owned Assets Investment Holdings Ltd. bought the shares at the price of [中鲁 B] 53 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 48,400,000 Yuan. Holding 33.07% of the total share capital, Shandong State-owned Assets Investment Holdings Ltd. then became the largest shareholder of the Company On June 20, 2007; relevant transfer procedures have been completed. Fisheries Group borrowed 73,344,932 Yuan from Bank of China Jinan branch (the creditor of the loan was changed to China Xinda Asset Management Corporation from Bank of China in 2004), and Shandong Higher People's Court froze 37,731,320 shares (occupying 14.18% of the total share capital). On June 7, 2005, 53 the above 37,731,320 shares were auctioned publicly, According to the auction transaction confirmation (Lu Rui Cheng Zi [2005] No.013) of Shandong Lu Rui Feng Auction Ltd., Shandong Luxin Investment Holdings Ltd. bought the shares at the price of 8,760,000 Yuan. On February 2, 2007, relevant transfer procedures have been completed. Company address：43 Heping Road, Jinan, Shandong Province, the PRC. Operating scope: marine and oceanic fishing; aquatic products breeding, processing and marketing; merchandise import and export business within approved scope; ice machine manufacture and sale; refrigeration equipment manufacturing, installation, maintenance; refrigeration; load and unload services; housing lease. II. Accounting policies, accounting estimates and error correction of previous years 1. Announcement about compliance with Enterprises Accounting Standards The Company announces that: the Company’s financial statements prepared in accordance with Notes “III. Preparation basis of financial statement” comply with the requirements of the Enterprises Accounting Standards, and they fairly present the financial position, operation result, cash flow and other relevant information of the Company. 2. Preparation basis of financial statement [中鲁 B] 54 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Preparation of the financial statements is based on going concern postulate. 3. Fiscal year The financial year of the Company is from January 1st to December 31st of each calendar year. 4. Reporting currency The Company’s reporting and presentation currency is the Renminbi (“RMB”). 54 5. Accounting measurement characters The Company measures financial statements’ items according to stated measurement characters, and measurement characters are not changed during the report period. The Company uses history cost commonly for the measurement of accounting factors. When the Company uses replacement cost, net realizable value, net value and fair value based on assured amounts that could be obtained and measured reliably. 6. Cash equivalents Cash equivalence is that the Company holds short-term (expire within 3 months of the purchasing day), high-liquidity, easy to convert to known amount of cash and low-risk of changing in value of investment. 7. Foreign currency transactions and translation i. Foreign currency transactions Foreign currency (currency other than the reporting currency) transactions are translated into reporting currency at spot exchange rates quoted by the People’s Bank of China prevailing on the day in which the transactions take place. Monetary items are adjusted according to spot exchange rates at the balance sheet date. The exchange balance on foreign currency shall be recorded into current profit and loss. Foreign currency of non-monetary items measured with history cost is translated into reporting currency at spot exchange rates on the occurrence date. Foreign currency of non-monetary items measured with fair value are translated [中鲁 B] 55 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. into reporting currency at spot exchange rates of fair value confirming date, the difference is recorded as the changes in the profit and loss of fair value. (2) Translating of foreign financial statement a) Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are 55 translated into reporting currency at spot exchange rates on the occurrence date except the item of undistributed profits. b) Income Statement items are translated into reporting currency at spot exchange rate on the occurrence date. c) The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. d) Cash flow Statement items are translated into reporting currency at spot exchange rate on the occurrence date. Change in cash due to change in exchange rate should be as adjusted item and presented individually. 8. Financial instruments (1) Recognition and derecognizing of financial instruments Financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. When an enterprise becomes a party to a financial instrument, it shall recognize a financial asset or financial liability. The financial asset should be considered for derecognizing when it meets one of [中鲁 B] 56 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. the following two conditions: (1)when the right to collect the cash flow from a financial asset is termination; (2) The financial assets is transferred and conform to the termination condition of Enterprises Accounting Standards No.23—transfer of financial asset. All or part of the current obligation to the financial liabilities are terminated, and then derecognize financial liability or part of it. (2) Classification of financial assets 56 Financial assets shall be classified into the following four categories when they are initially recognized: (a) Financial assets measured at fair value through profit or loss The financial assets which are measured at their fair values and the variation of which is recorded into the profits and losses of the current period, including available for sale financial assets and designed as at fair value through profit or loss. Available for sale financial assets comprise financial assets which can be sold in the short term and other derivatives. An enterprise shall make subsequent measurement on these financial assets according to their fair values and any realized and unrealized variation is recorded in the current profits and losses. (b) held-to-maturity investments Held-to-maturity investments, refers to a non-derivative financial asset with a fixed date of maturity, a fixed or determinable amount of price and which the enterprise holds for a definite purpose or the enterprise is able to hold until its maturity but except the one which has been reclassified as other non-derivative financial asset. It adopts actual interest rate method and makes subsequent measurement in accordance with the amortized cost. Its derecognizing and impairment or amortization should be recorded into current profit and loss. (c) Loans and account receivables Loans and receivables are not in an active market quotation, the recovery in fixed or determinable amount of non-derivative financial assets. An enterprise shall [中鲁 B] 57 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. make subsequent measurement on these financial liabilities on the basis of the post-amortization costs by adopting the effective interest rate method, its derecognizing and impairment or amortization generated profits and losses are included in the current period profit and loss. (d) available-for-sale financial assets Available-for-sale financial assets, refer to the initial recognition was designated as available-for-sale of non-derivative financial assets, and have not been classified 57 as the above three categories of non-derivative financial assets. An enterprise shall make subsequent measurement on these financial assets on the basis of fair value. Its premium discount using the effective interest method for amortization and recognized as interest income; its fair value changes recognized as capital reserve, in the termination of the investment or impairment happened, write off the equity corresponding part from the financial asset directly and recorded in current period profit and loss. (3) Classification of financial liabilities Financial liabilities shall be classified into the following two categories when they are initially recognized: （a） Financial liabilities measured at fair value through profit and loss The financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses, including available for sale financial liabilities and the designated as financial liabilities which are measured at their fair values and of which the variation is included in the current profits and losses. An enterprise shall make subsequent measurement on these financial liabilities according to their fair values and any realized and unrealized variation is recorded in the current profits and losses. (b) Other financial liabilities An enterprise shall make subsequent measurement on these financial liabilities on the basis of the post-amortization costs by adopting the effective interest rate method [中鲁 B] 58 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. （4）Transaction costs Transaction costs with regard to financial assets or financial liabilities measured at fair value through profit and loss are directly recorded in the current period profit and loss account. Transaction costs related to other types of financial assets or financial liabilities are included in the amount of its initial recognition. （5）Determination of the fair value of main financial assets and financial liabilities 58 As for the financial assets or financial liabilities for which there is an active market, the quoted prices in the active market shall be used to determine the fair values thereof. Where there is no active market for a financial instrument, the enterprise concerned shall adopt value appraisal techniques to determine its fair value. The value appraisal techniques mainly include the prices adopted by the parties, who are familiar with the condition, in the latest market transaction upon their own free will, the current fair value obtained by referring to other financial instruments of the same essential nature, the cash flow capitalization method and the option pricing model, etc. （6）Impairment of financial assets The company shall carry out an inspection, on the balance sheet day, on the carrying amount of the financial assets other than those measured at their fair values and of which the variation is recorded into the profits and losses of the current period. The objective evidence that confirm the impairment has been taken place refers to the event actually occurred after the initial recognition, which has adverse effect on the future cash flow and the amount can be measured reliably. An impairment test shall be made on the financial assets with significant single amounts. If there is objective evidence that is the impairment has been taken place, then recognize the impairment loss and recorded into profit and loss account in the current period. (a) Financial asset carried at amortized cost If there is objective evidence to confirm the impairment has been taken place, the [中鲁 B] 59 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. carrying value of the financial asset will decrease to the present value of estimated future cash flow. The total decrease amount is recorded into the profit and loss account of the current period. Present value of estimated future cash flow is discounted by using the original effective interest rate, and should be consider the value of relevant collateral. If there is objective evidence confirm that the value of impaired financial assets is recovered, then the original recognized impairment loss should be reversed 59 through profit and loss account in the current year. However, the carrying value after reversing impairment loss should not exceed the amount of amortized cost as if there is no impairment taken place. (b) Financial asset carried at cost If there is objective evidence confirm that the financial asset has been impaired, the difference between the book value of the financial asset and the present value of estimated future cash flow discounted at market rate of return at that time will be included in the current profits and loss. Once confirm the impairment loss, it shall not be reversed. (c) Available for sale financial asset If there is objective evidence confirm that the impairment of available for sale financial asset has been taken place, the accumulated loss from decreasing in the fair value which originally recorded in the owner’s equity should be transferred into current period profit and loss. The transferred accumulated loss is the difference between the historical cost deducted receipt capital and amortized amount and the current fair value and the balance after deducting impairment loss which has been recorded into profit and loss account. For recognized impairment loss of available for sale financial asset, increase in fair value in the subsequent accounting period ,the original recognized impairment loss can reversed into current profit and loss account. The impairment of available for sale equity instrument can not be reversed through profit and loss account. [中鲁 B] 60 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. (7) Transfer of financial assets A transfer of financial assets refers to an entity transfers a financial assets to the other party (the transferee) other than the issuer of financial asset. The company has transferred nearly all of the risks and rewards related to the ownership of the financial asset to the transferee, it shall derecognize the financial asset. If it retained nearly all of the risks and rewards related to the ownership of the financial asset, it shall not derecognize the financial asset. 60 Where an enterprise does not transfer or retain nearly all of the risks and rewards related to the ownership of a financial asset, it shall deal with it according to the circumstances as follows, respectively: a. If it gives up its control over the financial asset, it shall stop recognizing the financial asset; b. If it does not give up its control over the financial asset, it shall, according to the extent of its continuous involvement in the transferred financial asset, recognize the related financial asset and recognize the relevant liability accordingly. 9. Accounts receivable and bad debts i. Account receivable without related party transaction At the end of the period, impairment test shall be made on individual accounts receivable with significant amounts. If there is objective evidence that they have been impaired, bad debt loss shall be recognized and provision for bad debts shall be made base on the differences between book values and the present value of estimated future cash flows. For those individual accounts receivable without significant amounts at the end of the period, along with those accounts receivable that have been tested individually but not impaired, the Company classifies them in line with similar credit risk characteristics into several groups, and make a specific percentage of bad debts provision on the accounts receivable balances at balance sheet date. On the basis of the actual loss rate of receivable accounts, with same or similar credit risk characteristics of accounts receivable package in previous year, the Company also considers current situation and determine the percentage of bad debt provision. [中鲁 B] 61 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. ii. Here is the Company’s bad debts provision policy: Age Proportion Within 6 months 5% 6 months to 1 year 10% 1 year to 2 years 30% 2 years to 3 years 50% 61 Above 3 years 100% For any well-established evidence shows that there exist obvious differences of recoverable of the receivables, provision of bad debt is recognized in individual method. 10. Inventories (1) Inventories category: raw materials, low value and easily used up materials, work in progress, working in process –outsourced and finished goods. (2) Valuation methods of inventories: raw materials, working in process and finished goods are stated at actual cost. The use and the sales of inventories are valued at weighted average method. The issue of low value and easily used up materials, wrap page amortize twice of 50% each time. (3) The company adopts perpetual inventory system. (4) For the inventories at the end of the year, the evaluation criteria should base on the lower value between the cost of inventory and the net value that can be converted to cash. The provision for inventory impairment loss is drawn from margin of individual inventory’s cost higher than the net value that can be [中鲁 B] 62 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. converted to cash. The net value that can be converted to cash is refers to the value after estimated the selling price subtracts the estimated finished cost and the estimated sale expense in the Company’s normal operating process. Inventory impairment loss provision for finished goods is made basing on single item, and classification for raw materials. 11. Investment property 62 Investment property includes: a land use right that is leased out; a land use right held for transfer upon capital appreciation; a building that is leased out. The initial measurement of the investment property shall be made at its cost. An enterprise shall make a subsequent measurement to the investment property through the cost pattern. The Company calculates depreciation and impairment of investment property as the same method of fixed assets. At the balance sheet date, where any evidence shows that there is possible impairment of investment property, should take impairment test and make provision for impairment loss individually. 12. Fixed assets (1) Recognition of fixed assets (a) Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purpose, and have useful lives more than one accounting year. The cost of an item of fixed assets shall be recognized as an asset if, and only if (a) it is probable that future economic benefits associated with the item will [中鲁 B] 63 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. flow to the entity; and (b) the cost of the item can be measured reliably. The subsequent expense related with the fixed asset when it meet the character of recognition of fixed asset, it will be recorded in the cost of fixed asset, or it will be recorded as expense through current profit and loss. (b) Fixed assets are recorded at cost of acquisition. For acquired asset, the cost of a fixed asset comprises its purchase price, related taxes and any costs directly attributable to bring the asset to the 63 location and condition necessary for it to be capable of operating, such as transport fees and installation fees and etc. The cost of a self-constructed asset comprises any costs necessarily related to the construction prior to bring it to the condition for it to be capable of operating. The cost of the fixed assets that exchanged from non-monetary transaction, debt restructuring, business combination and financial lease are recognized according to ‘Enterprises Accounting Standard No.7—Non-monetary exchange of fixed assets’,’ Enterprises Accounting Standard No.12—debt restructuring’,’ Enterprises Accounting Standard No.20—business combination’ and ‘Enterprises Accounting Standard No.21— Lease’ (2) Subsequent measurement The depreciation of fixed assets adopts average method. The estimated useful lives, expected residual value and annual depreciation rate of various types fixed assets are listed as follows: Annual Estimated useful lives Expected residual Category depreciation rate (years) value (%) (%) Buildings 20—40 3—5 2-5 Vessels 15—20 3—5 5-6 Machinery and fishing 8—20 3—5 5-12 equipment Furniture and office 5 3—5 19-19 equipment [中鲁 B] 64 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Motor vehicles 5 3—5 19-19 Fixed assets depreciated on a monthly basis. For increased asset in the current month, the depreciation of an asset begins from next month. For decreased asset in the current month, the depreciation of an asset terminates from next month. An enterprise shall, at least at the end of each year, have a review on the useful life, expected residual value and the depreciation method of the fixed assets, and 64 adjust them when necessary. At the balance sheet date, there are signs that fixed assets impaired, according to the stated asset impairment method to make impairment provision of fixed assets. (3) Finance leased asset (a) Where a lease satisfies one or more of the following criteria, it shall be recognized as a finance lease: i. The ownership of the leased asset is transferred to the lessee when the term of lease expires; ii. The lessee has the option to buy the leased asset at a price which is expected to be much lowers the fair value of the leased asset at the date when the option becomes exercisable. iii. The lease term covers the major part of the use life of the leased asset (above 75%) iv. at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset( above 90%); and v. The leased assets are of such a specialized nature that only the lessee can use them without major modification. [中鲁 B] 65 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. (b) At the commencement of the lease term, lessees shall recognize finance leases as assets in their balance sheets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The provision of depreciation is the same as fixed assets. 65 (4). idle fixed assets Due to natural disasters, the fixed asset has been stop in use for six months can be recognized as idle fixed assets (except seasonal discontinuation). Idle fixed assets and consistent with other fixed assets depreciated in the same method. 13. Construction-in-progress Construction-in-progress represents buildings and plant under construction and machinery and equipment under installation and testing, and is stated at cost. This includes cost of construction, plant and equipment and other direct costs plus borrowing costs which include interest charges and exchange differences arising from foreign currency borrowings used to finance these projects during the construction period, to the extent these are regarded as an adjustment to interest costs. Construction in progress is transferred to fixed assets when the project is substantially ready for its intended use. For any evidence of impairment of the construction in progress at balance sheet date, the provision of impairment loss is made as the method used in fixed asset. 14. Intangible assets (1) Recognition and initial measurement of intangible assets [中鲁 B] 66 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. The Company's intangible assets include: land use rights, proprietary technology, and non-patent technology etc... The initial measurement of intangible assets is based on cost. (2) Subsequent measurement 66 Amortization of intangible assets: The depreciable amount of intangible assets with finite useful lives shall be allocated on a systematic basis over its useful life and it is recorded into current period profit and loss. Unable to reasonably determine the expected way of realization, then using straight-line amortization method. The company shall, at least at the end of each year, review the amortization period and the amortization method of the intangible assets with finite useful lives and adjust them when necessary. Unforeseen economic benefits live of intangible assets as intangible assets with infinite useful lives. Intangible assets with indefinite useful lives shall not be amortized, but required an annual impairment review and review of useful lives. For any evidence of impairment of the intangible asset at balance sheet date, the provision of impairment loss is made as the method used in fixed asset. (3) The estimation of useful life For intangible assets with finite useful lives, the Company shall consider the following factors normally when estimating its useful life: i. the life cycle of the product produced by the assets, getting the information of similar assets’ life; ii. estimation of technique, techniques and other aspects in the current and future trends; [中鲁 B] 67 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. iii. the demand of the market of product produced by the assets or services provided by the assets; iv. expected action taken by current or potential competitors; v. expected maintenance costs for maintaining the economic benefits of the assets, and the company’s expected payment ability to the costs; vi. the relevant legal provisions or similar restrictions to the assets’ controlling term, such as privileged using period and rental period; vii. The relationship with the useful life of the company’s other assets. 67 (4)Research and development phase Research and development expenses arising from internal project shall be recorded into current period profit and loss account. An intangible asset arising from development phase of an internal project shall be recognized if, and only if, an entity can demonstrate all of the following: (a) The technical feasibility of completing the intangible asset so that it will be available for use or sale. (b) Its intention to completing the intangible asset and use or sell it. (c) How the intangible asset will generate probable economic benefits. Among other things, the entity can demonstrate 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) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset. (e) Its ability to measure reliably the expenditure attributable to the intangible asset during its development. 15. Impairment of long-term assets (1) At the end of period, the Company should check carrying amounts of long-term equity investment, fixed assets, and construction in progress, intangible assets and goodwill, if there is objective evidence that the asset is impaired, recoverable [中鲁 B] 68 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. amount shall be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the Company shall determine the recoverable amount of the asset group to which the asset belongs. (2) The recoverable amount should base on the higher value between fair value less disposal expense and present value of estimated cash flow in the future. (3) The Company determines asset group based on whether cash flow generating 68 from the asset group is independent with other assets or asset group. (4) An impairment loss shall be recognized for a cash-generating unit (the smallest group of cash-generating units to which goodwill or a corporate assert has been allocated) if, and only if, the recoverable amount of the unit is les than the carrying amount of the unit (group of units) the impairment loss shall be allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: (a) first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit(group of units); and (b) Then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). These reductions in carrying amounts shall be treated as impairment losses on individual assets. If the impairment loss is recognized, it can not be recovered in the next accounting period. 16. Long-term equity investment (1) The recognition of initial cost of Long-term equity investment a) For long-term equity investment obtained through business combinations, the cost is recognized according to the terms of business combinations. [中鲁 B] 69 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. b) The initial investment cost of a long-term equity investment acquired otherwise than through a business combination shall be determined as follows: for a long-term equity investment acquired by cash, the initial investment cost shall be the actual purchase price has been paid; for a long-term equity investment acquired by the issue of equity securities, the initial investment cost shall be the fair value of the securities issued; for a long-term equity investment contributed by an investor, the initial investment cost shall be the value stipulated in the investment contract or 69 agreement. For a long-term equity investment acquired though exchanging from non-monetary transaction, debt restructuring are recognized according to ‘Enterprises Accounting Standard No.7—Non-monetary exchange of fixed assets’ and’ Enterprises Accounting Standard No.12—debt restructuring’. (2) Subsequent measurement a) The Company uses cost method for the following conditions: a long-term equity investment where the investing enterprise can exercise control over the investee, or the investing enterprise does not have joint control or significant influence over the investee, the investment is not quoted in an active market and its fair value can’t be reliably measured. The Company uses cost method for the investment of subsidiaries, and adjusts it according equity method when preparing consolidated financial statements. When using cost method, cash dividends or profit distributions declared by the investee shall be recognized as investment income in the current period. However, investment income recognized by the investing enterprise shall be limited to the amount distributed to it out of accumulated net profits of the investee arising after the investment was made. Any cash dividends or distributions received in excess of this amount shall be treated as a recovery of initial investment cost. b) When an investing enterprise can exercise joint control or significant influence over the investee, a long-term equity investment shall be [中鲁 B] 70 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. accounted for using the equity method. When using equity method, after the investing enterprise has acquired a long-term equity investment, it shall recognized its share of net profits or losses made by the investee as investment income or losses, and adjust the carrying amount of the investment accordingly. The carrying amount of the investment shall be reduced by the portion of any profit distributions or cash dividends declared by the investee that is attributed to the investing enterprise. The net losses of the invested entity confirmed by the company, the book 70 value of the long-term equity investment is extended to reduce to zero, except the company has the obligation to undertake extra losses. Any change to the owner's equity other than net profit or loss from invested entity, adjust the book value of the long-term equity investment and included in the owner's equity, and transfer to the profits and losses in the current period to the corresponding proportion when dispose long-term equity investment.. When dispose of the long-term equity investment, the difference between the book value and the proceeding from disposal is included in the current profits and losses. (3) Judgment of common control and significant influence It can be recognized as common control in accordance with the contract and the consent of other investors of invested entity who perform important role in financial and operational decisions. It can be recognized as significant influence when the company has the right to participate in financial and operational decision making. But not to control or together with others to control the decision. 17. Business combination (1) Business combination involving enterprises under common control For this kind of business combination, the Company adopts equity method. Assets and liabilities that are obtained by the absorbing party in a business combination [中鲁 B] 71 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. shall be measured at their carrying amounts, excluding the adjustment of using different accounting policies, and not be recognized as goodwill. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination shall be adjusted to capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings. The net profit made by the party being absorbed before the combination shall be presented in the consolidated income statement. 71 (2) Business combination not involving enterprises under common control Where the cost of a business combination exceeds the acquirer’s interest in the fair value of the acquirer’s identifiable net assets, the difference shall be recognized as goodwill, goodwill shall be measured at cost less accumulated impairment losses. Where the cost of combination is less than the acquiree’s interest in the fair value of the acquiree’s identifiable net assets, after reassessment, the difference shall be recognized in profit or loss for the current period. The operation results of the acquiree shall be consolidated since the Company obtains the controlling rights, until the controlling rights are transferred from the Company. 18. Borrowing costs (1)Borrowing cost refers to the interest and other related cost since making borrowing, it includes: interests from loan, amortization of premium and discount, assistant expenses and exchange difference due to foreign currency loan. (2) Principle of capitalization and expenses of borrowing cost The borrowing costs that are directly attributable to the acquisition or production of a qualifying asset are eligible for capitalization. Other borrowing cost should be recognized as expenses when incurred through profit and loss account. Qualifying assets are assets (fixed assets, investment property, inventories, etc.) [中鲁 B] 72 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. that necessarily take a substantial period of time for acquisition, construction or production to get ready for their intended use or sale. (a)The capitalization of borrowing costs as part of the cost of a qualifying asset shall commence when: ①expenditures for the assets are being incurred; ②borrowing costs are being incurred; And 72 ③activities that are necessary to prepare the asset for its intended use or sale are in progress. (b) When the qualified asset under acquisition and construction or production is ready for the intended use or sale, the capitalization of the borrowing costs shall be ceased; then the borrowing costs incurred shall be recorded into the profits and losses of the current period. Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended. The borrowing costs incurred during such period shall be recognized as expenses, and shall be recorded into the profits and losses of the current period. (c) Confirmation of the amount which has been capitalized During the capitalization period, the amount of interest to be capitalized for each accounting period shall be determined as follows: ① For a specific-purpose borrowing, the amount of interest to be capitalized shall be the actual interest expense incurred for the period less temporary deposits interest or investment income; ② Where funds are borrowed under general-purpose borrowings, the [中鲁 B] 73 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Company shall determine the amount of interest to be capitalized by applying a capitalization rate to the weighted average of the excess amounts of cumulative expenditures on the asset over and above the amounts of specific-purpose borrowings. The capitalization rate shall be the weighted average of the interest rates applicable to the general-purpose borrowings. 19. Contingent liability 73 A provision shall be recognized when: (a) An entity has a present obligation as a result of a past event; (b) It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) A reliable estimate can be made of the amount of the obligation. 20. Share-based payment (1)Share-based payment refers to an entity shall recognize the goods or services received or acquired in a share-based payment transaction when it obtains the goods or as the services are received. The entity shall recognize a corresponding increase in equity if the goods or services were received in an equity-settled share-based payment transaction or a liability if the goods or services were acquired in a cash-settled share-based payment transition. (2) For equity-settled share-based payment transaction, the entity shall measure the goods or services received, and the corresponding increase in equity, directly, at the fair value of the goods or services received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair value of the goods or serviced, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted. [中鲁 B] 74 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. (3) For transactions measured by reference to the fair value of the fair value of the equity instruments granted, an entity shall measure the fair value of equity instruments granted at the measurement date, based on market prices if available, taking into account the terms and conditions upon which those equity instruments were granted. If the market prices are not available, the entity shall estimate the fair value of the equity instruments granted using a valuation technique to estimate what the price of those equity instruments would have been on the measurement date in an 74 arm’s length transaction between knowledgeable, willing parties. The valuation technique shall be consistent with generally accepted valuation methodologies for pricing financial instruments, and shall incorporate all factors and assumptions that knowledgeable, willing market participants would consider in setting the price, such as discount cash flow and option pricing model. (4)For cash-settled share-based payment transactions, the entity shall measure the goods or services acquired and the liability incurred at the fair value of the liability. (5) According to the latest vesting worker to make a best estimate of vested equity instruments. 21. Revenue recognition (1) Revenue from the sale of goods shall be recognized only when all of the following conditions are satisfied: i. the enterprise has transferred to the buyer the significant risks and rewards of ownership of the goods; ii. the enterprise retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; iii. the amount of revenue can be measured reliably; iv. it is probable that the associated economic benefits will flow to the enterprise; [中鲁 B] 75 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. v. The associated costs incurred or to be incurred can be measured reliably. (2) Rendering of services a). when the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference to the stage of completion of the transaction at the balance sheet date. 75 b). at the balance sheet date when the outcome of the transaction cannot be estimated reliably. Nevertheless, it may be probable that the entity will recover thee transaction costs incurred. Therefore, revenue is recognized only to the extent of costs incurred that are expected to be recoverable. When the outcome of a transaction cannot be estimated reliably and it is not probable that the costs incurred will be recovered, revenue is not recognized and the costs incurred are recognized as an expense. (3) Use by others of enterprise assets A). it is probable that the associated economic benefits will flow to the enterprise; b). the amount of revenue can be measured reliably. Interest income is determined in accordance with time and actual interest rate of the company’s money used by others. The revenue from others use is determined according to relevant contract or agreement. 22. Income taxes (1) The company adopts liability method to deal with income taxes. (2) Income taxes include income taxes for the current period and deferred income taxes. Current and deferred tax of an enterprise shall be recognized as income or [中鲁 B] 76 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. an expense and included in profit or loss for the current period, except that: income tax arising from a business combination the Company shall adjust goodwill; income tax arising from a transaction or event which is recognized directly in owner’s equity shall be charged in owner’s equity. (3) A deferred tax asset shall be recognized for deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized, unless the 76 deferred tax asset due to non-business combination transaction and the transaction affects neither accounting profit nor taxable profit. A deferred tax asset shall be recognized for deductible temporary differences to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilized. (4)The company has reviewed the carrying value of the deferred tax asset. The reversal of deductible temporary differences results in deductions in determining taxable profits of future periods. However, economic benefits in the form of reductions in tax payments will flow to the entity only if it earns sufficient taxable profits against which the deductions can be offset. When there is insufficient taxable profit, the carrying value of deferred tax asset should be decreased, and until it obtains sufficient taxable profit, it cannot recover the deducted amount. 23. Government grants Government grants shall be recognized at fair value on the conditions that the Company can receive the grant and comply with the conditions attaching to the grant. For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred by the Company in subsequent period, the grant shall be recognized as deferred income, and recognized in profit or loss over the periods in which the related costs are recognized. A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset. [中鲁 B] 77 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 24. Consolidated financial statement Consolidated scope: all controlled subsidiaries The consolidated financial statement is prepared by parent company, based on the financial statement of parent and subsidiaries and after adjusting long-term investment in subsidiary through equity method, in accordance with Enterprises Accounting Standards No.33- Consolidated financial statement. 77 25. Accounting policies, accounting estimates and error correction of previous years None III.The main tax items 1. VAT Except for that documented in the following paragraph, the Group’s sale of merchandise and products is subject to VAT, which is charged on the selling price at a rate of 17% (normal products) or 13% (agricultural products). An input credit is available whereby input VAT previously paid on purchases of seafood merchandise and raw materials can be used to offset the output VAT on sales to determine the net VAT payable. Pursuant to a government notice issued by the Ministry of Finance, the State Commission of Customs Duty and the State Administration of Taxation on 10 March 1997, the import of self-caught seafood is exempted from import VAT, and the VAT treatment on the sale of self-caught seafood is same as that for self-produced agricultural product that is exempted from output VAT. Therefore, the Group’s revenue generated from trading of self-caught seafood was exempted from VAT. 2. Enterprise income tax (“EIT”) [中鲁 B] 78 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. According to PRC enterprise income tax tentative regulations, the Enterprise income tax rate of the Company is 25%. According to a government notice issued by the Ministry of Finance and the State Administration of Taxation on 20 October 1997, the enterprises which owned a certificate “Department of Agriculture Deep fishing Enterprises Recognition Certificate” is exempted from EIT. Therefore, the Group’s revenue generated from 78 trading of self-caught seafood, marine catching and letting of trawlers and refrigerated vessel were exempted from EIT. 3. Business tax and Surtaxes The Group is subject to the following surtaxes in the PRC: The Group is subject to PRC business tax at a rate of 5% of rental income received from provision of cold storage and 3% from letting of refrigerated vessels within the PRC, respectively. City construction tax, a tax levied at 7% of net VAT and business tax payable; and Education surcharges, a tax levied at 4% of net VAT and business tax payable. IV. Business combination and consolidated financial statements 1. Subsidiary company actual Net Voting Registered Organization Registered Operating Holding Name of subsidiary investing investing Right address code capital scope (%) among amount (%) Under common control Letting of refrigerated Shandong Zhonglu Oceanic Shandong vessels and 16307123-3 22,505,600 22,505,600 22,505,600 100% 100% Fisheries Transportation Co., Ltd Qingdao international vessel transportation [中鲁 B] 79 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. actual Net Voting Registered Organization Registered Operating Holding Name of subsidiary investing investing Right address code capital scope (%) among amount (%) Letting of HabitatInternationalCorporation Panama 12,476,146 refrigerated 12,476,146 12,476,146 100% 100% vessels Cold storage Shandong Zhonglu Oceanic Shandong and 72927738-9 75,593,300 75,593,300 75,593,300 100% 100% (Yantai) Food Co., Ltd. Yantai processing of 79 seafood etc. Not under common comtrol YAW ADDO FISHERIES Ghana 4,387.09 Marine fishing 100% COMPANY LIMITED 2. Interpretation of change in the scope of consolidation Name of subsidiary reason Net asset Net profit New subsidiary YAW ADDO FISHERIES COMPANY Leasing operation -4,570,579.70 -4,574,989.11 LIMITED Note: YAW ADDO FISHERIES COMPANY LIMITED was set up in May, 2007 and it’s registered in Ghana Republic country, and of $645.16 registered capital. From April,2008, the company sold its own vessels named “Zhonglu fish 1003/1004” to YAW ADDO FISHERIES COMPANY, then leased it back from YAW ADDO FISHERIES COMPANY LIMITED and abstain the fishing permits in Ghana. It is 20 year lease from 1st April, 2008 to 31st March, 2027. The company controls the weasel and uses it and also recorded into consolidated financial statement. 3. Minority interest Financial condition Name of investor Net asset Net profit YAW ANIM-ADDO -4,570,579.70 -4,574,989.11 4. Translating of foreign financial statement (1) Translating of foreign financial statement i. Monetary assets and liabilities denominated in foreign currencies at [中鲁 B] 80 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. Among the equity items, all items are translated into reporting currency at spot exchange rates on the occurrence date except the item of undistributed profits. ii. Income Statement items are translated into reporting currency at spot exchange rate on the occurrence date. 80 iii. The exchange difference from translation of financial statements denominated in foreign currency is included in the equity and presented individually. (2) Exchange rate： a. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are restated into the reporting currency using the spot exchange rates at that date. (1:6.8346) b.Income Statement items are translated into reporting currency at spot exchange rate on the occurrence date. V. Main items of consolidated financial statements (Unit: RMB Yuan) 1. Monetary funds Dec 31, 2008 Jan 1, 2008 Item Foreign Exchange Exchange Foreign Exchange Exchange Currency Rates RMB Currency Rates RMB Cash 473,823.52 293,685.26 RMB 73,483.93 1.00 73,483.93 276,999.31 1.00 276,999.31 USD 58,575.42 6.8346 400,339.57 2,284.31 7.3046 16,685.95 JPY 0.27 0.07565 0.02 Bank 34,859,540.23 46,467,023.25 deposit RMB 18,248,808.99 1.00 18,248,808.99 38,343,928.27 1.00 38,343,928.27 [中鲁 B] 81 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Dec 31, 2008 Jan 1, 2008 Item Foreign Exchange Exchange Foreign Exchange Exchange Currency Rates RMB Currency Rates RMB USD 2,256,980.14 6.8346 15,425,556.46 675,941.28 7.3046 4,937,480.67 JPY 15,666,553.60 0.07565 1,185,174.78 49,728,603.00 0.06406 3,185,614.31 other foreign 39,119,040.73 1,580,929.78 currency RMB 37,839,534.09 1.00 37,839,534.10 1,580,929.78 1.00 1,580,929.78 81 USD 58,813.34 6.8346 401,965.65 JPY 11,600,013.00 0.07565 877,540.98 Total 74,452,404.48 48,341,638.29 Note: 1.Balance of $1,479,402.92 in bank deposit is foreign currency offshore bank deposit in China merchant’s bank converted into 10,111,127.20 renminbi. 2 the ending balance of other monetary fund of 39,119,040.73 Yuan, including: cash deposit of 7,309.69 Yuan in qilu securities Co., LTD, jiefang road branch, guarantee deposit of 21,600,000.00 Yuan in China merchants bank, guarantee deposit of 5,443,290.00yuan in Hengfeng bank, and pledged deposit of 10,000,000.00yuan above 3 months 3. The ending balance of monetary fund is increasing 54.01% compaired with beginning balance; this is caused by increased borrowing in current period. 2. Accounts receivable Dec 31, 2008 Jan 1, 2008 Item Proportion Bad debt Proportion Bad debt Balance Balance (%) provision (%) provision individual with significant 13,934,428.78 63.00 4,117,635.45 9,004,768.10 56.67 3,871,152.42 amount Accounts receivable that individual 2,412,888.82 10.91 2,412,888.82 1,829,372.94 11.51 1,829,372.94 amounts are not significant [中鲁 B] 82 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Dec 31, 2008 Jan 1, 2008 Item Proportion Bad debt Proportion Bad debt Balance Balance (%) provision (%) provision but portfolio risk is great according to the portfolio characteristics of credit risk 82 others without significant 5,769,973.61 26.09 288,121.92 5,056,311.16 31.82 520,821.99 amount Total 22,117,291.21 100 6,818,646.19 15,890,452.20 100 6,221,347.35 Note: 1 individual with significant amount is refers to the amount of account receivable exceeding 10,000,000,000 Yuan at balance sheet date. Accounts receivable that individual amounts are not significant but portfolio risk is great according to the portfolio characteristics of credit risk refers to the age obove 3 years. The individual with significant amount account is as following: Proportion Boniness name Age Amount Reason (%) Singapore pozhao of Within 6 2,972,511.94 5 Aging analysis aquatic products Co., LTD months Japan's asahi aquatic Within 6 1,479,572.08 5 Aging analysis corporation months Within 6 Japan Weike Co., LTD 4,659,715.25 5 Aging analysis months Japan's new delta aquatic Within 6 1,221,667.39 5 Aging analysis products Co., LTD months Above 3 PANDA 3,600,962.12 100 Aging analysis years Total 13,934,428.78 2 .The company didn’t adopts individual provision of bad debt method for individual with significant amount, 3. The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. [中鲁 B] 83 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 4. Account receivable balance at Dec 31 2008, which increased by 39.19% compared with that of last year. It is mainly due to that Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. (yantai food) increased the account receivable from sales, and Yantai Food is the subsidiary of the Company. 5. Account receivable aging analysis: Dec 31, 2008 Jan 1, 2008 Ages Proportion(%) Proportion Bad debt Proportion(%) Proportion Bad debt Balance Balance of total (%) provision of total (%) provision Within 83 6 16,103,440.27 72.81 5 804,795.25 9,815,104.88 61.77 5 490,755.24 months 6 months 10 10 to 1 year 1 year to 2 30 111,245.41 0.7 30 33,373.62 years 2 years to 3 50 533,766.85 3.36 50 266,883.43 years Above 6,013,850.94 27.19 100 6,013,850.94 5,430,335.06 34.17 100 5,430,335.06 3 years Total 22,117,291.21 100 6,818,646.19 15,890,452.20 100 6,221,347.35 6. Information of the first five debtors: Item Dec 31, 2008 Jan 1, 2008 Within 6 months 10,333,466.66 6,359,094.55 6 months to 1 year 1 year to 2 years 2 years to 3 years Above 3 years 3,600,962.12 3,600,962.12 Total amount of the first Five 13,934,428.78 9,960,056.67 debtors Proportion of total account 63% 62.68% [中鲁 B] 84 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. receivable 3. Accounts in advance Dec 31, 2008 Jan 1, 2008 Ages Balance Proportion Balance Within 1 year 6,868,073.62 100 3,262,010.06 80.12 1 year to 2 years 809,272.83 19.88 84 2 years to 3 years Above 3 years Total 6,868,073.62 100 4,071,282.89 100 Note: 1. the year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 2. The ending balance of advance to supplier is increasing 68.70% compared with beginning balance; this is caused by increased prepayment of common-of-piscary fee for 2009. 4. Other receivables Dec 31, 2008 Jan 1, 2008 Item Proportion Bad debt Proportion Bad debt Balance Balance (%) provision (%) provision individual with significant 5,514,073.92 41.49 4,887,036.96 9,641,628.38 56.36 4,529,081.42 amount Accounts receivable that individual amounts are not significant but portfolio risk 4,221,631.53 31.77 4,221,631.53 3,291,999.51 19.24 3,291,999.51 is great according to the portfolio characteristics of credit risk others without significant 3,553,434.41 26.74 293,864.11 4,173,868.92 24.40 521,123.96 amount Total 13,289,139.86 100 9,402,532.60 17,107,496.81 100 8,342,204.89 Note: 1 individual with significant amount is refers to the amount of account receivable [中鲁 B] 85 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. exceeding 10,000,000,000 Yuan at balance sheet date. Accounts receivable that individual amounts are not significant but portfolio risk is great according to the portfolio characteristics of credit risk refers to the age above 3 years. The individual with significant amount account is as following: Proportion Business name Ages Balance Reason (%) Zhongchanjin investment Above 3 4,260,000.00 100 Aging analysis 85 limited company years Unithai shipping 2-3 Year 1,254,073.92 50 Aging analysis engineering company Total 5,514,073.92 2 .The company didn’t adopts individual provision of bad debt method for individual with significant amount, 3. The year end balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 4、Aging analysis of other receivable: Dec 31, 2008 Jan 1, 2008 Ages Proportion(%) Proportion Bad debt Proportion(%) Proportion Bad debt Balance Balance of total (%) provision of total (%) provision Within 6 2,802,586.19 21.09 5 155,290.85 6,146,551.49 35.93 5 409,904.83 months 6 months 401,397.72 3.02 10 3,907.41 2,182,574.54 12.76 10 10,876.56 to 1 year 1 year to 2 322,727.00 2.43 30 121,304.10 1,218,808.23 7.12 30 365,642.47 years 2 years to 3 1,280,797.42 9.64 50 640,398.71 7,563.04 0.05 50 3,781.52 years Above 8,481,631.53 63.82 100 8,481,631.53 7,551,999.51 44.14 100 7,551,999.51 3 years Total 13,289,139.86 100 9,402,532.60 17,107,496.81 100 8,342,204.89 [中鲁 B] 86 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 5. Information of the first five debtors: Item Dec 31, 2008 Jan 1, 2008 Within 6 months 873,809.00 7,889,474.69 6 months to 1 year 1 year to 2 years 2 years to 3 years 1,254,073.92 Above 3 years 498,079.77 498,079.77 Total amount of the first Five 86 2,625,962.69 8,387,554.46 debtors Proportion of total account 19.76% 49.03% receivable 5. Inventories (1) Classification of inventories: Item Dec 31, 2008 Jan 1, 2008 Raw materials 47,071,141.36 22,234,148.71 low value and easily used up materials 1,347,902.07 1,358,528.37 Finished goods 48,237,481.63 33,822,288.97 Total 96,656,525.06 57,414,966.05 (2) Inventory impairment decrement Proportion reverse of transfer Dec 31, Item Jan 1, 2008 Increment impairment Reversed impairment 2008 loss impairment loss loss (%) Raw 1,160,470.01 3,718.40 0.32 506,131.20 650,620.41 materials low value and easily used up materials Finished 719,730.36 719,730.36 [中鲁 B] 87 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. goods Total 1,880,200.37 3,718.40 0.32 1,225,861.56 650,620.41 Note 1.The ending balance of inventory is increased compared with beginning balance, its mainly due to cryogenic storage 2nd phase being putted into use by Yantai Food（the subsidiary ） ; And the operation structure is changed to self-processing through purchasing material from outsourcing processes during2008, therefore, the increase in inventory. 2 The reduction of impairment loss provision is mainly due to transfer impairment loss for the sale of goods. 87 6. Long-term investments Jan 1, 2008 Dec 31, 2008 Item increment Decrement Carrying value Impairment Carrying value Impairment Investment in associate Investment in Joint ventures Other equity 33,000,000.00 33,000,000.00 33,000,000.00 33,000,000.00 investment Total 33,000,000.00 33,000,000.00 33,000,000.00 33,000,000.00 (1)Long-term equity investments measured with cost method Proportion of capital Initial Contributed by the Invested company investment Jan 1, 2008 Dec 31, 2008 Company to the total cost capital of the investee(% Southern China Securities Co., Ltd 0.87% 33,000,000.00 33,000,000.00 33,000,000.00 Total 33,000,000.00 33,000,000.00 33,000,000.00 (2) Impairment of long-term equity investment Name Jan 1, 2008 Increment Decrement Dec 31, 2008 Southern China Securities Co., Ltd 33,000,000.00 33,000,000.00 Note: In view of Southern China Securities Co., Ltd had been abolished the securities business license and ordered to be closed by China Securities Regulatory Commission on [中鲁 B] 88 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. April 29, 2005. On August 16, 2006, Shenzhen Intermediate People Court declared bankruptcy of Southern China Securities Co., Ltd. So the Company had drawn full impairment for the long-term investment of Southern China Securities Co., Ltd. 7. Investment property (Cost model) Item Jan 1, 2008 Increment Decrement Dec 31, 2008 1. Original cost 47,118,859.45 47,118,859.4588 Buildings 47,118,859.45 47,118,859.45 2.Accumulated depreciation and 4,047,910.67 4,047,910.67 amortization Buildings 4,047,910.67 4,047,910.67 3. Accumulated impairment loss 886,512.06 886,512.06 Buildings 886,512.06 886,512.06 4.Net book value 42,184,436.72 Buildings 42,184,436.72 Note: increased new investment property is as follows: 1 the company leased the factory located at Hezhe Road 3# Qingdao, shandong to Qingdao Marine vocational schools, and the lease period is from October 2008 to 2010 September. 2 the company leased part of its office to outside which located in HePing Road 43 # jinan shandong. (original value is 44,628,762.44 Yuan, accumulated depreciation is 2,799,156.86 Yuan net book value is 41,829,605.58 Yuan, and the leased area is 6088.07 square meters). 8. Fixed assets item Jan 1, 2008 Increment Decrement Dec 31, 2008 Cost 396,481,694.12 51,007,667.68 69,256,693.29 378,232,668.51 Buildings 96,383,325.12 14,484,305.43 47,228,859.45 63,638,771.10 Vessels 271,059,686.78 31,029,563.52 21,439,388.14 280,649,862.16 Machinery and 19,880,877.92 2,994,098.16 22,874,976.08 fishing equipment Motor vehicles 2,965,641.77 714,093.69 314,232.00 3,365,503.46 [中鲁 B] 89 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. item Jan 1, 2008 Increment Decrement Dec 31, 2008 Furniture and office equipment 6,192,162.53 1,785,606.88 274,213.70 7,703,555.71 Accumulated depreciation 117,830,233.69 20,139,289.90 15,101,901.73 122,867,621.86 Buildings 8,045,359.97 2,467,980.78 4,054,811.61 6,458,529.14 Vessels 100,252,591.44 15,015,781.83 10,487,096.08 104,781,277.19 Machinery and 3,984,285.94 1,412,507.50 5,396,793.44 fishing equipment Motor vehicles 1,564,438.88 450,400.17 285,308.80 1,729,530.2589 Furniture and office equipment 3,983,557.46 792,619.62 274,685.24 4,501,491.84 Provision for impairment 12,828,639.25 5,257,059.25 7,571,580.00 Buildings 886,512.06 886,512.06 Vessels 11,942,127.19 4,370,547.19 7,571,580.00 Machinery and fishing equipment Motor vehicles Furniture and office equipment Net book value 265,822,821.18 247,793,466.65 Buildings 87,451,453.09 57,180,241.96 Vessels 158,864,968.15 168,297,004.97 Machinery and 15,896,591.98 17,478,182.64 fishing equipment Motor vehicles 1,401,202.89 1,635,973.21 Furniture and office equipment 2,208,605.07 3,202,063.87 Note: 1. The increment of fix assets in this year is 51,007,667.68 Yuan, including: CIP transferred 41,110,777.19Yuan to fix assets; and Haiyan subsidiary purchase “Taihong 1# and 2# vessels” of 24,305,702.76 Yuan of its original value. And completion of cryogenic storage project of Yantai food transferred 16,805,074.43 Yuan to fixed asset. The rest of nacres are purchased Martine radar, Marine refrigerating equipment and etc. 2. The decrement of original value, accumulative depreciation and provision for impairment of fixed assets are 69,256,693.29 Yuan, 15,101,901.73 Yuan and 5,257,059.25Yuan. Including: disposal of ship of “Tai Kun Vessel” whose original value, accumulative depreciation and net balance are 12,931,669.08yuan, 7,932,297.65 Yuan and 4,999,371.43 Yuan. Disposal of “Tai Fu 102” whose original value, accumulative depreciation and provision for impairment and net [中鲁 B] 90 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. balance are 6,311,373.79 Yuan, 1,791,911.56yuan, 4,370,547.19 Yuan and 148,915.04 Yuan. The above disposed vessels are bad assets of the Company; do not affect normal operations of the Company. The decrease in buildings is caused by leasing them out and transferred into investment property. 3. Mortgage: As of 31 December 2008, the Company had mortgaged production building with the original value of 7,186,500.00 Yuan, machinery and equipment with the original value of 19,867,441.92Yuan and land use right of 9,929,529.00 Yuan to bank as security for short-term bank borrowing of 19,500,000 Yuan. the Company had mortgaged vessel” Tai Fu 102” with the net book value 90 of62,543,637.60Yuan to bank as security for short-term bank borrowings of20,000,000Yuan. 9. Construction in progress Transferred Completion Opening Other Closing Financial Items Budget Additions to fixed percentage balance decrement balance resource assets (%) Second phase project of Self- 15,945,151.35 8,542,383.22 8,262,691.21 16,805,074.43 Finished ultra-low generated temperature refrigerator New Self- vessels 13,700,000.00 1,138,846.12 12,107,147.52 13,245,993.64 Finished generated No.5 New Self- vessels 11,820,000.00 943,696.12 10,116,013.00 11,059,709.12 Finished generated No.18 Total 10,624,925.46 30,485,851.73 41,110,777.19 10. Intangible assets Items Jan 1, 2008 Increment Decrement Dec 31, 2008 I. Original value 10,094,357.20 138,000.00 104,800.20 10,127,557.00 Land use right of Yantai Food 9,929,529.00 9,929,529.00 Others 164,828.20 138,000.00 104,800.20 198,028.00 [中鲁 B] 91 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Items Jan 1, 2008 Increment Decrement Dec 31, 2008 II.Accumulated Amortisation 1,712,139.31 264,722.63 104,800.20 1,872,061.74 Land use right of Yantai Food 1,560,351.20 235,652.61 1,796,003.81 Others 151,788.11 29,070.02 104,800.20 76,057.93 III.Carrying value 8,382,217.89 8,255,495.26 Land use right of Yantai Food 8,369,177.80 8,133,525.19 Others 13,040.09 121,970.07 Note: As of 31 December 2008, the above land use right has been use for loan mortgage. 91 11. Provision for impairment of assets Decrement Items Jan 1, 2008 Increment Transfer Dec 31, 2008 Write off back Bad debt provision 14,563,552.24 2,144,297.73 486,671.18 16,221,178.79 Inventories impairment loss 1,880,200.37 3,718.40 1,225,861.56 650,620.41 Impairment of long-term equity 33,000,000.00 33,000,000.00 investment Impairment of investment 886,512.06 886,512.06 property Provision for impairment of fixed 12,828,639.25 5,257,059.25 7,571,580.00 assets Total 62,272,391.86 3,030,809.79 490,389.58 6,482,920.81 58,329,891.26 12. Short-term loans Items Dec 31, 2008 Jan 1, 2008 Mortgage loans 39,500,000.00 21,500,000.00 Pledge loans 30,503,800.00 Total 70,003,800.00 21,500,000.00 Note: 1. Mortgage loans are due to that the Company uses the building (carrying value is RMB 7,186,500.00 Yuan), machinery and equipment (carrying value is RMB 19,867,441.92 Yuan), and land use right (carrying value is RMB 9,929,529.00 Yuan) of Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. as mortgage and obtains loan RMB 19.5 million Yuan; and uses the ship “Tai Fu 102” as mortgage and obtains loan [中鲁 B] 92 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. RMB 20 million Yuan. 2. Details of pledge loans refer to Notes V.1. Monetary funds. 3.There are no overdue short-term loans. 13. Accounts payable Dec 31, 2008 Jan 1, 2008 Items Balance （%） Balance （%） Within 1 year 56,786,249.10 91.32 34,584,887.43 87.35 92 1-2 years 1,125,416.60 1.81 416,844.60 1.05 2-3 years 6,480.88 0.01 4,536.00 0.01 Over 3 years 4,264,511.84 6.86 4,587,146.06 11.59 Total 62,182,658.42 100 39,593,414.09 100 Note: 1 The ending balance did not contain debt that should be paid to any major shareholders who own more than 5% of the Company’s share capital. 2 The balance of accounts payable on 31 December 2008 is increased by 57.05% compared with that at the beginning of this year. It is mainly due to that Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. increases goods that has not been paid. 14. Advances from customers Dec 31, 2008 Jan 1, 2008 Items Balance （%） Balance （%） Within 1 year 2,390,270.94 87.23 545,183.20 60.91 1-2 years 349,863.72 12.77 349,863.72 39.09 Total 2,740,134.66 100 895,046.92 100 Note: The ending balance did not contain debt that should be paid to any major shareholders who own more than 5% of the Company’s share capital. 15. Wage payable Dec 31, Items Jan 1, 2008 Increment Decrement 2008 Salary, bonus, allowance 12,362,580.52 31,699,139.23 38,194,241.31 5,867,478.44 Employee Welfare expenses 61,540.14 1,320,213.60 1,381,753.74 Social insurance 29,340.00 5,732,765.55 5,544,648.37 217,457.18 Housing accumulation fund 65,860.00 1,073,131.84 1,043,183.32 95,808.52 [中鲁 B] 93 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Dec 31, Items Jan 1, 2008 Increment Decrement 2008 Labor union outlay and employee 878,885.10 146,367.39 212,982.49 812,270.00 education outlay Non-monetary welfares 3,974.00 3,974.00 Compensation for dismissal 839,209.80 790,929.80 48,280.00 Other Total 14,237,415.56 39,975,591.61 47,167,739.03 7,045,268.14 93 Note: The ending balance is due to unpaid wages and bonuses of December 2008.. 16. Taxes payable Items Jan 1, 2008 Dec 31, 2008 Income tax -88,480.55 -88,480.55 Value-added tax -1,794,571.25 -186,754.39 Business tax 121,786.36 152,459.30 Urban maintenance and construction tax 4,695.09 8,230.44 Educational surtax 2,682.91 8,813.08 Water conservancy fund 1,787.58 Other 575,446.62 528,256.85 Total -1,178,440.82 424,312.31 Note: The negative balance of the current VAT is due to that Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. purchases more goods, resulting in deducting higher input tax. 17. Other payables Jan 1, 2008 Dec 31, 2008 Items Balance （%） Balance （%） Within 1 year 10,022,990.44 70.76 10,602,915.93 59.39 1-2 years 1,962,744.75 13.86 5,697,814.12 31.91 2-3 years 1,704,601.20 12.04 1,103,578.64 6.18 Over 3 years 473,563.35 3.34 449,349.92 2.52 Total 14,163,899.74 100 17,853,658.61 100 Note: The ending balance did not contain debt that should be paid to any major shareholders who own more than 5% of the Company’s share capital. [中鲁 B] 94 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 18. Share capital At the balance sheet date, the Company’s paid-up share capital amounted to RMB 266,071,320.00 Yuan with a par value of RMB 1.00 Yuan each. The category and structure of share capital are as follows: Jan 1, 2008 Increment Dec 31, 2008 Items Percentage or Percentage Shares Shares 94 (%) decrement (%) 1. Unlisted shares 128,071,320.00 48.13 128,071,320.00 48.13 State owned shares 127,811,320.00 48.03 127,811,320.00 48.03 Domestic natural 260,000.00 0.10 260,000.00 0.10 person shares 2. Listed shares 138,000,000.00 51.87 138,000,000.00 51.87 A Shares B Shares 138,000,000.00 51.87 138,000,000.00 51.87 3. Total shares 266,071,320.00 100 266,071,320.00 100 19. Capital reserves Items Jan 1, 2008 Increment Decrement Dec 31, 2008 Share premium 186,283,711.00 186,283,711.00 －Founder shares 68,961,380.00 68,961,380.00 －B shares 117,322,331.00 117,322,331.00 Others 94,961,504.96 94,961,504.96 Total 281,245,215.96 281,245,215.96 20. Surplus reserves Items Jan 1, 2008 Increment Decrement Dec 31, 2008 statutory surplus reserve 21,908,064.19 21,908,064.19 General surplus reserve Total 21,908,064.19 21,908,064.19 [中鲁 B] 95 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 21. Undistributed profits Items Amount Balance at the end of last year -252,975,729.28 Add: adjustment to the initial balance of undistributed profits Balance at the beginning of this year -252,975,729.28 Additions 22,555,626.14 Including: net profit attribute to parent company this year 22,555,626.14 95 Reductions Balance at the end of this year -230,420,103.14 22. Operating income and cost (1) Operating income Items 2008 2007 Main operating income 251,405,668.48 214,637,500.90 Other operating income 2,046,808.12 1,645,912.15 Total 253,452,476.60 216,283,413.05 (2) Operating cost Items 2008 2007 Main operating costs 215,485,442.64 162,878,167.22 Other operating costs 1,665,648.12 1,442,422.56 Total 217,151,090.76 164,320,589.78 (3) Business segments 2008 2007 Items Income Cost Profit Income Cost Profit Oceanic fishing 98,986,876.30 83,191,190.86 15,795,685.44 112,376,515.62 77,803,926.80 34,572,588.82 Trading of seafood 2,086,592.92 2,061,908.51 24,684.41 1,677,825.10 1,379,403.29 298,421.81 Letting of refrigerated 49,316,480.23 37,823,453.73 11,493,026.50 41,755,685.04 32,240,911.66 9,514,773.38 [中鲁 B] 96 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. vessel and vessel management Seafood processing, cold 101,015,719.03 92,408,889.54 8,606,829.49 58,827,475.14 51,453,925.47 7,373,549.67 storage and others Total 251,405,668.48 215,485,442.64 35,920,225.84 214,637,500.90 162,878,167.22 51,759,333.68 (4) Geographical segments 96 2008 2007 Items Income Cost Profit Income Cost Profit PRC 35,490,843.37 24,092,706.23 11,398,137.14 13,502,739.60 7,481,733.56 6,021,006.04 Taiwan 114,092,333.38 95,197,207.25 18,895,126.13 114,477,236.49 75,630,545.61 38,846,690.88 America 4,286,275.64 3,695,413.44 590,862.20 665,080.87 621,270.67 43,810.20 Japan 78,668,419.36 73,779,291.50 4,889,127.86 74,403,322.89 65,021,321.93 9,382,000.96 Argentina 2,868,021.63 -2,868,021.63 Singapore 1,696,471.72 777,818.83 918,652.89 9,207,285.10 8,950,043.00 257,242.10 Germany 2,381,835.95 2,305,230.82 76,605.13 Ghana 6,244,074.02 7,291,173.90 -1,047,099.88 Other 10,927,250.99 10,651,831.49 275,419.50 Total 251,405,668.48 215,485,442.64 35,920,225.84 214,637,500.90 162,878,167.22 51,759,333.68 (5) Sales of five largest customers Items 2008 2007 Sales revenue of five largest customers 191,368,003.02 188,444,517.47 Percentage of total revenue (%) 76.12% 87.80% 23. Operating taxes and extras Items Calculation standards 2008 2007 3%-5% of installation income and Business tax 1,010,569.46 1,229,482.58 rental income Urban maintenance and 7% of actual value-added tax and 44,807.12 51,514.74 construction tax business tax 1%-3% of actual value-added tax Educational surtax 25,579.19 29,385.34 and business tax [中鲁 B] 97 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. House property tax House area 194,565.00 147,818.52 Other 92,673.95 23,455.20 Total 1,368,194.72 1,481,656.38 24. Financial expenses Items 2008 2007 Interest expenses 3,971,733.97 2,608,258.54 97 Less: Interest income 455,839.59 330,633.44 Exchange losses 1,084,254.35 1,520,427.68 Less: exchange gains 750,571.73 96,696.60 Others 248,806.76 303,954.38 Total 4,098,383.76 4,005,310.56 25. Loss of devaluation of assets Items 2008 2007 Bad debt provision 1,657,626.55 -6,684,541.41 Inventories impairment loss -3,718.40 -2,044,562.96 Provision for impairment of fixed assets 2,000,000.00 Total 1,653,908.15 -6,729,104.37 26．Investment income Items 2008 2007 Stock investment income 517,555.53 3,774,447.09 Total 517,555.53 3,774,447.09 Note: Stock investment income is due to new stock purchase. 27. Non-operating income and expenses Items 2008 2007 Gains on disposal of non-current assets 244,523.35 3,329,748.55 Government subsidy 20,194,185.06 16,226,380.00 Debt recombination income 2,469,005.18 436,251.62 Forecasted liabilities 12,000,000.00 [中鲁 B] 98 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Other 560,447.00 46,040.16 Total amount of non-operating income 23,468,160.59 32,038,420.33 Loss on disposal of non-current assets 1,132,608.34 2,143,834.08 Other 696,512.54 698,531.25 Total amount of non-operating expenses 1,829,120.88 2,842,365.33 Note: 1.Debt recombination income is due to the accounts that are unable to be repaid. 2. Details of government subsidy are as follows: 98 Items 2008 2007 Fuel subsidies 17,390,000.00 10,830,000.00 Finance discount 1,780,000.00 2,000,000.00 Finance rebate 571,585.06 Special funds for foreign economic cooperation 452,600.00 2,810,000.00 Chinese New Year grant 586,380.00 Total 20,194,185.06 16,226,380.00 28. Earnings per share Items 2008 2007 Net profit attributable to common shareholders 22,555,626.14 55,015,100.64 Outstanding ordinary shares at the beginning of the year 266,071,320.00 266,071,320.00 Newly issued ordinary shares Issue time Weighted average of outstanding ordinary shares 266,071,320.00 266,071,320.00 Basic earnings per share 0.08 0.21 Net profit attributable to common shareholders after adjusted Weighted average of outstanding ordinary shares after diluted 266,071,320.00 266,071,320.00 Diluted earnings per share 0.08 0.21 29. Information of cash flow statement (1) Larger amounts of cash flow statement Items 2008 2007 [中鲁 B] 99 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Items 2008 2007 Cash paid relating to other operating activities: 19,422,960.82 30,526,015.45 Pay for current accounts 3,689,758.87 18,109,342.99 Transportation costs 4,908,092.79 2,742,527.61 Traveling expenses 1,038,336.00 1,289,276.62 Serving expenses 912,574.61 891,105.65 Water , electricity and rental fee 335,689.00 159,550.00 Official business expenses 788,455.26 916,585.87 99 Port surcharge 360,516.48 1,037,368.21 Tariff 544,985.86 1,291,037.83 Customs inspection fee 28,789.80 206,573.71 Cash received relating to other operating activities: 25,642,741.04 16,340,773.97 Interest income 1,673,583.38 330,633.44 Government subsidy relating with the Company’s business 20,194,185.06 16,226,380.00 (2) Supplementary information of cash flow statement Items 2008 2007 1．Reconciliation of net profit to cash flows from operating activities: Net profit 22,555,626.14 55,015,100.64 Add: Provision for impairment of assets 1,653,908.15 -6,729,104.37 Depreciation of fixed assets 20,139,289.90 21,779,369.90 Amortization of intangible assets 264,722.63 250,462.49 Amortization of long-term prepayments Losses on disposal of fixed assets, intangible 888,084.99 -1,185,914.47 assets and other long-term assets Losses on scrapping of fixed assets Losses on fair value change Financial expenses 3,971,733.97 3,250,112.64 Investment losses -517,555.53 -3,774,447.09 Decrease in deferred income tax assets Increase in deferred income tax liabilities Decrease in inventories -39,241,559.01 -12,564,825.87 Decrease in operating receivables -41,988,685.41 -4,008,913.10 Increase in operating payables 44,248,743.91 2,093,409.24 [中鲁 B] 100 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Items 2008 2007 Others -12,000,000.00 Net cash flows from operating activities 11,974,309.74 42,125,250.01 2．Significant investing and financing activities that do not involve cash receipts and payments Conversion of debt into capital Convertible bonds to be expired within one year Fixed assets under finance lease 3．Net increase in cash and cash equivalents 100 Cash at the end of the period 64,452,404.48 48,341,638.29 Less: Cash at the beginning of the period 48,341,638.29 55,695,549.13 Add: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase in cash and cash equivalents 16,110,766.19 -7,353,910.84 (3)Cash and cash equivalents Items 2008 2007 1. Cash Including: Cash on hand 473,823.52 293,685.26 Bank deposit paid at any time 34,859,540.23 46,467,023.25 Other monetary funds paid at any time 29,119,040.73 1,580,929.78 2. cash equivalents 3. Cash and cash equivalents at the end of year 64,452,404.48 48,341,638.29 Note: The margin deposits of the Company can’t be used for payment after 3 months of balance sheet date, so it is deducted from cash when preparing cash flow statement; it is RMB 10 million Yuan this year. VI. Main items of parent company’s financial statements (Unit: RMB Yuan) 1. Accounts receivable Dec 31, 2008 Jan 1, 2008 Categories Proportion Bad debt Proportion Bad debt Balance Balance （%） provision （%） provision Single accounts receivable 9,436,222.15 79.64 3,679,530.62 3,600,962.12 56.61 3,600,962.12 [中鲁 B] 101 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. with significant amount Accounts receivable that individual amounts are not significant but portfolio risk is 2,412,888.82 20.36 2,412,888.82 1,829,372.94 28.76 1,829,372.94 great according to the portfolio characteristics of credit risk Other unimportant accounts 101 930,649.10 14.63 286,727.54 receivable Total 11,849,110.97 100 6,092,419.44 6,360,984.16 100 5,717,062.60 Note: 1. “Single accounts receivable with significant amount” refers to the end balance of accounts receivable over RMB 1 million Yuan; “accounts receivable that individual amounts are not significant but portfolio risk is great according to the portfolio characteristics of credit risk” refers to the age of accounts receivable over 3 years. Details of “single accounts receivable with significant amount” are as follows: Proportion Name Ages Amount Reason （%）) According to ages PANDA Over 3 years 3,600,962.12 100 analysis Within 6 According to ages Japan Wiki Co., Ltd. 1,571,370.03 5 months analysis Shandong Zhonglu Oceanic Within 6 (Yantai) Food Co., Ltd. (“Yantai 4,263,890.00 Related party months Food”) Total 9,436,222.15 2. The bad debt provision of “single accounts receivable with significant amount” doesn’t adopt specific identification method. 3. The ending balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 4. Ages analysis Dec 31, 2008 Jan 1, 2008 Bad debt Bad debt Ages Proportion provision Bad debt Proportion provision Bad debt Balance Balance （%） Proportion provision （%） Proportion provision （%） （%） [中鲁 B] 102 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Within 6 5,835,260.03 49.25 5 78,568.50 396,882.25 6.24 5 19,844.11 months 6 months to 1 10 10 year 1 to 2 years 30 30 2 to 3 years 50 533,766.85 8.39 50 266,883.43 Over 3 years 6,013,850.94 50.75 100 6,013,850.94 5,430,335.06 85.37 100 5,430,335.06 Total 11,849,110.97 100 6,092,419.44 6,360,984.16 100 5,717,062.60 102 2. Other receivables Dec 31, 2008 Jan 1, 2008 Categories Proportion Bad debt Proportion Bad debt Balance Balance （%） provision （%） provision Single accounts receivable with 33,516,321.35 84.07 4,260,000.00 26,735,438.28 82.96 7,500,339.90 significant amount Accounts receivable that individual amounts are not significant but 3,406,064.70 8.54 3,406,064.70 419,875.81 1.30 419,875.81 portfolio risk is great according to the portfolio characteristics of credit risk Other unimportant 2,944,096.12 7.38 244,693.15 5,070,690.79 15.74 253,534.54 accounts receivable Total 39,866,482.17 100 7,910,757.85 32,226,004.88 100 8,173,750.25 Note: 1. “Single accounts receivable with significant amount” refers to the end balance of accounts receivable over RMB 1 million Yuan; “accounts receivable that individual amounts are not significant but portfolio risk is great according to the portfolio characteristics of credit risk” refers to the age of accounts receivable over 3 years. Details of “single accounts receivable with significant amount” are as follows: [中鲁 B] 103 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Proportion Name Ages Amount Reason （%）) According to Zhong Chan Jing Investment Co., Ltd. Over 3 years 4,260,000.00 100 ages analysis YAW ADDO FISHERIES COMPANY 6 months to 1 2,884,996.84 Related party LIMITED year Shandong Zhonglu Oceanic (Yantai) Food 6 months to 1 9,000,000.00 Related party Co., Ltd. (“Yantai Food”) year Shandong Zhonglu Oceanic Fisheries 103 6 months to 1 Transportation Co., Ltd.(“Zhonglu 2,300,000.00 Related party year Transportation”) Habitat International Corporation 1 to 2 years 15,071,324.51 Related party Total 33,516,321.35 2. The bad debt provision of “single accounts receivable with significant amount” doesn’t adopt specific identification method. 3. The ending balance did not contain any debt owned by major shareholders who own more than 5% of the Company’s share capital. 4. Ages analysis Dec 31, 2008 Jan 1, 2008 Bad debt Bad debt Ages Proportion provision Bad debt Proportion provision Bad debt Balance Balance （%） Proportion provision （%） Proportion provision （%） （%） Within 6 months 19,857,275.07 49.81 5 133,315.49 21,276,082.10 66.02 5 246,269.56 6 months to 1 11,979,995.40 30.05 10 1,833.56 2,182,574.54 6.77 10 10,876.56 year 1 to 2 years 360,147.00 0.90 30 108,044.10 1,215,348.73 3.77 30 364,604.62 2 to 3 years 3,000.00 0.01 50 1,500.00 50 Over 3 years 7,666,064.70 19.23 100 7,666,064.70 7,551,999.51 23.44 100 7,551,999.51 Total 39,866,482.17 100 7,910,757.85 32,226,004.88 100 8,173,750.25 3. Long-term receivables Items Dec 31, 2008 Jan 1, 2008 Financing lease Selling fixed assets and collecting money by stages 7,501,383.23 Including: account receivable for selling fixed assets 20,503,800.00 unrealized financing income -13,002,416.77 Rendering of service and collecting money by stages Total 7,501,383.23 [中鲁 B] 104 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Note：In April 2008, the Company sold the ship “Zhong Lu Yu 1003/1004” to YAW ADDO FISHERIES COMPANY LIMITED in Ghana, then the Company adopted the way of leasing back YAW ADDO FISHERIES COMPANY LIMITED and obtained the legal fishing permission in Ghana sea area. YAW ADDO FISHERIES COMPANY LIMITED obtained fishing permission on March 2008. The original value of the ship is RMB 10,897,999.06 Yuan, accumulated depreciation is RMB 355,5331.52 Yuan, the net value is RMB 7,342,667.54 Yuan. The selling price of the ship is $ 3 million with collecting money among 20 years. Exchange rate is 1:7.0218 at the time of signing the contract; the selling price is RMB 21,065,400.00 104 Yuan (contract interest rate: 8%), unrealized financing income is RMB 13,722,732.46 Yuan. As of December 31, 2008, the balance of long-term receivables is RMB 20,503,800.00 Yuan due to exchange rate fluctuation; amortization of unrealized financing income is RMB 720,315.69 Yuan, the ending balance of unrealized financing income is RMB 13,002,416.77 Yuan. 4. Long-term equity investments Jan 1, 2008 Dec 31, 2008 Items Increment Decrement Balance Provision Balance Provision Investment in joint 86,893,844.22 3,900,000.00 90,793,844.22 venture company Investment in other 33,000,000.00 33,000,000.00 33,000,000.00 33,000,000.00 companies Total 119,893,844.22 33,000,000.00 3,900,000.00 123,793,844.22 33,000,000.00 (1) Details of long-term equity investments are as follows: Proportion Name held by the Initial amount Jan 1, 2008 Increment Decrement Dec 31, 2008 Company（%） Measured with cost method: Southern Securities Co., Ltd. 0.87 33,000,000.00 33,000,000.00 33,000,000.00 Habitat International 100 12,476,145.60 12,476,145.60 12,476,145.60 Shandong Zhonglu Oceanic Fisheries 100 21,380,320.00 22,869,513.38 22,869,513.38 [中鲁 B] 105 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Proportion Name held by the Initial amount Jan 1, 2008 Increment Decrement Dec 31, 2008 Company（%） Transportation Co., Ltd Shandong Zhonglu Oceanic (Yantai) 74.23 32,280,000.00 51,548,185.24 3,900,000.00 55,448,185.24 Food Co., Ltd. (“Yantai Food”) Total 99,136,465.60 119,893,844.22 3,900,000.00 123,793,844.22 105 (2) Impairment of long-term equity investment Name Jan 1, 2008 Increment Decrement Dec 31, 2008 Southern China Securities Co., Ltd 33,000,000.00 33,000,000.00 Total 33,000,000.00 33,000,000.00 Note: The increment of long-term investment is RMB 3,900,000 Yuan this year; it is due to investment to Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd. 5. Operating income Items 2008 2007 Main operating income 108,717,668.57 114,054,340.72 Other operating income 1,746,297.38 1,471,172.77 Total 110,463,965.95 115,525,513.49 (1) Main operating income and cost 2008 2007 Items Income Cost Profit Income Cost Profit Oceanic fishing 106,631,075.65 87,690,401.27 18,940,674.38 112,376,515.62 77,803,926.80 34,572,588.82 Trading of 2,086,592.92 2,061,908.51 24,684.41 1,677,825.10 1,379,403.29 298,421.81 seafood Total 108,717,668.57 89,752,309.78 18,965,358.79 114,054,340.72 79,183,330.09 34,871,010.63 (2) Sales of five largest customers Items 2008 2007 Sales revenue of five largest customers 106,631,075.65 112,376,515.62 Percentage of total revenue (%) 98.08% 98.53% [中鲁 B] 106 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. 6. Operating cost Items 2008 2007 Main operating costs 89,752,309.78 79,183,330.09 Other operating costs 1,665,648.12 1,442,422.56 Total 91,417,957.90 80,625,752.65 7．Investment income 106 Items 2008 2007 Stock investment income 517,555.53 3,774,447.09 Total 517,555.53 3,774,447.09 Note: Stock investment income is due to new stock purchase. VII. Related party relationship and transactions 1. Related party cognizance According to "Enterprises Accounting Standards No.36 – related party disclosures", one party controls, jointly control the other party or brings significant influence to the other party, and two or more than two parties are controlled by one party, jointly controlled or significantly influenced, these are called related party. According to "listed companies’ information disclosure management method" (Document of No. 40 issued by China Securities Regulatory Commission), associated legal and natural persons under specific circumstances are identified as related parties. 2. Related party relationship (1) Parent company and ultimate controller Relationship Registered Holding the Proportion Registered Legal Organization Business Name with the Type capital Company’s of the right address representative code character Company (RMB0’000) shares to vote Shandong Majority State- Shandong Liu Changsuo 16307316-7 managing 160,000 33.07% 33.07% [中鲁 B] 107 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. State-owned shareholder owned Ji’nan capital, assets and ultimate trusteeship investment Co. controller operating, Ltd investment consultation (2) Related parties with control relationship Registered Shares holding 107 Voting shares Registered Legal Organization Business Name Type capital by the Company holding by the address representative code character (RMB0’000) Company Shandong Zhonglu Oceanic Fisheries Limited Shandong Refrigerated Transportation Co., liability Li Dexin 16307123-3 2,250.56 100% 100% Qingdao vessels Ltd.(“Zhonglu company Transportation”) Limited Habitat International Refrigerated liability Panama Wang Aimin 1,247.6146 100% 100% Corporation vessels company Shandong Zhonglu Limited Oceanic (Yantai) Food Shandong Processing liability Wang Zhaoan 72927738-9 7,559.33 100% 100% Co., Ltd. (“Yantai Yantai of seafood company Food”) YAW ADDO Limited Oceanic FISHERIES liability Ghana 0.438709 100% fishing COMPANY LIMITED company (3) Related parties without control relationship Relationship Registered Holding the Proportion Registered Legal Organization Business Name with the Type capital Company’s of the right address representative code character Company (RMB0’000) shares to vote Shandong Luxin managing Investment State- Shandong capital, Shareholder Zhao Kui 73577367-X 300,000 14.18% 14.18% Holding Group owned Ji’nan trusteeship Co., Ltd. operating, [中鲁 B] 108 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. investment consultation VIII. Contingencies As of December 31, 2008, the Company had following contingencies: Balance Guaranteed party Terms of borrowing Guaranteed by RMB 0’000 Qingdao Double Wale 108 Shandong Zhonglu Oceanic Fisheries 5,000 Feb 2002 to Jul 2006 Pharmaceutical Co., Ltd. Co., Ltd. Note: The Guaranteed party is in consultation with bank for reimbursement, it is expected that the guarantee matter has no impact on the normal operation of the Company. IX. The events after the balance sheet date None. X. Other important events None. [中鲁 B] 109 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. Shandong Zhonglu Oceanic Fisheries Co., Ltd Supplementary Information to the Financial Statements Expressed in Renminbi Yuan I. Calculation list of return on net assets and earning per shares Return on net assets and earnings per share calculated according to “Rule 9 on Information Disclosure by Companies Publicly Issuing Securities” issued by the China Securities Regulatory Commission. 109 Return on net assets (%) Earnings per share(RMB Yuan) Basic Profit in 2008 Fully Weighted earnings per Diluted earnings diluted average share per share Net profit attributable to common 6.65% 6.89% 0.08 0.08 shareholders Net profit excluding extraordinary items attributable to common 6.05% 6.27% 0.08 0.08 shareholders II. Extraordinary profit and loss list in 2008 Items Balance Profit or loss on disposal of non-current assets -888,084.99 Government subsidy recorded into current profit and loss, excluding closely related with the Company's business, enjoy government subsidies in 571,585.06 accordance with national standards or fixed quantity Income or loss from debt recombination 2,469,005.18 Net balance of other non-operating income and expenses except above items -136,065.54 Total 2,016,439.71 Shandong Zhonglu Oceanic Fisheries Co., Ltd 27 February 2009 [中鲁 B] 110 2008 Annual Report Shandong Zhonglu Oceanic Fisheries Co., Ltd. SECTION XII. DOCUMENTS FOR REFERENCE 1. Accounting Statement carrying the personnel signatures and seals of legal representative, person in charge of the financial affairs and person in charge of accounting institutions 2. Original of Auditors’ Report with seals of Certified Public Accountants as well as personal signatures and seal of the certified public accountants 3. Originals of all documents disclosed in public on the newspapers designated by China Securities Regulatory Commission, as well as the original manuscripts of the public notices published in the report period 4. Original of Annual Report 2008 carrying the signature and seal of the Chairman of the 110 Board Chairman of the Board: Wang Zhao’an Shandong Zhonglu Oceanic Fisheries Co., Ltd. March 3, 2009 [中鲁 B]