SHANDONG ZHONGLU OCEANIC FISHERIES CO., LTD. · 3 SECTION I. IMPORTANT NOTES Board of Directors of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (hereinafter referred to as the Company)

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SHANDONG ZHONGLU OCEANIC FISHERIES CO., LTD.

2004 ANNUAL REPORT

April 16, 2005

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CONTENTS . IMPORTANT NOTES------------------------------------------------------------------------------------ . COMPANY PROFILE------------------------------------------------------------------------------------ . SUMMARY ACCOUNTING HIGHLIGHT AND BUSINESS HIGHLIGHT---------------- . CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS--- . PARTICULARS ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND

EMPLOYEES-------------------------------------------------------------------------------------------- . ADMINISTRATIVE STRUCTURE-------------------------------------------------------------------- . BRIEF OF THE SHAREHOLDERS’ GENERAL MEETING----------------------------------- . REPORT OF BOARD OF DIRECTORS------------------------------------------------------------- . REPORT OF SUPERVISORY COMMITTEE------------------------------------------------------ . SIGNIFICANT EVENTS--------------------------------------------------------------------------------- . FINANCIAL REPORT------------------------------------------------------------------------------------ . DOCUMENTS AVAILABLE FOR REFERENCE--------------------------------------------------

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SECTION I. IMPORTANT NOTES Board of Directors of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (hereinafter referred to as the Company) individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are no material omissions nor errors which would render any statement misleading. Director Shao Shijie didn’t attend the meeting, entrusting Director Li Wenyi to vote on his behalf. Hubei Da Xin Certified Public Accountants Ltd. and Horwath International CPA Limited (China Hubei) issued an Auditors’ Report with reserved opinion and paragraph of emphasis events. The Board of Directors and the Supervisory Committee of the Company made explanations on the relevant matters in details, the investors are suggested to notice the content. Liu Changsuo, Chairman of the Board, Zhang Jinqing, 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.

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SECTION II. COMPANY PROFILE 1. Name of the Company:

In Chinese: In English: Shandong Zhonglu Oceanic Fisheries Company Limited

2. Legal Representative: Liu Changsuo 3. Secretary of Board of Directors: Zhou Feng

Authorized Representative in charge of Securities affairs: Jiang Peng Contact Address: No. 43, Heping Road, Jinan, Shandong Tel: (86) 531-6553278, 6553276 Fax: (86) 531-6943084 E-mail: [email protected]

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: [email protected]

5. Newspapers Chosen for Disclosing the Information of the Company: Securities

Times and Ta Kung Pao Internet Web Site Designated by CSRC for Publishing the Annual Report: http://www.cninfo.com.cn 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: *ST ZHONGLU B Stock Code: 200992

7. Other information about the Company Initial registration date: Jul. 23, 1999 Registration date after change: Nov. 30, 2000 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 Local Tax: 370001863043102

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Name of the Certified Public Accountants engaged by the Company: Domestic: Da Xin Certified Public Accountants Ltd. Overseas: Horwath International CPA Limited (China Hubei) Address: 15/F, Institute International bldg., Zhichun Road, Haidian District, Beijing 8. Paraphrase: Barring referring to another meanings in the context, the following phases in these report posses the meanings as follow: “the Company” or “Company” refers to Shandong Zhonglu Oceanic Fisheries Company Limited “Shandong Fishery Group” refers to Shandong Group Corporation of Fishery Enterprises “Luxin Holding Co.” refers to Luxin Investment Holding Company Limited “GZW” refers to the State-owned Assets Supervision and Administration Commission of the State Council “CSRC” refers to China Securities Regulatory Commission “the report” refers to 2004 Annual Report compiled by the Company SECTION III. FINANCIAL HIGHLIGHT AND BUSINESS HIGHLIGHT 1. Abstract of accounting data as of the year 2003

Unit: RMB Items Amount Total Profit 4,105,404 Net Profit 3,398,218 Net profit after deducting non-recurring gains and losses -29,186,637 Profit from main operations 48,374,542 Other operating profit 711,929 Operating profit 22,300,612 Investment income -19,811,918 Subsidy income - Net non-operating income/expenses 1,616,710 Net cash flow arising from operating activities 40,447,712 Net increase/decrease in cash and cash equivalents 5,189,317

Unit: RMB Items of non-recurring gains and losses Amount Switching back of reserve for bad debts 24,113,145

Switching back of reserve for impairment of fixed assets 1,194,922

Non-operating incomes 1,255,100

Non-operating expenses 833,312

Government subsidy 6,855,000

Total 32,584,855

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2. Explanation for the difference in net profit as audited by CAS and IAS: The Company’s net profit as of year 2004 as audited by Da Xin Certified Public Accountants Ltd. and Horwath International CPA Limited (China Hubei) in accordance with CAS and IAS was RMB 3,398,218 respectively. There existed no difference.

3. Major accounting data and financial indexes over the past three years ended by the report period

Unit: RMB 2002

Items Unit 2004 2003 Before adjustment

After adjustment

Income from main operations

RMB 224,089,193 318,865,044 310,982,756 310,982,756

Net profit RMB 3,398,218 -213,472,451 -229,808,572 -225,282,438

Total assets RMB 507,835,721 562,738,775 804,177,030 804,879,214

Shareholders’ equity (Excluding minority interests)

RMB 76,749,570 72,396,580 277,032,440 277,937,637

Earnings per share RMB/share 0.01 -0.80 -0.86 -0.85

Net assets per share RMB/share 0.29 0.27 1.04 1.04

Net assets per share after adjustment

RMB/share 0.29 0.25 1.02 1.02

Net cash flow per share arising from operating activities

RMB/share 0.15 -0.08 0.18

0.18

Return on equity % 4.43% -294.87 -82.95 -81.06

4. In accordant with Regulations on the Information Disclosure of Companies Publicly Issuing Shares (No. 9), the Company’s return on equity and earnings per share as of the year 2004 as calculated based on calculating method of fully diluted and weighted average are as follows:

Return on equity (%)

Earnings per share (RMB/share)

Profit in the report period Fully

diluted Weighted average

Fully diluted

Weighted average

Profit from main operations 63.03 65.29 0.18 0.18

Operating profit 29.06 30.10 0.08 0.08

Net profit 4.43 4.59 0.01 0.01

Net profit after deducting non-recurring gains and losses

-38.03 -39.39 -0.11 -0.11

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5. Changes in shareholders’ equity as of the report period (Unit: RMB) Items Share

capital

Capital public

reserve

Surplus

public reserve

Statutory

public welfare

funds

Retained

profit

Shareholders’

equity

Amount at the

period-begin

266,071,3

20 201,240,342 21,813,441 7,271,147

-416,728,5

23 72,396,580

Increase in the

report period - 954,772 8,634 2,878 3,398,218 4,361,644

Decrease in the

report period - - - - 8,634 8,634

Amount at the

period-end

266,071,3

20 202,195,114 21,822,075 7,274,025

-413,338,9

39 76,749,570

Reason for change Transfer into

Payables

which need

not to pay

Withdrawal in

the report

period

Withdrawal in

the report

period

Profit,

withdrawal

of “two

reserves”

Profit

SECTION IV. CHANGES IN SHARES CAPITAL AND PARTICULARS ABOUT SHAREHOLDERS 1. Statement of change in shares

Unit: Share Increase/decrease of this time (+, - )

Items Before the

change Rationed

share

Bonus

shares

Capitalization of

public reserve

Additional

issuance

Others Sub-

total

After the

change

Unlisted Shares 128,071,320 128,071,320

1. Promoters’ shares

Including:

State-owned shares 127,811,320 127,811,320

Domestic legal person’s shares 260,000 260,000

Foreign legal person’s shares

Others

2. Raised legal person’s shares

3. Inner employees’ shares

4. Preference shares or others

Including:

Transferred / allotted shares

Total unlisted shares 128,071,320 128,071,320

II. Listed shares

1. RMB ordinary shares

2. Domestically listed foreign shares 138,000,000 138,,000,000

3. Overseas listed foreign shares

4. Others

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Total listed shares 138,000,000 138,000,000

. Total shares 266,071,320 266,071,320

2. Issuance and listing of shares (1) Particulars about issuance of shares over all previous three years Ended by the end of the report period, there existed no particulars about listing of shares over all previous three years. (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, abstracting and merging, capitalization of transferable bond of the Company, decreasing capital and inner employee’s listing, 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. 3. Particulars about shareholders (1) Total number of shareholders in the report period Ended Dec. 31, 2004, the Company had totally 18,348 shareholders, including 5 sponsor’s shareholders, they were Shandong Group Corporation of Fishery Enterprises, Luyin Investment Group Co., Ltd., China Heavy Automobile Group Jinan Truck Company Limited, SAG and Shandong Detai Decoration Company. 18,343 shareholders are domestically listed foreign share. (2) Particulars about Shareholders holding 5% (including 5%) shares of the Company

Shareholder’ name Increase/decrease

in the report period

Shares held at the period-end

(share)

Type of shares

Shares pledged or frozen (share)

Shandong Group Corporation of Fishery Enterprises

No 125,731,320

State-owned Legal

person’s share

Wholly frozen by administration of

justice

Particulars about the shares held by the top ten shareholders (Ended Dec. 31, 2004):

No. Shareholders’ name

Increase/

decrease

in the

report

period

Shares held

at the

period-end

(share)

Proportion

(%) Type of shares

Shares

pledged or

frozen

(share)

Nature of

shareholder

1 SHANDONG GROUP CORPORATION OF FISHERY ENTERPRISES

0 125,731,320 47.25 Non-circulating 125,731,320 State-owned legal person shareholder

2

SAHGNHAI WANGUO

SECURITIES HONG KONG

LIMITED

Unknown 8,580,948 3.23 Circulating Unknown Foreign

shareholder

3 COREPACIFIC-YAMAICH

INTERNATIONAL (H.K.) 203,060 6,249,709 2.35 Circulating Unknown

Foreign

shareholder

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LIMITED

4 GUOTAI JUNAN SECURITIES

HONG KONG LIMITED Unknown 2,155,116 0.81 Circulating Unknown

Foreign

shareholder

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CHINA HEAVY AUTOMOBILE

GROUP JINAN TRUCK

COMPANY LIMITED

0 1,950,000 0.73 Non-circulating Unknown State-owned

legal person

shareholder

6 LIANG YUZHEN

Unknown 1,887,050 0.71 Circulating Unknown Foreign

shareholder

7 NIHK-CUS TOMER’S

1SEGREGA TED ACCOUNT Unknown 1,100,631 0.41 Circulating Unknown

Foreign

shareholder

8 YI YING 0 1,078,200 0.41 Circulating Unknown Foreign

shareholder

9 LIU DAN -506,790 991,500 0.37 Circulating Unknown Foreign

shareholder

10 HUANG JIANWEN

Unknown 932,769 0.35 Circulating Unknown Foreign

shareholder

Note: Among the top ten shareholders, Shandong Group Corporation of Fishery Enterprises and China Heavy Automobile Group Jinan Truck Co., Ltd. are sponsor’s shareholders of the Company, there exists no associated relationship between them, or they do not belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies; the other shareholders are ones of domestically listed foreign shares, the Company is unknown whether there exists associated relationship, or whether the rest shareholders belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies. (3) The controlling shareholder of the Company Name of the controlling shareholder: Shandong Group Corporation of Fishery Enterprises Legal representative: Liu Changsuo Date of foundation: Nov. 1988 Registered capital: RMB 380,000,000 Nature of Company: state-owned enterprise Structure of equity: the State-owned Assets Supervision and Administration Commission of Shandong Province Government holds 100% equity of Fishery Enterprise Business scope: marine catching, aquiculture, resource development and technical service of aquatic product; sales of aquatic products and fishery resource (excluding special operating products); import and export business with the approval scope; sales of steels and woods; sending of work personnel of the fishery business to overseas.

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Note: In the report year, the controlling shareholder of the Company remained unchanged. (4) 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 Province Government Legal representative: Zeng Zhaoqi Date of foundation: June 18, 2004 Nature of the unit: specific established organization directly under Shandong province government Main business: to implement the responsibility of subscriber, to supervise the inflation proof savings deposits and increment of the supervised state-owned assets

The State-owned Assets Supervision and Administration

Commission of Shandong Province Government


The Company

(5) Legal person shareholder holding over 10% of the Company’s total shares In the report period, there existed no legal person shareholder holding over 10% of total shares in the Company. (6) Particulars about shares held by the top ten shareholders of circulation share

No Name of shareholders Number of circulation shares held

at the year-end (share)

Type (A-share, B-share,

H-share and other)

1

SAHGNHAI WANGUO

SECURITIES HONG KONG

LIMITED

8,580,948 B-share

2

COREPACIFIC-YAMAICH

INTERNATIONAL (H.K.)

LIMITED

6,249,709 B-share

3 GUOTAI JUNAN SECURITIES

HONG KONG LIMITED 2,155,116 B-share

4 LIANG YUZHEN 1,887,050 B-share

5 NIHK-CUS TOMER’S

1SEGREGA TED ACCOUNT 1,100,631 B-share

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6 YI YING 1,078,200 B-share

7 LIU DAN 991,500 B-share

8 HUANG JIANWEN 932,769 B-share

9 ZOU JINFA 684,800 B-share

10 LIAO QIANG 615,000 B-share

It is unknown whether there exists associated relationship among the top ten shareholders of circulation share in the Company.

SECTION V. PARTICULAR ABOUT DIRECTORS, SUPERVISORS, SENIOR EXECUTIVES AND EMPLOYEES Basic information on directors, supervisors and senior executives I. Basic information

Name Title Gender Age Office term

Shares held at

the

year-beginning

Shares held

at the

year-end

Liu Changsuo Chairman of the Board Male 54 May 2003 – Sep. 2005 0 0

Wang Zhaoan General Manager Male 54 Sep. 2002 – Sep. 2005 0 0

Li Wenyi Deputy General

Manager Male 49 Sep. 2002 – Sep. 2005 0 0

Shao Shijie Director Male 59 Sep. 2002 – Sep. 2005 0 0

Wang Hanmin Independent Director Male 45 Sep. 2002 – Sep. 2005 0 0

Jiang Jin Independent Director Male 36 May 2003 – Sep. 2005 0 0

Jiang Lu Independent Director Male 46 May 2004 – Sep. 2005 0 0

Zhou Feng Secretary of the Board Male 50 Sep. 2002 – Sep. 2005 0 0

Zhang Jinqing Chief Financial

Supervisor Male 50 Mar. 2004 – Sep. 2005 0 0

Li Ming Chairman of the

Supervisor Committee Male 40 Mar. 2004 – Sep. 2005 0 0

Chi Ming Employee Supervisor Female 41 May 2004 – Sep. 2005 0 0

Yin Jixian Supervisor Male 45 Sep. 2002 – Sep. 2005 0 0

Huang Qi Employee Supervisor Male 32 Sep. 2002 – Sep. 2005

Shang Qinghua Employee Supervisor Female 35 Oct. 2003 - Sep. 2005

2. Particulars about directors or supervisors holding the position in share-controlling companies

Name Share-controlling company Title Office term

Liu Changsuo Shandong Group Corporation of Fishery

Enterprises

Chairman of the Board,

General Manager Apr. 2003 till now

Shao Shijie

Subsidiary of Shandong Group

Corporation of Fishery Enterprises

–Qingdao Oceanic Fishery Co.

General Manager Jan. 1998 till now

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Yin Jixian Shandong Group Corporation of Fishery

Enterprises

Section Chief of

Personnel and Labor Dept. Sep. 2004 till now

3. Main work experiences and part –job and concurrently post of present directors, supervisors and senior executives in the units barring the shareholders units (1) Members of the Board of Directors Mr. Liu Changsuo, a member of the Communist Party with junior college degree, ever took the post of deputy director and member of the Communist Party of Shandong province economic restructuring office over the latest five years. He is now in charge of chairman of the Board of the Company and concurrently secretary of Party Committee, chairman of the Board and general manager of Shandong Fishery Group. Mr. Wang Zhao’an, a member of the Communist Party with technical secondary school degree, ever took the post of deputy general manager of Shandong Fishery Group over the latest five years. He is now in charge of director and general manager of the Company. Mr. 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 director, deputy general manager and secretary of the Board of the Company over the latest five years. Now he is in charge of director and deputy general manager of the Company. Mr. Shao Shijie, a member of the Communist Party with technical secondary school degree, takes the post of general manager of Oingdao Oceanic Fishery Co.tll now. Now he is in charge of director of the Company and general manager of Oingdao Oceanic Fishery Co.. Mr. Wang Hanmin, professor of Auditing and instructor of master degree student, he is independent director of the Company and now is in charge of vice president of Commerce and Industry Management Institute of Shandong College of Economics. Mr. Jiang Jin, China finance economist with bachelor degree, takes the post of independent director of the Company. He was in charge of director and general manager of Shandong Pioneer Investment Developing Co., Ltd. over the latest five years till now. Mr. Jiang Lu, secondary lawyer with law bachelor degree, takes the post of director of the Company. Over the latest five years, he held the position of copartner of Shandong Junyida Law Firm, arbitrator of Jinan Arbitration Committee, senior chief of finance and securities SIC of Jinan Lawyer Association and independent director of Shandong Hengtong Chemical Co., Ltd. till now. (2) Members of supervisors: Mr. Li Ming, China economist with bachelor degree, member of Communist Party, in the recent five years, took the position of manger of management department. Now he is Chairman of the Supervisory Committee, and concurrently manger of management department. Ms. Chi Ming, a member of Communist Party with secondary school degree, is employee supervisor of the Company. She ever took the post of section chef of personnel and labor department of Shandong Fishery Group, and now she is in charge of senior minister of human resources department of the Company.

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Mr. Yin Jixian, a member of Communist Party with secondary school degree, is supervisor of the Company. Over the latest five years, he took the post of deputy director of administrative supervision office and personnel and labor department of Shandong Fishery Group, he is now in charge of section chief of personnel and labor department of Shandong Fishery Group. Mr. Huang Qi, China economist with bachelor degree, a member of Communist Party and employee supervisor of the Company. He ever took the post of section chief of business management department of the Company over the latest five years, and now he is in charge of deputy director of auditing supervision office of the Company. Ms. Shang Qing, a member of Communist Party with bachelor, is employee supervisor of the Company. She ever took the post of accountant of finance department, and now she is in charge of section chief of finance department of the Company. II. About annual remuneration 1. The remuneration of directors, supervisors and senior executives were 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. The decision-making procedure of the remuneration is that the Board of Directors presents the proposal and reports to be approved by the shareholders’ general meeting of the Company. Confirmation of the remuneration refer to detailed manipulation rules on enterprise performance evaluation and enforcement measures of annual pay of enterprise operator of other provinces or municipalities and so on documents, and methods of other listed company of Shandong province. The total annual remuneration (including base wage, rewards, welfare, subsidy, housing subsidy and others) of the present directors, supervisors and senior executives receiving from the Company was RMB 832,000; 2. Total annual remuneration of the top three directors and senior executives drawing the highest payment annual remuneration was RMB 345,000. 3. The Company respectively paid the allowance of RMB 30,000 (tax included) to independent directors per year. The Company gave them subsidy of RMB 300 per day based on the actual working days when they attended the meetings of the Board of Directors and the Shareholders’ General Meeting. In addition, the reasonable expense needed by independent directors when performing duties can be reimbursed according to the actual situation. Decision-making procedure of the said allowance: the Board of Directors enacts the preplan and submits to the Shareholders’ General Meeting for approval. 4. The Company has 14 directors, supervisors and senior executives at present in office. 12 persons drew the annual salary from the Company, among them, 5 persons enjoyed the annual remuneration from RMB 90000 to RMB 120,000 respectively; 4 persons from RMB 30,000 to RMB 60,000 respectively; 5 persons from RMB 20,000 to RMB 30,000 respectively. 5. Among directors, supervisors and senior executives, 2 persons received no pay from

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the Company, namely Director Shao Shijie, who drew remuneration from Qingdao Oceanic Fishery Co., and Supervisor Yin Jixian, who drew remuneration from Shandong Group Corporation of Fishery Enterprises, the share-controlling company of the Company. III. Name of directors, supervisors and senior executives leaving posts in the report period and reason of leaving In the report period, directors, supervisors and senior executives of the Company remained unchanged respectively. IV. About employees Ended the report year, the Company had totally 705 on-the-job employees, of them, 509 production personnel, 21 salespersons, 78 technicians, 29 financial personnel and 68 administrative personnel; in the staffs, 47 persons with bachelor degree or above, taking by 6.7% of the total employees; 152 persons with 3-years regular college graduate, taking 8.9% of the total employees, 103 persons with polytechnic school graduate, taking 14.6% of the total employees. The Company needs to bear the expenses of 533 persons waiting for jobs and 601 retirees. SECTION VI. ADMINISTRATIVE STRUCTURE I. Administration of the Company Strictly according to the requirements in Company Law of the P.R.C., Securities Law, Rules on Administration of Listed Companies, Guidance Opinion on Establishing Independent Director System in Listed Companies and other relevant laws and regulations, the Company continuously improved the legal person administration structure of the Company, normalized the operation of the Company and enhanced the work of information disclosure; established a series of regulations and systems of normal operation, in the report period, there is no significant difference between the actual administration of the Company and the normative documents on administration of listed companies released by China Securities Regulatory Commission. II. Performance of independent directors In the report period, the three independent directors of the Company brought the respective specialty into full play strictly according to Articles of Association of the Company and Work System of Independent Director and the relevant regulations issued by CSRC, and performed their duties trustily, diligently and independently, attended the meeting of the Board of Directors and Shareholders’ General Meeting on time; expressed independent opinion for significant related transaction, nomination, appointment and removal of directors, and engagement and demission of senior executives based on the position of independent judgment, gave the initiative function into full play in respect of scientific decision-making and standardized operation of the Board of Directors, safeguarded the whole benefit of the Company and rights and interests of medium and small shareholders. (1) Particulars about independent directors attending the shareholders’ general meeting

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Name of independent

directors

This year times of attending the Board meeting

Presence in person (times)

Entrusted presence (times)

Absence (Times)

Note

Wang Hanmin 5 5 0 0

Jiang Jin 5 4 1 0

Jiang Lu 3 3 0 0

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, General Manager, Deputy General Manager, Chief Financial Supervisor and Chief Economist and Secretary of the Board of the Company drew the salary from the 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. SECTION VII. BRIEF INTRODUCTION OF THE SHAREHOLDERS’ GENERAL MEETING In the report period, the Company totally held one shareholders’ general meeting, the detailed is as follows: I. Notification, convening and holding of the Shareholders’ General Meeting The Board of Directors of the Company has published the public notification of holding the shareholders’ general meeting in Securities Times and Ta Kung Pao dated Apr. 2,

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2004, On May 18, 2004, the Company held Annual Shareholders’ General Meeting for 2003 in the meeting room on 8F of the Company, 6 shareholders and shareholders’ proxies attended the meeting, representing 128,556,309 shares, taking by 48.32% of the total shares. Among of them, the state-owned shareholders are 3 persons, representing 127,811,320 shares, taking by 99.42% of the present shares with voting right; domestic legal person shareholders are 2 persons, representing 260,000 shares, taking by 0.2% of the present shares with voting right; domestically listed foreign shareholder is 1 person, representing 484,989 shares, taking by 0.38% of the present shares with voting right. II. Particulars about the resolution approved by the shareholders’ general meeting Proposals examined and approved by the shareholder’s general meeting are following: (1) Proposal on resignation application of partial directors; (2) Proposal on resignation application of partial supervisors; (3) Proposal on amendment of Articles of Association; (4) Proposal on changing the utilization of raised capital; (5) Proposal on changing the CPA; (6) Proposal on provision for bad and doubtful debt and impairment loss; (7) 2003 Work Report of the Board of Directors; (8) 2003 Work Report of the Supervisory Committee; (9) 2003 Financial Settlement Report; (10) 2003 Profit Distribution Preplan; (11) 2003 Annual Report and Summary; (12) Proposal on resignation application of independent director; (13) Proposal on adding independent director; (14) Proposal on adjustment of the remuneration of independent director; (15) Proposal on engaging 2004 financial auditing institution; (16) Proposal on Enforcement Attitude on Remuneration of the Operator; The public notice on resolutions of the meeting was published Securities Times and Ta Kung Pao dated May 19, 2004. II. Election and change of directors and supervisors of the Company 1. In the report period, Mr. Jiang Lu was elected as independent director of the 2nd Board of Directors of the Company. 2. In the report period, as commended by the Employees Representatives Union of the Company, Mr. Li Ming and Mr. Chi Ming took the post of employee supervisor of the 2nd supervisory Committee of the Company. SECTION VIII. REPORT OF THE BOARD OF DIRECTORS I. Analysis on operating results and financial situation of the Company in the report period 2004 was the greatest year that the Company adjusted, reformed, and optimized assts and consummated legal person’s administration structure. 2004 was also the key year for the reorganization of the Company. At the beginning of the year, the Board of the Company firmly established objective of “make profits and prevent delisted”, uniting the management and all staff of the Company, overcame layer upon layer difficulties, and tried every method to maintain normal production and operation. In the report

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period, the Company made profits from losses, resolving delisted risks elementarily, and created significant precondition for reorganization of the Company. Firstly, the Company strengthened enterprise management, sent out every item of economic index, carries out every item of economic index level to level at the beginning of the year, down to the units, departments, and individuals, tamped the basis for realizing profit in the whole year; Secondly, the Company conducted organs reforming and reducing staff for greater efficiency. The headquarters of the Company increased efficiency while decreasing staff with the emphasis on post responsibility system in branch companies and subsidiaries, and reformed thoroughly the organs. The Company decreased 144 employees, with a decrease of 46% through setting organization, posts, staff and taking up jobs by way of competition; meanwhile, the Company changed financial supervisors of branch companies and subsidiaries in turn, which worked well; Thirdly, the Company strengthened adjustment of industry layout and structure. Through efforts of many parties, the Company returned Jinan Trade Branch to SGCFE and cancelled this company, while the Company subleased out “Taiping” Trawler of high costs and expenses, which decreased expenses and increased income; fourthly, through active efforts, the Company obtained interest subsidy of ocean project with the support of relevant departments. Because right methods and ways and right-handed leaders arose enthusiasm of the staff, in 2004, the fishing volume of the whole year was 42654.55 tons. The Company realized income from core business amounting to RMB 224.09 mil and costs from core business amounting to RMB 174.46 mil, the gross profit ratio 22.15%; At the aspect of industrial data: income from ocean fishing amounting to RMB 105.69 mil, costs from ocean fishing amounting to RMB 81.13 mil, and gross profit ratio 23.24%; income from refrigerated transportation vessels lease and management at sea amounting to RMB 34.84 mil, costs refrigerated transportation vessels lease and management at sea amounting to RMB 23.24 mil, and gross profit ratio 33.30%. The above two business contributed much to the gross profit. Gross profit ratio of other business including refrigeration and processing of aquatic products, aquatic products trade etc., were relatively low. Except that Qingdao Refrigeration Branch and headquarters of the Company (management department, undertaking financial expenses) suffered losses, other parts of the Company all made profits. In the report period, the Company realized net profit amounting to RMB 3.4 mil, made the objective of making profit from losses of the Company come true, and established basis for ensure preventing delisted from the market. II. Operation of the Company (I) Scope of main operations and their operations As a comprehensive enterprise in the oceanic fishery industry, the Company is principally engaged in the oceanic fishing; letting of trawlers and refrigerated transportation vessels; import and export, processing and cold storage of aquatic products, etc. 1. The income from main operations and profit from main operations is listed as follows classified according to industries and areas: 1. Structure of income from core business and profit from core business (Unit: RMB)

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(1) Classified according to businesses Businesses Income from main

operations Costs from main

operations Gross operating profit

Oceanic fishing 105,692,300 81,131,466 24,560,834

Aquatic products trade 31,889,894 26,081,429 5,808,465

Letting and management of refrigerated vessel

34,835,475 23,241,982 11,593,493

Processing, cold storage of aquatic products and others

51,671,524 44,001,635 7,669,889

Total 224,089,193 174,456,512 49,632,681

(2) Classified according to areas

Areas Income from main operations

Costs from main operations

Gross operating profit

Mainland of China 59,221,837 50,976,027 8,245,810

Taiwan of China 72,763,724 51,692,635 21,071,089

Nigeria 17,671,921 15,527,794 2,144,127

Japan 62,695,360 49,220,423 13,474,937

Argentina 271,377 232,985 38,392

Korea 8,274,490 5,057,888 3,216,602

America 3,190,484 1,748,760 1,441,724

Total 224,089,193 174,456,512 49,632,681

2. There was no any authoritative data of market share about the products produced and operated or service provided by the Company. Financial date of main products: Unit: RMB

Products Sales income Cost of sales Gross profit ratio (%)

Tunny 95,199,091 71,703,428 24.68

Chengdiao 12,857,785 10,719,538 16.63

Other fish goods 84,518,909 74,122,553 12.30

3. Changes in main operations in the report period over the last year In the report period, the Company transferred trade branch and the aquatic trading business decreased. (II) Operation and achievements of main holding subsidiaries and share-holding companies of the Company Unit: RMB

Name of companies Assets scale Registered

capital

Equity Investment

amount

Business quality and main

operations or products

Net profit

Shandong Zhonglu

Aquatic productss and

53,395,867 22,505,600 95% 21,380,320

International shipping,

transportation of frozen 60,585

19

Sea Transportation Co.,

Ltd.

aquatic products

Habitat International

Corporation 40,215,557

12,476,146

100% 12,476,146 Self-support cold-storage

transportation 6,543,512

Shandong Zhonglu

Oceanic Foods (Yantai)

Co., Ltd. 75,710,908 56,793,300 60.98% 32,280,000

Freezing, cold-storage,

processing and sales of

aquatic products, livestock,

fruit and vegetables

1,056,708

(III) Major suppliers and customers In the report period, the total amount of purchase from the top five suppliers was RMB 46,131,692, taking 59% of the total annual amount of purchase of the Company; the total amount of sales of the top five customers was RMB 137,167,491, taking 61% of the total annual amount of sales of the Company. (IV) Problems and difficulties from the operation and their solutions 1. The protection of ocean fishery resources got stricter. At present, due to exceeding development and usages of ocean fishery resources in recent years, world fishery association paid high attention, adopted series of scientific supervision, limited the work fishery district, and restricted the usage of work boats. Based on the above reasons, the production volume decreased and the income decreased. For this, the Company strengthened control in the frontline at sea, reinforced information exchange and technology content, lengthened the work time of fishing boat to increase production volume. 2. Quality of assets decreased. At present, old age, high purchasing costs and aging equipments of partial fishing boats of the Company resulted in low fishing capabilities. For this, the Company adjusted and optimized assets, disposed boats with old age and high purchasing costs, and decreased production scale while decreasing production costs. 3. Shortage of capital was severe. Affected by the arrearages of related party, the principal shareholder, banks adopted policies of “only collecting, no lending”. The capital chain of the Company intermitted, which impacted the normal production and operation of the Company. For this, the Company controlled capital comprehensively and finance capital from customers. The Company also accepted customers' materials for processing with respect to processing trade. Meanwhile, the Company carried out control index of three expense items, which ensured capital in need of normal production and operation. 4. Fuel price rose up. In 2004, fuel prices for vessels of the Company climbed up from USD 305 per ton to the highest USD 480 per ton, which resulted in increase of fishing costs. For this, the Company consistently promoted production efficiency, controlled fishery spot in a reasonable way, washed out vessels of high oil-consumption, decreased costs and improved benefits. (V) The Company didn’t publicly disclose profit estimation or operating plan of this

20

year. II. Investment (I) Application of raised proceeds In the report period, the Company didn’t raise proceeds to invest projects. In the report period, as approved by 2003 Shareholders’ General Meeting of the Company, the Board of the Company would supplement current funds with the remaining RMB 33.205 mil of ocean drugs and hygiene products project. Ended Dec. 31, 2004, the Company used up total raised proceed amounting to RMB 255,340,000 through B-share offering, taking 100% of the total raised proceeds. (II) Material project invested with the proceeds not raised from public offer in the report period In the report period, there was no material project invested with the proceeds not raised from public offer. III. Financial position of the Company 1. Financial indexes and data

Unit: RMB Items In 2004 In 2003 Increase/de

crease ratio

Reason for changes

Total assets

507,835,721 562,738,775 -9.76

Impairment losses for long-term equity

investment of CSSC withdrawn, bank loan

returned, and trade branch transferred

Shareholders’

equity 76,749,570 72,396,580 6.01

Make profits, transfer in accounts payabl

e not need to pay

Profit from main

operations 48,374,542 58,343,596 -17.09

Trade branch transferred, equity of Qingdao

Double Whale Pharmaceuticals sold

Net profit 3,398,218 -213,472,451 101.59

Decreasing costs, control expense, sold

fishing boats with high fixed costs

Net increase in cash

and cash

equivalents

5,189,317 -37,342,779 113.90 Decrease accounts receivables, cut down

costs and control expenses

2. Changes and influences of material accounting policies and accounting errors In the report period, there was no IV. Explanation on accountant’s presenting auditors’ report with emphasized events and without reservation opinion We agreed with accountant’s auditing opinion and explained the relevant situations as follows: 1. The problems on Reorganization implemented by the Company and capital occupied by the largest shareholder of the Company. In Dec. 2004, Shandong Group Corporation of Fishery Enterprises (hereinafter referred to as “SGCFE”) signed the Agreement of Shares Transfer of Shandong Zhonglu Oceanic Fisheries Co., Ltd. and the Supplementary Agreement of Shares Transfer of

21

Shandong Zhonglu Oceanic Fisheries Co., Ltd. with Shandong Luxin Investment Holding Co., Ltd. (hereinafter referred to as “Luxin Holding”), SGCFE transferred its 33.07% equity of the Company to Luxin Holding. At the same time, Luxin Holding and SGCFE issued together the Plan of Debt Refund and the Supplementary Explanation on Plan of Debt Refund: SGCFE repaid the partial debts to the Company with the funds received from auction after SGCFE auctioned its partial effective assets. After finishing the aforesaid debts paying duties, SGCFE still could not liquidate its debts and guarantee completely, but Luxin Holding could refund and liquidate in cash instead of SGCFE. From the date of purchasing finished, Luxin Holding amortized the relevant debts instead of SGCFE and its affiliated companies to the Company and ensured the amount of capital occupation occurred due to non-operating current of SGCFE and its affiliated companies and the actual amount of debts occurred due to the Company providing guarantee for SGCFE and its affiliated companies has decreased 30% at least in every fiscal year. At the same time, SGCFE promised to refund accounts receivable of RMB 10,006,511 of SGCFE and its affiliated companies received by the Company ended Sep. 30, 2004 completely before finishing assets reorganization by means of the Commitment Letter. The local government gave the greatly support for the implement of further promoting and quickening the aforesaid assets reorganization plan. 2. Financing by every possible means to ensure normal production and operating. The Company conducted financing through various ways, manner and every possible means in order to keep the normal production and operating with all its strength. The Company adopted the measures of the financial help each other and unified adjustment in capital use in order to ensure the normal running in every companies and every links and capital use of ocean work ship in urgent need materials and parts priority. The Company actively conducted financing from overseas clients by the channel of business current in order to keep the demand of current capital for the Company’s production and operating. The Company reduced the expenses through revenue-enhancing and expenditure control measures and promoting control measure of three-expense in order to ensure the normal running of production and operating and achieve profits. The Company strived for the discount capital to oceanic fisheries from the State finance and Province finance. 3. Strengthening internal management and enhancing profitability of the Company Aiming at the actual status of the Company, the Company will strengthen the internal management in 2005. The Company will adjust some vessels such as the long age of vessel, high costs and low benefit, and will continually advocate catching Liumu fish with purse net vessels. The Company will give the support to subsidiaries having higher profitability and enlarge their production capability, while the Company will reduce production and stop production to subsidiaries having bad operating and losses, and decrease amount of losses. At the same time, the Company will continually push the control measure of cost and three-expense in order to enhance the Company’s profitability. 4. Communicating with credit bank actively, receiving the support of the bank and defusing debts crisis.

22

In 2005, the Company will actively strengthen the communication with credit bank under the support of the local government, and refund the partial bank loan with funds repaid by the largest shareholder and obtain capital support from the bank through the guarantee of new largest shareholder to defuse the Company’s debts crisis and relieve the tension of capital shortage. We consider that the Company can obtain the necessary capital support after finishing material reorganization in 2005 and effectively defuse the Company’s risk of repaying debts. The aforesaid reform measures can ensure the Company to kept the normal operating activities in 2005 and sustaining operating capability of the Company through the achievement business operations in the future. V. Routine work of the Board of Directors (I) The Board meetings and resolutions in the report period In the report period, the Board of the Company totally held five meetings: 1. On Mar. 29, 2004, the Company held the 12th Meeting of the 2nd Board of Directors, which considered and passed: (1) Proposal on Withdrawing Bad Debts and Impairment Losses; (2) Work Repot 2003 of the Board; (3) Work Report of General Manager 2003; (4) Financial Settling Report 2003; (5) Profit Distribution Preplan 2003; (6) 2003 Annual Report and its Summary; (7) Proposal on Resignation Application of Independent Directors; (8) Proposal on Nominating Candidates for Independent Directors; (9) Proposal on Adjusting Allowance of Independent Directors; (10) Proposal on Engaging 2004 Financial Auditing Organizations; (11) Proposal on Implementation Opinions on Annual Salary System of Operators of the Company; (12) Proposal on Holding 2003 Annual Shareholders’ General Meeting. 2. On April 23, 2004, the Company held the 13th Meeting of the 2nd Board of Directors, which considered and passed 2004 1st Quarterly Report of the Company. 3. On Aug. 6, 2004, the Company held the 14th Meeting of the 2nd Board of Directors, which considered and passed: (1) 2004 Semi-annual Report and its Summary; (2) Proposal on Matters of Canceling Zhonglu Trade Branch; 4. On Oct. 27, 2004, the Company held the 15th Meeting of the 2nd Board of Directors by way of communication, which considered and passed 2004 3rd Quarterly Report of the Company. 5. On Dec. 22, 2004, the Company held the 16th Meeting of the 2nd Board of Directors, which considered and passed:

23

(1) Debts Repayment Plan of SGCFE and Shangdong Luxin Investment Holding Corporation; (2) Report of the Board to All Shareholders about Acquisition of Shangdong Luxin Investment Holding Corporation of the Company. (II) Implementation of the Board on resolutions of Shareholders’ General Meeting: In the report period, according to such relevant laws and regulations as Company Law of the P.R.C. and Securities Law of the P.R.C etc. and relevant provisions in the Articles of Association, the Board of the Company seriously implemented all resolutions passed in the Shareholders’ General Meeting strictly in compliance with the resolutions and authorizations of the Shareholders’ General Meeting. 1. Implementation on profit distribution for year 2003 In 2003, the Company did not distribute profits or convert capital reserve into share capital. 2. Implementation on authorizations of Shareholders’ General Meeting In 2004, according to resolutions of 2003 Annual Shareholders’ General Meeting and the authorization the Shareholders’ General Meeting on the Board, the Board of the Company accomplished the following matters: (1) Revised Articles of the Association and transacted procedures of changes in industrial and commercial registration; (2) Changed the usage of raised proceeds and supplemented current capital with partial raised proceeds not used; (3) Changed and reengage CPAs and determine auditing expenses pursuant to the authorization of Shareholders’ General Meeting; (4) Supplemented independent directors and adjusted allowance of independent directors; (5) Implemented annual salary system of operating level. VII. Preplan on profit distribution and converting reserve into share capital for 2004 Audited by Hubei Daxin CPAs Co., Ltd. and Horwath International Certified Public Accountants (Hubei, China) according to Chinese Accounting Standards and International Accounting Standards respectively, the net profit realized by the Company in 2004 was RMB 3,398,218 and the profit available for distribution for all shareholders in the year was RMB -414,338,939. Therefore, the Board of Directors decided neither to distribute profits nor convert capital reserve into share capital. The said preplan should still be submitted to Shareholders’ General Meeting 2004 for approval. VIII. Other matters need disclosed (I) The Company designated Securities Times and Ta Kung Pao as information disclosure newspaper. There was no change in the report period. (II) Daxin CPAs Co., Ltd. ‘s Special explanation of accountants on the capital occupied by the controlling shareholder and other related parties of the Company

DXHZ (2005) No. 069

24

To all shareholders of Shandong Zhonglu Oceanic Fisheries Company Limited: With commission, we have audited the accounting statements of Shandong Zhonglu Oceanic Fisheries Company Limited (hereinafter referred to as the Company) in 2004 and have conducted special audit on the capital occupied by the Company’s controlling shareholder and other related parties in the report period according to provisions in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by China Securities Regulatory Commission with ZJF [2003] No. 56 document. Now the particulars about capital occupied by the Company’s controlling shareholder and other related parties in the report period is as follows: 1. Names of capital occupiers and their relationships with the Company’s related parties

Names of companies Relationships with the Company

Reasons and ways of capital occupation


Parent Company of the Company

Other receivables and accounts receivable

Shandong Longkou Fishery Comprehensive Company

Controlled by the Parent Company

Other receivables

Qingdao Oceanic Fishery Company



SGCFE S.A. Controlled by the Parent Company

Other receivables

Shandong Haitian Fishery Business Company Limited


Other receivables

Shandong Shanhai Fishery Trade Center


Other receivables

Qingdao Anning Shipping Engineering Co., Ltd.


Other receivables

Qingdao Lubao Fishery Foods Co., Ltd.


Other receivables

Qingdao Fishery Aquatic Foods Processing Plant



Qingdao Meilai Foods Co., Ltd.


Other receivables

Qingdao Haiyu Fishery Co., Ltd.


Other receivables

Prodesur S.A. Controlled by the Parent Company


Longkou Tenglong Aquatic Foods Co., Ltd.


Other receivables

Qingdao Animal Pharmaceutical Co., Ltd.


Other receivables

25

Qingyu Haifeng Shipping Company



2. Capital occupied by the controlling shareholder and other related parties in the report period: (1) Accounts receivable

Amount of capital occupation (RMB) Accumulative amount of capital

occupation (RMB)

Names of companies

Beginning-balance at the

period

Ending-balance at

the period

Total debit Total credit

1. Shandong Group

Corporation of Fishery

Enterprises 1,659

- 1,359

2. Qingdao Oceanic Fishery

Company 202,190 281,432

220,328

(Note 1)

141,086

(Note 1)

3. Qingdao Fishery Aquatic

Products Processing Plant 96,382 96,382

4. Prodesur S.A.

2,351,995 5,617,710

3,302,891

(Note 2)

37,176

(Note 2)

5.Qingyu Haifeng Shipping

Company 293,512 474,054

464,185

(Note 3)

283,643

(Note 3)

Total 2,945,738 6,469,878 3,987,404 463,264

Note: 1. In this period the debit item of accounts receivable for Qingdao Oceanic Fishery Company (subsidiary of SGCFE, hereinafter referred to as “Qingyu”) increased RMB 220,328, mainly including loading and unloading expenses and refrigeration expenses receivable of refrigeration branch of the Company; credit item increased RMB 141,086, mainly including loading and unloading expenses and refrigeration expenses paid by Qingyu. 2. In this period the debit item of accounts receivable for Prodesur S.A. (subsidiary of SGCFE) increased RMB 3,302.891. According to entrusted operation agreement signed by the Company and Prodesur S.A., the Company entrusted Prodesur S.A. t o operate its held vessel (Taian Trawler) and received (or undertook) operating lease income (or losses) based on 70% of the operating profit (or losses) of the vessel. The agreement took effect on Jan. 1, 1999 and the duration was ten years. This period, the Company confirmed operating leasing income amounting to RMB 3,302,891. The credit item of accounts payable for Prodesur S.A. (subsidiary of SGCFE) increased RMB 37,176, mainly including leasing amount remitted by Prodesur S.A.. 3. In this period, the debit item of accounts receivable for Qingyu Haifeng Shipping Company (subsidiary of Qingyu, hereinafter referred to as “Qingyu Haifeng”) increased RMB 464,185, mainly including power expenses, loading and unloading expenses, and

26

refrigeration expenses receivable of refrigeration branch of the Company; credit item increased RMB 283,643, mainly including loading and unloading expenses and refrigeration expenses paid by Qingyu Haifeng. (2) Other receivables

Amount of capital occupation (RMB) Accumulative amount of capital occupation

(RMB)

Names of companies

Beginning-balance at the

period

Ending-balance at

the period

Total debit Total credit

1. Shandong Group

Corporation of Fishery

Enterprises 217,753,069 165,992,159

3,176,124

(Note 1)

54,937,034

(Note 2)

2. Shandong Longkou Fishery

Comprehensive Company 6,383,036 10,745,714

4,362,678

(Note 3)

3.Qingdao Oceanic Fishery

Company 53,008,961 53,632,548

680,798

(Note 4) 57,211

4.SGCFE S.A. 22,362,506 22,362,506

5.Shandong Shanhai Fishery

Trade Center 4,863,914

4,863,914

(Note 5)

6.Qingdao Anning Shipping

Engineering Co., Ltd. 1,666,241 1,666,241

665,139

(Note 6) 665,139

7.Qingdao Fishery Aquatic

Foods Processing Plant 7,761,350 7,761,350 - -

8.Qingdao Meilai Foods Co.,

Ltd. 3,169,882 3,784,092

1,285,313

(Note 7)

671,103

(Note 7)

9. Qingdao Haiyu Fishery Co.,

Ltd. 8,037,559 8,037,156 1,351 1,754

10.Prodesur S.A.

886,794 5,818,023

17,880,333

(Note 8)

12,949,104

(Note 8)

11.Longkou Tenglong Aquatic

Foods Co., Ltd. 14,057,790 14,057,790 - -

12.Qingdao Animal

Pharmaceutical Co., Ltd. 345,544 345,544 - -

13.Qingyu Haifeng Shipping

Company 500,427 500,427 - -

14.Qingdao Lubao Fishery

Foods Co., Ltd. 402,799 402,799 - -

Total 341,199,872 295,106,349 28,051,736 74,145,259

Notes: 1. In this period, the debit amount for Shangdong Group Corporation of Fishery

27

Enterprises (hereinafter referred to as “SGCFE’) was amounting to RMB 3,176,124, mainly including payment in advance and borrowing interests of the Company and subsidiary, Shangdong Zhonglu Aquatic Ocean Shipping Co., Ltd. for SGCFE. 2. In this period, the credit amount for SGCFE was RMB 54,93,034, mainly including; (1) In this period, the Company transferred assets and liabilities of its trade branch of Shangdong Zhonglu Oceanic Fisheries Company Limited (hereinafter referred to as “trade branch”) as audited ended May 31, 2004 in way of zero net assets to SGCFE Sea Breeding Company, and cancelled out trade, correspondingly transfer out other receivables for SGCFE amounting to RMB 38,548,140; (2) SGCFE and Longkou Fishery Comprehensive Company (subsidiary entity of SGCFE) signed debts and credits disposal agreement on Dec. 31, 2004. Longkou Fishery Comprehensive Company agreed to undertake arrearages of SGCFE owed to the Company with payables to SGCFE amounting to RMB 4,362,678. The Company correspondingly transferred out other receivables amounting to RMB 4,362,678 from SGCFE. 3. In this period, debit amount for Longkou Fishery Comprehensive Company was amounting to RMB 4,362,678 that Longkou Fishery Comprehensive Company undertook arrearages of SGCFE owed to the Company. (See the detailes in Note 1 (2)). 4. In this period, debit amount for Qingdao Oceanic Fishery Company was amounting to RMB 680,798, mainly because the Company didn’t peel off assets and reform well when listing on the market, Qingdao Regrigeration branch, owned by the Company, paid salaries, social planning and public reserve for refrigeration branch of Qingdao Oceanic Fishery Company in this period. 5. In this period, the credit amount for Shandong Shanhai Fishery Trade Center (subsidiary of SGCFE, hereinafter referred to as “Shanhai”), mainly because the Company transferred assets and liabilities of its trade branch of Shangdong Zhonglu Oceanic Fisheries Company Limited (hereinafter referred to as “trade branch”) as audited ended May 31, 2004 in way of zero net assets to SGCFE Sea Breeding Company, and cancelled out trade, correspondingly transfer out other receivables for Shanhai amounting to RMB 4,863,914; 6. In this period, of other receivables, debit item for Qingdao Anning Shipping Engineering Co., Ltd. (hereinafter referred to as “Anning”) increased RMB 665,139, mainly the subsidiary of the Company, Shandong Zhonglu Aquatics Shipping Company paid salaries and public reserve for Anning; the credit item increased RMB 665,139, mainly including arrearages paid back by Anning through proving vessel maintenance service for the Company. 7. In this period, of other receivables, debit item for Qingdao Meilai food Co., Ltd. (controlled by SGCFE, hereinafter referred to as “Meilai”) increased RMB 1,285,313, mainly because the Company didn’t peel off assets and reform well when listing on the market, refrigeration branch of the Company paid salary in advance for Meilai; credit item increased RMB 671,103, mainly arrearages returned to refrigeration branch from Meilai. 8. In this period, of other receivables, debit item for Prodesur S.A. increased RMB

28

17,880,333, mainly because according to the entrusted operation agreement sign by the Company and Prodesur S.A., the Company provided oil and fixing expenses for “Taian” trawler amounting to RMB 17,880,333; the credit item increased RMb 12,949,104, mainly fishes sales from “Taian” Trawler amounting to RMB 12,949,104. After auditing, we have found that the Company had capital occupied by the controlling shareholder and other related parties stated in Paragraph 2 of Item 1 in Circular and paid such period expenses as wages, welfare and insurance etc. and costs and other expenditures for the controlling shareholder and other related parties in 2004. Daxin CPAs Co., Ltd. Chinese CPA: Hu Yonghua Wuhan · China Chinese CPA: Li Fei

Apr. 13, 2005 (III) Special explanations and independent opinions of independent directors on the Company’s accumulative and current external guarantees According to the spirit in Circular on Standardizing Listed Companies’ Capital Current with Related Parties, External Guarantees and Other Several Problems released by ZJF (2003) No. 56 document, based on independent judgment, the independent directors of the Company have seriously inspected the Company’s external guarantees with relevant situations explained and independent opinions expressed as follows: In 2004, the Company would strictly accord with relevant regulations of the Articles of the Association and External Guarantee Management System of the Company, standardized external guarantee of the Company, and seriously controlled external guarantee risks. In the current period, there was no newly increased guarantee provided for controlling shareholder, related parties, of which the Company held shares less than 50%, any non legal-person entity or individuals. We notices, ended Dec. 31, 2004, the Company still held two external guarantee, namely that subsidiary of the Company provided guarantee for long-term borrowing of Qingdao Haiyu Fishery Co., Ltd. amounting to RMB 21.51 million, and the Company provided guarantee for loan amounting to RMB 50 mil of Qingdao Double Whale Pharmaceuticals Co., Ltd.. Through full understanding, guarantee provided for Qingdao Haiyu Fishery Co., Ltd. happened before the Company reorganized and reformed to list on the market. The Company did a lot to resolve the guarantee and recorded loan amounting to RMB 21.51 mil into the account of projected liabilities. Qingdao Double Whale Pharmaceuticals Co., Ltd. was controlling subsidiary of the Company. The guarantee for this company took place in Feb. 2002. In Aug., 2003, the Company transferred this company to Zhongchanjing Investment Co., Ltd.. According to equity transfer agreement signed by both parties, they agreed to remove guarantee responsibilities each other. At present, relevant matters were in progress. Therefore, we believed the Company didn’t break the above rules. We have urged the Company transact relevant matters about guarantee as soon as possible, and we would pay attention to the matters as always.

29

In addition, the Company provided guarantee for loan amounting to RMB 18.5 million of subsidiary Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd.. The guarantee belonged to internal guarantee of the Company, which didn’t violate Articles of the Association and CSRC No. 56 document.

Independent Directors: Wang Hanmin, Jiang Jin, Jiang Lu Apr. 13, 2005

Section IX. Report of the Supervisory Committee

I Meetings by the Supervisory Committee in the report period In the report period, the Supervisory Committee of the Company held totally two meetings: 1. On Mar. 29, 2004, the Company held the 9th meeting of the 2nd Supervisory Committee. The topics of the meeting were as follows: (1) Election of Mr. Li Ming Chairman as the Supervisory Committee (2) Proposal on the withdrawal of bad debt reserve and assets depreciation reserve (3) Financial Final Report 2003 (4) Profit Distribution Preplan 2003 (5)Work Report of the Supervisory Committee 2003 (6)Text of the Annual Report 2003 and Summary (7)Proposal on the engagement of financial auditing institutions for 2004 2. On Aug. 6, 2004, the Company held the 9th meeting of the 2nd Supervisory Committee. The topic of the meeting was the examination and deliberation about the text of Semi-Annual Report 2004 and Summary. II The Supervisory Committee had expressed independent opinions on the following issues. 1. The Company’s operation according to law In the report period, the Supervisory Committee supervised the holding procedures, resolutions of the Board of Directors of the Company, as well as the Board’s implementation of the resolutions made by the Shareholders’ General Meeting, and believed that the Board of the Company had normally operated strictly according to the Company Law, Securities Law, Stock Listing Rules of Shenzhen Stock Exchange, Administrative Rules of Listed Company and Articles of Association, as well as other relevant laws and regulations, and that the Company had also further perfected the inner control system, and carefully carried out resolutions of the Shareholders’ General Meeting. The decision-making procedure of the Board was legal. In the harsh production and operation environment of the Company, the Company had withstood pressure, overcome difficulties, strived to maintain the normal performance of the production and operation of the Company, and realized the operation objects set at the beginning of the year. Directors, supervisors and other senior administrative personnel of the Company had been able to stay clean, honest and diligent, and maintain self-discipline when performing their duties. No deeds that were against laws,

30

regulations, or systems, or had done harm to the interests of the Company, had ever been discovered. 2. Inspection of the financial status of the Company After the inspection of the accounting statements, auditors’ reports and other accounting materials, the Supervisory Committee held that the financial accounts of the Company had been clear, and accounting calculation and financial management had conformed to relevant regulations. Moreover, the Company had paid attention to the financial work, improved consistently the quality of the financial personnel and consummated the financial management and control systems. Daxin Certified Public Accountants Co., Ltd. had audited the Financial Report 2004 of the Company and furnished Auditors’ Report with emphasized matters but no qualified opinions. The Supervisory Committee believed that the Auditors’ Report had truly reflected the financial status and operation achievements of the Company in 2004. To the Auditors’ Report with unqualified opinion and emphasized matters furnished by CPAs from the cautious point of view, the Supervisory Committee had no objections. The Supervisory Committee would actively cooperate with as well as supervise the Board in taking effective measures to deal with the emphasized matters, so as to dissolve the operation risks as quick as possible. 3. The use of raised proceeds of the Company In the report period, the Company had not changed the investment direction of the raised proceeds. 4. Related transactions In the report period, the related transactions the Company had involved in were mainly normal purchases and sales of goods, advance money for another and the continuance of former management on a commission basis. We believed that the above-mentioned transactions had abided by the principle of being fair and square, and no deeds that would do harm to the interests of the Company had ever been discovered. However, the historically left problems of huge amounts of capital of the Listed Company occupied by large shareholders had still not been finally resolved. 5. Purchases and sales of assets As to the sales of assets of the Company occurred in the report period, it was believed that the resolutions had been reasonable and the transactions fair. No insider dealings had ever been discovered; no harm had ever been done to the shareholders’ rights or interests; no loss had occurred to the assets. 6. The Board of the Company had made special explanations on the issues mentioned in the auditors’ opinions furnished by CPAs, and had also drawn up corresponding solutions. We agreed with the explanations of the Board, and would supervise and urge the Board to actively implement relevant measures, so as to safeguard the interests of the Company and all shareholders to the largest extent possible.

Section X Significant Events

I. Significant lawsuits and arbitrations 1. As to the No.G20030234 Vessel Business Dispute stated in the previous report period

31

of the Company, its process in the report period was as follows: According to (2004) China MZJCZI No. 1028 Adjudication Order issued by China International Economic and Trade Arbitration Commission, the Company should pay the Japanese party USD 450 thousand in two times, and in the report period, the Company had already paid the Japanese party the initial payment amounting to USD 250 thousand. By the disclosure day of this report, the above-mentioned payment had all been squared. This lawsuit bore great influence on neither the profit of the period, nor profit after the period. 2. As to the USD 500 Thousand Loan Contract Dispute of Qingdao Branch, which had been stated in the previous report period, its process in this report period was as follows: On Jan. 18, 2004, Qingdao Intermediate People’s Court of Shangdong Province ruled according to (2003) QMSCZI No. 378 Civil Judgment: Qingdao Fishing Branch of the Company repay the plaintiff Pingcheng Trading Co., Ltd. the loan amounting to USD 500 thousand; Qingdao Fishing Branch of the Company pay the overdue interests (calculated from Mar. 25, 2001 to the day demanded by the plaintiff, that is Sep. 24, 2003, according to the USD overdue loan interest rate of the same period set by the People’s Bank of China) arising in the deterred period to Pingcheng Trading Co., Ltd.;

The Company shoulder joint-payment responsibility for the aforesaid two articles; The application of prosecution against Shandong Fishery Group by the plaintiff

Pingcheng Trading Co., Ltd. be turned down; The application of prosecution against the Company by Pingcheng Trading Co., Ltd. be turned down. Of the litigation fee amounting to RMB 36.1 thousand, RMB 1,729 be paid by the plaintiff, while the remaining RMB 34,371 be paid by the defendant Fishing Branch. Qingdao Fishing Branch of the Company did not think the aforesaid judgment fair, and appealed to High People’s Court of Shandong Province (Provincial High Court). After accepting the case, Provincial High Court formed collegial panel, and publicly heard the case. The inquisition had finished at present. On Dec. 16, 2004, Provincial High Court ruled according to (2004) QMSCZI No. 41 Civil Judgment: 1. Item 1, 3, 4 and 5 in (2003) QMSCZI No. 378 Civil Judgment issued by Qingdao Intermediate People’s Court of Shandong Province be preserved; 2. Item 2 in (2003) QMSCZI No. 378 Civil Judgment issued by Qingdao Intermediate People’s Court of Shandong Province be cancelled; 3. The Fishing Branch pay the loan interest amounting to USD 100 thousand to Pingcheng Trading within ten days from the day when the judgment takes effect. The litigation fee for the second instance amounted to RMB 36.1 thousand, and was paid by the Fishing Branch. By the disclosure day of this report, the Company had repaid USD 300 thousand to Pingcheng Trading Co., Ltd.. This lawsuit bore significant influence on neither the profit of the period, nor the profit after the period. 3. In the report period, due to the loan contract dispute between the Company and Jinan Branch of Bank of China, the bank deposit of the Company amounting to RMB 20 million would be frozen, or property with equivalent value would be sealed up and distrained according to (2004) JMSCZI No. 171 Civil Order issued by Jinan Intermediate People’s Court.

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4. In the report period, due to the loan contract dispute between the Company and Jinan Branch of Bank of China, the bank deposits amounting to RMB 50 million of the Company and Shandong Airlines Co., Ltd. would be frozen, or property with equivalent value would be sealed up and distrained according to (2004) JMSCZI No. 172 Civil Order issued by Jinan Intermediate People’s Court. 5. In the report period, due to the loan contract dispute between the Company and Jinan Pearl Spring Subbranch of China Construction Bank (Construction Bank) and according to (2004) JMSCZI No. 175 Civil Judgment issued by Jinan Intermediate People’s Court on Jan. 10, 2005, the Company should pay up the loan principal amounting to RMB 28 million and the interest RMB 539,069.24 to Construction Bank within 10 days from the day when the judgment takes effect. The litigation fee of the case totaling RMB 152,855 and the cost of property preservation amounting to RMB 143,215 should be paid jointly by the Company and Shandong Fishery Group. 6. In the report period, due to the loan contract dispute between the Company and Jinan Branch of Bank of China, the bank deposits amounting to RMB 30 million of the Company and Shandong Aquatic Products and Sea Transportation Co., Ltd. would be frozen, or property with equivalent value would be sealed up and distrained according to (2004) JMSCZI No. 178 Civil Order issued by Jinan Intermediate People’s Court. 7. In the report period, due to the loan contract dispute between the Company and Qingdao Zhongshan Road Subbranch of China Construction Bank and according to (2004) NMCZI No. 21272 Civil Judgment issued by Shinanqu People’s Court of Qingdao City, Qingdao Refrigeration Branch of the Company should repay the loan principal of RMB 3.6 million and the interest, arising before Nov. 21, 2004, of RMB 46,494, to the plaintiff Qingdao Zhongshan Road Subbranch of China Construction Bank within 10 days from the day when the judgment takes effect. The Company and Qingdao Double Whale Pharmaceutical Co., Ltd. should shoulder joint payment. The litigation fee of the case totaling RMB 28.01 thousand and the cost of property preservation amounting to RMB 19.02 should be paid by Qingdao Refrigeration Branch of the Company. 8. In the report period, due to the loan contract dispute between the Jinan Trading Branch of the Company (This branch had been cancelled according to a resolution made by the Board of the Company.) and Jinan Branch of Bank of China, and according to (2004) JMSCZI No. 87 Civil Judgment issued by Jinan Intermediate People’s Court, the Company should repay the loan principal of RMB 4 million, the interest of RMB 182,613.42 and a economic loss compensation amounting to RMB 20 thousand to the plaintiff Jinan Branch of Bank of China within 10 days from the day when the judgment takes effect. The aforesaid lawsuits had all exerted significant influence on the profit of the period and the profit after the period. II. Briefs on the purchases and sales of assets, takeovers and mergers in the report period, as well as their influence on the Company 1. As to the issue of transferring 17.31% equity of Shandong Zhonglu Oceanic Fisheries

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(Yantai) Company Limited held by Shandong Fishery Group to the Company, which had been stated in the former report period, since the assigner Shandong Fishery Group had not been able to get approval from state-owned assets administration sections, this equity transfer had not been carried out by the end of the report period. In the report period, the Company had approved Shandong Fishery Group to auction off the aforesaid equity and repay the Company’s capital occupied by it with the funds gained from the auction. Once this issue finished, the related debts owed to the Company by large shareholders would be reduced, which would do good to the interests of all the shareholders and the Company. 2. As to the issue of selling 2 refrigeration dory trawlers, which had been disclosed by the Company in former report period, USD 0.8 million ship funds had been recovered. By the end of this report period, the remaining USD 0.8 million ship funds still had not been recovered yet. 3. In the report period, according to a Equity Transfer Agreement, the holding shareholder of the Company Shandong Fishery Group would transfer 125,731,320 shares of state-owned legal person share of the Company to Luxin Holdings. Right now, this equity transfer issue is still under the examination and approval relevant sections, such as CSRC, State-owned Assets Supervision and Administration Commission, etc. Once this equity transfer issue completed, Luxin Holdings would become the holding shareholder of the Company, which would facilitate the Company in gradually solving the long-term debts owed by large shareholders, strengthening the profit-making capability and upgrading the continuous operation ability of the Company through the capital operation and information resource advantage of Luxin Holdings. 4. In the report period, according to the Vessel Business Agreement signed by the Company (Party A) and Zhoushan Dongyi Shipping Co., Ltd. (Party B), the Company would sell its ultra-low temperature tuna long-line fishing ship “TAIYIN” to Party B. The selling price was RMB 290 thousand and this sum had already been put on the account of the Company. The book value of the ship was RMB 230 thousand, and the net profit or loss from the selling of the ship was RMB –70 thousand. 5. In the report period, according to the Vessel Business Agreement signed by the Company (Party A) and Zhoushan Dongyi Shipping Co., Ltd. (Party B), the Company would sell its ultra-low temperature tuna long-line fishing ship “TAIYIN” to Party B. The selling price was RMB 1.42 million and this sum had already been put on the account of the Company. The book value of the ship was RMB 1.01 million, and the net profit or loss from the selling of the ship was RMB 150 thousand. III. Important related transactions In the report period, there had been no important related transactions. As to the particulars of related transactions, please refer to Item 5 of Accompanying Notes VII in the Accounting Statement of the Financial Report. IV. Important contracts and implementation 1. Entrustment, contracting and leasing

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In the report period, according to a Vessel Lease Contract, the Company would lease “Taiping” dredging vessel to Rongcheng Rongyuan Fishery Co., Ltd. in two periods, with each period lasting 2 years. The rent for each period was RMB 2.16 million and was paid in 4 times within 2 years, that is to say, RMB 1.08 million for each year. This contract took effect on Apr. 16, 2004, and had been implemented. The Company had no entrustment or contracting this year. 2. Guarantees In 2004, the Company provided no guarantees. By Dec. 31, 2004, the Company had the following guarantees: (1) Before the reform and change of system, the subsidiary of the Company had provided guarantee for a long-term loan amounting to RMB 21.5 million obtained by Qingdao Haiyu Co., Ltd. (a subsidiary of Shandong Fishery Group). By Dec. 31, 2004, this guarantee had still not been relieved yet; since Qingdao Haiyu Co., Ltd. had been insolvent, it was quite likely that the Company would have to shoulder joint payment responsibility. (2) The Company had provided guarantee for the long-term loan amounting to RMB 50 million obtained by the former subsidiary Qingdao Double Whale Pharmaceutical Co., Ltd.. By Dec. 31, 2004, this guarantee contract had not been fully performed (Note: When this company was being transferred, the Company and the assignee Zhong Chan Jing Investment Co., Ltd. had agreed to relieve each other’s guarantees. Right now, relevant issues are being dealed with.). (3) The Company had provided guarantee for the long-term loan amounting to RMB 18.5 million obtained by the subsidiary Shandong Zhonglu Oceanic Fisheries (Yantai) Company Limited. By Dec. 31, 2004, this guarantee contract had not been fully performed. 3.Entrustment of assets management In this period, the Company had not entrusted others with cash assets management. V. Commitments In the report period, the holding shareholder of the Company Shandong Fishery Group promised: the receivables amounting to RMB 10,006,511 of the Company from Shandong Fishery Group and its affiliated enterprises would be paid back before Mar. 31, 2005. By the disclosure day of this report, this commitment had still not been performed. VI. Engagement and disengagement of Certified Public Accountants In the report period, the Company engaged Daxin Certified Public Accountants Co., Ltd. and Horwath International CPA Limited (Hubei, China) as the domestic and overseas financial auditing institutions of the Company in 2004 respectively. This was the second time that these two auditing institutions had provided auditing services to the Company. VII. Briefs on the public criticisms from CSRC and Stock Exchange On Apr. 23, 2004, the Company received ZJFZI [2004] No. 10 Written Decision of

35

Administrative Penalty issued by CSRC, and was fined RMB 400 thousand; relevant persons responsible had been warned or fined ranging from RMB 50 thousand to RMB 30 thousand. The Company had already published notification of significant events on May 11, 2004 on Securities Times and Ta Kung Pao concerning this issue.

Section XI. Financial Report

To the shareholders of Shandong Zhonglu Oceanic Fisheries Co., Ltd., We were engaged to audit the accompanying consolidated balance sheet of Shandong Zhonglu Oceanic Fisheries Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) as of 31 December 2004 and the related consolidated income statement, statement of changes in shareholders’ equity and cash flow statement for the year then ended, prepared in accordance with International Financial Reporting Standards. These consolidated financial statements are the responsibility of the Company’s management. We conducted our audits of these statements in accordance with auditing standards generally accepted in China, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2004, the result of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards promulgated by the International Accounting Standards Board. We would mention the investors who may use these consolidated financial statements to notice that the consolidated financial statements are prepared on the basis of going concern assumption. As set forth in the section II, “GOING CONCERN ASSUMPTION”, at the end of 2004, the accumulated deficit was RMB 413,339 thousand. On Dec. 31, 2004, the Group’s current liabilities exceeded its current assets RMB 171,053 thousand. In addition, the holding shareholders and related parties keep occupying the company’s capital for long time, and the amount was RMB 301,576 thousand. By Dec. 31, 2004, the company’s overdue bank loans had been amounting to RMB 207,148 thousand, and part of the fixed assets have been mortgaged. Although the group has disclosed intended improvement measures in the section “GOING CONCERN ASSUMPTION”, it still exist uncertainty for the Group’s ability to continue as a going concern. However, this section does not influence the audit opinion stated above.

HORWATH CHINA (HUBEI) Certified Public Accountants

April , 2005

36

CONSOLIDATED BALANCE SHEET FOR THE YEAR ENDED 31 DECEMBER 2004

(All amounts in RMB thousands)

Note 2004 2003

ASSETS

Non-current assets

Leasehold lands 8 9,079 9,315

Property, plant and equipment 9 277,133 303,181

Intangible assets 10 93 73

Long-term investments 11 3,300 23,207

289,605 335,776

Current assets

Inventories, net 12 43,613 75,060

Due from related parties, net 23(c) 83,459 76,869

Prepayments and other current assets 4,858 3,242

Other receivables, net 13 34,922 34,896

Trade receivables, net 14 29,369 20,065

Trading investments 15 45 56

Restricted bank deposits 22(b)

Cash and cash equivalents 22(b) 21,977 16,788

218,243 226,976

Total Assets 507,848 562,752

EQUITY AND LIABILITIES

Shareholders’ equity

Share capital 19 266,071 266,071

Reserves 20 (189,321) (193,673)

76,750 72,398

Minority interests 21 16,983 16,568

LIABILITIES

Non-current liabilities

Long-term bank borrowings, non-current portion 18 24,830 37,245

Long-term payables

24,830 37,245

Current liabilities

Current portion of long-term bank borrowings 18 23,794 12,415

Taxes payable 2,092 9,693

Due to related parties 23(c) 1,155 1,155

Other payables and accruals 16 96,813 83,560

Dividends payable 7 459 459

Advances from customers 305 5,323

Trade payables 24,498 25,176

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Short-term borrowings 17 240,169 298,760

389,285 436,541

Total liabilities 414,115 473,786

Total Equity and Liabilities 507,848 562,752

Approved by the Board of Directors on 13 April 2005

Liu Chang Suo Zhang Jin Qing

Director & General Manager Director & Finance Controller

The accompanying notes are an integral part of the financial statements.

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CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004

(All amounts in RMB thousands, except for (losses) earnings per share)

Note 2004 2003

Sales, net 2 222,831 317,230

Cost of sales 174,456 258,887

Gross profit 48,375 58,343

Other operating income 1,255 1,244

Distribution costs 10,277 29,269

Administrative expenses 23(c) 23,464 216,952

Other operating expenses 364 10,044

(Loss) profit from operations 15,525 (196,678)

Finance cost, net 3 11,424 17,075

Investment income from trading and long-term investments

4 6

Gain on disposal of investment in a subsidiary 0 1,350

Subsidy income 0 0

(Loss) profit before tax and minority interests 4 4,105 (212,397)

Income tax expense 5 292 1,654

(Loss) profit before minority interests 3,813 (214,051)

Minority interests 21 (415) 4,653

Net (loss) profit 3,398 (209,398)

(Losses) earnings per share

- Basic 6 RMB0.01 RMB(0.79)

- Diluted


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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 31 DECEMBER 2004


(All amounts in RMB thousands)

Reserves

Share capital Translation

reserve Capital reserve

Statutory surplus reserve

Statutory public welfare reserve

Unappro-priated profits

(accumulated losses)

Total reserves

Total shareholders’

equity

(Note19) Note(20(a)) Note(20(b)) Note(20(b))

Balance as of 1 January 2004

- As previously reported 266,071.00 59.00 201,162.00 14,542.00 7,271.00 -416,707.00 -193,673.00 72,398.00

- As reported 266,071.00 59.00 201,162.00 14,542.00 7,271.00 -416,707.00 -193,673.00 72,398.00

Currency translation difference

Net profit for 2004 3,398.00 3,398.00 3,398.00

Pricing difference associated with related party transactions

Profit appropriations

- Appropriations to reserves by subsidiaries 954.00 6.00 3.00 -9.00 954.00 954.00

- Dividends (Note 7)

Balance as of 31 December 2004 266,071.00 59.00 202,116.00 14,548.00 7,274.00 -413,318.00 -189,321.00 76,750.00

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41

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2004 (All amounts in RMB thousands)

Note 2004 2003

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations 22(a) 47,977 (19,047)

Income taxes paid (8,198) (1,291)

Interest expenses paid (10,810) (18,345)

Net cash generated from operating activities 28,969 (38,683)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment (1,941) (37,447)

Purchase of intangible assets (48) (65)

Cash paid for trading investments (6) (4)

Proceeds from disposal of subsidiary, net of cash disposed (839) (1,364)

Proceeds from investment income of trading investments

Proceeds from investment income of long-term investments 4 1

Proceeds from disposal of trading investments 1 7

Proceeds from disposal of property, plant and equipment 2,302 18,050

Interest income received 668 1,479

Net cash used in investing activities 141 (19,343)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid 50

Net (decrease) increase in borrowings (23,724) 22,514

Proceeds from capital injection of minority shareholder

Proceeds from acquisition of a subsidiary

others (1,900)

Net cash generated from financing activities (23,724) 20,664

Currency translation difference (197) 20

Net decrease in cash and cash equivalents 5,189 (37,342)

Cash and cash equivalents, beginning of year 16,788 54,131

Cash and cash equivalents, end of year 22(b) 21,977 16,789


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I. GENERAL INFORMATION Shandong Zhonglu Oceanic Fisheries Co., Ltd. (the “Company”) was incorporated as a joint stock limited company in the People’s Republic of China (the “PRC”) on 30 July 1999, subsequent to a corporate reorganization on Shandong Group Corporation of Fisheries Enterprise (“SGCFE”, the holding company of the Company) (the “Reorganization”) to rationalized the Company’s structure in preparation for the listing of domestically listed foreign investment shares (the “B shares”). The B shares have been listed on the Shenzhen Stock Exchange since July 2000. The Company is principally engaged in fishing, processing and trading of seafood. These activities are carried out by the following departments, branches and subsidiaries of the Company: Name of Departments Principal Activities Trading Department Trading of frozen seafood Western Africa Development Department Letting of trawlers Southern America Development Department Letting of trawlers Name of Branches Principal Activities Qingdao Fishing Branch Oceanic fishing Qingdao Branch Oceanic fishing Longkou Branch Processing of seafood Qingdao Refrigerating Branch Processing and trading of frozen seafood

On 18 June 2001, the Company and SGCFE incorporated Yantai Food, an equity joint

venture enterprise, by means of capital contributions of cash and leasehold land respectively. The Company holds 76.65% of equity interest in Yantai Food. On 17 September 2001, the Company, SGCFE and Australian Shanshui Trading Co., Ltd. (“Shanshui Trading”), a subsidiary of SGCFE, reached into an agreement to accept Shanshui Trading’s equity investment of USD 1,780,000 into Yantai Food. Consequently, the registered capital of Yantai Food increased to RMB 56,793,300, in which the Company holds 56.84% of equity interest. As of 31 December 2004, Shanshui Trading has not completed its capital contribution.

Name of subsidiaries

Place of incorporation/ Date

of registration

Principal activities

Cost of investment

Percentage of equity

interest actually held

Shandong Zhonglu Oceanic

Fisheries Transportation Co.,

Ltd.(“Zhonglu Transportation”)

The PRC/3 January 1994 Letting of refrigerated

vessels and international

vessel transportation

RMB

21,380,000

95%

HabitatInternationalCorporation

(“HIC”)

The Republic of Panama/

13 October 1997

Letting of refrigerated

vessels

RMB

12,476,000

100%

Shandong Zhonglu Oceanic (Yantai)

Food Co., Ltd. (“Yantai Food”)

The PRC/18 June 2001 Cold storage and processing

of seafood etc.

RMB

32,280,000

60.98%

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The Company and its subsidiaries are collectively referred to as the “Group”. The address of the Company’s registered office is 43 Heping Road, Jinan, Shandong province, the PRC. In this period, Shangdong SGCFE took over all the assets, credits and liabilities ended on May 31, 2004 of the company’s subsidiary, Trading Branch, free of charge. And the Trading Branch was logged off. As of 31 December 2004, there were 1,071 (2003: 1,222) employees in the Group. II. GOING CONCERN ASSUMPTION 1. The company believes that the following facts have a great influence on going concern assumption. A. The company suffered huge loss in the previous two years, 2002 and 2003. As of Dec. 31, 2004, the accumulated deficit is RMB 413,339 thousand. B. As of Dec. 31, 2004, the company’s operational capital was negative. The current liabilities exceeded its current assets RMB 171,053 thousand. C. The holding shareholders and related parties keep occupying the company’s capital for long time. As of Dec. 31, 2004, the occupied capital reached RMB 301,576 thousand. D. By Dec. 31, 2004, the company’s overdue bank loans had been amounting to RMB 207,148 thousand, that the company is not able to repay. And part of the fixed assets have been mortgaged, whose net value is RMB 211,339 thousand. 2. The measures that the company would take to improve the operation abilities. Because of the facts stated above, the going concern assumption was seriously affected. Therefore, the company would take the following measures to improve the operation abilities. A. Seek support from local government to accelerate the assets reorganization. In Dec. 2004, the company’s holding shareholder, SGCFE and Shandong Luxin Investment Holding Ltd (“Luxin”) signed two agreements, SGCFE Shares Transferring Agreement and Supplement of SGCFE Shares Transferring Agreement. In accordance with these two agreements, SGCFE agreed to transfer 33.07% of its shares to Luxin. And SGCFE and Luxin made Debt Repayment Scheme and Supplement of Debt Repayment Scheme together. They agreed that SGCFE would repay its debt with part of its effective assets by auction. After these procedures of auction, the rest of the debt and the guaranty would be repaid by Luxin with cash. After accomplishing all these procedures, Luxin would repay all the debts instead of SGCFE and its subsidiaries step by step. Luxin should make sure that SGCFE and its subsidiaries occupy enough money to repay the non-operational accounts, and SGCFE and its subsidiaries’ liabilities to the company caused by guarantees decrease by 30% annually at least. At the same time, the company and SGCFE agreed that SGCFE should repay all the company’s accounts receivable to SGCFE and its subsidiaries, which was amounting to RMB 10,007 thousand of Sep. 30, 2004, by the way of Assurance Letter before the assets reorganization. The assets reorganization scheme should be verified by China Securities Regulatory Commission. Before the report date, China Securities Regulatory Commission had already accepted the relevant materials about the serious reorganization scheme. In 2005, the company will push the assets reorganization with the support from the local government. B. Strengthen the interior management and improve the capacities to earn profits. Considering the actual situation, the company will strengthen the interior management in 2005. The company will adjust the vessels which are obsolete with high cost and low efficiency and promote the master seines. The company will also support the

44

subsidiaries which have higher capacities to earn profit, while it will take measures to reduce the operations of the subsidiaries which had bad performance in order to decrease the deficit. And at the same time, the company will continue controlling the cost, expenses and overheads in order to improve the capacities to earn profit. C. Improve communication with creditor bank to get support. The company will improve communication with creditor bank with the support from the local government. The amount repaid by the holding shareholders will be used to repay the part of the bank loan. The company will finance with the new holding shareholder’s guaranties to release the repayment pressure and operational capital shortage. The board of directors believed that after the assets reorganization, the company could get necessary capital support, which could reduce the financial risk. Stronger interior management will improve the company’s operation and capacities to earn the profit. The measures stated above will ascertain that the company will keep normal operations in 2005 and fulfill the going concern assumption with the future’s successful operations. III. Explanation to the qualified matters in 2003 audit report 1. The auditor issued a qualified opinion with explanation paragraph in 2003. The qualified matters mentioned in 2003 annual audit report is as follows in 2004: A. SGCFE Aquaculture Company, which is the predecessor of the Trading Branch of the Company before the reorganization of the Group and has not deregistered as required by the reorganization agreement. The Trading branch still operated in the name of the SGCFE Aquaculture Company. And at the same time, The Trading branch stood as the guarantor for the short-term bank borrowings, amounting to RMB 70,270 thousand granted to SGCFE. If SGCFE could not repay the loan stated above, the bank would require the company to repay the loan. The auditors could not get sufficient evidences to judge whether such matter would influence the consolidated financial statements or not. In August 2004, SGCFE, the SGCFE Aquaculture Company and the company signed a transfer agreement. According to the auditor’s report (Zhonghe Zhengxin [2004] 2-054) provided by Zhonghe Zhengxin CPA firm, the whole assets and the liabilities (including the assets and the liabilities listed in the financial statements but actually belong to the SGCFE Aquaculture Company) would be transferred to the SGCFE Aquaculture Company without payment. However, the company will repay the Trading Company’s loan from Jinan Branch, Bank of China. The amount was 2,546 thousand. The SGCFE Aquaculture Company should be responsible for all the liabilities occurred before it was written off and also the liabilities caused by assets transfer since June 1, 2004. In September 2004, the company had already written off the Trading branch. On Dec. 20, 2004, SGCFE and Shandong Luxin Investment Holding Ltd (“Luxin”) checked the capital that occupied by holding shareholders and the guaranties, and provided a Debt Repayment Scheme. They agreed that Luxin will repay all the debts, which are caused by guaranties, for SGCFE and its subsidiaries. B. In 2003, the annual operational deficit was RMB 213,472 thousand, and the current liabilities exceeded its current assets RMB 209,579 thousand. In auditors’ opinion, though the company has disclosed intended improvement measures, it still exists uncertainty for the Group’s ability to continue as a going concern. At the end of 2003, because RMB 138,465 thousand of impairment was counted, the loss was RMB 213,472 thousand. The current liabilities exceeded its current assets

45

RMB 209,579 thousand. The financial position was even worse. This year, the company tried to seek outside assets reorganization. And at the same time, the company negotiated with bank actively. It received some new bank loans by the way of mortgage and guaranty. Besides, the Company rent out or sold those vessels which have high fishing cost in order to reduce the cost and expenses. Though the company was prosecuted by the bank for the overdue loans, it still made an effort to keep normal operations. In 2004, the company’s net profit was RMB 3,398 thousand. IV.ACCOUNTING POLICIES The principal accounting policies adopted in preparation of these consolidated financial statements of the Group are set out below: A Basis of presentation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board. These consolidated financial statements have been prepared under the historical cost conversion except as disclosed in the accounting polices below. This basis of accounting differs from that used in the preparation of the Group’s statutory accounts which are prepared in accordance with PRC Accounting Standards for Business Enterprises and the Accounting System for Business Enterprises (“Statutory Accounts”). The adjustments made to conform the Statutory Accounts of the Group to IFRS are shown in “SUPPLEMENTORY INFORMATION”. The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. B Group accounting Subsidiaries, which are those entities in which the Group has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated; unrealized losses are also eliminated unless cost cannot be recovered. When necessary, accounting policies of subsidiaries have been changed to ensure consistency with the policies adopted by the Group. C Foreign currency translation The Company and its subsidiaries maintain their books and records in RMB. Transactions in other currencies are translated into the reporting currency at exchange rates prevailing at the time of the transactions. Monetary assets and liabilities denominated in other currencies at the balance sheet date are re-translated at exchange rates prevailing at that date. Non-monetary assets and liabilities in other currencies are translated at historical rates. Exchange differences, other than those capitalized as a component of borrowing costs, are recognized in the income statement in the period in which they arise. Income statements and cash flows of foreign entities are translated into the Group’s reporting currency at average exchange rates for the year and their balance sheets are translated at the exchange rates prevailing at balance sheet date. Exchange differences

46

arising from the translation of the net investment in foreign entities and of borrowings are taken to shareholders’ equity. When a foreign entity is sold, such exchange differences are recognized in the income statement as part of the gain or loss on sale. D Leasehold lands Leases of lands acquired are classified as operating leases. The pre-paid lease payments are amortized on a straight-line basis over the lease period of 41 to 48 years. E Property, plant and equipment and depreciation Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. The initial cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Depreciation is calculated using the straight-line method to write off the cost, after taken into account the estimated residual value of each asset over its expected useful life. The expected useful lives are as follows:

Buildings 20-40 years

Vessels 15-20 years

Machinery and fishing equipment 8-20 years

Furniture and office equipment 5 years

Motor vehicles 5 years The useful lives of assets and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefit from items of property, plant and equipment. E Property, plant and equipment and depreciation (continued) Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance and overhaul costs, are recognized as expense in the period in which they are incurred. In situations where it is probable that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of the asset beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of the asset. When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the income statement. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Interest costs on borrowings to finance the construction and installation of property, plant and equipment are capitalized, during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. F 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

47

period, to the extent these are regarded as an adjustment to interest costs. Construction-in-progress is not depreciated until such time as the assets are completed and put into operational use. G Intangible assets Intangible assets are measured initially at cost. Intangible assets are recognized if it is probable that the future economic benefits that are attributable to the assets will flow to the Group; and the cost of the asset can be measured reliably. After initial recognition, intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives. The amortization period and the amortization method are reviewed periodically to ensure that the method and period of amortization are consistent with the expected pattern of economic benefits from intangible assets. G Intangible assets (continued) Production licenses Expenditure to acquire production licenses is capitalized at cost and amortized using the straight-line method over 5 years. Electricity use right and water use right Expenditure to acquire electricity use right and water use right is capitalized at cost and amortized using the straight-line method over 3-10 years. H Impairment of long lived assets Property, plant and equipment and other non-current assets, including long-term investments, leasehold lands and intangible assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset’s net selling price and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. I Investments The Group classified its investments in debt and equity securities into the following categories: trading, held-to-maturity and available-for-sale. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. Investments that are acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as trading investments and included in current assets. Investments with a fixed maturity that management has the intent and ability to hold to maturity are classified as held-to-maturity and are included in non-current assets, except for maturities within 12 months from the balance sheet date which are classified as current assets. Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; and are included in non-current assets unless management has the express intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Purchases and sales of investments are recognized on the trade date, which is the date that the Group commits to purchase or sell the asset. Cost of purchase includes transaction costs. Trading and available-for-sale investments are subsequently carried at fair value. Held-to-maturity investments are carried at amortized cost using the

48

effective yield method. Realized and unrealized gains and losses arising from changes in the fair value of trading and available-for-sale investments are included in the income statement in the period in which they arise. J Operating leases The Group is the lessee Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net off any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. The Group is the lessor Assets leased out under operating leases are included in property, plant and equipment in the balance sheet. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income is recognized on a straight-line basis over the lease term. K Inventories Inventories are stated at the lower of cost and net realizable value. Cost, calculated on the weighted average basis, comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. L Trade receivables Trade receivables are carried at original invoice amount less provision made for impairment of these receivables. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. M Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks, short-term highly liquid investments with original maturities of three months or less. N Borrowings and borrowing costs Borrowings are initially recognised at the proceeds received, net of transaction costs. They are subsequently carried at amortised costs using the effective interest rate method, the difference between net proceeds and redemption value being recognised in the net profit or loss for the period over the life of the borrowings. Borrowing costs include interest charges and exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs. Borrowing costs are expensed as incurred, except when they are directly attributable to the acquisition, construction or production of the property, plant and equipment that necessarily take a substantial period of time to get ready for its intended use in which case they are capitalized as part of the cost of that asset. Capitalization of borrowing costs commences when expenditures for the asset and borrowing costs are being incurred and the activities to prepare the asset for its intended use are in progress. Borrowing costs are capitalized at the weighted average cost of the related borrowings until the asset is ready for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. O Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary

49

differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Currently enacted tax rates are used in the determination of deferred income tax. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. P Pension scheme Pursuant to the PRC laws and regulations, contributions to the basic pension insurance for the Group’s local staff are to be made monthly to a government agency based on the rates (23% for Jinan, 20% for Longkou and Yantai, and 25.5% for Qingdao) of the standard salary set by the provincial government. The government agency is responsible for the pension liabilities relating to such staff on their retirement. The Group accounts for these contributions on an accrual basis. The Group has no obligation for the payment of pension benefits beyond the contribution described above. Q Provisions A provision is recognized when, and only when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. When a provision is no longer probable that an outflow of resources embodying economic benefit will be required to settle the obligation, the provision will be reversed. R Revenue recognition Provided it is probable that the economic benefits associated with a transaction will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognized on the following basis: Sales of goods Revenue is recognized when the significant risks and rewards of ownership of goods have been transferred to the buyer (normally upon delivery of goods to customers). Rental income Rental income from letting trawlers and refrigerated vessels is recognised on the straight-line basis over the period of relevant leases. Interest income Interest income is recognized on a time proportion basis that takes into account the effective yield on the assets. S Dividends Dividends are recorded in the Group’s consolidated financial statements in the period in which they are approved by the Group’s shareholders. T Segments Business segments: for management purposes the Group is organized into six major operating businesses. The divisions are the basis upon which the Group reports its primary segment information. Financial information on business and geographical segments is presented in Note 1. U Comparatives Where necessary, comparative figures have been adjusted to conform with changes in

50

presentation in the current year. V. FINANCIAL RISK MANAGEMENT (1) Financial risk factors and financial risk management The Group activities expose it to a variety of financial risks, including credit risk, liquidity risk, interest rate risk and foreign exchange risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the financial performance of the Group. Financial risk management is carried out by the Finance Department under policies approved by the Board of Directors. Credit risks The Group has no significant concentration of credit risk with any single counterparty or group counterparties. The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history. Liquidity risks Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Interest rate risk The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group has no significant interest-bearing assets. The Group policy is to maintain all its borrowings in fixed rate instruments. Foreign exchange risk The Group has no significant foreign exchange risk due to limited foreign currency transactions. (2) Fair value estimation In assessing the fair value of non-trading securities and other financial instruments, the Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values. VI 1 SEGMENT INFORMATION Business segments

An analysis by business segment was as follows:

Sales Costs Gross profit rate Business

2004 2003 2004 2003

2004

(%)

2003

(%)

Oceanic fishing 105,692 128,250 81,131 96,224 23.23 24.97

Trading of seafood 31,890 95,216 26,081 92,354 18.21 3.01

Oceanic pharmacy - 28,629 - 16,363 - 42.84

Letting of trawlers - 1,497 - 3,998 - -167.07

Letting of refrigerated vessel and vessel management 34,835 29,144 23,242 19,184 33.28 34.18

Seafood processing, cold storage and others 51,672 36,129 44,002 30,764 14.84 14.85

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Total 224,089 318,865 174,456 258,887 22.15 18.81

Geographical segments

District Sales

Costs

Gross profit rate

(%)

PRC 59,222 50,976 13.92

Overseas 164,867 123,480 25.10

Total 224,089 174,456 22.15

2 Sales, net

Sales comprised:

2004 2003

Gross sales (excluding Value-added Tax (“VAT”)), less discounts and returns

Oceanic fishing 105,692 128,250

Trading of seafood 31,890 95,216

Oceanic pharmacy - 28,629

Letting of trawlers - 1,497

Letting of refrigerated vessel and vessel management 34,835 29,144

Seafood processing, cold storage and others 51,672 36,129

224,089 318,865

Less: Sales surtaxes (1,258) (1,635)

222,831 317,230

3 Finance costs, net

2004 2003

Interest income - Bank deposits 668 1,479

- Others

668 1,479

Interest expense on borrowings (12,092) (18,554)

Less: Amount capitalized in construction-in-progress

(12,092) (18,554)

(11,424) (17,075)

4 (Loss) profit before tax and minority interests

(Loss) profit before tax and minority interests was determined after crediting and

52

charging the following:

2004 2003

Crediting:

Gain on disposal of subsidiary - 1,350

Trade and other receivables - reversal of impairment charge for doubtful debts - 4,236

Interest income from bank deposits 668 1,479

Gain on disposal of property, plant and equipment 952 655

Charging:

Staff cost

- Salaries and wages 10,271 31,023

- Provision for welfare and other benefits 1,438 4,343

- Contribution to statutory pension scheme 1,141 3,448

12,850 38,814

Loss on disposal of property, plant and equipment 364 188

Depreciation of property, plant and equipment 28,469 24,793

Amortization of intangible assets (included in administrative expenses) 264 274

Operating lease for vessels from SGCFE (Note 23(b)) - 1,240

Trade and other receivables - impairment charge for doubtful debts (included in

administrative expenses)

7,151 -

Due from related parties - impairment charge for doubtful debts (included in

administrative expenses, Note 23(c)

(24,113) 160,304

Inventory - impairment charge for obsolescence 1,215 1,538

Impairment losses of long-term investments (included in administrative expenses) 19,800 9,900

Impairment losses of property, plant and equipment (included in administrative expenses) (1,195) 52

Interest expenses on bank borrowings 12,092 18,554

Exchange loss 197 562

Trading investments

- fair value loss (Note 15) 16 3 5 TAXATION 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

53

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. Enterprise income tax (“EIT”) Details of taxation charged were as follows:

2004 2003 Income tax expense (Note 22 (a)) 292 1,654

Business tax 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. Surtaxes The Group is subject to the following surtaxes in the PRC: City development tax, a tax levied at 7% of net VAT and business tax payable; and Education supplementary tax, a tax levied at 3% of net VAT and business tax payable. 6 (Losses) earnings per share Basic (losses) earnings per share is calculated by dividing the net (loss) profit by the weighted average number of ordinary shares in issue during the year.

2004 2003

Net (loss) profit 3,398 (209,398)

Weighted average number of ordinary shares in issue (thousands) 266,071 266,071

Basic (losses) earnings per share RMB 0.013 RMB (0.79) The diluted (losses) earnings per share was not calculated, because no potential dilutive shares existed during the year. 7 Dividends In accordance with the relevant regulations in the PRC, after issuance of the B shares, the amount of profit available for distribution to the shareholders (after appropriations to the statutory surplus reserve and statutory public welfare reserve) shall be determined based on the lower of the inappropriate profit determined in accordance with (i) accounting principles and relevant regulations applicable in the PRC and (ii) IFRS. On 29 May 2001, the shareholders’ meeting approved to appropriate 10% and 5% of the statutory net profit of year 2000 to the statutory surplus reserve and the statutory public welfare reserve respectively, and then distribute to all the shareholders of the Company a cash dividend of RMB 0.1 (including tax) per share, totaling RMB 26,608,000. On 26 April 2002, the shareholders’ meeting approved to appropriate 10% and 5% of the statutory net profit of year 2001 to the statutory surplus reserve and the statutory public welfare reserve respectively, and then distribute to all the shareholders of the Company a cash dividend of RMB 0.05 (including tax) per share, totaling RMB 13,304,000. Pursuant to a resolution of board of directors dated 24 April 2003, the Company resolved no appropriation of dividends for the year ended 31 December 2002, as the

54

Group reported accumulated losses. Pursuant to a resolution of board of directors dated 29 March 2004, the Company resolved no appropriation of dividends for the year ended 31 December 2003, as the Group reported accumulated losses. Pursuant to a resolution of board of directors dated 13 April 2005, the Company resolved no appropriation of dividends for the year ended 31 December 2004, as the Group reported accumulated losses. 8 Leasehold lands 2004 2003 Cost Beginning of year 9,930 9,930 Additions - - Capital contributions in subsidiaries by minority shareholders - - Deduction due to change of consolidation scope (Note 22 (d)) - - End of year 9,930 9,930 Accumulated amortization Beginning of year 615 379 Charges for year 236 236 Capital contributions in subsidiaries by minority shareholders - - Deduction due to change of consolidation scope (Note 22 (d)) - - End of year 851 615 Net book value End of year 9,079 9,315 Beginning of year 9,315 9,550 Leasehold lands represented land use fees paid for the right to use the parcels of land where the Group’s premise is located. Since all land in the PRC is owned by the State or is subject to collective ownership, the risks and rewards of the parcel of land remain with the State. As a result, such lease payments are accounted for under operating leases and are charged to the income statement on a straight-line basis over the lease period of 40 years. 9 Property, plant and equipment

2004

Buildings

Vessels

Machinery and

fishing

equipment

Furniture and

office

equipment

Motor

vehicles

Construction

-in-progress

s

Total

Cost

Beginning of year 94,039 371,665 44,013 1,919 4,652 1,273 517,561

Additions 1,210 - 1,800 427 450 587 4,474

Deduction (808) (7,922) (7,284) (92) (2,035) (1,794) (19,935)

End of year 94,441 363,743 38,529 2,254 3,067 66 502,100

Accumulated depreciation and impairment losses

Beginning of year 35,257 159,009 17,007 1,308 1,799 - 214,380

Depreciation charge for the year 3,056 22,692 1,576 447 697 - 28,468

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Impairment charge for the year - - - - - - -

Deduction (849) (9,084) (7,296) (58) (594) - (17,881)

End of year 37,464 172,617 11,287 1,697 1,902 - 224,967

Net book value

End of year 56,977 191,126 27,242 557 1,165 66 277,133

Beginning of year 58,782 212,656 27,006 611 2,853 1,273 303,181

2003

Buildings

Vessels

Machinery and

fishing

equipment

Furniture and

office equipment

Motor

vehicles

Construction-

in-progress

Total

Cost


Additions 35,649 14,012 18,291 462 513 29,683 98,610

Deduction (5,553) (78,178) (14,905) (1,493) (1,928) (94,370) (196,427)

End of year 94,039 371,665 44,013 1,919 4,652 1,273 517,561

Accumulated depreciation and impairment losses

Beginning of year 37,551 202,714 22,340 1,425 2,086 - 266,116

Depreciation charge for the year 2,907 18,054 2,204 714 678 - 24,557

Impairment charge for the year - - 52 - - - 52

Deduction (5,201) (61,759) (7,589) (831) (965) - (76,345)

End of year 35,257 159,009 17,007 1,308 1,799 - 214,380

Net book value

End of year 58,783 212,656 27,006 611 2,832 1,454 303,181


(a) As of 31 December 2004, the Group had mortgaged twelve vessels with the net book value of approximately RMB 176,690,000 (2003: RMB 190,140,000 of twelve vessels) to bank as security for short-term bank borrowings of RMB 121,500,000(2003: RMB 122,700,000) (Note 17(a)). (b) As of 31 December 2004, the Group had mortgaged a plant building with the net book value of approximately RMB 34,648,000 (2003: RMB 30,812,000) to bank as security for a short-term bank borrowing of RMB 9,800,000 (2003: RMB 5,000,000) (Note 17(a)). (c) Analysis of construction-in-progress as of 31 December 2004 is as follows:

2004 2003 Costs of construction, installation, machinery and equipment and other direct costs 66 1,273 Interest capitalized - - 66 1,273 Average capitalization rate - -

(d) In 2004, the net book value of Property, plant and equipment were deduced RMB 7,491 due to the change of combined scope.

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10 Intangible assets 2004

Trademarks and

production licenses

Others

Total

Cost

Beginning of year - 77 77

Additions - 48 48

Deduction due to change of consolidation scope - - -

End of year - 125 125

Accumulated amortization and impairment losses


Charge for the year - 28 28

Deduction due to change of consolidation scope - - -

End of year - 32 32

Net book value

End of year - 93 93


2003

Trademarks and

production licenses

Others

Total

Cost

Beginning of year 2,465 141 2,606

Additions - 65 65

Deduction due to change of consolidation scope (2,465) (129) (2,594)

End of year - 77 77

Accumulated amortization and impairment losses

Beginning of year 175 53 228

Charge for the year 272 2 274

Deduction due to change of consolidation scope (447) (51) (498)

End of year - 4 4

Net book value

End of year - 73 73

Beginning of year 2,290 88 2,378

11 Long-term investments 2004 2003

Debentures - -

Unlisted investments

- Jinan City Bank Wanzi Branch - 107

- Southern China Securities Co., Ltd. 33,000 33,000

33,000 33,000

Less: impairment of long-term investments (29,700) (9,900)

3,300 23,207

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Note: (1) The proportion of the shares that the company holds is 0.87% of the share capital of Southern China Securities Co., Ltd. (2) As the Trading Branch was transferred in this period, the long-term investment on Wanzi Branch, Jinan City Cooperation Bank, had also been transferred, which was RMB 107 thousand. (3)As of 31 December 2004, the Company had pledged legal person shares of Southern China Securities Co., Ltd. with the net book value of RMB 33,000,000 (2003: RMB 33,000,000) to bank as security for a short-term bank borrowing of RMB 8,700,000 (2003: RMB 8,700,000). (4) As Southern China Securities Co., Ltd. has been governed by China Securities Regulatory Commission and Shenzhen People’s Government since January 2, 2004, the company has provided impairment of 30% based on its investment value last period. By the end of this period, Southern China Securities Co., Ltd. was still in the process of liquidation. Therefore, it still exist material uncertainty for the Group’s ability to continue as a going concern. Since the possibility of getting back the expected value was small, the long-term investment impairment was added to RMB 19,800 thousand. As of Dec 31, 2004, the accumulated long-term investment impairment was RMB 29,700 thousand, about 90% of the book value. 12 Inventories, net

2004 2003

Raw materials (at cost) 9,867 14,652

Work-in-process (at cost) 28,840 24,318

Finished goods (at cost) 5,797 39,891

44,503 78,860

Less: Provision for inventory obsolescence (890) (3,800)

43,613 75,060 Note: (1) Included in work-in-process were approximately RMB 29 million (2003: RMB 24 million) of deferred oceanic fishing expenditures. Deferred oceanic fishing expenditures represented deferred operating expenses for oceanic fishing and seafood processing, which would be transferred to cost of sales upon sale of the related fishery products. (2) Compared to the last year, the inventories decreased by 44%. The main cause is that Shandong SGCFE took over all the assets, credits and liabilities ended on May 31, 2004 of the company’s subsidiary, Trading Branch. Therefore, the inventories decreased. (3) Provision for inventory obsolescence decreased along with the decreased inventories. 13 Other receivables, net

2004 2003 Other receivables 41,101 38,112 Less: Provision for doubtful debts (6,179) (3,216) 34,922 34,896

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14 Trade receivables, net

2004 2003 Accounts receivable 35,700 26,852 Notes receivable 200 100 Less: Provision for doubtful debts (6,531) (6,887) 29,369 20,065

15 Trading investments

2004 2003 Marketable securities - PRC listed equity securities, at market value 45 56

The trading investments are traded in active markets and are valued at market value at the close of business on 31 December 2004 by reference to Stock Exchange quoted bid prices. Trading investments are classified as current assets because they are expected to be realized within twelve months of the balance sheet date. In the cash flow statement, trading investments are presented within the section of operating activities as part of changes in working capital. 16 Other payables and accruals

2004 2003 Salaries payable 13,913 14,184 Welfare payables 1,408 1,383 Accrued expenses 9,410 1,274 Other payables 72,082 66,719 96,813 83,560

17 Short-term borrowings

2004 2003

Short-term bank borrowings (a) 240,169 298,760

240,169 298,760

Short-term bank borrowings 2004

Principal

Annual interest rate

Guaranteed or secured by

2,546 6.37% - 28,000 5.84%-6.04% SGCFE 20,000 5.84% Shandong Airline Co., Ltd. 26,223 5.84%-7.14% Qingdao Double Wale Pharmaceutical Co., Ltd 1,900 6.37% Shandong Zhonglu Oceanic Fisheries Transportation Co., Ltd 121,500 5.31%-6.04% Vessels (Note 9) 8,700 5.84% Shares of Southern China Securities Co., Ltd. (Note 11) 28,300 6.37%-6.90% A plant building (Note 9) 3,000 6.37% Leasehold lands of SGCFE 240,169

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2003 Principal

Annual interest

rate Guaranteed or secured by

47,180 4.04%-6.37% - 28,000 5.84%-6.04% SGCFE 20,000 5.84% Shandong Airline Co., Ltd. 28,730 5.84%-7.14% Qingdao Double Wale Pharmaceutical Co., Ltd 22,200 5.84%-6.37% Shandong Shanhai Seafood Trading Center (“Shanhai Seafood”) 16,250 6.37%

Shandong Shanhai Seafood Trading Center (“Shanhai Seafood”) and Shandong Changtian Trade Co., Ltd

122,700 5.84% Vessels (Note 9) 8,700 5.84% Shares of Southern China Securities Co., Ltd. (Note 11) 5,000 6.37% A plant building (Note 9) 298,760

18 Long-term bank borrowings

2004 2003

Interest rate per annum

Amount

Interest rate per annum

Amount

- Guaranteed LIBOR+2% 48,624 LIBOR+2% 49,660 48,624 49,660

As of 31 December 2004, all of the guaranteed bank borrowings are guaranteed by Shandong Airline Co., Ltd. Long-term bank borrowings are repayable in the following periods:

2004 2003 Amount repayable within a period - not exceeding one year 23,794 12,415 - more than one year but not exceeding two years 12,415 12,415 - more than two years but not exceeding five years 12,415 24,830 - more than five years - - 48,624 49,660 Less: Current portion of long-term bank borrowings (23,794) (12,415) 24,830 37,245

19 Share capital As of 31 December 2004, the outstanding share capital represented legal person shares and B shares. The B shares rank pari passu in all aspects with the legal person shares except that B shares can only be owned and traded by overseas and qualified domestic investors. As of 31 December 2004, the details of ordinary shares were as follows:

Number of shares’000 2004 2003 Registered, issued and fully paid: Legal person shares of RMB 1 each 128,071 128,071 B shares of RMB 1 each 138,000 138,000

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266,071 266,071 Amount 2004 2003 Balance, beginning and end of year: Legal person shares 128,071 128,071 B shares 138,000 138,000 266,071 266,071

(1) Among the 125,731,320 legal person shares owned by SGCFE, accounting for 47.25% of the total shares of the Company, including: A 8,000,000 shares, accounting for 3% of the total shares of the Company, are frozen by Yantai District court due to the failure of SGCFE to repay the matured borrowing granted to one of SGCFE’s subsidiaries, for which SGCFE stood as a guarantor; B 80,000,000 shares, accounting for 30.07% of the total shares, are frozen by Jinan Lixia District Court on 17 February 2003 as the result of the ongoing litigation between SGCFE and Agricultural Bank of China Jinan Branch Lixia District Sub-branch over a dispute on bank borrowings; and C 37,731,320 shares, accounting for 14.18% of the total shares, are frozen by the Supreme Court of Shandong Province as the result of the ongoing litigation between SGCFE and Bank of China Jinan Branch over a dispute on bank borrowings of RMB 73,345 thousand(Bank of China Jinan Branch had transferred the creditor’s right to China Cinda Asset Management Co., Ltd in 2004). (2) In Dec. 2004, the company’s holding shareholder, SGCFE and Shandong Luxin Investment Holding Ltd (“Luxin”) signed two agreements, SGCFE Shares Transferring Agreement and Supplement of SGCFE Shares Transferring Agreement. In accordance with these two agreements, SGCFE agreed to transfer 33.07% of its shares to Luxin(See Section II). As of the report date, China Securities Regulatory Commission had already accepted the relevant materials about the serious reorganization scheme. 20 Reserves (a) Capital surplus The following are recorded as capital surplus: (i) share premium; (ii) donations; (iii) appreciation arising from revaluation of assets; and (iv) other items in accordance with the Company's articles of association and relevant regulations in the PRC. Capital surplus can be utilized to offset prior years’ losses or for the issuance of bonus shares. As of 31 December 2004, capital surplus of the Company mainly included share premium and pricing difference associated with related party transactions. Share premium represents proceeds from the issuance of its shares in excess of their par value, net of underwriting commissions and professional fees. (b) Statutory surplus reserve and statutory public welfare reserve In accordance with the PRC Company Law and the Company’s articles of association, the Company and its domestic subsidiaries (excluding Yantai Food) are required to set aside 10% of their statutory profit after tax and minority interests, after offsetting

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prior years’ losses, to the statutory surplus reserve (except where the reserve balance has reached 50% of the company’s paid-up share capital, any further appropriation is optional), and 5% to 10% to the statutory public welfare reserve. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends. Statutory surplus reserve can only be used, upon approval by the relevant authority, to offset accumulated losses or increase capital. However, such statutory surplus reserve must be maintained at a minimum of 25% of its paid-up capital after such issuance. Statutory public welfare reserve is to be utilized to build or acquire capital items, such as dormitories and other facilities for the Group’s employees, and cannot be used to pay for staff welfare expenses. Title to these capital items will remain with the Group. (c) Discretionary surplus reserve Discretionary surplus reserve is appropriated after the appropriation of statutory surplus reserve and statutory public welfare reserve at the resolution of the Board of Directors and the discretion of the general shareholders’ meeting. 20 Reserves (continued) (d) Reserve fund, enterprise expansion fund and staff welfare and bonus fund In accordance with the relevant laws and regulations of the PRC, Yantai Food, a foreign joint venture company, is required to set up a reserve fund, an enterprise expansion fund and staff welfare and bonus fund by way of appropriations from the annual statutory net profit. The reserve fund can only be used, upon approval, to offset accumulated losses or increase capital; and the enterprise expansion fund can only be used, upon approval, to increase capital. The staff welfare and bonus fund can only be used for special bonuses or collective welfare of these subsidiaries’ employees, and assets acquired through this fund shall not be taken as these subsidiaries’ assets. For IFRS purposes, the appropriation to the staff welfare and bonus fund is charged to current year’s administrative expenses while the balance of the staff welfare and bonus fund is included in other payables in the consolidated financial statements. 21 Minority interests

2004 2003 Beginning of year 16,568 21,221 Share of net profit of subsidiaries (Note 22 (a)) 415 (4,653) Share of capital contributions in subsidiaries Change of consolidation scope End of year 16,983 16,568

22 Supplemental cash flows information (a) Reconciliation from net (loss) profit to cash generated from operations

2004 2003 Net (loss) profit 3,398 (209,398) Adjustments for: Minority interests (Note 21) 415 (4,653)

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Tax (Note 5) 292 1,654 Depreciation of plant, property and equipment 28,469 24,793 (Gain) loss on disposal of property, plant and equipment (588) (467) Amortization of intangible assets 264 274 Gain on disposal of subsidiary - (1,350) Gain on disposal of long-term investments Gain on disposal of trading investments - (6) Impairment loss of trading investments 16 3 Impairment loss of long-term investments 19,800 9,900 Impairment loss of property, plant and equipment (7,287) (10,575) Provision for inventory obsolescence (1,215) (14,525) (Reversal of) provision for doubtful debts (16,963) 170,962 Interest expense 12,092 18,544 Interest income (668) (1,479) Operating (loss) profit before changes in working capital 38,025 (16,323) Changes in working capital: Increase in inventories (3,412) 6,543 Decrease (increase) in trading investments, trade and other receivables, prepayments ,due from related party and other current assets

(22,696)

(66,404)

Increase (decrease) in trade payables, advances from customers, taxes payable, other payables and accruals 36,060 57,199 Decrease in due to related parties - (62) Cash generated from operations 47,977 (19,047)

22 Supplemental cash flows information (continued) (b) Analysis of the balances of cash and cash equivalents

2004 2003 Cash on hand 4,205 362 Bank current deposits 17,772 16,426 Bank time deposits Less: Restricted bank deposits Cash and cash equivalents 21,977 16,788

23 Related party transactions Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. (a) Name of related parties and nature of relationship

Name Relationship with the Company SGCFE The 47.25% shareholder of the Company LSPC Directly-owned by SGCFE QMFC Directly-owned by SGCFE SGCFE S.A. Directly-owned by SGCFE Shandong Haitian Seafood Trading Co., Ltd. (“Haitian”) Directly-owned by SGCFE Shanhai Seafood Directly-owned by SGCFE An’ning Directly-owned by SGCFE QMFC-APPP Indirectly-owned by SGCFE Mellow Indirectly-owned by SGCFE Haiyu Indirectly-owned by SGCFE Prodesur S.A. Indirectly-owned by SGCFE Tenglong Indirectly-owned by SGCFE Animal Medicine Indirectly-owned by SGCFE Afrik Indirectly-owned by SGCFE

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Zhengxin Indirectly-owned by SGCFE HaiFeng Indirectly-owned by SGCFE luBao Indirectly-owned by SGCFE Zhenyuan Indirectly-owned by SGCFE

(b) Transactions with related parties

2004 2003 Sales to related parties: -SGCFE - 695 - QMFC 220 14,530 HaiFeng 344 423 - Prodesur S.A 271 350 835 15,998 2004 2003 Rental expenses for vessels and crews paid to a related party: - SGCFE - 1,240 Letting and management income of vessels from a related party: - SGCFE S.A. - 2,467

2004 2003 Purchases of seafood from related parties: - Shanhai Seafood 9,960 41,720 - Prodesur S.A. 17,960 30,780 27,920 72,500 2004 2003 Profit/Loss from vessel entrust - Prodesur S.A. 3,303 3,579

Pursuant to an agreement with effect from 1 January 1999 for ten years, the Company has entrusted Prodesur S.A. to operate a vessel owned by the Company, and is entitled to obtain or assume an annual entrust fee based on 70% of the net profit or loss generated from the operation of the vessel. (c) Balances with related parties as of 31 December 2004

2004 Due from related parties -SGCFE 165,992 - QMFC 53,914 - QMFC-APPP 7,858 Prodesur S.A. 11,436 HaiFeng 974 - LSPC 10,746 SGCFE S .A. 22,362 - An’ning 1,666 - Mellow 3,784 - Haiyu 8,037 - Tenglong 14,058 - Animal Medicine 346 -LuBao 403 Total: 301,576 Less: Provision for doubtful debts 218,117 Due from related parties, net 83,459 Due to related parties - Zhengxin 1,000 - Zhenyuan 155 Due to related parties 1,155

Note:

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(1) Since the Trading Company was transferred, the related accounts, such as accounts receivable of RMB 43,412 thousand and provision for bad debts of RMB 38,791 thousand, were also transferred. (2) SGCFE and QMFC signed an agreement to deal with the debts on Dec. 31, 2004. QMFC agreed to pay the debts for with the limitation of RMB 4,363 thousand. And the company would also wipe out the accounts receivable from SGCFE, which was RMB 4,363 thousand, and also the relevant provision for bad debts of RMB 4,363 thousand. (3) Before calculating the specific doubtful debts for “SGCFE”, it has to deduct the following frozen assets: A. Pursuant to Judgement (2003) LiLiBaoZi No.118 issued by Jinan Lixia District court on 26 February 2003, the basement, first to third floors and six to twelfth floors of SGCFC’s office building located on No.43, Road Heping, Lixia District, Jinan, Shandong Province and the related leasehold land are frozen. According to the valuation consultation report (2004) GuoRunZhiXunZi No.001 issued by ShanDong GuoRun Assets valuation Co., Ltd, the above assets which are frozen is worth RMB 55,160,000. B. In 2003, the Company filed a lawsuit against SGCFE on the repayment of a portion of due from SGCFE. Pursuant to Judgement (2003) TianMinChuZi No.1632 issued by Jinan TianQiao District court in 2003, the equity interest of 17.31% of Shandong Zhonglu Oceanic (Yantai) Food Co., Ltd held by SGCFE are frozen. The equity interest frozen is worth RMB 6,889 thousand after formal audit. C. Pursuant to Judgement (2003) TianMinTwoChuZi No.1763 issued by Jinan TianQiao District court in 2003, the equity interest of 5% of Zhonglu Transportation Co.,Ltd held by SGCFE are frozen. The equity interest frozen is worth RMB1,442 thousand after formal audit. (4) The amount QMFC owed to the company increased by RMB 4,327 thousand and reached to RMB 10,746 thousand at the end of this period. The company didn’t provide any doubtful debts for “LSPC”, as the company has made freezing application to the court. Pursuant to Judgement (2005)TianMinYuanChuZi No.243 issued by Jinan TianQiao District court in 2005, the land use right of “LSPC” with 48,133.45 square meters was frozen. According to the valuation report Luyitong [2005] No.026 issued by Shandong Yitong Real Estate Appraisal Co., Ltd, the land use right above was RMB 12,082 thousand. (5) Due from Prodesur S.A. is provided the general bad debts on the basis of debt ages with the amount of RMB 2,213 thousand. (6) Except the above mentioned related party, the other due from related parties are provided full bad debts. (d)Guarantees (The company provided the guarantees for the following related parties) Name of guarantees Amount (thousand) Period Yantai Food Ltd RMB 18,500 2.2004-10.2005 Qingdao Refrigerating Branch RMB 1,900 7.2004-7.2005

Note: As of Dec. 31, 2004, the company was the guarantor for the bank loan amounting to RMB 18,500,000 granted to its branch, Yantai Food Ltd.. The company’s subsidiary, Zhonglu Transportation Ltd, was the guarantor for the bank loan amounting to RMB 1,900,000 granted to another branch, Qingdao Refrigerating Branch.

e Guarantees (The following related parties provided guarantees for the Company)

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Name of related party Amount (thousand) Period SGCFE RMB5,000 11.19.2002-11.18.2003 SGCFE RMB 18,000 4.29.2003-4.28.2004

SGCFE RMB 5,000 07.12.2003-07.11.2003

SGCFE plus Shandong Oceanic fisheries Co., Ltd RMB 9,800 10.29.2004-10.29.2005

Leasehold lands of SGCFE RMB 3,000 4.23.2004-5.22.2005

(f) Other transactions The company freely use the office of SGCFE for 2004.The Longkou branch and Qingdao Refrigerating branch freely use the land of SGCFE for 2004

24 Contingencies As of 31 December 2004, the Group had following contingencies not provided for in the consolidated financial statements:

Name Amount (thousand) Period

Double Wale Pharmaceutical 50,000 2.2002-7.2006 25 Subsequent events In Dec. 2004, the company’s holding shareholder, SGCFE and Shandong Luxin Investment Holding Ltd (“Luxin”) signed two agreements, SGCFE Shares Transferring Agreement and Supplement of SGCFE Shares Transferring Agreement. In accordance with these two agreements, SGCFE agreed to transfer 33.07% of its shares to Luxin. And SGCFE and Luxin made Debt Repayment Scheme and Supplement of Debt Repayment Scheme together. As of the report date, China Securities Regulatory Commission had already accepted the relevant materials about the serious reorganization scheme. 26 Litigation A. In 2001, the company bought 5 vessels from SanHe Co., Ltd of Japan, And the price was USD 616 thousand in accordance with the contract. When the vessels were received, the company found that the vessels had quality problems, and did not have relevant permissions according to Chinese regulations. Therefore, the account had not been cleared. On July 10, 2003, SanHe Co., Ltd asked China International Economic and Trade Arbitration Commission for arbitration. It required the company to pay the capital USD 643 thousand and also pay the interest and the compensation USD 60 thousand and arbitration fee. On May 8, 2004, the company replied, and required the SanHe Co., Ltd to compensate the loss USD 616 thousand. On May 8, 2004, China International Economic and Trade Arbitration Commission issued the umpirage (China Trade Jing 001950): The company had to pay USD 450 thousand. B. Because of the disputes between the company and Jinan Branch, Bank of China caused by the loan of RMB 20,000 thousand, on September 22, 2004, the relevant amount of guarantor’s capital had been frozen. C. Because of the disputes between the company and Jinan Branch, Bank of China caused by the loan of USD 6,000 thousand, on September 22, 2004, the relevant amount of guarantor’s capital had been frozen. D. Because of the disputes between the company and Jinan Branch, Bank of China caused by the loan of RMB 30,000 thousand, on October 9, 2004, the company’s

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94.94% shares of Zhonglu Transportation Ltd and 56% shares of Yantai Food were frozen by Jinan Intermediate People’s Court. E. Because of the disputes between the company and Jinan Zhenzhu Fountain Branch, China Construction Bank caused by the loan of RMB 28,000 thousand, on October, 29, 2004, the company’s account in Jinan Branch, Pudong Development Bank was frozen. And the basic account of the company’s branch, Qingdao Refrigerating Branch, in Qingdao Western District No. 2 Branch, Agricultural Bank of China was frozen. F. Because of the disputes between the company and Qingdao Zhongshan Road Branch, China Construction Bank caused by the loan of RMB 3,600 thousand, In November, 2004, the basic account of the company’s branch, Qingdao Refrigerating Branch, in Qingdao Western District No. 2 Branch, Agricultural Bank of China was frozen by Qingdao Western District People’s Court. 27 Approval of financial statements The consolidated financial statements were approved by the Board of Directors on 13 April, 2005.

Impact of IFRS adjustments on net (loss) profit and net assets

Net (loss) profit Net assets 2004 2003 2004 2003

As reported in the Statutory Accounts of the Group 3,398 (213,472) 76,750 72,398 - - - Adjustment for the dividends declared after balance sheet date - - - - (Reversal of)Adjustment for the excess loss applicable to the minority - 4,061 - - Written off pre-operation expenses - 13 - - Others - - - - As restated in accordance with IFRS 3,398 (209,398) 76,750 72,398

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 change 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 2004 carrying the signature and seal of the Chairman of the Board

Shandong Zhonglu Oceanic Fisheries Company Limited Chairman of the Board Liu Changsuo

Apr. 16, 2005