Shandong Zhonglu Oceanic Fisheries Company Limited Semi-Annual Report 2005

Shandong Zhonglu Oceanic Fisheries Company Limited Semi-annual Report 2005

Contents

SECTION Ⅰ. IMPORTANT NOTICE------1 SECTION Ⅱ. COMPANY PROFILE------2 SECTION Ⅲ. CHANGES IN SHARE CAPITAL AND PARTICULARS ABOUT SHARES HELD BY MAIN SHAREHOLDERS------3 SECTION Ⅳ. PARTICULARS ABOUT DIRECTORS, SUPERVISORS AND SENIOR EXECUTIVES------5 SECTION Ⅴ. DISCUSSION AND ANALYSIS OF THE MANAGEMENT------5 SECTION Ⅵ. SIGNIFICANT EVENTS------8 SECTION Ⅶ. FINANCIAL REPORT------16 SECTION Ⅷ. DOCUMENTS AVAILABLE FOR REFERENCE------31

Section I. Important Notice The Board of Directors of Shangdong Zhonglu Oceanic Fisheries Company Limited (hereinafter referred to as the Company) and its directors 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 or errors which would render any statement misleading.

No director stated that he (she) couldn’t ensure the correctness, accuracy and completeness of the contents of the Semi-annual Report or have objection to this report.

Director Ms. Shao Shijie and Independent Director Mr. Jiang Jin were absent from the Board meeting, and entrusted in writing Director Mr. Li Wenyi and Independent Director Mr. Jiang Lu to attend and exercised vote on them behalf.

Chairman of the Board of the Company Mr. Liu Changsuo, Chief Financial Officer Mr. Zhang Jinqing and Manager of Financial Dept. Ms. Wu Shuxian hereby confirm that the financial report of the semi-annual report is true and complete.

The semi-annual financial report of the Company has not been audited.

This report was prepared in both English and Chinese. Should there be any difference in interpretation of the two versions, the Chinese version shall prevail.

1 Section II. Company Profile I. Company Profile (I) Name of the Company: In Chinese: 山东省中鲁远洋渔业股份有限公司 In English: Shandong Zhonglu Oceanic Fisheries Company Limited (II) Stock Exchange Listed with: Shenzhen Stock Exchange Short Form of the Stock: ST Zhonglu B Stock Code: 200992 (III) Registered Address: No. 43, Heping Road, Jinan, Shandong Office Address: No. 43, Heping Road, Jinan, Shandong Post Code: 250014 E-mail: [email protected] (IV) Legal Representative: Liu Changsuo (V) Secretary of Board of Directors: Zhou Feng Securities affairs Representative: Jiang Peng Contact Address: No. 43, Heping Road, Jinan, Shandong Tel: (86) 531-6553278, 6553276 Fax: (86) 531-6943084 E-mail: [email protected] (VI) Newspapers Chosen for Disclosing the Information of the Company: Securities Times and Ta Kung Pao Internet Website Designated by CSRC for Publishing the Semi-annual Report: http://www.cninfo.com.cn The Place Where the Semi-annual Report is Prepared and Placed: Office of the Board of Directors (VII) Other information about the Company The initial registered date: Jul. 23, 1999 The registered date after change: Nov. 30, 2000 The registered place after change: Shandong Province Administrative Bureau for Industry and Commerce Registration code for business license of corporation: 3700001803000 Registration code of tax: National Revenue: 370102863043102 Local Tax: 370001863043102

II. Major financial data and indexes (I) Major accounting data in the report period Unit: RMB Increase/decrease At the end of this At the end of last over the same Items report period year period of last year (%) Current assets 200,760,096 218,231,649 -8.01 Current liabilities 369,766,163 389,284,719 -5.01

2 Total assets 479,130,676 507,835,721 -5.65 Shareholders’ equity (excluding 74,147,450 76,749,570 -3.39 minority interests) Net assets per share 0.28 0.29 -3.45 Net assets per share after adjustment 0.27 0.29 -6.90 Increase/decrease At the end of th Same period of over the same e report period last year period of last year (%) Net profit -3,276,070 2,568,262 -227.56 Net profit after deducting -10,236,235 2,805,454 -464.87 non-recurring gains and losses Net cash flow arising from operating 1,130,530 29,847,327 -96.21 activities Return on equity -4.42% 3.38% -7.77 Earnings per share -0.01 0.01 -200.00

(II) Items of non-recurring gains and losses and the relevant amount: Unit: RMB Items of non-recurring gains and losses Amount Net income/expenses of non-operating -500,331 Switch back of provision for bad debts 7,460,496 Total 6,960,165

(III) In the report period, there was no difference in net profit as audited under Chinese Accounting Standards and International Accounting Standards, and net profit was RMB –3,276,070.

(IV) Supplemental financial information Return on equity (%) Earnings per share (RMB/share) Profit as of report period Fully diluted Weighted average Fully diluted Weighted average Profit from main operation 22.61 22.32 0.06 0.06 Operating profit -1.30 -1.28 0.00 0.00 Net profit -4.42 -4.36 -0.01 -0.01 Net profit after deducting non-recurring gains and losses -13.81 -13.63 -0.04 -0.04

Section III. Changes in Share Capital and Particulars about Shares Held by Main Shareholders I. In the report period, the Company’s total shares and its structure remained unchanged. II. Ended June 30, 2005, the Company had totally 18,331 shareholders, including 5

3 sponsor shareholders, including Shandong Group Corporation of Fishery Enterprises, Luyin Investment Group Co., Ltd., China Heavy Automobile Group Jinnan Trunk Co., Ltd., Shandong Airline Group Co., Ltd. and Shandong Detai Decorating Co., Ltd. shareholders holding listed overseas foreign capital shares in circulating amounted to 18,326. III. Particulars about shares held by main shareholders (I) Particulars about shares held by the top ten shareholders Number of Increase/d Shares held share ecrease in at the Proportion Nature of No. Name of shareholders Type of share pledged or the report period-end (%) shareholders frozen period (share) (share) SHANDONG GROUP State-owned 1 CORPORATION OF 0 125,731,320 47.25 Non-circulating 125,731,320 legal person’s FISHERY ENTERPRISES share 2 LIANG YU ZHEN 109,850.00 1,996,900 0.75 Circulating Unknown Foreign share 3 XU XIN HU 1,575,408 1,964,798 0.74 Circulating Unknown Foreign share CHINA HEAVY State-owned 4 AUTOMOBILE GROUP 0 1,950,000 0.73 Non-circulating Unknown legal person’s JINAN TRUCK CO., LTD. share SHANGHAI WANGUO 5 -7,101,517 1,479,431 0.56 Circulating Unknown Foreign share SECURITIES (HK) 6 LIU DAN 387,400 1,378,900 0.52 Circulating Unknown Foreign share 7 LIU YUAN 1,295,417 1,295,417 0.49 Circulating Unknown Foreign share 8 HUANG JIAN WEN 149,700 1,082,469 0.41 Circulating Unknown Foreign share 9 YI YING 0 1,078,200 0.41 Circulating Unknown Foreign share 10 HAN JIAN WEN 946,776 946,776 0.36 Circulating Unknown Foreign share

Notes: 1. In the report period, controlling shareholder of the Company remained unchanged and is Shandong Group Corporation of Fishery Enterprises (hereinafter referred to as Fishery Group), whose 37,731,320 shares of state-owned legal shares accounting for 14.18% of general equity of the Company, Shandong Luyin Investment Holding Co., Ltd. (hereinafter referred to as Luxin Holding) won the biding for the said shares in auction held by CAN at price of RMB 0.232 per share with business done amounting to RMB 8.76 million on June 17, 2005, which auction deal would make Luxin Holding the 2nd largest shareholder of the Company. Ended the disclosure date of the report, transferring ownership of share equity didn’t finished yet.

2. Shandong Group Corporation of Fishery Enterprises holds amounting to 88,000,000 state-owned legal person’s shares, taking up 33.07% of general share equity of the Company and was juridical frozen continuously in the report period.

4 3. Among the top ten shareholders, Shandong Group Corporation of Fishery Enterprises and China Heavy Automobile Group Jinan Truck Co., Ltd. are sponsor 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. (II) Particulars about shares held by the top ten shareholders of circulation share Number of circulation Type (A-share, No. Full name of Shareholders shares held at the B-share, H-share period-end and other)

1 LINAG YU ZHEN 1,996,900 B-share

2 XU XIN HU 1,964,798 B-share

3 SHANGHAI WAN SECURITIES (HK) 1,479,431 B-share

4 LIU DAN 1,378,900 B-share

5 LIU YUAN 1,295,417 B-share

6 HUANG JIAN WEN 1,082,469 B-share

7 YI YING 1,078,200 B-share

8 HAN WEN JIAN 946,776 B-share

9 WANG JING HU 850,000 B-share

10 HUANG JIA YI 729,119 B-share Among the top ten shareholders of circulation share, the Company is unknown whether there exists associated relationship or whether they belong to the consistent actor regulated by the Management Measure of Information Disclosure on Change of Shareholding for Listed Companies.

Section IV. Particulars about Directors, Supervisors and Senior Executives I. In the report period, directors, supervisors and senior executives of the Company did not hold the Company’s shares. II. In the report period, directors, supervisors and senior executives of the Company remained unchanged.

Section V. Discussion and Analysis of the Management I. Analysis of the Management to the operating results and financial position

5 In the first half year of 2005, the Company totally realized total volume of fishing amounting to 17095.71 tons, an increase of 5610.29 tons comparing with the same period of last year; realized income from main operations amounting to RMB 83.63 million, a decrease of 42.54 million over the same period of last year. In the report period, in working place of “TAI’AN” wheel, Argentina labor union endlessly organized national sailors going a strike, main engine of “TAI FU” wheel outburst trouble, “TAI SHOU” wheel went on castle receiving heavy repair, Due to increase in international price of oil and decrease in consolidated scope caused by transfer of trade branch company, profit from main operations decreased by 41.52% over the same period of last year, amounting to RMB 16.76 million; profit from other operations was RMB 0.45 million. In the report period, the Company adopted measures of decreasing expense and increasing efficiency and compressing expenditure, which made period cost decrease 30.50% over RMB 26.15 million the same period of last year; deficit amounted to RMB 3.28 million in the report period. II. Main operations in the report period (I) Main operations scope The Company is a comprehensive enterprise mainly engaging in oceanic fishing, business scope: ocean fishing; leasing ships for fishing and refrigerate vessel, import and export of marine products, processing and refrigeration of marine products and others. (II) Condition of main operations In the report period, income from main operation, profit from main operation of the Company is classified according to business segments and products as follows: 1. In business segments Unit: RMB Business segments Income from main Cost from main Gross profit rate operations operations (%) Oceanic fishing 44,588,704 39,457,555 11.51 Aquatic products trade 1,945,428 1,678,129 13.74 Lease and management of refrigerated vessel 20,160,735 12,236,089 39.31 Processing, refrigeration of aquatic products and others 16,931,688 12,869,519 23.99

2. In product segments Unit: RMB Products Income from main Cost of main Gross profit ratio (%) operations operations Tunny 41,323,852 36,227,474 12.33 Spanish mackerel 3,867,139 2,670,934 30.93 Mian fish 1,622,828 1,449,263 10.69

(III) Changes in main operations and profit structure etc. in the report period and reasons

6 Items Report period Same period of last Change ratio (%) year Income from main operations 83,626,554 125,648,824 -33.44 Profit from main operations 16,761,967 28,660,610 -41.52 Net profit -3,276,070 2,568,262 -227.58 Net increase in cash and cash equivalents -5,449,908 367,611 -1582.52

1. In the report period, income from main operations decreased by 33.44%, of which, the Company realized income amounting to RMB 44.59 million in oceanic fishing, a decrease of 31.93% over the same period of last year, which was because that the Company transferred consolidated assets of trade branch company, Argentina labor union endlessly organized national sailors going a strike in working place of “TAI’AN” wheel, main engine of “TAI FU” wheel outburst trouble, “TAI SHOU” wheel was laid up for heavy repair, and prices of fishes falling down.

2. In the report period, the profit from main operations decreased by 41.52% over the same period of last year and net profit decreased by 227.58%, which was because that Argentina labor union endlessly organized national sailors going a strike in working place of “TAI’AN” wheel, main engine of “TAI FU” wheel outburst trouble, “TAI SHOU” wheel was laid up for heavy repair, international oil price rising and the Company transferred consolidated assets of trade branch company.

3. Net increase in cash and cash equivalents decreased over the same period of last year, which was mainly due to bank loans refund.

IV. In the report period, there were no share-holding companies that leaded influence of net profit over 10% (including 10%) due to investment income.

V. Problems and difficulties occurred during Company’s operation. In the report period, issues of long-term assets occupied by large shareholder and its related party didn’t settle, bank only took back but no loan for us, part of working ships has laid up for repairs, which increased the maintenance expense; price of fuel and oil rising up increased the fishing cost, etc., these resulted in certain difficulties on operation produce of the first half year; otherwise, work for reorganization moved along slowly, large amount of capital occupied by large shareholder could not repay on time, the Company had no way to change operation environment, the normal operations has been affected; additionally, lawsuits of loan from bank was overdue, which would halt the normal operations of the Company and endangered assets and staff securities of ships working in ocean if lawsuits were enforced.

II. Investments

7 (I) Use of the raised proceeds In the report period, there existed no investment project by raised proceeds or use of raised proceeds deferred to this report period from previous report period.

(II) The Company had no material investment project of raised proceeds.

III. The Company had not disclosed the profit prediction and annual operating plan in regular report or other public notice.

IV. Calculated originally, it estimated that accumulated net profit from the year-begin to next report period was deficit, the detailed data would be disclosed in the 3rd quarterly report of the Company 2005.

V. Explanation of the Management on changes and disposals of the issues involved in the auditing opinion from the certified public accounts in financial report for 2004

Hubei Daxin CPAs Co., Ltd. issued unqualified with emphatic paragraph of modified report for Company in 2004. Audit opinion involved in accumulated large amount deficits and flow liabilities exceeding flow assets, capitals occupied by large shareholder and related party and large amount overdue loan from bank, etc., in the report period, the aforesaid condition didn’t changed obviously. However, senior executives of the Company financed from customers through hard work, did everything to compress expenses, tamped inner management, dispatched scientifically ships in the ocean, made the great effort to improve capacity of sustainable operations, at present, the operations of the Company going right. The Company are actively matching relationship of various parties, speeding up the progress of reorganization, and settled down the aforesaid problems step by step. Section VI. Significant Events I. Corporate governance Corporate governance in the report period In the report period, according to requirements of relevant laws and regulations coming from Company Law of the P.R.C., Securities Law of the P.R.C., Rules on Administration of Listed Companies, the Company endlessly perfected legal person administrative structure of the Company and regulated operations of the Company. In the report period, according to rules for share’s listing, and so on documents promulgated by CSRC and Shenzhen Stock Exchange amended and perfected Articles of Association, Work System for Independent Directors, Administrative Measure of External Guarantee, System for Related Transaction, and so on, a series of regulations and systems, corporate governance of the Company was basically in accordance with relevant documents promulgated by CSRC.

II. Implementation of 2004 Profit Distribution Plan The Company did not distribute profits nor convert public reserve into share capital in 2004.

III. 2005 Medium-term Distribution Preplan The Company would neither distribute profits nor convert public reserve into share capital in the medium-term of 2005. IV. Material lawsuits and arbitrations (I) In the report period, the Company is ruled by Jinan Intermediate People’s Court, Shandong province in paper of civil judgment JMSCZ【2004】 No. 175 that the Company shall pay off RMB 28 million of loan principals and RMB 539,069.24 of interests to the plaintiff, Jinan Construction Bank within 10 days starting from the effective day of judgment on the dispute arising out of loan agreement between the Company and Construction Bank of China, Zhenzhuquan branch of Jinan city (namely Jinan Construction Bank); the Marine Products Group shall bear joint and several responsibility of repayment for the loan. Acceptance charges and attachment charges on the lawsuit are RMB 152,855 and RMB 143,215 respectively, total of which amounting to RMB 296,070 shall be shared between the two defendants. (II) In the report period, the Company is ruled by Jinan Intermediate People’s Court, Shandong province in paper of civil judgment JMSCZ【2004】No. 87 that the Company shall pay off RMB 4 million of loan principals, RMB 182,613.42 of interests and RMB 20,000 of economic losses to the plaintiff, Jinan Bank of China Jinan branch (namely Jinan Bank of China) within 10 days starting from the effective day of judgment on the dispute arising out of loan agreement between the Company and namely Jinan Bank of China; the Shanhai Trading Company shall bear joint and several responsibility of repayment for the loan. The acceptance charges and attachment charges on the lawsuit are RMB 30,050 and RMB 21,270 respectively, total of which amounting to RMB 21,270 shall be shared between the Company and Shanhai Trading Company. Particular about above-mentioned two lawsuits have been published on Securities Times and Ta Kung Pao dated Feb. 19, 2005. These two lawsuits have certain influence on the profit of the Company in the current period and after the current period. (II) In the report period, the Company is ruled by Jinan Tianqiao District Intermediate People’s Court, Shandong province in paper of civil judgment TMYCZ【2005】No. 127 that 5% of Shandong Zhonglu Marine Products Shipping Co., Ltd’ equities held by Marine Products Group shall be sequestrated on the dispute arising out of loan agreement between the Company and Shandondg Marine Products Enterprise Gneral Company of the Group (namely Marine Products Group). (IV) In the report period, the Company is ruled by Jinan Tianqiao District Intermediate People’s Court in paper of civil judgment TMYCZ【2005】No. 243 that the land on Huaihai Rd 27-2, Longkou city owned by Shandong Longkou Comprehensive Marine Products Company in 48133.45 square meters shall be sequestrated. Particular about above-mentioned two lawsuits have been published the 1st Quarterly Report 2005. These two lawsuits are beneficial for the guarantee of shareholders’ interests, and they have no influence on the profit of the Company in the current

9 period and no great influence on the profit of the Company after the current period either. (V) In the report period, the Company is ruled by Qingdao South District Intermediate People’s Court in paper of civil judgment NMCZ【2005】No. 20493 that Qingdao Shipping Branch of the Company: 1, shall pay off RMB 1 million of principals and default charges accounted from the loan maturity day March 21, 2005 to the effective day of judgment to the plaintiff within 10 days starting from the judgment effective day; 2, shall pay the lawyer RMB 30,000 for agency fee within 1 day starting from the judgment effective day; 3, Qingdao Shuangjin Chemicals Co., Ltd shall bear related responsibility of repayment; 4, the acceptance charges on the lawsuit of RMB 15,010 shall be shared between Qingdao Shipping Branch of the Company and Qingdao Shuangjin Chemicals Co., Ltd. (VI) In the report period, the Company is ruled by Qingdao South District Intermediate People’s Court in paper of civil judgment NMCZ【2005】No. 20487 that Qingdao Frozen Storage Branch of the Company: 1, shall pay off RMB 3 million of principals and default charges accounted from the loan maturity day December 21, 2003 to the effective day of judgment to the plaintiff within 10 days starting from the judgment effective day; 2, shall pay the lawyer RMB 90,000 for agency fee within 1 day starting from the judgment effective day; 3, Qingdao Shuangjin Chemicals Co., Ltd shall bear related responsibility of repayment; 4, the acceptance charges of the lawsuit amounting to RMB 25,010 shall be shared between Qingdao Frozen Storage Branch of the Company and Qingdao Shuangjin Chemicals Co., Ltd. (VII) In the report period, the Company is ruled by Qingdao South District Intermediate People’s Court in paper of civil judgment NMCZ【2005】No. 20488 that Qingdao Fishing Branch of the Company: 1, shall pay off RMB 2 million of principals and default charges accounted from the loan maturity day December 21, 2003 to the effective day of judgment to the plaintiff within 10 days starting from the judgment effective day; 2, shall pay the lawyer RMB 60,000 for agency fee within 1 day starting from the judgment effective day; 3, Qingdao Shuangjin Chemicals Co., Ltd shall bear related responsibility of repayment; 4, the acceptance charges of the lawsuit amounting to RMB 20,010 shall be shared between Qingdao Fishing Branch of the Company and Qingdao Shuangjin Chemicals Co., Ltd. The above-mentioned 3 lawsuits have no great influence on the profit of the Company in the current period and after the current period.

V. Material related transactions (I) Transfer of state-owned legal person’s share On December 21, 2004, the controlling shareholder of the Company, Shandong Marine Product Enterprise General Company of the Group (namely Marine Product Group) and Shandong Luxin Investment Holding Co., Ltd (namely Luxin Holding) signed the Share Transfer Agreement. As per the agreement, Marine Product Group shall transfer 125731320 shares of state-owned legal person’s share (taking up 47.25% of the total capital stock) of the Company to Luxin Holding at the price of RMB 0.55 per share. On March 10, 2005, the two parties signed the Supplementary

10 Agreement to Share Transfer Agreement, as per which, Marine Product Group shall transfer 88,000,000 shares of state-owned legal person’s share (taking up 33.07% of the total capital stock) of the Company to Luxin Holding at the price of RMB 0.55 per share, and will not transfer the other 37,731,320 shares of state-owned legal person’s share (taking up 14.18% of the total capital stock) but submit for legal auction following the verdict of Shandong Superior People's Court. On June 17, 2005, Luxin Holding successfully purchased 37,731,320 shares of state-owned legal person’s share of the Company at the price of RMB 0.232 per share, of which total transaction amounts to RMB 8.76 million. By the report day, the share transfer has not been completed. Transfer of other 88,000,000 shares of state-owned legal person’s share has got approved by the government of Shandong Province; it has been submitted to the State-owned Assets Supervision and Administration Commission of the State Council for approval and it has not got approved by the report day. When the said share transfer is completed, Luxin Holding will become the controlling shareholder of the Company. In that case, the problem about principal shareholders owing long-term debts to the Company is to be solved gradually. With the advantages of Luxin Holding ‘s capital operation and information resources, the profitability of the Company will be further improved and its continuous operating capability will be enhanced.

(II) Sales of Boat 1. On Apr. 10, 2004, according to Boat Trade Agreement signed by the Company (Party A) and Zhoushan Dongyi Shipping Co., Ltd. (Party B), the Company sold its Boat “TAIYIN” to Party B with RMB 993,000, which has been accounted. The net gains and losses from sales of boat is RMB-517，400. 2. As for sales of two freezing trawler ships mentioned in the previous report period, the Company has collected USD 800,000 accounts, with HKD 800,000 outstanding yet by this report period. (III) Acquisition of shares by HABITAT On May 30, 2005, the foreign exclusively invested subsidiary (Panama) of the Company (namely HABITAT corp.) and SHANSHUI ENTERPRISE PTY LTD (namely Shanshui Co.) which is affiliated with the controlling shareholder, Shandong Marine Product Enterprise General Company of the Group (namely Marine Product Group) signed the Share Transfer Agreement. Object of this agreement is that Shanshui Co. transfers 25.85% of Shandong Zhonglu (Yantai) Foods Co., Ltd (hereinafter referred to as Yantai Foods) equities with total amount of RMB 7,460,495.16. This transaction makes a related transaction. The Share Transfer Agreement was discussed and approved at the 19th Meeting of the 2nd Board of the Company. On June 23, 2005, Shanshui Co. wrote a letter to Yantai Foods and HABITAT Corp., expressing its opinion that Shanhui Co. agreed to repay RMB 7,460,495.16 loan to Yantai Food on behalf of Marine Product Group. In order to settle related credits and liabilities, Shanshui Co. demanded HABITAT Corp. to transfer aforementioned equities at the price of 7,460,495.16 in total to Yantai Foods, which is applied to offset

11 RMB 7,460,495.16 loans repaid by Shanshui Co. on behalf of Marine Product Group. Afterwards, Shanshui Co. will not demand HABITAT to pay for this share transfer but regard it has received the relate amount instead. On June 23, 2005, the said share transfer was approved by the management committee of Yantai Economic and Technological Development Zone who agreed Shanhui Co. transferring its total equities of Yantai Foods to HABITAT Corp. and considered the Share Transfer Agreement being effective. On July 19, 2005, related procedures for the registration change of industrial and commercial enterprise was finished and the share transfer was completed with its implementation. This transaction can enrich the capitals of Yantai Foods, help the enterprise go through the annual examination fluently, which is beneficial for the corporate development. The said equities have engendered RMB 1.68 million to the net profits of the Company.

VI. Material related transactions (I) Related transactions 1. Tender offer of HABITAT Please refer to Item 5 (III) of this section for details. 2. For particulars about other related transactions, please refer to “Relationships of related parties and their transactions” in Notes (V) of accounting statements in financial report. (II) Credit and liability current of related parties In the report period, the Company provided accrued capitals amounting to RMB 2,493,732 to its controlling shareholder and its subsidiaries, which mainly include the collected TAI’AN lease income by the related party, Prodesur S.A. and the employees’ salary advanced for the frozen storage branch factory of Qingdao Oceanic Fishing Co., Ltd to be paid back later, the overall social planning and general public reserve, with balance of RMB 296,335,848.

(III) Implementation of related transactions In the report period, the fish product transactions with Prodesur S.A. decreased as the TAI’AN Boat came out a crew strike at the worksite of Argentina that caused the output decrease. Type of Classified by Estimated total Accrued amount in related products or Related party amount the report period transactions service provision （RMB’0000）（RMB’0000） Fish Meat Paste Products、fish Prodesur S.A. 2100 0 powder、frozen Sourcing fish 2150 raw material Resources required by Prodesur S.A. 50 32 ordinary fishing trade Mandatory Rental turnover Prodesur S.A. 300 300 183

12 Management

(IV) There was no purchase and sales of fixed assets between the Company and related parties in the report period. (V) There was no other material related transaction.

VII. Significant contracts and contract implementation (I) No such conditions occur as trusting, contracting and leasing in the report period. (II) In the report period, the Boat Trade Agreement signed by the Company about the sales of TAIHUI has been completed its implementation. Please refer to Item V (II) of this section for details. (III) Guarantees 1. Internal guarantees In the report period, the Company did not provide guarantees for its shareholding subsidiaries. By the report period, balance of accumulated amount of guarantee totals RMB 9 million. 2. External guarantees In the report period, the Company did not provide guarantees for its shareholding subsidiaries. By the end of report period, the balance of accumulated amount of external guarantee totals RMB 71.51 million. 3. Illegal guarantees In the report period, the Company did not provide illegal guarantees. By the end of report period, the total amount of illegal guarantee is RMB 71.51 million. (1) The Company provided guarantees for RMB 21.51 million long-term loan borrowed by its subsidiary (subsidiary of Shandong Marine Product Enterprise General Company) which is formerly the Qingdao Haiyu Co., Ltd before the restructure and system transform. Ended June 30, 2005, this guarantee is not called off. In view of Qingdao Haiyu Co., Ltd unable to cover its debts with its capitals, the Company probably has to bear joint and severe responsibility of repayment. (2) The Company provided guarantees for RMB 50 million long-term loans borrowed by its former subsidiary, Qingdao Shuangjing Chemicals Co., Ltd. As the Company sold equities of Qingdao Shuangjing Chemicals Co., Ltd, the said guarantee was therefore converted to external guarantee. (Notes: during the share transfer, the Company has called of the mutual guarantees with Zhongchanjing Investment Co., Ltd, and related procedures are under way.) The above-mentioned guarantees are formed due to historical reasons. The large withdrawal of bad debt reserve brings down net capitals of the Company, makes the total accumulated guarantees leftover from history exceeding 50% of the net capitals and finally caused illegal guarantees. (IV) Mandatory financing The Company neither commissioned others to manage its cash capitals, nor had any material mandatory financings in the report period or those prior to but lasting to the report period. VIII. Commitments In the report period, the controlling shareholder of the Company, Shandong Marine

13 Product Enterprise General Company of the Group committed that RMB 10,006,511 of accounts receivables repaid by Shandong Marine Product Enterprise General Company of the Group and its subsidiaries to the Company shall be paid off by Dec 31, 2005. The said commitment has not been fulfilled by the report day.

IX. Capital of the Company occupied by the controlling shareholder and other related parties Due to assets reorganization since establishment of the Company and all business current after its establishment, there formed large quantities of arrearages owed by enterprises of related parties to the Company. In the report period, arrearage of related parties receivable was decreased RMB 5,278,378. By the end of the report period, in accounts receivable and other receivables of the Group, the balance receivable from related parties totally amounted to RMB 296,297,849. The Company has withdrawn special reserve for bad debts and ordinary reserve for bad debts, which totally amounted to RMB 210,656,153.

X. 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, 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 the report period, the Company can regulate its action of external guarantees; strictly control the risk in external guarantees abiding by the regulations in the Articles of Association and Management System of External Guarantees. In the current period, No such conditions occur as new guarantees for controlling shareholder and related parties, any non-legal person unit or individuals who hold less than 50% of total equities of the Company. It is also noticed that the Company has provided below external guarantee by June 30, 2005; 1. The subsidiary of the Company provided guarantees of RMB 21.51 million long-term loans for Qingdao Haiyu Fishing Co., Ltd. It is known that the said guarantee occurred before the Company restructure for listing. The Company has made a large amount of work for the said guarantee and has accounted the total amount of guarantee to the estimated liabilities. 2. The Company provides guarantees of RMB 50 million loans for Qingdao Shuangjing Chemicals Co., Ltd. It is known that Qingdao Shuangjing Chemicals Co., Ltd is original controlling subsidiary of the Company. The said guarantee occurred in Feb. 2002 was an internal guarantee. In August 2003, the Company transferred Qingdao Shuangjing Chemicals Co., Ltd to Zhongchanjing Investment Co., Ltd, and the said internal guarantee is converted to an external guarantee. According to the Share Transfer Agreement signed by the two parties, the two parties agreed to unburden the responsibility of mutual guarantees, and the relate process is currently

14 under way. It is considered that the Company does not disobey aforementioned regulations in the said guarantee. The Company has been prompted to fulfill the formalities of calling off the said guarantee and pay continuous attention to the solutions of this event. Besides, the Company provided guarantees of RMB 9 million long-term loans for its subsidiary, Shangdong Zhonglu Oceanic (Yantai) Foods Co., Ltd. The said guarantee is an internal guarantee carrying no conditions that disobey the Articles of Association and No.56 document of CSRC. All in all, by the end of the report period, the total amount of accumulated guarantee is RMB 80.51 million with RMB 43.43 illegal guarantees.

Independent Directors: Wang Hanmin, Jiang Jin & Jiang Lu Aug. 9, 2005

XII. Indexes of information on important events In the report period, all the important events of the Company were published on Securities Times, Ta Kung Pao and http://www/cninfo.com.cn with details as follows: Notice No. Name of notice Time of notice 2005-002 Amendment for Performance Predicts of 2004 Jan. 25, 2005

2005-003 Public Notice on Process of Lawsuits Feb. 19, 2005

2005-004 Public Notice on Process of Transferring Equity of Mar. 11, 2005 State-owned Legal Person’s Shares th 2005-006 Public Notice on Resolutions of the 17 Meeting of Apr.16, 2005 the 2nd Board 2005-007 Public Notice on Routine Related Transaction of 2005 Apr. 16, 2005

2005-008 Notification on Convening the 2004 Annual Apr. 16, 2005 Shareholders’ General Meeting th 2005-019 Public Notice on Resolutions of the 10 Meeting of Apr. 16, 2005 the 2nd Supervisory Committee 2005-010 Public Notice on Process of Transferring Equity of Apr.21, 2005 State-owned Legal Person’s Shares 2005-012 Public Notice on Withdrawing Risk Caution on Apr.27, 2005 Quitting Share Listing of the Company 2005-015 Public Notice of Resolution on the 2004 Annual May 21, 2005 Shareholders’ Company 2005-016 Public Notice on Process of Transferring Equity of May 24, 2005 State-owned Legal Person’s Shares th 2005-017 Public Notice on Resolutions of the 19 Meeting of Jun. 3, 2005 the 2nd Board 2005-018 Public Notice of Related Transaction on HABITAT Jun. 3, 2005 Purchasing Share Equity

15 2005-019 Clue on Auction of Legal Person’s Shares Jun. 7, 2005

2005-020 Public Notice on Auction Results of Legal Person’s Jun. 18, 2005 Shares 2005-022 Amendment on Performance Predict of Half year 2005 Jul. 13, 2005

SECTION VII. Financial Report (Un-audited) I. Accounting statements Balance Sheet Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Jun.30, 2005 Unit: RMB Jun. 30, 2005 Dec. 31, 2004 Items Consolidation Parent Company Consolidation Parent Company Current assets: Monetary funds 16,527,450 3,480,491 21,977,358 9,029,929 Short-term investment 45,432 45,432 45,432 45,432 Notes receivable 200,000 200,000 Dividend receivable Interest receivable Accounts receivable 22,612,576 19,841,421 33,954,457 28,908,871 Other receivables 110,827,433 116,029,804 113,583,100 130,279,309 Accounts in advance 6,967,711 2,527,590 3,922,807 2,755,161 Subsidy receivable 38,908 38,908 21,717 - Inventories 42,396,031 31,709,089 43,612,884 37,541,152 Expenses to be apportioned 1,344,555 1,299,796 913,894 909,720 Long-term bonds investment due within one year Other current assets Total current assets 200,760,096 174,972,531 218,231,649 209,669,574 Long-term investment: Long-term equity investment 3,300,000 90,578,887 3,300,000 78,919,036 Long-term credit investment Total long-term investment 3,300,000 90,578,887 3,300,000 78,919,036 Including: consolidation variance Fixed assets: Fixed assets-original value 495,091,374 341,097,614 502,032,509 349,306,902 Less: accumulative depreciation 200,583,434 152,932,739 191,414,329 146,911,527 Fixed assets-net value 294,507,940 188,164,875 310,618,180 202,395,375 Less: provision for devaluation of 31,379,197 31,379,197 33,551,554 33,551,554 fixed assets Fixed assets-net amount 263,128,743 156,785,678 277,066,626 168,843,821 Engineering material Construction in progress 2,905,082 2,774,829 66,000 66,000

16 Disposal of fixed assets Total fixed assets 266,033,825 159,560,507 277,132,626 168,909,821 Intangible and other assets: Intangible assets 9,036,755 33,480 9,171,446 43,960 Long-term expenses to be apportioned Other long-term assets Total intangible and other assets 9,036,755 33,480 9,171,446 43,960 Deferred tax Deferred tax-debit Total assets 479,130,676 425,145,405 507,835,721 457,542,391 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Consolidated Balance Sheet (Con.) Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Jun.30, 2005 Unit: RMB Jun. 30, 2005 Dec. 31, 2004 Items Consolidation Parent Company Consolidation Parent Company Current liabilities: Short-term loans 237,168,946 207,368,946 240,168,957 211,868,946.00 Notes payable Accounts payable 14,606,943 11,781,180 24,498,109 23,577,369 Prepaid accounts 262,000.00 262,000 304,783 304,783 Wage payable 13,959,101 13,181,234 13,913,067 11,348,074 Welfare funds payable 1,172,063 1,131,881 1,408,329 1,408,329 Dividend payable 459,330 459,330 459,330 459,330 Taxes payable 2,303,266 1,194 2,091,701 41,325 Other duties payable 14,941 5,719 8,829 6,427 Other accounts payable 35,676,842 30,131,520 51,717,690 52,233,914 Accrued expenses 18,839,043 17,214,813 9,410,236 9,410,236 Projected liabilities 21,510,000 21,510,000 21,510,000 21,510,000 Long-term liabilities due within one 23,793,688 23,793,688 23,793,688 23,793,688 year Other current liabilities Total current liabilities 369,766,163 326,841,505 389,284,719 355,962,421 Long-term liabilities: Long-term loans 24,830,400 24,830,400 24,830,400 24,830,400 Bonds payable Long-term payables Special funds payables Other long-term liabilities Total long-term liabilities 24,830,400 24,830,400 24,830,400 24,830,400 Deferred tax Deferred taxed-credit

17 Total liabilities 394,596,563 351,671,905 414,115,119 380,792,821 Minority interests 10,386,663 16,971,032 Shareholders’ equity： Share capital 266,071,320 266,071,320 266,071,320 266,071,320 Less: restored investment Share capital – Net amount 266,071,320 266,071,320 266,071,320 266,071,320 Capital public reserve 202,869,064 202,195,114 202,195,114 202,195,114 Surplus public reserve 21,822,075 19,184,673 21,822,075 19,184,673 Including: statutory welfare funds 7,274,025 7,319,769 7,274,025 7,319,769 Unconfirmed investment loss Retained profit -416,615,009 -413,977,607 -413,338,939 -410,701,537 Total shareholders’ equity 74,147,450 73,473,500 76,749,570 76,749,570 Total liabilities and owner’s equity 479,130,676 425,145,405 507,835,721 457,542,391 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Statement of Profit and Profit Distribution Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Unit: RMB Jan. to Jun. 2005 Jan.-Jun.2004 Items Consolidation Parent Company Consolidation Parent Company I. Income from core business 83,626,554 52,423,405 125,648,824 95,867,201

Less: Cost of core business 66,241,293 46,596,766 96,403,771 74,861,247

Taxes and extras of core business 623,294 140,866 584,443 250,900

II. Profit from core business 16,761,967 5,685,773 28,660,610 20,755,054

Add: Profit from other business lines 453,564 455,369 932,891 493,142

Operating expenses 6,150,518 5,548,305 6,403,190 6,186,146

Administrative expenses 3,238,475 7,288,680 11,883,295 8,992,088

Financial expenses 8,790,823 7,686,622 7,858,830 6,808,898

III. Operating profit -964,285 -14,382,465 3,448,186 -738,936

Add: Investment income 11,659,852 4,290 3,585,280

Subsidy income

Non-operating income 23,375 8,520 159,198 154,806

Less: non-operating expenditure 523,705 518,705 396,391 396,391

IV. Total Profit -1,464,615 -3,232,798 3,215,283 2,604,759

Less: Income taxes 43,272 229,359 36,497 261,379 Minority interests 1,550,076 417,662

V. Net profit -3,276,070 -3,276,070 2,568,262 2,568,262

Add: Retained profit at the begin of the year -413,338,939 -410,701,537 -416,728,523 -414,099,755 Transferred from others

VI. Profit available for distribution -416,615,009 -413,977,607 -414,160,261 -411,531,493

18 Less: Allotted statutory surplus public reserve

Allotted statutory public welfare funds

Allotted employee’s bonus and welfare funds

Allotted reserve funds

Allotted funds of enterprise development VII. Profit available for distribution to -416,615,009 -413,977,607 -414,160,261 -411,531,493 shareholders

Less: dividend of preference share payable Allotted arbitrary surplus public reserve

Dividend of common share payable Dividend of common share transferred as share capital

VIII. Retained profit -416,615,009 -413,977,607 -414,160,261 -411,531,493 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Supplement information:

Items Accumulated amount in this year Actual amount last year I. Profit from selling and disposing branch or investees II. Loss from natural disaster III. Increase (or decrease) in total profit due to changes of accounting policies IV. Increase (Decrease) in total profit due to changes of accounting estimation V. Loss on debts restructure VI. Others Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Statement of Cash Flow Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Jan. to Jun. 2005 Unit: RMB Items Consolidated Parent Company I. Cash flows arising from operating activities: Cash received from selling commodities and providing labor services 58,337,693 37,569,549 Write-back of tax received 117,417 Other cash received concerning operating activities 42,207,264 21,219,925 Subtotal of cash inflows 100,662,374 58,789,474 Cash paid for purchasing commodities and receiving labor service 36,172,704 24,880,812 Cash paid to / for staff and workers 11,588,445 7,782,742 Various taxation paid 1,411,733 624,940 Other cash paid concerning operating activities 50,358,962 25,276,993

19 Subtotal of cash outflows 99,531,844 58,565,487 Net cash flows arising from operating activities 1,130,530 223,987 II. Cash flows arising from investment activities: Cash received from recovery of investment Cash received from investment income Cash received from disposal of fixed, intangible and other long-term 1,004,031 984,031 assets Other cash received concerning investment activities Subtotal of cash inflows 1,004,031 984,031 Net cash paid for purchasing fixed, intangible and other long-term assets 3,094,589 1,782,216 Cash paid for investments Other cash paid concerning investment activities Subtotal of cash outflows 3,094,589 1,782,216 Net cash flows arising from investment activities -2,090,558 -798,185 III. Cash flows arising from financing activities: Cash received by absorbing investment Cash received from loans 19,000,000 Other cash received concerning financing activities Subtotal of cash inflows 19,000,000 Cash paid for settling debts 22,000,000 4,500,000 Cash paid for dividends or profit distributing, repayment of interest 1,489,880 475,240 Other cash paid concerning financing activities Subtotal of cash outflows 23,489,880 4,975,240 Net cash flows arising from financing activities -4,489,880 -4,975,240 IV. Influence on cash from fluctuation in exchange rate V. Net increase of cash and cash equivalents -5,449,908 -5,549,438 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Supplement Statement of Cash Flow Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Jan. to Jun., 2005 Unit: RMB Items Consolidated Parent Company I. Adjusting net profit to cash flows for operating activities

Net profit -3,276,070 -3,276,070

Minority interests 1,550,076

Add: allotted provisions for devaluation of assets -7,460,496 -7,460,496

Depreciation of fixed assets 11,223,885 8,611,913

Amortization of intangible assets 134,691 10,480

Amortization of long-term expenses to be apportioned

Decrease of expenses to be apportioned (Less: increase) -430,661 -390,076

Increase of accrued expenses (Less: decrease) 9,428,807 7,804,577

Losses on disposal of fixed assets, intangible assets and other 494,372 508,833

20 long-term assets (Less: income)

Loss on reject of fixed assets

Financial expenses 1,489,880 475,240

Investment loss (Less: income) -11,659,852

Credit item of deferred taxes (Less: debit item)

Decrease of inventories (Less: increase) 1,216,853 5,832,063

Decrease of receivables in operation (Less: increase) 18,695,949 15,856,460

Increase of payables in operation (Less: decrease) -31,936,756 -16,089,085

Others

Net cash flows arising from operating activities 1,130,530 223,987 II. Investment and financing activities with no cash incomings/outgoings involved

Capital transferred from debts

Convertible company bonds due within one year

Fixed assets leasing for financing

III. Net increase of cash and cash equivalents

Balance of cash at the end of the report period 16,527,450 3,480,491

Less: Balance of cash at the begin of the report period 21,977,358 9,029,929

Add: Balance of cash equivalents at the end of the report period

Less: Balance of cash equivalents at the begin of the report period

Net increase of cash and cash equivalents -5,449,908 -5,549,438 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

Consolidated Provision for Depreciation of Assets Prepared by Shandong Zhonglu Oceanic Fishery Company Limited Jun.30, 2005 Unit: RMB Decrease in 2005 Switching Transferrin Balance at Increase in back due to Amount at Items g out due to year-begin 2005 recovered Total year-end other price of reasons assets Ⅰ. Total reserve for bad debts 230,826,744.00 - 7,460,496 7,460,496 223,366,248 Including: Accounts receivable 8,215,945.00 - 8,215,945 Other receivables 222,610,799.00 7,460,496 7,460,496 215,150,303 Ⅱ. Total reserve for falling price of 37,926.00 - - - 37,926 short-term investment Including: Stocks investment 37,926.00 37,926 Bonds investment Ⅲ . Reserve for falling price of 890,222.00 - - - 890,222

21 inventories

Including: finished foods 299,148.00 299,148 -

Raw materials 591,074.00 591,074 - In-process products - - Deferred ocean fishing - - cost Ⅳ. Total reserve for devaluation of 29,700,000.00 - - 29,700,000 long-term investment - Including: Long-term equity 29,700,000.00 - 29,700,000 investment Long-term debt investment - - Ⅴ. Total reserve for devaluation of 33,551,554.00 - 2,172,357 31,379,197 fixed assets 2,172,357 Including: Building 3,173,092.00 - 3,173,092 Machinery and fishing equipment 488,850.00 - 488,850 Transportation equipment - Electronic instruments - Ships 29,889,612.00 2,172,357 2,172,357 27,717,255 Ⅵ . Reserve for devaluation of - - - - intangible assets Including: Patent right - - Trademark right - Ⅶ . Reserve for devaluation of - - construction in progress Ⅷ . Reserve for devaluation of - - commission loan

295,006,446.00 - 9,632,853 285,373,593 IX. Total 9,632,853 Legal representative: Liu Changsuo Chief financial executive: Zhang Jinqing Person in charge of accounting institutes: Wu Shuxian

22 II. Notes to accounting statements (I) Explanation on accounting policies The accounting statements of this report period adopted the same accounting policies with those adopted in last year in which no change occurs. (II) Explanation on accounting estimation The accounting estimation of this report period does not change. (III) Explanation on accounting errors No material accounting errors occur in the report period. (IV) Characteristics of seasonal or periodical operations of the Company The marine products of the Company have their booming seasons in the 1st and 4th quarters, the sales of which are fairly good in other quarters. The long-range fishing is affected by the fishing seasons, the performance of which undulates across the year. (V) Association and transactions of the related parties 1. The related parties in controlling associations do not change. Shandong Marine Products Enterprise General Company of the Group still holds 47.25% of the Company’s equities as before. 2. Related parties in controlling associations

Name Relationship with the Company

Shandong Longkou Marine Products Integration Co. Sibling controlled by parent company

Qingdao Marine Fishery Co. Sibling controlled by parent company

SGCFE S.A. Sibling controlled by parent company

Shandong Haitian Marine Products Trade Co., Ltd. (Haitian) Sibling controlled by parent company

Shandong Shanhai Marine Products Trade Center Sibling controlled by parent company

Qingdao An’ning Ship Engineer Co., Ltd. Sibling controlled by parent company

Afrik---Shangdong Limited Co Sibling controlled by parent company

Qingdao Zhengxin Import & Export Co., Ltd. Sibling controlled by parent company

Qingdao Lubao Marine Products Food Co., Ltd. Sibling controlled by parent company

Qingdao Fishery Marine Products Processing Plant Sibling controlled by parent company

Qingdao Meilai Food Co., Ltd. Sibling controlled by parent company

Qingdao Haiyu Fishery Co., Ltd. Sibling controlled by parent company

Prodesur S.A. Sibling controlled by parent company

Longkou Tenglong Marine Products Co., Ltd. Sibling controlled by parent company

Qindao Animal Pharm. Co., Ltd. Sibling controlled by parent company

Qingyu Haifeng Shipping Co. Sibling controlled by parent company

Qindao Zhenyuan Ship Repairing Co., Ltd. Sibling controlled by parent company

23 SHANSHUI ENTERPRISE PIY LTD Sibling controlled by parent company 3. Related transactions (1) Sales transaction Unit: RMB’0000 Ratio to Price rule same type Influence on Related Price for Amount of and Contents Market price of the party transaction transaction method of transaction Company settlement (%) Qingdao Setting Sales of Haifeng RMB0.85/KWH 1.17 RMB0.53/KWH 51.77 price by 0.44 power Shipping Co. negotiation Qingdao Refrigerate Market Haifeng RMB 1.90/ton 4.08 RMB1.90/ton 8.10 0 lease price Shipping Co. (2) Other related transactions Unit: RMB’0000 Ratio to same type Price rule Influence Price for Amount of Market Related party Contents of and method on the transaction transaction price transaction of settlement Company (%) Advance Qingyu comapny assets for 57.50 89 0 another Entrusted Prodesur S.A 183.00 100 52 invcome An’ning Shipping Supply 7.10 11 0 company assets Marine Products Debts -746.05 746.05 Group transfer (3) Assets purchase Unit: RMB’0000 Net profit Assets equity Related Debt and liability The other party of contributed to listed Date of Price of involved was transaction and assets company from transaction or involved was purchase transaction purchased and sold purchase date to transferred not transferred or not sold date ownership or not

Habitat International Corp. Related purchased 20.44% shares transaction & held by Zhonglu Yantai Food 2005.5.30 746.05 168.09 Yes Yes setting price by company from ShanShui negotiation Enterprise Pty Ltd

(VI) Changes on the scope of consolidated accounting statement Zhonglu Trade Branch Company was dismissed.

24 (VII) Controlling subsidiary On June 30, 2004, the Company processes the following subsidiaries Unit: RMB Place of Proporti foundation/ on share Capital of Names of subsidiaries Registered capital Business scope registered holding investment date (%) Undertake to transporting Shandong Zhonglu Marine China/Jan.3, international 22，505，600 95 21，380，320 Products Shipping Co., Ltd 1994 shipping, refrigeration, marine products Habitat Self-running business Panama/Oct. International 12，476，146 100 12，476，146 of refrigerated 3, 1997 Corporation transportation Freezing, refrigerating, Shandong Zhonglu Oceanic China/Jun processing and sales 56，793，300 60.98 32，280，000 (Yantai) Food Co., Ltd 18, 2001 of marine products, birds and beast and melon and fruits, etc. (VIII) Main businesses classified according industries Unit: RMB’0000 Industries Income from main business Cost form main business Oceanic fishing 4,459.87 3,945.76 Marine products trade 194.54 167.81 Lease and management of refrigerated ships 2,016.07 1,223.61 Processing and refrigeration of marine products and others 1,693.17 1,286.95

(IX) Particulars about profit distribution among all shareholders 1. Implementation of profit distribution of 2004 The Company does not distribute profits in 2004, and does not convert general public reserves to increased capitals either. 2. Preplan of distribution in the metaphase of 2005 The Company does not distribute profits in the metaphase of 2005, and does not convert general public reserves to increased capitals either. （X）Main business classified according to areas Unit: RMB’0000 Increase/decrease in income from main Income from main Areas operations over the same period of last year operations (%)

Mainland of China 1,103.06 -77.43

Taiwan of China 3,159.46 20.54

Japan 3,111.26 25.00

Argentina 215.50 -66.39

25 Gambia 74.22 -91.69 Germany 44.78 Korea 155.79 Italy 92.48

Guinea 263.34

Singapore 142.77 Singapore Total 8,362.66

(XI) Notes to accounting subjects in consolidated statements 1. Account receivable 30,828,521 Less: 8,215,945 22,612,576 Analysis on accounting ages of account receivable (the Group)

Ages Amount Proportion Allowance for bad debts Within 6 months 13,747,961 44.60% 688,401 6 m.- 1 year 5,263,520 17.07% 526,352 1-2 years 6,881,330 22.32% 2,188,951 2-3 years 246,937 0.80% 123,468 Over 3 4,688,773 15.21% 4,688,773 Total 30,828,521 100% 8,215,945 2. Other account receivable 325,977,736 Less: allowance for bad debts 215,150,303 110,827,433 Analysis on accounting ages of other account receivable (the Group)

Ages Amount Proportion Allowance for bad debts Within 6m. 19,403,881 5.95% 1,362,091 6m.-1 year 21,776,991 6.68% 2,654,602 1-2 years 1,844,150 0.57% 1,223,192 2-3 years 101,140,478 31.03% 100,751,992 Over 3 years 181,812,236 55.77% 109,158,426 Total 325,977,736 100% 215,150,303 3. Detailed statement of allowance for depreciation of assets (the Group) Unit: RMB Decrease in 2005 Switching Balance at Increase in back due to Transferring Balance at Items year-begin 2005 recovered out due to Total year-end price of other reasons assets Ⅰ. Total reserve for bad debts 230,826,744 7,460,496 7,460,496 223,366,248

8,215,945 Including: Accounts receivable 8,215,945 Other receivables 222,610,799 7,460,496 7,460,496 215,150,303 Ⅱ. Total reserve for falling price 37,926 37,926 of short-term investment Including: Stocks investment 37,926 37,926 Bonds investment Ⅲ. Reserve for falling price of 890,222 890,222 inventories Including: finished foods 299,148 299,148 Raw materials 591,074 591,074 In-process products Deferred ocean fishing

cost Ⅳ. Total reserve for devaluation of 29,700,000 29,700,000 long-term investment Including: Long-term equity 29,700,000 29,700,000 investment Long-term debt investment Ⅴ. Total reserve for devaluation of 33,551,554 2,172,357 2,172,357 31,379,197 fixed assets Including: Building 3,173,092 3,173,092 Machinery and fishing equipment 488,850 488,850 Transportation equipment Electronic instruments Ships 29,889,612 2,172,357 2,172,357 27,717,255

Ⅵ . Reserve for devaluation of intangible assets Including: Patent right

Trademark right Ⅶ . Reserve for devaluation of construction in progress Ⅷ . Reserve for devaluation of commission loan IX. Total 295,006,446 9,632,852 9,632,852 285,373,593 4. Detailed table of income and cost of non-business (the Group)

Items Amount (RMB） Detailed income from non-business Disposal of fixed assets 23,374 Penalty income Waste material income

27 Penalty income Subtotal 23,374 Detailed income from non-business Disposal of fixed assets 517,353 Penalty Casual labor wages Donation expense Professional education cost Others 6,351 Subtotal 523,705

5. Period-charge: Unit: RMB Items In the report Same period of Increase/decrease Changes margin period last year （+、-）（%） Business cost 6,150,518 6,403,190 -252,672 -3.95 Management cost 3,238,475 11,883,295 -8,644,820 -72.75 Financial cost 8,790,823 7,858,830 931,992 11.86 Explanations: (1) The decrease in operation expenses is mainly due to the transfer-out of the trade branch of the Company, the freight decrease arising from the lease of fishing boat TAIPING BOAT and the cost control of the Company. (2) The decrease in administrative expenses is mainly due to the reserve for offsetting the special bad debts and transfer of trading branch of the Company. (3) The increase in financial expenses is mainly due to the interest rate on borrowings raised by banks. 6. Detailed table of financial cost Items Amount (RMB） Interest income -259,981 Interest cost 8,838,728 Gains and losses from exchange 67,990 Process fees 144,056 Others 30 Total 8,790,823

7. Receivables and other receivables from related parties (1) By June 30, 2005, the balance of total receivables and other receivables from related parties of the Group amounts to RMB 296,297,849. The Group has withdrawn RMB 210,656,153 as special bad debt reserve and general bad debt reserve. (2) Balance of receivables from related parties Account receivable Amount (RMB) 1. Shandong Marine Products Group Headquarter 300 2. Qingdao Oceanic Fishery Company 282,488

28 3. Prodesur S.A. (阿根廷) 7,450,091 4. Qingdao Fishery Marine Products Processing Plant 96,382 5. Qingyu Haifeng Shipping Company 395,265 Total 8,224,527

Other account receivable Amount （RMB） 1. Shandong Marine Products Enterprises Group Headquarter 158,534,632

2. Shandong Longkou Marine Products

Integration Co. 10,745,714

3. Qingdao Marine Fishery Co. 53,938,388

4. SGCFE S.A. 22,362,506 5. Qingdao An’ning Ship Engineer Co., Ltd. 1,737,318

6. Qingdao Fishery Marine Products

Processing Plant 7,761,350

7. Qingdao Meilai Food Co., Ltd. 3,819,698

8. Qingdao Haiyu Fishery Co., Ltd. 8,037,156

9. Prodesur S.A. 5,830,000

10. Longkou Tenglong Marine Products

Co., Ltd. 14,057,790

11. Qindao Animal Pharm. Co., Ltd. 345,544

12. Qingyu Haifeng Shipping Co. 500,427

13. Qingdao Lubao Marine Products Food

Co., Ltd. 402,799 Total 288,073,322

(3) Other account receivable Names of units Amount （RMB） Qindao Zhengxin Import & Export Co.,Ltd. 1,000,000 Qingdao Zhenyuan Ship Repair and Manufacurary 154,630 Co., Ltd. （4）paying in advance Names of units Amount （RMB） Qingdao Haiyu Fishery Co., Ltd. 38,000

8. Contingency

（1）external guarantees Warrantee Amount of guarantee Fixed time for loans (RMB’0000)

29 Qingdao Double Whale Pharm. 5000 2002.7-2006.7 Co., Ltd. （2）guarantees for subsidiary Warrantee Amount of guarantee (RMB’0000) Fixed time for loans Shandong Zhonglu Oceanic 2004.7-2005.9 900 (Yantai) Foods Co., Ltd. (XII) Explanation on non-adjustment events starting from the publishing day of the semi-annual balance sheet to the publishing day of the semi-annual financial report. Non-adjustment event did not occur in the report period. (XIII) Other material transactions or events On Apr. 10, 2004, according to Boat Trade Agreement signed by the Company (Party A) and Zhoushan Dongyi Shipping Co., Ltd. (Party B), the Company sold its tunny dragged ship with super low temperature Boat “TAIHUI” to Party B with RMB 993,000, which has been accounted. At present, the both parties have accomplished the boat transfer.

30 Section VIII. Documents available for reference (I) Original of Semi Annual Report carried with the personal signature of the Chairman of the Board of Directors; (II) Accounting statements carried with the signatures and seals of the legal representative, chief accountant and the person in charge of accounting organization; (III) Originals of all documents and manuscripts of public notices of the Company published on the newspapers and Internet websites designated by CSRC in the report period; (IV) Original of Articles of Association; (V) Other relevant information.

Chairman of the board: Liu Changsuo

Shandong Zhonglu Oceanic Fishery Company Limited