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• 1 Statutory Foundations
• 2 Accounting Principles and Standard of Valuation
• 3 Deviations from Balancing and Evaluation Methods
• 4 Explanations of Balance Sheet Items
• 5 Explanations of Statement of Operations Items
• 6 Other Information
• 7 Additional Information (Unaudited)

The development of the Company's fixed assets is shown in the following assets table:

Thanks to the positive development of the operating subsidiaries of SinnerSchrader AG, a permanent depreciation of the participation value is no longer to be expected as of 31 August 2005. Due to the appreciation order under commercial law according to Article 280 para. 1 of the German Commercial Code, the participation book value was appreciated by € 3.5 million to € 11.5 million.

As of 31 August 2004 the securities item was largely made up of shares in money market funds and similar funds with a residual term of less than one year, which are reported either at acquisition costs or at a value to be ascribed on the balance sheet date, whichever is lower. This stock was almost completely depleted as of 31 August 2005.

On 31 August 2005 the Company held 131,347 treasury stock with a calculated face value of € 131,347. They represent 1.14 % of the share capital. The treasury stock was acquired for an average price of € 1.53 and, with regard to use, is kept for the purposes cited in the relevant resolutions of the Annual Shareholders’ Meetings.

The treasury stock is either entered in the balance sheet at acquisition cost or at the value to be ascribed, whichever is lower. Accordingly, the number of treasury stock on 31 August 2005 should be depreciated to the closing price of this date of € 1.39 per share. A reserve for treasury stock is formed in the amount of the balance sheet item.

Of the 605,600 treasury stock held on 31 August 2004, 19,018 shares were issued to employees in return for payment of the exercise price of € 2.76 per share within the framework of exercising the employee options over the financial year, and 455,235 shares were sold freely via the stock market for an average price of € 3.68.

All accounts receivable and other assets to the tune of € 1,818,489 (previous year: € 2,486,952) have a remaining term of up to one year. Claims receivable from affiliated companies are made up of claims due to profit and loss transfer agreements (€ 1,792,061; previous year: € 780,617), accounts receivable (€ 39,546; previous year: € 338,816) and other liabilities, especially in connection with tax integration (€ 109,404; previous year: € 823.897). Other current liabilities to affiliated companies (€ 332,336; previous year: € 25,334), especially from a cash pool, have been balanced with the debts.

The other assets largely comprise tax reimbursement claims receivable from the Tax Office from taxes on income (€ 172,952; previous year: € 568,956).

The prepaid expenses to the tune of € 31,266 (previous year: € 50,919) largely contain payments for Investor Relations services, maintenance contracts and insurance policies relating to the year.

As of 31 August 2005 the Company’s share capital amounted to € 11,542,764. It is formed by 11,542,764 individual no-par-value share certificates with a calculated face value of € 1 issued in the name of the owner.

The Annual General Meeting of 28 January 2004 authorised the Management Board to increase the share capital once or repeatedly by up to a total of € 5,770,000 until 15 January 2009 with the approval of the Supervisory Board by issuing individual share certificates issued in the name of the owner in return for a contribution in cash or a contribution in kind, excluding the shareholders’ subscription right. At the same time the decision was taken to raise the previously approved capital in the amount of € 3,082,236 in accordance with Article 5 para. 1 of the Statutes. Neither the Management Board nor the Supervisory Board made use of the approved capital in the 2004/2005 financial year nor in the 2003/2004 financial year, meaning that it was still € 5,770,000 as of 31 August 2005.

The Annual General Meeting decision of 26 October 1999 created authorised but unissued capital in the amount of € 375,000 for granting rights to subscribe to 375,000 no-par-value individual share certificates to employees and members of the management of the Company or affiliated companies (“1999 Stock Option Plan”). As of 31 August 2005 186,343 options from the 1999 Plan with an average exercise price of € 19.95 were in circulation. In the 2004/2005 financial year no options from the 1999 Plan were exercised. In the previous year, by contrast, 2,559 options from the 1999 Plan were exercised with an average exercise price of € 2.76.

The Annual General Meeting decision of 12 December 2000 created authorised but unissued capital in the amount of € 375,000 for granting rights to subscribe to 375,000 no-par-value individual share certificates to employees and members of the management of the Company or affiliated companies (“2000 Stock Option Plan”). As of 31 August 2005 107,794 options from the 2000 Plan with an average exercise price of € 2.37 were in circulation. In the 2004/2005 and 2003/2004 financial years, 19,018 options or 3,668 options respectively from the 2000 Plan were exercised with an average exercise price of € 2.76.

The capital reserve remained unchanged in the 2004/2005 financial year compared to the previous year.

In the 2004/2005 financial year the reserve for treasury stock diminished by the use of 19,018 own shares to exercise employee options and by the open sale of 455,235 own shares in the amount of the proportion of the reserve accounted for by these shares, i.e. € 743,866. As of 31 August 2005 the reserve for treasury stock reached the level of € 182,572 (previous year: € 926,438).

Items were allocated to other revenue reserves to the tune of € 3,500,000 according to Article 58 para. 2a of the German Stock Corporation Act, since the annual profit of the 2004/2005 financial year arose in this amount due to the reinstatement of original value of the participation approach for the shares in affiliated companies. By decision of the Management Board and Supervisory Board, 75 % of the remaining annual profit or € 1,595,817 were reported in the other revenue reserves according to Article 58 para. 2 of the German Stock Corporation Act in conjunction with the Statutes of the Company.

In addition, € 743,866 were allocated to other revenue reserves from the dissolving of the reserves for treasury stock. This ensures that, after the dissolving, the funds needed for the reserve will be allocated to the same area of expertise from which they were previously taken.

The other accrued expenses in the amount of € 808,066 (previous year: € 1,661,500) comprise € 395,903 (previous year: € 835,070) from accrued expenses for rental obligations for unused office space. Furthermore, accrued expenses have been formed for outstanding invoices, litigation risks, reporting and auditing expenses as well as personnel expenses, especially for holiday and overtime claims and bonuses. In the 2004/2005 financial year, accrued expenses for imminent charges from the use of special rights of notice with respect to rented office space in Hamburg (previous year: € 406,775) after issuing notice as of 30 June 2006 were reclassified as liabilities.

Revenues in the amount of € 2,294,843 come from the management and administrative services provided by the Company for the consolidated affiliated companies and from charging on the costs of the centrally administered infrastructure in the consolidated group.

The other operating income in the amount of € 4,739,985 largely comprises income from the reinstatement of the original value according to Article 280 of the German Commercial Code of the shares in the 100 % subsidiary SinnerSchrader Deutschland GmbH (€ 3,500,000) and income from the sale of treasury stock (€ 1,001,165). Furthermore, the other operating income includes income from the sale of other securities, from liabilities already depreciated in previous years, from the resolution of accrued expenses and from taxing benefits in money’s worth.

In December 2003 the Company and its 100 % subsidiary SinnerSchrader Deutschland GmbH concluded a profit transfer agreement with effect from 1 September 2003, which the Annual General Meeting agreed to on 28 January 2004. Income of € 1,792,061 was earned from the profit transfer agreement in the 2004/2005 financial year.

The interest income comes from investing the Company’s liquid funds. Interest expenditure mainly arose from charging commission on guaranty within the context of bank guarantees for rent that were used.

The other operating expenses in the amount of € 1,591,964 mainly contain costs of office space, advertising costs, legal and consulting costs as well as communication costs.

The financial liabilities largely concern fixed-term rental contracts. Expenditures on rental obligations for unused office space and from the use of special rights of notice are recorded as other accrued expenses or as liabilities.

The rental contracts for office space in Hamburg and Frankfurt have been terminated with effect from 30 June 2006 and 31 May 2006 respectively. A new rental contract effective as of 1 July 2006 was signed for the Hamburg site in November 2005.

On 31 August 2005 and on average for the 2004/2005 financial year, the Company had 16 employees (without directors).

In the 2004/2005 financial year the following persons were members of the Management Board.

• Matthias Schrader, Businessman, Chairman
• Thomas Dyckhoff, Businessman, Finance Director

On 21 December 2004 the appointment of Mr Dyckhoff was renewed for the period to 31 December 2007. The members of the Management Board performed their duties on a full-time basis. The remuneration of the Management Board members was made up as follows:

In the 2004/2005 financial year the total remuneration for the Management Board amounted to € 307,229.

As part of his reappointment, a bonus agreement was reached with Mr Dyckhoff in addition to his fixed salary and the variable remuneration relating to the year in question; under this bonus agreement for the period from 1 January 2005 to 31 December 2007 Mr Dyckhoff will receive additional variable remuneration in the amount of the difference between the average share price of the SinnerSchrader share on the ten trading days before 31 December 2007 and the price of € 1.61 in respect of 200,000 shares. As of 31 August 2005 the share price was below the threshold of € 1.61 from which the additional variable remuneration would be calculated.

In the 2004/2005 financial year the following persons were members of the Supervisory Board:

Dr Markus Conrad, Businessman, Chairman

• Managing Partner of Libri GmbH, Hamburg
• Member of the Management Board of Börsenverein des Deutschen Buchhandels e.V., Frankfurt am Main
• Member of the Supervisory Board of Tchibo GmbH, Hamburg
• Member of the Supervisory Board of Blume 2000 New Media AG, Norderstedt

Reinhard Pöllath, Deputy Chairman

• Lawyer, Munich
• Chairman of the Supervisory Board of Deutsche Woolworth GmbH & Co. OHG, Frankfurt am Main
• Chairman of the Supervisory Board of Tchibo Holding AG, Hamburg
• Member of the Supervisory Board of Beiersdorf AG, Hamburg
• Member of the Supervisory Board of TA Triumph-Adler AG, Nuremberg
• Member of the Supervisory Board of Tchibo GmbH, Hamburg
• Member of the Supervisory Board of FERI Finance AG, Bad Homburg

Frank Nörenberg

• Lawyer and Managing Partner of Nörenberg, Schröder + Partner, Rechtsanwälte – Wirtschaftsprüfer – Steuerberater (Attorneys, Auditors and Tax Consultants), Hamburg
• Deputy Chairman of the Supervisory Board of Graphit Kropfmühl AG, Hautzenberg
• Member of the Supervisory Board of Albis Leasing AG, Hamburg
• Member of the Advisory Council of ODS Optical Disc Service GmbH, Dassow

Remuneration for the members of the Supervisory Board in the 2004/2005 financial year was made up as follows:

Another benefit for every member of the Supervisory Board is the proportionate premium for the economic loss indemnity insurance for organs of legal persons taken out by the Company.

The proportionate ownership of SinnerSchrader Aktiengesellschaft is broken down as follows:

¹⁾ Before profit/loss transfer agreement with SinnerSchrader AG

²⁾ The companies’ activities were temporarily discontinued in the previous years; respective shareholders were written off in the year the activity was discontinued.

Audited annual financial statements of the companies are not available.

³⁾ The company filed for insolvency, current information regarding shareholders’ equity and earnings is not available. The participation was completely written off.

¹⁾ Before profit/loss transfer agreement with SinnerSchrader AG

Directors’ Holdings of Shares and Subscription Rights to Shares (Directors’ Dealings)

The following table shows the number of shares in SinnerSchrader AG and the number of subscription rights to these shares held by directors of SinnerSchrader AG as of 31 August 2005 and their changes in the 2004/2005 financial year:

Hamburg, November 2005