UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
6-K
REPORT
OF FOREIGN PRIVATE ISSUER
PURSUANT
TO
RULE
13a-16 OR 15d-16 UNDER
THE
SECURITIES EXCHANGE ACT OF 1934
For June
30, 2008
Commission
File No. 001-33176
Fuwei
Films (Holdings) Co., Ltd.
No.
387
Dongming Road
Weifang
Shandong
People’s
Republic of China, Postal Code: 261061
(ADDRESS
OF PRINCIPAL EXECUTIVE OFFICES.)
Indicate
by check mark whether the registrant files or will file annual reports under
cover Form 20-F or Form 40-F.
Form
20-F
x
Form
40-F
¨
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(1):
¨
Indicate
by check mark if the registrant is submitting the Form 6-K in paper as permitted
by Regulation S-T Rule 101(b)(7):
¨
Indicate
by check mark whether the registrant by furnishing the information
contained in this form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
¨
No
¨
If
“Yes”
marked, indicate below the file number assigned to the registrant in connection
with Rule 12g3-2(b): 82-________
EXPLANATORY
NOTE
This
Report of Foreign Private Issuer on Form 6-K contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, and Section
21E
of the Securities Exchange Act of 1934. These statements relate to future events
or the Company’s future financial performance. The Company has attempted to
identify forward-looking statements by terminology including “anticipates”,
“believes”, “expects”, “can”, “continue”, “could”, “estimates”, “intends”,
“may”, “plans”, “potential”, “predict”, “should” or “will” or the negative of
these terms or other comparable terminology. These statements are only
predictions, uncertainties and other factors may cause the Company’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. The
information in this Report on Form 6-K is not intended to project future
performance of the Company. Although the Company believes that the expectations
reflected in the forward-looking statements are reasonable, the Company does
not
guarantee future results, levels of activity, performance or achievements.
The
Company expectations are as of the date this Form 6-K is filed, and the Company
does not intend to update any of the forward-looking statements after the date
this Report on Form 6-K is filed to confirm these statements to actual results,
unless required by law.
The
forward-looking statements included in this Form 6-K is subject to risks,
uncertainties and assumptions about our businesses and business environments.
These statements reflect our current views with respect to future events and
are
not a guarantee of future performance. Actual results of our operations may
differ materially from information contained in the forward-looking statements
as a result of risk factors some of which are include, among other things,
competition in the BOPET film industry; growth of, and risks inherent in, the
BOPET film industry in China; changes in the international market; the increase
of the price of energy (mainly refer to power) and the sometimes inadequent
energy supply in the area where Shandong Fuwei locates, which may result in
the
increase of production cost, decrease of sales, and negatively influence our
financial performance; uncertainty as to future profitability and our ability
to
obtain adequate financing for our planned capital expenditure requirements;
uncertainty as to our ability to continuously develop new BOPET film products
and keep up with changes in BOPET film technology; risks associated with
possible defects and errors in our products; uncertainty as to our ability
to
protect and enforce our intellectual property rights; uncertainty as to our
ability to attract and retain qualified executives and personnel; and
uncertainty in acquiring raw materials on time and on acceptable terms,
particularly in view of the volatility in the prices of petroleum products
in
recent years.
On
August
14, 2008, Fuwei Films (Holdings) Co. Ltd. (the “Company”) announced its
unaudited consolidated financial results for the six months period ended June
30, 2008.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF JUNE 30, 2008 AND DECEMBER 31, 2007
(amounts
in thousands except share and per share value)
|
|
As of Jun. 30,2008
|
|
As of Dec. 31,2007
|
|
|
|
(Unaudited)
|
|
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
7,087
|
|
|
1,033
|
|
|
30,909
|
|
Restricted
cash
|
|
|
30,147
|
|
|
4,395
|
|
|
64,909
|
|
Accounts
receivable, net
|
|
|
63,153
|
|
|
9,207
|
|
|
58,195
|
|
Inventory
|
|
|
48,927
|
|
|
7,133
|
|
|
41,670
|
|
Advance
to suppliers
|
|
|
26,842
|
|
|
3,913
|
|
|
13,538
|
|
Prepayments
and other receivables
|
|
|
6,070
|
|
|
885
|
|
|
2,622
|
|
Total
current assets
|
|
|
182,226
|
|
|
26,567
|
|
|
211,842
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant
and equipment, net
|
|
|
217,991
|
|
|
31,781
|
|
|
228,309
|
|
Construction
in progress
|
|
|
297,673
|
|
|
43,398
|
|
|
265,253
|
|
Lease
prepayments, net
|
|
|
22,769
|
|
|
3,320
|
|
|
22,290
|
|
Intangible
assets
|
|
|
-
|
|
|
-
|
|
|
36
|
|
Goodwill
|
|
|
10,276
|
|
|
1,498
|
|
|
10,276
|
|
Deposit
|
|
|
21,000
|
|
|
3,062
|
|
|
-
|
|
Deferred
tax assets
|
|
|
969
|
|
|
141
|
|
|
969
|
|
Total
assets
|
|
|
752,904
|
|
|
109,767
|
|
|
738,975
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
179,280
|
|
|
26,138
|
|
|
188,027
|
|
Accounts
payables
|
|
|
19,828
|
|
|
2,891
|
|
|
19,609
|
|
Accrued
expenses and other payables
|
|
|
23,238
|
|
|
3,388
|
|
|
18,544
|
|
Deferred
tax liabilities
|
|
|
265
|
|
|
39
|
|
|
265
|
|
Total
liability
|
|
|
222,611
|
|
|
32,455
|
|
|
226,445
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
Registered
capital (of US$0.129752 par value; 20,000,000 shares authorized;
13,062,500 issued and outstanding)
|
|
|
13,323
|
|
|
1,942
|
|
|
13,323
|
|
Additional
paid-in capital
|
|
|
311,907
|
|
|
45,473
|
|
|
311,907
|
|
Statutory
reserve
|
|
|
29,254
|
|
|
4,265
|
|
|
26,924
|
|
Retained
earnings
|
|
|
174,494
|
|
|
25,440
|
|
|
159,229
|
|
Cumulative
translation adjustment
|
|
|
1,316
|
|
|
192
|
|
|
1,148
|
|
Total
shareholders’ equity
|
|
|
530,293
|
|
|
77,312
|
|
|
512,531
|
|
Total
liabilities and shareholders’ equity
|
|
|
752,904
|
|
|
109,767
|
|
|
738,975
|
|
The
accompanying notes are an integral part of these condensed consolidated
statements.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE
INCOME
FOR
THE THREE AND SIX MONTHS PERIODS ENDED JUNE 30, 2008 AND
2007
(amounts
in thousands except share and per share value)
(UNAUDITED)
|
|
The Three Months Periods ended June 30
|
|
The Six Months Periods ended June 30
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
RMB
|
|
US$
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
124,747
|
|
|
17,932
|
|
|
120,929
|
|
|
228,781
|
|
|
32,413
|
|
|
220,194
|
|
Cost
of sales
|
|
|
(102,799
|
)
|
|
(14,777
|
)
|
|
(88,264
|
)
|
|
(185,207
|
)
|
|
(26,240
|
)
|
|
(163,257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
21,948
|
|
|
3,155
|
|
|
32,665
|
|
|
43,573
|
|
|
6,173
|
|
|
56,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
expenses
|
|
|
(4,300
|
)
|
|
(618
|
)
|
|
(5,088
|
)
|
|
(7,738
|
)
|
|
(1,096
|
)
|
|
(8,754
|
)
|
Administrative
expenses
|
|
|
(4,705
|
)
|
|
(676
|
)
|
|
(3,946
|
)
|
|
(12,429
|
)
|
|
(1,761
|
)
|
|
(6,455
|
)
|
Total
operating expenses
|
|
|
(9,005
|
)
|
|
(1,294
|
)
|
|
(9,034
|
)
|
|
(20,167
|
)
|
|
(2,857
|
)
|
|
(15,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
12,943
|
|
|
1,861
|
|
|
23,631
|
|
|
23,406
|
|
|
3,316
|
|
|
41,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Interest income
|
|
|
52
|
|
|
8
|
|
|
87
|
|
|
68
|
|
|
10
|
|
|
277
|
|
-
Interest expense
|
|
|
(4,855
|
)
|
|
(698
|
)
|
|
(1,684
|
)
|
|
(8,645
|
)
|
|
(1,225
|
)
|
|
(4,835
|
)
|
-
Other, net
|
|
|
2,410
|
|
|
346
|
|
|
(178
|
)
|
|
4,651
|
|
|
659
|
|
|
(562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income/(expense)
|
|
|
(2,393
|
)
|
|
(344
|
)
|
|
(1,775
|
)
|
|
(3,926
|
)
|
|
(556
|
)
|
|
(5,120
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax benefit/(expense)
|
|
|
10,
550
|
|
|
1,517
|
|
|
21,856
|
|
|
19,480
|
|
|
2,760
|
|
|
36,608
|
|
Income
tax expense
|
|
|
(896
|
)
|
|
(129
|
)
|
|
(1,770
|
)
|
|
(1,889
|
)
|
|
(268
|
)
|
|
(3,258
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
9,655
|
|
|
1,388
|
|
|
20,086
|
|
|
17,591
|
|
|
2,492
|
|
|
33,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Foreign
currency translation adjustments
|
|
|
(453
|
)
|
|
(65
|
)
|
|
(4,547
|
)
|
|
168
|
|
|
24
|
|
|
(571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
9,202
|
|
|
1,323
|
|
|
15,539
|
|
|
17,759
|
|
|
2,516
|
|
|
32,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share, basic and diluted
|
|
|
0.74
|
|
|
0.11
|
|
|
1.54
|
|
|
1.35
|
|
|
0.19
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number ordinary shares, basic and diluted
|
|
|
13,062,500
|
|
|
13,062,500
|
|
|
13,062,500
|
|
|
13,062,500
|
|
|
13,062,500
|
|
|
13,062,500
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated statements.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS PERIODS ENDED JUNE 30, 2008 AND 2007
(amounts
in thousands except share and per share value)
(UNAUDITED)
|
|
Periods Ended June 30, 2008
|
|
Periods Ended June 30, 2007
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
income
|
|
|
17,591
|
|
|
2,492
|
|
|
33,350
|
|
Adjustments
to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
-
Depreciation of property, plant and equipment
|
|
|
12,308
|
|
|
1,744
|
|
|
11,742
|
|
-
Amortization of intangible assets
|
|
|
263
|
|
|
37
|
|
|
429
|
|
-
Deferred income taxes
|
|
|
-
|
|
|
-
|
|
|
664
|
|
-
Bad debt expense
|
|
|
55
|
|
|
8
|
|
|
-
|
|
Changes
in operating assets and liabilities, net of
|
|
|
|
|
|
|
|
|
|
|
-
Accounts receivable
|
|
|
(4,624
|
)
|
|
(655
|
)
|
|
17,334
|
|
-
Inventories
|
|
|
(7,258
|
)
|
|
(1,028
|
)
|
|
(13,140
|
)
|
-
Advance to suppliers
|
|
|
(13,304
|
)
|
|
(1,885
|
)
|
|
-
|
|
-
Prepaid expenses and other current assets
|
|
|
(4,379
|
)
|
|
(620
|
)
|
|
(28,360
|
)
|
-
Accounts payable
|
|
|
223
|
|
|
32
|
|
|
4,257
|
|
-
Accrued expenses and other payables
|
|
|
1,341
|
|
|
190
|
|
|
3,357
|
|
-
Advance from customers
|
|
|
5,932
|
|
|
840
|
|
|
-
|
|
-
Tax payable
|
|
|
(2,575
|
)
|
|
(365
|
)
|
|
-
|
|
Net
cash provided by operating activities
|
|
|
5,572
|
|
|
790
|
|
|
29,633
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,989
|
)
|
|
(282
|
)
|
|
(83,365
|
)
|
Restricted
cash related to trade finance
|
|
|
34,761
|
|
|
4,925
|
|
|
-
|
|
Addition
to construction in progress
|
|
|
(32,420
|
)
|
|
(4,593
|
)
|
|
(24
|
)
|
Deposit
for purchase
|
|
|
(21,000
|
)
|
|
(2,975
|
)
|
|
-
|
|
Net
cash provided by (used in) investing activities
|
|
|
20,648
|
|
|
(2,925
|
)
|
|
(83,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOW FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
Principal
payments of short-term bank loans
|
|
|
(119,590
|
)
|
|
(16,943
|
)
|
|
(239,678
|
)
|
Proceeds
from short-term bank loans
|
|
|
110,844
|
|
|
15,704
|
|
|
169,090
|
|
Net
cash used in financing activities
|
|
|
(8,746
|
)
|
|
(1,239
|
)
|
|
(70,588
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange rate changes
|
|
|
-
|
|
|
171
|
|
|
(571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalent
|
|
|
(23,821
|
)
|
|
(3,204
|
)
|
|
(124,906
|
)
|
-
Cash
and cash equivalent at beginning of period
|
|
|
30,908
|
|
|
4,237
|
|
|
253,250
|
|
-
Cash
and cash equivalent at end of period
|
|
|
7,087
|
|
|
1,033
|
|
|
128,344
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for
|
|
|
|
|
|
|
|
|
|
|
-Interest
paid
|
|
|
4,838
|
|
|
686
|
|
|
7,413
|
|
-Income
taxes paid
|
|
|
2,561
|
|
|
363
|
|
|
981
|
|
The
accompanying notes are an integral part of these unaudited condensed
consolidated statements.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
1 - BACKGROUND
Fuwei
Films (Holdings) Co., Ltd (the “Company”) and its subsidiaries (the “Group”) are
principally engaged in the production and distribution of BOPET film, a high
quality plastic film widely used in packaging, imaging, electronics, electrical
and magnetic products in the People’s Republic of China (the “PRC”). The Company
is incorporated in the Cayman Islands, established on August 9, 2004 under
the
Cayman Islands Companies Law as an exempted company with limited
liability.
On
August
20, 2004, the Company was allotted and issued one ordinary share of US$1.00
in
Fuwei (BVI) (being the entire issued share capital of Fuwei (BVI)), thereby
establishing Fuwei (BVI) as the intermediate investment holding company of
the
Group.
The
Group
was established by certain members of the former management team and employees
(the “Group Founders”) of Shandong Neo-Luck Plastics Co., Ltd (“Shandong
Neo-Luck”), a company owned 59% by a PRC state-owned enterprise. Prior to filing
for bankruptcy protection on September 24, 2004, Shandong Neo-Luck was engaged
in the business of BOPET film production. Certain production-related assets
of
Shandong Neo-Luck which had previously been mortgaged to the Bank of China,
Weifang City branch (the “Mortgagee Bank”) as security for several loans
extended to Shandong Neo-Luck’s affiliates were acquired through public auction
by Fuwei Films (Shandong) Co., Ltd (“Shandong Fuwei”) on October 9, 2003 for
RMB156,000 as a result of the borrowers default on various bank loans. Shandong
Fuwei, established in the PRC on January 28, 2003 as a limited liability
company, commenced its operations in July 2003. The principal activities of
Shandong Fuwei are those relating to the design, production and distribution
of
plastic films. Shandong Neo-Luck was subsequently declared bankrupt by the
Weifang Municipal People’s Court in the PRC on September 24, 2004.
Through
its intermediate holding company, Fuwei (BVI), the Company acquired a 100%
ownership interest in Shandong Fuwei on October 27, 2004 for a purchase price
of
RMB91,093. Shandong Fuwei thereafter became a wholly-owned subsidiary of Fuwei
(BVI) effective October 27, 2004. On December 25, 2004, Shandong Fuwei acquired
additional production-related assets through public auction that were formerly
owned by Shandong Neo-Luck for RMB119,280. Shandong Fuwei was converted into
a
wholly-foreign owned enterprise in the PRC on January 5, 2005, with a registered
capital of US$11,000.
On
December 18, 2006, the Company became listed on the Nasdaq Global
Market.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited
Interim Financial Information
The
accompanying unaudited consolidated financial statements have been prepared
by
the Company,
pursuant
to the rules and regulations of the Securities and Exchange Commission (the
“SEC”) Form 10-QSB and Item 310 of Regulation S-B, and generally accepted
accounting principles for interim financial reporting. The information furnished
herein reflects all adjustments (consisting of normal recurring accruals and
adjustments) which are, in the opinion of management, necessary to fairly
present the operating results for the respective periods. Certain information
and footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
included in the Company’s Annual Report on Form 20-F. The results of the six
months ended June 30, 2008 are not necessarily indicative of the results to
be
expected for the full year ending December 31, 2008.
Principles
of Consolidation
The
condensed consolidated financial statements include the financial statements
of
the Company and its two subsidiaries. All significant inter-company balances
and
transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of the consolidated financial statements in accordance with US
GAAP
requires management of the Group to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure
of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. On an ongoing basis,
management reviews its estimates and assumptions including those related to
the
recoverability of the carrying amount and the estimated useful lives of
long-lived assets, valuation allowances for accounts receivable and realizable
values for inventories. Changes in facts and circumstances may result in revised
estimates.
Foreign
Currency Transactions
The
Group’s reporting currency is the Renminbi (“RMB”).
The
Company and Fuwei (BVI) operate in Hong Kong as investment holding companies
and
their financial records are maintained in Hong Kong dollars, being the
functional currency of these two entities. Assets and liabilities are translated
into RMB at the exchange rates at the balance sheet date, equity accounts are
translated at historical exchange rates and income, expenses, and cash flow
items are translated using the average rate for the period. The translation
adjustments are recorded in accumulated other comprehensive income in the
statements of shareholders’ equity and comprehensive income.
Transactions
denominated in currencies other than RMB are translated into RMB at the exchange
rates quoted by the People’s Bank of China (the “PBOC”) prevailing at the dates
of transactions. Monetary assets and liabilities denominated in foreign
currencies are translated into RMB using the applicable exchange rates quoted
by
the PBOC at the balance sheet dates. The resulting exchange differences are
recorded in the statements of income.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
RMB
is
not fully convertible into foreign currencies. All foreign exchange transactions
involving RMB must take place either through the PBOC or other institutions
authorized to buy and sell foreign currency. The exchange rate adopted for
the
foreign exchange transactions are the rates of exchange quoted by the PBOC
which
are determined largely by supply and demand.
Exchange
Rate Information
Foreign
Currency - The Company’s principal country of operations is in the People’s
Republic of China. The financial position and results of operations of the
Company are determined using the local currency (“Renminbi”) as the functional
currency. The results of operations denominated in foreign currency are
translated at the average rate of exchange during the reporting period.
Unless
otherwise noted, all translations from Renminbi to U.S. dollars in report of
assets and liabilities denominated in foreign currencies at the balance sheet
date are translated at the market rate of exchange prevailing on that date.
The
registered equity capital denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. All
translation adjustments resulting from the translation of the financial
statements into the reporting currency (“US Dollars”) are dealt with as a
separate component within shareholders’ equity. We make no representation that
any Renminbi or U.S. dollar amounts could have been, or could be, converted
into
U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates
stated above, or at all.
Cash
and Cash Equivalents and Restricted
Cash
For
statements of cash flow purposes, the Company considers all cash on hand and
in
banks, including accounts in book overdraft positions, certificates of deposit
and other highly-liquid investments with maturities of three months or less,
when purchased, to be cash and cash equivalents.
Restricted
cash refers to the cash balance held by bank as deposit for Letters of Credit.
The company has restricted cash of $4,395 and $8,898 as of June 30, 2008 and
December 31, 2007.
Trade
Accounts Receivable
Trade
accounts receivable are recorded at the invoiced amount after deduction of
trade
discounts, value added taxes and allowances, if any, and do not bear interest.
The allowance for doubtful accounts is the Group’s best estimate of the amount
of probable credit losses in the Group’s existing accounts receivable. The Group
determines the allowance based on historical write-off experience, customer
specific facts and economic conditions.
The
Group
reviews its allowance for doubtful accounts monthly. Past due balances over
90
days and over a specified amount are reviewed individually for collectibility.
All other balances are reviewed on a pooled basis by aging of such balances.
Account balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. The Group does not have any off-balance-sheet credit exposure related
to
its customers.
The
Group
has a credit policy in place and the exposure to credit risk is monitored on
an
ongoing basis. Credit evaluations are performed on all customers requiring
credit over a certain amount. These receivables are due within 7 to 60 days
from
the date of billing. Normally, the Group does not obtain collateral from
customers.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Inventories
Inventories
are stated at the lower of cost or market value. Cost is determined using the
average cost method. Cost of work in progress and finished goods comprises
of
direct material, direct production cost and an allocated portion of production
overheads based on normal operating capacity.
Property,
Plant and Equipment
Property,
plant and equipment are stated at cost less accumulated depreciation and
impairment.
Depreciation
on property, plant and equipment is calculated on the straight-line method
(after taking into account their respective estimated residual values) over
the
estimated useful lives of the assets. There are as follows:
|
|
Years
|
Buildings
and improvements
|
|
25
- 30
|
Plant
and equipment
|
|
10
- 15
|
Computer
equipment
|
|
5
|
Furniture
and fixtures
|
|
5
|
Motor
vehicles
|
|
5
|
Depreciation
of property, plant and equipment attributable to manufacturing activities is
capitalized as part of the inventory, and expensed to cost of goods sold when
inventory is sold. Depreciation related to abnormal amounts from idle capacity
is charged to cost of goods sold for the period incurred.
Construction
in progress represented capital expenditure in respect of the third production
line and the trial production line. No depreciation is provided in respect
of
construction in progress.
Lease
Prepayments
Lease
prepayments represent the costs of land use rights in the PRC. Land use rights
are carried at cost and charged to expense on a straight-line basis over the
respective periods of rights of 30 years. The current portion of lease
prepayments has been included in prepayments and other receivables in the
balance sheet.
Intangible
Assets
The
Group
acquired a trademark for use in the production and distribution of plastic
films. The trademark is carried at cost less accumulated amortization.
Amortization expense is recognized on the straight-line basis over the estimated
useful life of 5 years of the trademark.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Goodwill
Goodwill
represents the excess of purchased cost over fair value of net assets of
the
Shandong Fuwei’s acquired business. Goodwill is evaluated for impairment
annually. The Company evaluates the carrying value of goodwill during the
fourth
quarter of each year and between annual evaluations if events occur or
circumstances change that would more likely than not reduce the fair value
of
the reporting unit below its
carrying
amount. Such circumstances could include, but are not limited to: (1) a
significant adverse change in legal factors or in business climate, (2)
unanticipated competition, or (3) an adverse action or assessment by a
regulator. When evaluating whether goodwill is impaired, the Company compares
the fair value of the reporting unit to which the goodwill is assigned to
the
reporting unit’s carrying amount, including goodwill. The fair value of the
reporting unit is estimated using a combination of the income, or discounted
cash flows, approach and the market approach, which utilizes comparable
companies’ data. If the carrying amount of a reporting unit exceeds its fair
value, then the amount of the impairment loss must be measured. The impairment
loss would be calculated by comparing the implied fair value of reporting
unit
goodwill to its carrying amount. In calculating the implied fair value of
reporting unit goodwill, the fair value of the reporting unit is allocated
to
all of the other assets and liabilities of that unit based on their fair
values.
The excess of the fair value of a reporting unit over the amount assigned
to its
other assets and liabilities is the implied fair value of goodwill. An
impairment loss would be recognized when the carrying amount of goodwill
exceeds
its implied fair value. The Company’s evaluation of goodwill resulted in no
impairment losses.
Impairment
of Long-lived Assets
Long-lived
assets, other than goodwill, including property, plant, and equipment and
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of an asset to the estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount in which
the
carrying amount of the asset exceeds the fair value of the asset.
Revenue
Recognition
Sales
of
plastic films are reported, net of value added taxes (“VAT”), sales returns,
trade discounts and allowances. The standard terms and conditions under which
the Group generally delivers allow a customer the right to return product for
refund only if the product does not conform to product specifications; the
non-conforming product is identified by the customer; and the customer rejects
the non-conforming product and notifies the Group within 7 days and 30 days
of
receipt for sales to customers in the PRC and overseas, respectively. The Group
recognizes revenue when products are delivered and the customer takes ownership
and assumes risk of loss, collection of the relevant receivable is probable,
persuasive evidence of an arrangement exists and the sales price is fixed or
determinable.
In
the
PRC, VAT of 17% on invoice amount is collected in respect of the sales of goods
on behalf of tax authorities. The VAT collected is not revenue of the Group;
instead, the amount is recorded as a liability on the consolidated balance
sheet
until such VAT is paid to the authorities.
Government
Grants
Government
grants are recognized in the consolidated balance sheet initially as deferred
income when they have been received. Grants that compensate the Group for
expenses incurred are recognized as a reduction of expenses in the consolidated
statement of income in the same period in which the related expenses are
incurred.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIA
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Retirement
and Other Post-retirement Ben
efits
Contributions
to retirement schemes (which are defined contribution plans) are charged to
expense as and when the related employee service is provided.
Income
Taxes
Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Earnings
Per Share
Basic
earnings per share are computed by dividing net earnings by the weighted average
number of ordinary shares outstanding during the year. Diluted earnings per
share is calculated by dividing net earnings by the weighted average number
of
ordinary and dilutive potential ordinary shares outstanding during the year.
Diluted potential ordinary shares consist of shares issuable pursuant to stock
option plan.
Contingencies
In
the
normal course of business, the Group is subject to contingencies, including
legal proceedings and claims arising out of the business that relate to a wide
range of matters, including among others, product liability. The Group
recognizes a liability for such contingency if it determines it is probable
that
a loss has occurred and a reasonable estimate of the loss can be made. The
Group
may consider many factors in making these assessments including past history
and
the specifics of each matter. As the Group has not become aware of any product
liability claim since operations commenced, the Group has not recognized a
liability for any product liability claims.
Recently
Issued Accounting Standards
SFAS
No 158
In
September 2006, FASB issued SFAS No. 158 “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106, and 132(R)”. This Statement improves financial reporting by
requiring an employer to recognize the over funded or under funded status of
a
defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur through
comprehensive income of a business entity or changes in unrestricted net assets
of a not-for-profit organization. This Statement also improves financial
reporting by requiring an employer to measure the funded status of a plan as
of
the date of its year-end statement of financial position, with limited
exceptions.
An employer with publicly traded equity securities is required to initially
recognize the funded status of a defined benefit postretirement plan and to
provide the required
disclosures
as of the end of the fiscal year ending after December 15, 2006. An employer
without publicly traded equity securities is required to recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after June 15, 2007.
However, an employer without publicly traded equity securities is required
to disclose the following information in the notes to financial statements
for a
fiscal year ending after December 15, 2006, but before June 16, 2007, unless
it
has applied the recognition provisions of this Statement in preparing those
financial statements:
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
|
l
|
A
brief description of the provisions of this
Statement;
|
|
l
|
The
date that adoption is
required;
|
|
l
|
The
date the employer plans to adopt the recognition provisions of
this
Statement, if earlier.
|
The
requirement to measure plan assets and benefit obligations as of the date of
the
employer’s fiscal year-end statement of financial position is effective for
fiscal years ending after December 15, 2008. Management is currently evaluating
the effect of this pronouncement on financial statements.
SFAS
No 160
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”. This Statement amends ARB 51 to establish
accounting and reporting standards for the noncontrolling (minority) interest
in
a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. SFAS No. 160 is effective for the Company’s fiscal year
beginning October 1, 2009. Management is currently evaluating the effect of
this
pronouncement on financial statements.
SFAS
No 141(R)
In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
Statement replaces SFAS No. 141, Business Combinations. This Statement retains
the fundamental requirements in Statement
141
that
the acquisition method of accounting (which Statement 141 called the purchase
method) be used for all business combinations and for an acquirer to be
identified for each business combination. This Statement also establishes
principles and requirements for how the acquirer: a) recognizes and measures
in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquire; b) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase and c) determines what information to disclose to enable users
of the financial statements to evaluate the nature and financial effects of
the
business combination. SFAS No. 141(R) will apply prospectively to business
combinations for which the acquisition date is on or after Company’s fiscal year
beginning October 1, 2009. While the Company has not yet evaluated this
statement for the impact, if any, that SFAS No. 141(R) will have on its
consolidated financial statements, the Company will be required to expense
costs
related to any acquisitions after September 30, 2009.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
SFAS
No 161
On
March
19, 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. "Use and complexity of derivative instruments and hedging activities
have increased significantly over the past several years. This has led to
concerns among investors that the existing disclosure requirements in FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
do
not
provide enough information about how these instruments and activities affect
the
entity’s financial position and performance," explained Kevin Stoklosa, project
manager. "By requiring additional information about how and why derivative
instruments are being used, the new standard gives investors better information
upon which to base their decisions." The new standard also improves transparency
about the location and amounts of derivative instruments in an entity’s
financial statements; how derivative instruments and related hedged items
are
accounted for under Statement 133; and how derivative instruments and related
hedged
items
affect its financial position, financial performance, and cash flows. FASB
Statement No. 161 achieves these improvements by requiring disclosure of
the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk-related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important information about derivative instruments.
Management is currently evaluating the effect of this pronouncement on financial
statements.
In
May 0f
2008, FSAB issued SFASB No.162, The Hierarchy of Generally Accepted Accounting
Principles. The pronouncement mandates the GAAP hierarchy reside in the
accounting literature as opposed to the audit literature. This has the practical
impact of elevating FASB Statements of Financial Accounting Concepts in the
GAAP
hierarchy. This pronouncement will become effective 60 days following SEC
approval. The company does not believe this pronouncement will impact its
financial statements.
In
May of
2008, FASB issued SFASB No. 163, Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60. The scope of the statement
is limited to financial guarantee insurance (and reinsurance) contracts. The
pronouncement is effective for fiscal years beginning after December 31, 2008.
The company does not believe this pronouncement will impact its financial
statements.
NOTE
3 - ACCOUNTS RECEIVABLES, NET
Accounts
receivables at June 30, 2008 and December 31, 2007 consist of the
following:
|
|
30-Jun-08
|
|
31-Dec-07
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
Accounts
receivable
|
|
|
48,207
|
|
|
7,028
|
|
|
35,893
|
|
Less:
Allowance for doubtful accounts
|
|
|
(2,309
|
)
|
|
(337
|
)
|
|
(2,644
|
)
|
|
|
|
45,898
|
|
|
6,691
|
|
|
33,249
|
|
Bills
receivable
|
|
|
17,255
|
|
|
2,516
|
|
|
24,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,153
|
|
|
9,207
|
|
|
58,195
|
|
Bill
receivables are
bank’s
acceptance bills
which
are guaranteed by bank.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
4-INVENTORIES
Inventories
at June 30, 2008 and December 31, 2007 consist of the following:
|
|
30-Jun-08
|
|
31-Dec-07
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
Raw
materials
|
|
|
16,885
|
|
|
2,462
|
|
|
14,944
|
|
Work-in-progress
|
|
|
2,830
|
|
|
413
|
|
|
956
|
|
Finished
goods
|
|
|
28,707
|
|
|
4,184
|
|
|
25,321
|
|
Consumables
and spare parts
|
|
|
505
|
|
|
74
|
|
|
449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,927
|
|
|
7,133
|
|
|
41,670
|
|
NOTE
5-PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment consist of the following:
|
|
30-Jun-08
|
|
31-Dec-07
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
Buildings
|
|
|
,34,485
|
|
|
5,028
|
|
|
33,699
|
|
Plant
and equipment
|
|
|
279,696
|
|
|
40,776
|
|
|
276,943
|
|
Computer
equipment
|
|
|
1,165
|
|
|
170
|
|
|
1,007
|
|
Furniture
and fixtures
|
|
|
2,787
|
|
|
406
|
|
|
1,844
|
|
Motor
vehicles
|
|
|
1,602
|
|
|
234
|
|
|
1,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
319,735
|
|
|
46,614
|
|
|
314,766
|
|
Less:
accumulated depreciation
|
|
|
(101,744
|
)
|
|
(14,833
|
)
|
|
(86,456
|
)
|
|
|
|
217,991
|
|
|
31,781
|
|
|
228,310
|
|
Total
depreciation for the periods ended June 30, 2008 and 2007 was RMB 12,308 (US$
1,744) and RMB 11,742 (US$ 1,521). For the periods three months ended June
30,
2008 and 2007, depreciation expenses was RMB 6,163 (US$ 886) and RMB5,872
(US$767).
NOTE
6 - CONSTRUCTION IN PROGRESS
Construction-in-progress
represents capital expenditure in respect of the BOPET production line and
the
trial production line. Construction in progress was RMB 297,673 (US$43,398)
ended June 30, 2008, and RMB265,253 (US$36,362) ended December 31, 2007,
respectively.
Interest
expense capitalized during the periods ended June 30, 2008 and 2007 was RMB
0
(US$ 0) and RMB 2,579 (US$ 334), respectively. For the periods three months
ended June 30, 2008 and 2007 the interest expense capitalized was RMB0 (US$0
)
and RMB985 (US$128), respectively.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
7 - LEASE PREPAYMENTS
As
of
June 30, 2008 and December 31, 2007, lease prepayments, net of amortization
was
RMB 22,769(US$ 3,320) and RMB 22,290 (US$ 3,179) respectively.
Amortization
of land use rights for the six months ended June 30, 2008 and 2007were RMB
260
(US$ 37) and RMB 393 (US$ 52), respectively. Amortization of land use rights
for
the three months ended June 30, 2008 and 2007 was RMB 111 (US$ 16) and RMB
280
(US$ 37)
ô
respectively.
Amortization
expenses for the next five years after June 30, 2008 are as
follows:
|
|
RMB
|
|
US$
|
|
1
year after
|
|
|
520
|
|
|
74
|
|
2
year after
|
|
|
520
|
|
|
74
|
|
3
year after
|
|
|
520
|
|
|
74
|
|
4
year after
|
|
|
520
|
|
|
74
|
|
5
year after
|
|
|
520
|
|
|
74
|
|
NOTE
8 – DEPOSIT
On
January 20, 2008, Shandong Fuwei signed a “Letter of Intent of Joyinn Capital
Increase and Share Expansion”(“LOI”) with Joyinn Hotel Investment &
Management Co., Ltd. (“Joyinn”) and the Shareholder of Joyinn. Joyinn is a legal
company of limited liability that registered on May 19, 2006 in Beijing, with
register capitial of RMB 50,000. In order to grow Joyinn plans to increase
its
registered capital by RMB 52,000 to a total of RMB 102,000, and plans to accept
Shandong Fuwei as a new shareholder to invest and buy its shares.
According
the LOI, Shandong Fuwei deposited RMB 26,000 (half of the would-be added
register capital of RMB 52,000), to Joyinn as the prepayment as of March 31,
2008. The prepayment to Joyinn will be regarded as investment payment after
all
parties enter into the final capital increase and shares expansion agreement
during the effective term of this LOI. A share pledging agreement was entered
into subsequently on April 9, 2008 between Shandong Fuwei and Shandong Xinmeng
Investment Co., Ltd (“Pledger”), which holds 97.6% shares of Joyinn. The Pledger
agreed to pledge its 52% interest in Joyinn, as a guarantee to the prepayment
on
the newly increased register capital made by Shandong Fuwei to
Joyinn.
Based
on
the mutual suplementary agreement signed on June 2008, the prepayment has been
decreased by RMB 5,000 and returned back to the Company on June 18, 2008. As
of
June 30, 2008, the deposit to Joyinn is in the amount of RMB
21,000.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
9 - SHORT-TERM BANK LOANS
|
|
Interest
rate per
|
|
30-Jun-08
|
|
31-Dec-07
|
|
Lender
|
|
annum
|
|
RMB
|
|
US$
|
|
RMB
|
|
Bank
of Communications Co., Ltd.
|
|
|
|
|
|
|
|
|
|
-
January 15, 2007 to January 15, 2008
|
|
|
6.73
|
%
|
|
-
|
|
|
-
|
|
|
100,000
|
|
-
February 6, 2007 to January 15, 2008
|
|
|
6.73
|
%
|
|
-
|
|
|
-
|
|
|
52,590
|
|
-
January 29, 2008 to July 19, 2008
|
|
|
7.23
|
%
|
|
82,580
|
|
|
12,038
|
|
|
|
|
-
July 30, 2007 to July 30, 2008
|
|
|
8.22
|
%
|
|
60,000
|
|
|
8,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weifang
Commercial Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
January 31, 2007 to January 30, 2008
|
|
|
3.06
|
%
|
|
-
|
|
|
-
|
|
|
16,500
|
|
-
October 30, 2007 to January 24, 2008
|
|
|
0.00
|
%
|
|
-
|
|
|
-
|
|
|
3,500
|
|
-
January 24, 2008 to January 12, 2009
|
|
|
0.00
|
%
|
|
10,000
|
|
|
1,458
|
|
|
|
|
-
January 30, 2008 to January 18, 2009
|
|
|
0.00
|
%
|
|
10,000
|
|
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank
of China
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
August 25, 2007 to August 24, 2008
|
|
|
6.02
|
%
|
|
4,537
|
|
|
662
|
|
|
4,826
|
|
-
August 13, 2007 to August 12, 2008
|
|
|
6.03
|
%
|
|
3,196
|
|
|
466
|
|
|
3,399
|
|
-
August 31, 2007 to August 30, 2008
|
|
|
6.01
|
%
|
|
2,118
|
|
|
309
|
|
|
2,252
|
|
-
August 31, 2007 to August 30, 2008
|
|
|
6.01
|
%
|
|
2,915
|
|
|
425
|
|
|
3,100
|
|
-
November 14, 2007 to November 14, 2008
|
|
|
5.66
|
%
|
|
1,749
|
|
|
255
|
|
|
1,860
|
|
-
March 13, 2008 to March 13, 2009
|
|
|
5.45
|
%
|
|
2,185
|
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,280
|
|
|
26,138
|
|
|
188,027
|
|
Notes:
During
the period ended June 30, 2008 and December 31, 2007, the Company entered into
various loan agreements with commercial banks with terms ranging from six months
to one year to finance its working capital, construction, and foreign trade.
None of the loan agreements requires the Company to comply with financial
covenants. The weighted average interest rate of short-term bank loans
outstanding as of June 30, 2008 and December 31, 2007 were 6.65% and 6.22%
per
annum, respectively.
The
principal amounts of the above short-term loans are repayable at the end of
the
loan period.
Following
the maturity of the short-term loans of RMB52,590 and RMB100,000 from Bank
of
Communications Co., Ltd on January 15, 2008, the Company obtained from Bank
of
Communications Co., Ltd. new short terms loans of RMB60,000 and RMB88,580 on
July 30, 2007 (Effective date of the loan) and January 29, 2008 respectively,
with interest rate 8.217% and 7.227% per annum and due on July 30, 2008 and
July
19, 2008 respectively.
The
Company repaid two loans of RMB 3,500 (US$ 499) and RMB16,500 (US$ 2,353) to
Weifang Commercial Bank on January 24, 2008 and January 30, 2008 respectively.
On January 2008, the Company obtained another two new loans in the total amount
to RMB20,000 (US$ 2,916) from the same bank, with the due dates on January
12,
2008 and January 18, 2008 respectively, The loans bear no interest rate since
they are. an industrial development fund administered by the local government
in
order to enhancing enterprises’ ability of innovation and technical research and
supporting the development of local high technology companies.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
9 - SHORT-TERM BANK LOANS (continued)
In
August
and September 2007, Shandong Fuwei was invested into a foreign currency
investment portfolio from Bank of China Weifang branch, targeting to reduce
the
cost of foreign exchange when Shandong Fuwei imports raw materials. Guarantee
deposit of the investment portfolio was RMB 16,700 (US$2,435) as of June 30,
2008. A loan contract was signed between two parties when L/C was opened with
one-year term. Loan interest rate is lower than the benchmark interest rate
of
the People’s Bank of China (the “PBOC”). The Company had loans in the total
amount of RMB16,700 (US$2,435) from the bank as of June 30, 2008. The loans
have
the one-year term due on various dates from August 2007 to March 2008 with
various interest rates from 5.45% to 6.03% per annum.
NOTE
10 - INTEREST EXPENSE
The
Group
capitalizes interest expense as a component of the cost of construction in
progress. The following is a summary of interest cost incurred during the six
months periods ended June 30, 2008 and 2007:
|
|
Six Months Period ended
June 30, 2008
|
|
Six Months Period
ended June 30, 2007
|
|
|
|
RMB
|
|
US$
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
Interest
cost capitalized
|
|
|
-
|
|
|
-
|
|
|
2,578
|
|
Interest
cost charged to expense
|
|
|
8,645
|
|
|
1,225
|
|
|
4,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,645
|
|
|
1,225
|
|
|
7,413
|
|
NOTE
11-INCOME TAX
The
Company is registered in Cayman Islands and has operations primarily in two
tax
jurisdictions - the PRC and Cayman Island.
The
provision for income taxes from operations consists of the following for the
six
months periods ended June 30, 2008 and 2007:
|
|
Six Months Period Ended June 30, 2008
|
|
Six Months Period s
Ended June 30, 2007
|
|
|
|
(RMB)
|
|
(USD)
|
|
(RMB)
|
|
Cayman
Islands Current Income Tax Expense (Benefit)
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
Current Income Expense
|
|
|
1,889
|
|
$
|
268
|
|
|
3,258
|
|
Deferred
Tax Expense (Benefit)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Provision for Income Tax
|
|
|
1,889
|
|
$
|
268
|
|
|
3,258
|
|
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
11-INCOME TAX
(continued)
The
following is a reconciliation of the provision for income taxes at the
respective income tax rate to the income reflected in the Statement of
Operations:
|
|
30-Jun-08
|
|
30-Jun-07
|
|
Tax
expense (credit) – Cayman Islands
|
|
|
0
|
%
|
|
0
|
%
|
Foreign
income tax – PRC
|
|
|
15
|
%
|
|
15
|
%
|
Exempt
from income tax due to tax holidays
|
|
|
(5
|
%)
|
|
(6
|
)%
|
Tax
expense at actual rate
|
|
|
10
|
%
|
|
9
|
%
|
Cayman
Islands Tax
Under
the
current law of Cayman Island, the Company is not subject to tax on income or
capital gain. In addition, upon payments of dividends by the Company to its
shareholders, no Cayman Islands withholding tax is imposed.
PRC
Tax
Pursuant
to the acquisition by Fuwei (BVI), Shandong Fuwei became a wholly foreign-owned
enterprise under the laws of the PRC on January 5, 2005. Accordingly, Shandong
Fuwei is entitled to a new 2-year exemption of the 3-year 50% reduction for
Foreign Enterprise Income Tax holiday whereby the profit for the first two
financial years beginning with the first profit-making year (after setting
off
tax losses carried forward from prior years) is exempted from income tax in
the
PRC and the profit for each of the subsequent three financial years is taxed
at
50% of the prevailing tax rates set by the relevant tax authorities. The tax
holiday of Shandong Fuwei commenced in 2005. Shandong Fuwei was exempted from
PRC income tax for the period from January 28, 2003 to December 31, 2006, and
50% reduction in tax rate for the year ended December 31, 2007 and in the six
months period ended June 30, 2008. In addition, being a Hi-Tech Enterprise
in
the Weifang Hi-Tech Industrial Zone in Shandong, according to the PRC Income
Tax
Law and various approval documents issued by the Tax Bureau, the applicable
income tax rate for Shandong Fuweiis 15%.
The
New
Tax Law was adopted on March 16, 2007 in PRC. Under the New Tax Law, which
become effective on January 1, 2008, domestic enterprises and foreign-invested
enterprises will generally become subject to a unified enterprise income tax
rate of 25%, except that enterprises incorporated prior to March 16, 2007 may
continue to enjoy existing preferential tax treatments until January 1, 2013.
Persuant the New Tax Law, even if the Company continues to maintain its
high-tech enterprise status, Shandong Fuwei will be subject to the increased
25%
unified enterprise income tax rate after January 1, 2013.
Income
tax benefit reported in the consolidated statements of income differs from
the
income tax expense amount computed by applying the PRC income tax rate (the
statutory tax rate of the company’s principal subsidiary). For the periods ended
June 30, 2008 and December 31, 2007, due to the tax holiday the company’s
effective tax rates were 7.5%, saving 50% of the 15% rate for High-tech
enterprises located in the Development District of national level in China.
The
effective income tax rate for the six month periods ended June 30, 2008 and
2007
are 10% and 9% respectively.
Tax
effects of temporary differences that give rise to significant portions of
the
deferred tax assets/(liabilities) as of June 30, 2008 and December 31, 2007,
are
presented below.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
11-INCOME TAX
(continued)
|
|
30-Jun-2008
|
|
31-Dec-2007
|
|
|
|
RMB
|
|
USD
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(295
|
)
|
|
(42
|
)
|
|
(295
|
)
|
Other
receivables
|
|
|
30
|
|
|
4
|
|
|
30
|
|
|
|
|
(265
|
)
|
|
(38
|
)
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, principally due to differences in depreciation
and
capitalized interest
|
|
|
2,134
|
|
|
304
|
|
|
2,134
|
|
Construction
in progress, principally due to capitalized interest
|
|
|
(735
|
)
|
|
(105
|
)
|
|
(735
|
)
|
Lease
prepayments, principally due to differences in charges
|
|
|
(431
|
)
|
|
(61
|
)
|
|
(431
|
)
|
|
|
|
969
|
|
|
138
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax assets
|
|
|
704
|
|
|
100
|
|
|
704
|
|
In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. In order to fully realize
the deferred tax asset, Shandong Fuwei will need to generate future taxable
income of approximately RMB12,544 prior to 2031. Shandong Fuwei was under tax
concession period for the period from January 28, 2003 to December 31, 2006.
The
profit before taxation for Shandong Fuwei for the year ended December 31, 2005,
2006 and 2007 was RMB58,586, RMB69,933 and RMB47,260 (US$6,214) respectively.
Based upon the level of historical performance of Shandong Fuwei, management
believes the deferred tax assets are realizable.
Effect
of Adoption of FASB Interpretation No. 48 (Fin 48), “Accounting for Uncertainly
in Income Taxes
In
2006,
the Financial Accounting Standards Board (FASB) issued FIN 48, which clarifies
the application of SFAS 109 by defining a criterion that an individual income
tax position must meet for any part of the benefit of that position to be
recognized in an enterprise’s financial statements and provides guidance on
measurement, derecognition, classification, accounting for interest and
penalties, accounting in interim periods, disclosure and transition. In
accordance with the transition provisions, the company adopted FIN 48 effective
January 1, 2007.
The
company recognizes that virtually all tax positions in the PRC are not free
of
some degree of uncertainty due to tax law and policy changes by the state.
However, the company cannot reasonably quantify political risk factors and
thus
must depend on guidance issued by current state officials.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
11-INCOME TAX
(continued)
Based
on all known facts and circumstances and
current tax law, the company believes that the total amount of unrecognized
tax
benefits as of June 30, 2008, is not material to its results of operations,
financial condition or cash flows. The company also believes that the total
amount of unrecognized tax benefits as of June 30,
2008,
if
recognized, would not have a material effect on its effective tax rate. The
company further believes that there are no tax positions for which it is
reasonably possible, based on current Chinese tax law and policy, that the
unrecognized tax benefits will significantly increase or decrease over the
next
12 months producing, individually or in the aggregate, a material effect on
the
company’s results of operations, financial condition or cash flows.
NOTE
12- EARNINGS PER SHARE
The
Company adopted Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). SFAS 128 requires the presentation of earnings per share
(EPS) as Basic EPS and Diluted EPS.
Basic
earnings per share are computed by dividing net earnings by the weighted average
number of ordinary shares outstanding during the year. Diluted earnings per
share is calculated by dividing net earnings by the weighted average number
of
ordinary and dilutive potential ordinary shares outstanding during the year.
Diluted potential ordinary shares consist of shares issuable pursuant to stock
option plan.
The
weighted average number of shares used to calculate EPS was 13,062,500 for
the
six months periods ended June 30, 2008 and 2007 respectively, and reflect only
the shares outstanding for those periods.
The
company uses the treasury stock method to compute dilution related to
outstanding stock options. Because the option price exceeded the market price
for common stock at June 30, 2008, the options were anti-dilutive and were
not
included when computing diluted earning per share.
Basic
and
diluted earnings per share were RMB 1.35 (US$0.19) and RMB2.55 (US$0.33) for
the
six months periods ended June 30, 2008 and 2007.
The
Company adopted SFAS No. 123 (Revised 2004), Share Based Payment ("SFAS
No. 123R"), under the modified-prospective transition method on
January 1, 2006. SFAS No. 123R requires companies to measure and
recognize the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value. Share-based compensation
recognized under the modified-prospective transition method of SFAS
No. 123R includes share-based compensation based on the grant-date fair
value determined in accordance with the original provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, for all share-based
payments granted prior to and not yet vested as of January 1, 2006 and
share-based compensation based on the grant-date fair-value determined in
accordance with SFAS No. 123R for all share-based payments granted after
January 1, 2006. SFAS No. 123R eliminates the ability to account for
the award of these instruments under the intrinsic value method proscribed
by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock
Issued to Employees, and allowed under the original provisions of SFAS
No. 123.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
13 - STOCK OPTION PLAN
On
December 22, 2006, the Company granted 187,500 stock options to Maxim Group
LLC
as part of the compensation for the provision of services relating to the IPO
of
the Company. The stock option is exercisable at an exercise price equal to
US$10.35 per ordinary sheres and expires on December 22, 2011. The stock option
and ordinary shares underlying the stock option may not be sold, transferred,
assigned, pledged or hypothecated, or be the subject of any hedging, short
sale,
derivative, put or call transaction that would result in the effective
disposition thereof by any person for a period of six months. The fair value
of
each option award is estimated on the date of grant using the Black-Scholes
pricing model based on the following assumptions:
Fair
value of shares on measurement date
|
|
|
US
$
8.28 per share
|
|
Expected
volatility
|
|
|
57.26
|
%
|
Expected
dividends
|
|
|
0.00
|
%
|
Expected
term (in years)
|
|
|
5
|
|
Risk-free
rate
|
|
|
4.56
|
%
|
The
fair
value of the Company’s shares was estimated based on the IPO price of US$8.28
per share. The expected volatility is estimated by reference to the historical
volatility of comparable companies listed on the Nasdaq Global Market. The
risk-free rate for periods within the contractual life of the options is based
on the U.S. government bond in effect at the time of grant. Expected dividend
yields are based on historical dividends. Changes in these subjective input
assumptions could materially affect the fair value estimates.
As
of
June 30, 2008, there was no unrecognized compensation costs related to unvested
stock options.
Following
is a summary of the stock option activity:
|
|
Options
outstanding
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate Intrinsic
Value
|
|
Outstanding,
December 31, 2007
|
|
|
187,500
|
|
$
|
10.35
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Outstanding,
June 30, 2008
|
|
|
187,500
|
|
$
|
10.35
|
|
$
|
-
|
|
Following
is a summary of the status of options outstanding at June 30, 2008:
Outstanding
Options
|
|
Exercisable
Options
|
|
Exercise Price
|
|
Number
|
|
Average
Remaining
Contractual Life
|
|
Average
Exercise Price
|
|
Number
|
|
Average
Exercise Price
|
|
$
|
10.35
|
|
|
187,500
|
|
|
3.
50
|
|
$
|
10.35
|
|
|
187,500
|
|
$
|
10.35
|
|
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
14 - COMMITMENTS AND CONTINGENCIES
Commitments
Shandong
Fuwei is operating a rental BOPET production line with Shandong Weifang Legang
Food Co., Ltd (“Legang”) for three years, started from April 2007. The operating
leases also include the Company rental of warehouse, offices and staff quarters
etc., the term of these leases typically ranges from 1 to 3 years, and are
renewable, subject to renegotiation of terms, upon expiration.
The
following is a schedule by year of future minimum rental payments required
under
the operation lease agreements:
Year
after June 30, 2008
|
|
Amount(in thousands)
|
1
year after
|
|
3,467
|
2
year after
|
|
1,546
|
Contingencies
In
2006,
Shandong Fuwei received correspondence relating to an arbitration proceeding
initiated by DMT S. A. (“DMT”) against Shandong Neo-Luck in the ICC
International Court of Arbitration (the “ICC”) in which DMT sought monetary
damages against Shandong Neo-Luck of approximately US $1,250 plus interest
relating to a claim of partial non-payment for the DMT production line Shandong
Fuwei acquired from Beijing Baroui in 2005. In early 2007, the ICC determined
that despite arguments made to the ICC that Company should not be a party to
the
proceeding that the arbitration should proceed with Fuwei as the respondent
pending abjudication of issues relating to jurisdiction and liability.
A
hearing
was held by the ICC in November 2007. Subsequent to the hearing, at the
invitation of Weifang Neoluck (Group) Co., Ltd (“Neoluck Group”), the original
majority shareholder of Shandong Neo-Luck, the Neoluck Group and DMT engaged
in
efforts to achieve a settlement of the pending arbitration on January 18, 2008.
Shandong Fuwei joined these discussions later as an interested party and in
order to support a resolution of the pending dispute and to achieve resolution
of certain outstanding service and spare part issues.
After
several weeks of negotiations among the parties, in March 2008, the parties
entered into two agreements, a Service and Technical Assistance Agreement (the
“Service Agreement”), between DMT and Shandong Fuwei, and a Settlement Agreement
(the “Settlement Agreement”) between DMT and the Neoluck Group. Under the
Service Agreement, Shandong Fuwei would pay an amount of USD $180 in two
installments with respect to service and spare parts. The Company made its
first
payment in April 2008.
Under
the
Settlement Agreement, the Neoluck Group was obligated to pay an amount equal
to
US$900 in RMB by delivery of a bank draft to DMT. In late April, the Neoluck
Group had not performed its obligation under the Settlement Agreement, and,
the
Neoluck Group and DMT entered into a Supplemental Agreement pursuant to which
the Neoluck Group would pay the amount owed to DMT in two installments. The
Neoluck Group paid the first installment equal to USD 450 in RMB at the end
of
April 2008, and, its remaining installment is due prior to the end of June
2008.
In
the
event the arbitration proceedings continue as a result of non-performance of
the
payment obligation, it is possible for the arbitral tribunal for the ICC
International Court of Arbitration to rule in favor of DMT which might result
in
a liability for Fuwei for the amount claimed plus interest. However, any
possible liability regarding DMT’s claim should be reduced by the amount
previously paid to DMT in connection with the above described settlement. It
should be noted further in such event that Fuwei may have sustainable claims
for
damages as against the Neoluck Group for its failure to perform its obligations
under the Settlement Agreement.
HKG
Arbitration
At
December 31, 2007, Hampden Kent Group LLC had threatened the Company with
an arbitration, seeking a penalty fee in the amount of USD 3,800, relating
to
services allegedly performed by HKG in attempting to provide financing to Fuwei
pursuant to an August 19, 2006 letter agreement (the "Letter
Agreement") between the parties. Pursuant to the Letter Agreement,
any dispute between the parties would be arbitrated by the American Arbitration
Association (“AAA”) in accordance with its Commercial Arbitration
Rules. Pursuant to these rules, a demand for arbitration must be filed with
the
AAA regional office together with a filing fee by the claimant, in this
case, HKG.
In
December 2007, HKG filed a demand for arbitration with the International Dispute
Center of the AAA. On January 28, 2008, the AAA informed us that an
arbitration process would commence in accordance with its rules. On
February 18, 2008, HKG submitted an Amended Demand for Arbitration and Statement
of Claim.
On
March
14, 2008, the Company submitted its answering statement and counterclaim in
response to HKG's Amended Demand for Arbitration and Statement of Claim. The
Company denied HKG's claims for breach of contract and breach of the covenant
of
good faith and fair dealing as legally and factually without merit and asserted
various defenses. The Company also asserted a counterclaim against HKG for
breach of the Letter Agreement, seeking to recover the over $300 in fees and
costs paid to HKG and other consequential damages.
On
March
27, 2008, HKG submitted a letter in reply to the Company's counterclaim,
generally denying the allegations and claims made by the Company.
At
the
request of HKG, the Company had agreed to attempt to resolve this dispute
through mediation. A neutral mediator was been appointed by the AAA's
International Centre for Dispute Resolution. On April 24, 2008, HKG unilaterally
cancelled the mediation and sought to proceed with the arbitration. A panel
of
three
arbitrators
has been appointed, and the hearing is scheduled to commence on
September 22, 2008.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
14 - COMMITMENTS AND CONTINGENCIES (continued)
The
Company believes that HKG’s allegations are without merit and intends to defend
itself vigorously against the claims. Management estimated the exposure to
the
claim ranges from US$0 to US$3,800 as of June 30, 2008.
Class
Action
On
October 19, 2007, the Company became aware that a class action lawsuit had
been
filed in the United States District Court for the Southern District of New
York,
on behalf of all purchasers of the Company’s stock from the date of the
Company’s Initial Public Offering on December 19, 2006 through October 16, 2007.
The complaint alleged that the Company and certain
of its
present and former officers, directors and control persons (collectively, the
“defendants”) violated the Securities Act of 1933.
On
November 21, 2007, the Company was given notice that a second class action
lawsuit had been filed in the United States District Court for the Southern
District of New York, commenced on behalf of all purchasers of the Company’s
stock pursuant or traceable to the Registration Statement and Prospectus issued
in connection with the Company’s Initial Public Offering on December 19, 2006
through November 12, 2007. The complaint alleged that the Company, its
underwriters and certain of its executives (collectively, the “Defendants”)
violated Section 11, 12(2) and 15 of the Securities Act of 1933. The complaint
also alleged that the Defendants misrepresented or omitted material information
regarding the Company and its business operation.
On
January 24, 2008, the Court consolidated into a single action the putative
securities class actions pending against the Company and certain of its
officers, directors, and shareholders. The Court also appointed
Ninyat Tonyaz as lead plaintiff, appointed the Rosen Law Firm, P.A. as lead
counsel, and granted plaintiffs leave to file a consolidated amended class
action complaint. The consolidated action is styled
In
re
Fuwei Films Securities Litigation
, Case
No. 07-CV-9416 (RJS).
On
March
14, 2008, plaintiffs filed a consolidated amended class action
complaint (the "Amended Complaint") naming as defendants the
Company, Xianoan He, Mark Stulga, Jun Yin, Tongju Zhou, Duo Wang, and the
Company's IPO underwriters — Maxim Group LLC, WR Hambrecht + Co. and
Chardan Capital Markets, LLC. The Amended Complaint asserts
claims for violation of Sections 11, 12(a)(2), and 15 of the Securities Act
of
1933. At this point, we believe that only the Company, Messrs. He and
Stulga, and the Underwriter Defendants have been properly served with the
consolidated amended class action complaint.
Pursuant
to a scheduling order entered by the Court on February 19, 2008, the parties
named as defendants in the consolidated class action were required to answer
or
otherwise respond to the Amended Complaint on or before April
30, 2008. The Court subsequently extended defendants’ time to respond to
the Amended Complaint to May 14, 2008. The Company and Messrs.
He and Stulga filed a motion to dismiss the Amended Complaint in its
entirety. The Underwriter Defendants separately moved to dismiss the
Amended Complaint. Both motions have been fully briefed, and the
parties await the Court's decision.
The
Company’s management believes that the allegations are without merit. The
Company intends to defend itself vigorously against the claims and has engaged
a
law firm in this regard. However, the
Company's management is currently unable to reasonably estimate
the amount or range of possible losses that will result from the ultimate
resolution of this matter.
As
of June 30, 2008, the Company has not accrued any liability in connection
with these litigations.
NOTE
15 - MAJOR CUSTOMERS AND VENDORS
There
were no major customers which accounting over 10% of the total net revenue
for
the six months period ended June 30, 2008 and 2007.
One
vendor provided approximately 18% of the Company’s raw materials for the six
months ended June 30, 2008. Two vendors provided approximately 54.4% of the
Company’s raw materials for the six months ended June 30, 2007 with each vendor
individually accounting for about 36.3%, and 18.1%.
The
Company had RMB13,891 ($2,723) and RMB19,857($2,895) advances to these vendors
as of June 30, 2008 and December 31, 2007, respectively.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
16 - OTHER EVENT, SUBSEQUENT EVENT AND LITIGATION PREVIOUSLY REPORTED
On
March
26, 2008, the Korean Trading Committee (“KTC”) has rendered a preparatory
decision on dumping practices and their industrial injuries. The final judgment
will be issued within 75 days after the initial judgment was announced. At
the
end of March, we received the initial anti-dumping judgment from Korean Trading
Committee. Fuwei was informed it will receive a rate of 6.13%. As of June 30,
2008, there has been no new arbitration judgement made by KTC.
US
Department of Commerce (“KTC”) has also officially initiated an anti-dumping
case on October 18, 2007 to investigate the PET film imported from China. On
April 25, 2008, US Department of Commerce announced the initial judgement of
the
anti-dumping investigation to the companies of China, Brazil, Thailand and
UAE.
Five Chinese companies, including Dupont Hongji and Fuwei Films received on
anti-dumping tax rate of 46.82%. Other Chinese companies in this industry got
the anti-dumping tax rate of 76.72%. As of June 30, 2008, there has been no
new
arbitration judgement made by US Department of Commerce
.
In
July,
2008, the company repaid the loan from Bank of Communications Co., Ltd in the
amount of RMB60,000 ($8,748) and RMB82,580 ($12,040), and obtained a new
one-year loan in the same amount. The new loans have 8.217% interest rate and
due on June 10, 2009 and June 23, 2009 respectively.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
References
to "dollars" and "US$" are to United States Dollars. References to "we", "us",
the "Company" or "Fuwei" include Fuwei Films (Holdings) Co., Ltd. and its
subsidiaries, except where the context requires otherwise.
Results
of operations for the six months periods ended June 30, 2008 compared to June
30, 2007
The
Company entered the first half of 2008 with a number of challenges including
strong
competitions
in the marketplace, an increase in cost, a decrease in export orders resulting
from the anti-dumping cases in Korea and the United States, and a lower
decreased average sales price.
Consequently,
the results of the first half 2008 are not as good as the same period last
year.
Additionally, the increased cost of unit product and legal expenses related
to
the ongoing litigation also affected the operating results of the first half
of
2008.
The
table
below sets forth certain line items from our Statement of Income as a percentage
of Revenue:
|
|
Six Months Period
Ended
June 30, 2008
|
|
Six Months Period Ended
June 30, 2007
|
|
|
|
(as
% of Revenue)
|
|
Gross
profit
|
|
|
19
|
|
|
26
|
|
Operating
expenses
|
|
|
(9
|
)
|
|
(7
|
)
|
Operating
income
|
|
|
10
|
|
|
19
|
|
Other
expense
|
|
|
(2
|
)
|
|
(2
|
)
|
Income
tax expense
|
|
|
(0.8
|
)
|
|
(1.5
|
)
|
Net
income
|
|
|
8
|
|
|
15
|
|
Revenue
The
Company’s revenue is primarily derived from the manufacture and sale of plastic
films.
Net
sales
during the six months period ended June 30, 2008 amounted to RMB 228.8 million
(US$ 32.4 million), compared to RMB 220.2 million (US$ 28.5 million) during
the
same period 2007, representing 3.9% increase.
The
sales
of specialty films during the six months period ended June 30, 2008 were RMB
74.9 million (US$ 10.6 million), decrease 13.4% than the same period last
year. Sales of specialty films in the first half 2008 reflected 32.7% of total
net revenues as compared to 39.3% in the same period of 2007.
The
decline
was
mainly due to the decreased demand volume of some specialty films (e.g. Matte
film, Embossing film etc.) by certain customers as these customers’ adjusted
products structure required less of our specialty films for
production.
The
following is a breakdown of commodity and specialty film sales (amounts in
thousands):
|
|
Six
months Period Ended June
30,2008
|
|
|
|
Six
Months Period
Ended
June
30,2007
|
|
|
|
RMB
|
|
US$
|
|
% of Total
|
|
RMB
|
|
Printing
film
|
|
|
31,370
|
|
|
4,444
|
|
|
13.7
|
%
|
|
13,605
|
|
Stamping
film
|
|
|
45,969
|
|
|
6,513
|
|
|
20.1
|
%
|
|
27,407
|
|
Metallization
film
|
|
|
15,759
|
|
|
2,233
|
|
|
6.9
|
%
|
|
51,072
|
|
Base
film for other applications
|
|
|
60,780
|
|
|
8,611
|
|
|
26.6
|
%
|
|
41,654
|
|
Special
film
|
|
|
74,902
|
|
|
10,612
|
|
|
32.7
|
%
|
|
86,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,781
|
|
|
32,413
|
|
|
100.0
|
%
|
|
220,194
|
|
Overseas
sales in the six months ended June 30, 2008 were RMB 31.6million
(US$4.5million), which accounted for 13.8% of our total net revenues as compared
to RMB 71.7million (US$9.3 million) and 32.6% in the same period of 2007, 55.9%
lower than the first half last year. The decrease in export sales was mainly
due
to the decrease in tax rebate rate from 11% to 5%, the continuous appreciation
of RMB versus the U.S dollars and Korean dollars, and the influence of
anti-dumping regulation in Korea and the U.S.
The
following is a breakdown of PRC domestic and overseas sales (amounts in
thousands)
|
|
Six Months Ended June
30,2008
|
|
|
|
Six Months Ended
June 30,2007
|
|
|
|
|
|
RMB
|
|
US$
|
|
% of Total
|
|
RMB
|
|
% of Total
|
|
Sales
in China
|
|
|
197,148
|
|
|
27,932
|
|
|
86.2
|
%
|
|
148,467
|
|
|
67.4
|
%
|
Sales
in other countries
|
|
|
31,633
|
|
|
4,482
|
|
|
13.8
|
%
|
|
71,727
|
|
|
32.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
228,781
|
|
|
32,413
|
|
|
100.0
|
%
|
|
220,194
|
|
|
100.0
|
%
|
Cost
of Goods Sold
Our
cost
of goods sold comprises mainly of material costs, factory overhead, packaging
materials and direct labor. The breakdown of our cost of goods sold in
percentage is as follows:
|
|
Six Months Ended
June 30,2008
|
|
Six Months Ended
June 30,2007
|
|
|
|
% of total
|
|
% of
total
|
|
Materials
costs
|
|
|
79.7
|
%
|
|
80.0
|
%
|
Factory
overhead
|
|
|
8.9
|
%
|
|
9.7
|
%
|
Power
|
|
|
7.6
|
%
|
|
6.7
|
%
|
Packaging
materials
|
|
|
2.6
|
%
|
|
2.8
|
%
|
Direct
labor
|
|
|
1.2
|
%
|
|
0.8
|
%
|
Cost
of
goods sold in the first half of 2008 totaled RMB 185.2 million (US$ 26.2
million) as compared to RMB 163.3 million (US$21.2 million) in the prior year,
13.4% higher than the same period of 2007 mainly due to the increased production
volume during the first half of 2008 compared with that of the same period
of
2007. Additionally, the increased consumption of raw material, power, labor
and
factory overhead in the first half of 2008 compared with that of the
corresponding period of 2007 also results in the increase of cost of goods.
Gross
Profit
Our
gross
profit was RMB 43.6 million (US$ 6.2 million) in the first half of 2008,
representing a gross margin of 19.0%, a decrease of 6.9% from the same period
of
2007 gross profit of 25.9%, mainly due to the decreased average sales price
of
our products and the increased consumption of raw materials, power, and labor
in
the first half of 2008 compared with the same period of 2007.
Operating
expenses
Operating
expenses ended June 30, 2008 were RMB 20.2 million (US$2.9 million), which
was
RMB5.0 million (US$0.7 million) or 32.9% higher than the same period of 2007.
This was mainly due to the increased allowance for doubtful accounts, domestic
transportation expenses, labor costs, and the legal expenses relating to ongoing
litigation matters etc. in the first half 2008 compared to the same period
of
prior year.
Interest
Expense
Interest
expense totaled RMB 8.6 million (US$1.2 million) in the first half of 2008,
78.8% higher compared to RMB 4.8 million (US$ 0.6 million) in the same period
of
2007. The increase is mainly due to the accrued interest rate RMB 3.5 million
(US$ 0.5 million) and increased interest rate in the first half of 2008.
Other
Income /(expense)
Our
other
income during the period ended June 30, 2008 amounted to RMB3.9 million
(US$ 0.6 million). After other income offsets other expense, the net other
expense decrease compared to the corresponding period of 2007. Other income
included sales of scrap materials and non-operating income.
Net
Income
Net
Income in the first half of 2008 was RMB17.6 million (US$ 2.5 million) compared
to RMB33.4million (US$4.3 million) in the same period of 2007, representing
a
decrease of 47.3% from the same period of 2007. The decrease in net income
was
primarily due to the decrease of gross profit, and the increased operating
expenses related to being a public reporting company, such as the increased
legal expenses relating to ongoing litigation matters and insurance fee
etc.
Income
Tax Expense
In
the
first half of 2008, the Company recorded an income tax expense of RMB1.9 million
(US$ 0.3 million) compared to RMB 3.3 million (US$0.4) in the same period of
2007. This decrease was due to decrease of taxable income.
Results
of operations for three months periods ended June 30, 2008 compared to June
30,
2007.
Net
sales
The
table
below sets forth certain line items from our Statement of Income as a percentage
of Net sales:
|
|
30-Jun-08
|
|
30-Jun-07
|
|
|
|
(as
% of Net sales)
|
|
Gross
profit
|
|
|
18
|
|
|
27
|
|
Operating
expenses
|
|
|
(7
|
)
|
|
(7
|
)
|
Operating
income
|
|
|
10
|
|
|
20
|
|
Other
income/(expense)
|
|
|
(2
|
)
|
|
(1.5
|
)
|
Income
tax benefit/(expense)
|
|
|
(0.7
|
)
|
|
(1.5
|
)
|
Net
income
|
|
|
8
|
|
|
17
|
|
Net
sales
for the second quarter 2008 increased slightly to RMB 124.7 million (US$17.9
million) from RMB 120.9 million (US$15.8 million), 3.1% higher than the
second quarter 2007. Total quantity of sales in the second quarter 2008 as
higher compared to same period 2007.
Sales
of
specialty films in the second quarter 2008 were RMB 41.1million (
$5.9million),
decrease
16.3% than the second quarter last year. Sales of specialty films reflected
33.0% of Fuwei’s total net revenues as compared to 40.7% in the same period of
2007.
The
decline
was
mainly due to the decreased demand volume of some specialty films (e.g. Matte
film, Embossing film etc.) by certain customers as these customers’ adjusted
products structure required less of our specialty films for
production.
The
following is a breakdown of commodity and specialty film sales (amounts in
thousands):
|
|
Three
Months Period
ended
Jun. 30, 2008
|
|
|
|
Three
Months
Period
ended
Jun.
30, 2007
|
|
|
|
RMB
|
|
US$
|
|
% of Total
|
|
RMB
|
|
% of Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printing
film
|
|
|
12,157
|
|
|
1,747
|
|
|
9.7
|
%
|
|
7,552
|
|
|
6.2
|
%
|
Stamping
film
|
|
|
24,759
|
|
|
3,559
|
|
|
19.8
|
%
|
|
15,039
|
|
|
12.4
|
%
|
Metallization
film
|
|
|
12,844
|
|
|
1,846
|
|
|
10.3
|
%
|
|
27,486
|
|
|
22.7
|
%
|
Base
film for other applications
|
|
|
33,850
|
|
|
4,866
|
|
|
27.1
|
%
|
|
21,681
|
|
|
18.0
|
%
|
Special
film
|
|
|
41,136
|
|
|
5,913
|
|
|
33.0
|
%
|
|
49,171
|
|
|
40.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,747
|
|
|
17,932
|
|
|
100.00
|
%
|
|
120,929
|
|
|
100
|
%
|
Overseas
sales in the second quarter 2008 were RMB 8.0 million (US$1.1 million), which
accounted for 6.4% of our total net revenues as compared to RMB38.7million
(US$
5.0 million) and 32.0% in the same period of 2007, 79.3% lower than the second
quarter last year. The decrease in export sales was mainly due to the decrease
in tax rebate rate from 11% to 5%, the continuous appreciation of RMB versus
the
U.S dollars and Korean dollars and the influence of anti-dumping regulation
in
Korea and the U.S.
The
following is a breakdown of PRC domestic and overseas sales (amounts in
thousands):
|
|
Three Months Period
ended Jun. 30, 2008
|
|
|
|
Three Months Period ended
Jun. 30, 2007
|
|
|
|
|
|
RMB
|
|
US$
|
|
% of Total
|
|
RMB
|
|
% of Total
|
|
Sales
in China
|
|
|
116,725
|
|
|
16,779
|
|
|
93.6
|
%
|
|
82,220
|
|
|
68.0
|
%
|
Sales
in other countries
|
|
|
8,022
|
|
|
1,153
|
|
|
6.4
|
%
|
|
38,709
|
|
|
32.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,747
|
|
|
17,932
|
|
|
100.0
|
%
|
|
120,929
|
|
|
100.0
|
%
|
Cost
of Goods Sold
|
|
Three Months Period
ended Jun. 30, 2008
|
|
Three Months
Period ended
Jun. 30, 2007
|
|
|
|
%
of total
|
|
%
of total
|
|
Materials
costs
|
|
|
80.8
|
%
|
|
80.0
|
%
|
Factory
overhead
|
|
|
8.5
|
%
|
|
9.7
|
%
|
Power
|
|
|
7.1
|
%
|
|
6.7
|
%
|
Packaging
materials
|
|
|
2.5
|
%
|
|
2.8
|
%
|
Direct
labor
|
|
|
1.1
|
%
|
|
0.8
|
%
|
Cost
of
goods sold in the second quarter of 2008 totaled RMB 102.8 million (US$14.8
million) as compared to RMB 88.3 million (US$11.5 million) in the prior year
16.4% higher than the same periods last year mainly due to the increase in
quantity of sales. Additionally, the increased consumption of raw material,
power, labor and factory overhead in the second quarter of 2008 compared with
that of the corresponding period of 2007 also results in the increase of cost
of
goods.
Gross
Profit
Our
gross
profit was RMB 21.9 million (US$ 3.2million) in the second quarter 2008,
representing a gross margin of 17.6%, a decrease of 9.4% from the same period
of
2007 gross profit of 27.0%, mainly due to the decreased average sales price
and
increased consumption of raw materials, power and labor in the second quarter
2008 compared with the same period of 2007.
Operating
expenses
Operating
expenses in the second quarter of 2008 were RMB9.0 million (US$1.3 million),
which was RMB0.0 3million or 0.3% lower than that of 2007 in the prior period.
This was mainly due to the decreased overseas selling expenses compared to
the
second quarter of 2007.
Interest
Expense
Interest
expense totaled RMB 4.9 million (US$0.7 million) in the second quarter of 2008
compared to RMB1.7 million (US$ 0.2
million)
in the second quarter of 2007, showing 188.3% increase, The increase is mainly
due to the accrued interest of RMB 1.8 million (US$ 0.3 million) and increased
interest rate in the second quarter of 2008 compared to the same period of
2007.
Other
Income / (expense)
Our
other
expenses in the second quarter of 2008 were RMB 2.4 million (US$ 0.3 million)
compared to RMB 1.8 million (US$ 0.2 million) in the same period of 2007,
showing 34.8% increase, which was mainly due to the accrued interest of RMB
1.8
million (US0.3 million)in the second quarter of 2008.
Net
Income
Net
Income in the second quarter of 2008 was RMB 9.7 million (US$1.4 million)
compared to RMB RMB20.1 million (US$2.6 million) in the second quarter of 2007,
representing a decrease of 51.7% from the second quarter of 2007. The decrease
in net income in the second quarter 2008 was primarily due to the decreased
unit
price and the increased costs of goods sold, as well as the increased operating
expenses such as the allowance for doubtful accounts, domestic transportation
expenses and legal expenses, etc..
Income
Tax Expense
In
the
second quarter of 2008, the company recorded an income tax expense of
RMB0.9million (US$0.1 million) compared to an income tax expenses of RMB1.8
million (US$0.2 million) in the second quarter of 2007. This decrease was due
to
the decrease of taxable income.
Liquidity
and Capital Resources
Since
inception, our sources of cash were mainly from cash generated from our
operations and borrowings from financial institutions and capital contributed
by
our shareholders.
From
2007
to the first half of 2008 our capital expenditures have been primarily financed
through short-term borrowings from financial institutions and IPO funds. The
interest rates of short-term borrowings from financial institutions during
the
periods from 2005 to the second quarter of 2008 ranged from 5.45% to
8.22%.
As
of
June 30, 2008, we have borrowings of RMB 179.3 million including several
different loan agreements with three financial institutions in the PRC. During
2008, we had received an interest-free loan of RMB 20 million from the Weifang
City Commercial Bank entrusted by the Weifang City Hi & New Technology
Project Industrial Development Fund. Each of the related loan agreements
contains provisions regarding collateral, covenants prohibiting us from engaging
in certain activities (including selling, mortgaging or otherwise disposing
of
or encumbering all or substantially all of our assets or before any merger,
acquisition, spin-off, or other transaction resulting in a change in our
corporate structure) without the lenders consent and acceleration (and setoff)
provisions in the event of default in payment or failure to comply with such
covenants. Because of appreciation of the exchange rate of RMB vs. US dollars,
the estimated purchase price of the new thick BOPET film production line has
been adjusted to USD$ 35 million range, resulting in an available fund shortage
of USD$15-20 million. Management is seeking sources of financing in order to
recommence this project soon.
We
are of
the opinion that, after taking into consideration our present banking
facilities, existing cash and the expected cash flows to be generated from
our
operations, we believe that we have adequate sources of liquidity to meet our
short-term obligations, and our working capital.
Operating
Activities
Net
cash
flows provided by operating activities for the six months ended June 30, 2008,
was RMB 5.6 million (US$ 0.8 million) compared with net cash flows used by
operating activities of RMB29.6 million (US$ 3.5 million ) for the six months
ended June 30, 2007, for a decrease of RMB24 million (US$ 2.7 million). This
change in cash flows from operating activities was attributable primarily to
the
increase of prepaid expenses for raw materials and other receivable.
Working
Capital
As
of
June 30, 2008 and December 31, 2007, the Company had negative working capital
of
RMB 45.4 million (US$6.6million) and RMB 14.6 million (US$ 2.0 million),
respectively.
The
Company anticipates that it will have adequate working capital in the
foreseeable future. However, the Company may wish to borrow additional capital
or sell its common stock to realize additional funds in order to expand and
grow
its operations.
Contractual
Obligations
The
following table is a summary of the Company's contractual obligations as of
June
30, 2008 (In thousands):
|
|
Payments
due by period
|
|
|
|
|
|
Less
than
|
|
1-3
|
|
3-5
|
|
More
than
|
|
Contractual
obligations
|
|
|
Total
|
|
|
1
year
|
|
|
Years
|
|
|
Years
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
obligations
|
|
|
710
|
|
|
491
|
|
|
219
|
|
|
|
|
|
|
|
Purchase
obligations
|
|
|
18,673
|
|
|
18,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,383
|
|
$
|
19,164
|
|
$
|
219
|
|
|
|
|
|
|
|
Exhibit
Index
Exhibit
No.
|
|
Description
|
99.1
|
|
Press
Release dated August 14, 2008.
|
SIGNATURE
Pursuant
to the requirements of the Securities
Exchange
Act of 1934, the
registrant
has
duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
|
Fuwei
Films (Holdings) Co., Ltd
|
|
|
|
|
By:
|
/s/
Xiaoan He
|
|
Name:
Xiaoan He
|
|
Title:
Chairman, Chief Executive
Officer
|
Dated:
August 14, 2008
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