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 March
31, 2010
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
x
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 (this “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 future financial performance of Fuwei
Films (Holdings) Co., Ltd. (the “Company”). The Company has attempted to
identify forward-looking statements by terminology, including, but not limited
to, “anticipates”, “believes”, “expects”, “can”, “continue”, “could”,
“estimates”, “intends”, “may”, “plans”, “potential”, “predicts”, “should” or
“will” or the negative of these terms or other comparable
terminology.
The
forward-looking statements included in this Form 6-K are subject to risks,
uncertainties and assumptions about the Company’s businesses and business
environments. These statements reflect the Company’s current views with respect
to future events and are not a guarantee of future results, operations, levels
of activity, performance or achievements. Actual results of the Company’s
results, operations, levels of activity, performance or achievements may differ
materially from information contained in the forward-looking statements as a
result of risk factors. They 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 power) and the sometimes inadequate energy supply in the
area where Fuwei Films (Shandong) Co., Ltd. (
“
Fuwei
Shandong
”)
is
located, which may result in the increase of production cost, decrease of sales,
and negatively influence the Company’s financial performance; uncertainty of
various kinds of international barriers; uncertainty as to future profitability
and its ability to obtain adequate financing for its planned capital expenditure
requirements; uncertainty as to the Company’s ability to successfully obtain
financing and consequently continue the operation of the third BOPET production
line, the construction of which has already commenced; uncertainty as to the
Company’s ability to continuously develop new BOPET film products and keep up
with changes in BOPET film technology; instability of power and energy supply;
risks associated with possible defects and errors in its products; uncertainty
as to its ability to protect and enforce its intellectual property rights;
uncertainty as to its ability to attract and retain qualified executives and
personnel; and uncertainty in acquiring raw materials on time and on acceptable
terms, particularly in light of the volatility in the prices of petroleum
products in recent years and the potential impact resulting from the pending
criminal litigation and related new developments to the major shareholders
uncertainty in the adverse effect resulting from the pending shareholders class
action suit filed in the United States District Court for the Southern District
of New York. The Company’s 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.
On May
28, 2010, the Company announced its unaudited consolidated financial results for
the three months period ended March 31, 2010.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
AS
OF MARCH 31, 2010 AND DECEMBER 31, 2009
(amounts
in thousands except share and per share value)
(Unaudited)
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
34,265
|
|
|
|
5,020
|
|
|
|
26,804
|
|
Restricted
cash
|
|
|
9,891
|
|
|
|
1,449
|
|
|
|
12,541
|
|
Accounts
and bills receivable, net
|
|
|
34,123
|
|
|
|
4,999
|
|
|
|
28,785
|
|
Inventories
|
|
|
46,993
|
|
|
|
6,885
|
|
|
|
45,039
|
|
Advance
to suppliers
|
|
|
3,694
|
|
|
|
541
|
|
|
|
3,956
|
|
Prepayments
and other receivables
|
|
|
911
|
|
|
|
134
|
|
|
|
957
|
|
Deferred
tax assets - current
|
|
|
1,251
|
|
|
|
183
|
|
|
|
1,198
|
|
Total
current assets
|
|
|
131,129
|
|
|
|
19,211
|
|
|
|
119,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plant,
properties and equipment, net
|
|
|
310,362
|
|
|
|
45,468
|
|
|
|
318,600
|
|
Construction
in progress
|
|
|
237,781
|
|
|
|
34,835
|
|
|
|
237,118
|
|
Lease
prepayments, net
|
|
|
21,417
|
|
|
|
3,138
|
|
|
|
21,548
|
|
Advanced
to suppliers - Long Term
|
|
|
2,041
|
|
|
|
299
|
|
|
|
2,367
|
|
Goodwill
|
|
|
10,276
|
|
|
|
1,505
|
|
|
|
10,276
|
|
Deposit
|
|
|
21,000
|
|
|
|
3,077
|
|
|
|
21,000
|
|
Deferred
tax assets - non current
|
|
|
5,246
|
|
|
|
769
|
|
|
|
5,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
739,252
|
|
|
|
108,302
|
|
|
|
735,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term
borrowings
|
|
|
143,179
|
|
|
|
20,976
|
|
|
|
153,179
|
|
Accounts
payables
|
|
|
25,766
|
|
|
|
3,775
|
|
|
|
25,898
|
|
Advance
from customers
|
|
|
15,683
|
|
|
|
2,298
|
|
|
|
12,608
|
|
Accrued
expenses and other payables
|
|
|
7,530
|
|
|
|
1,103
|
|
|
|
6,981
|
|
Total
current liabilities
|
|
|
192,158
|
|
|
|
28,152
|
|
|
|
198,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
loan
|
|
|
35,000
|
|
|
|
5,128
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
227,158
|
|
|
|
33,280
|
|
|
|
223,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
capital (of US$0.129752 par value; 20,000,000 shares authorized;
13,062,500 issued and outstanding)
|
|
|
13,323
|
|
|
|
1,952
|
|
|
|
13,323
|
|
Additional
paid-in capital
|
|
|
311,907
|
|
|
|
45,695
|
|
|
|
311,907
|
|
Statutory
reserve
|
|
|
29,338
|
|
|
|
4,298
|
|
|
|
29,338
|
|
Retained
earnings
|
|
|
156,307
|
|
|
|
22,899
|
|
|
|
156,006
|
|
Cumulative
translation adjustment
|
|
|
979
|
|
|
|
143
|
|
|
|
993
|
|
Total
shareholders’ equity
|
|
|
511,854
|
|
|
|
74,987
|
|
|
|
511,567
|
|
Non-controlling
interest
|
|
|
240
|
|
|
|
35
|
|
|
|
276
|
|
Total
equity
|
|
|
512,094
|
|
|
|
75,022
|
|
|
|
511,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and equity
|
|
|
739,252
|
|
|
|
108,302
|
|
|
|
735,509
|
|
The accompanying notes are an integral
part of these unaudited condensed consolidated
statements.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR
THE THREE MONTHS PERIOD ENDED MARCH 31, 2010 AND 2009
(amounts
in thousands except share and per share value)
(UNAUDITED)
|
|
The Periods End March 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net
|
|
|
88,455
|
|
|
|
12,956
|
|
|
|
74,517
|
|
Cost
of sales
|
|
|
(75,689
|
)
|
|
|
(11,086
|
)
|
|
|
(74,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
12,767
|
|
|
|
1,870
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution
expenses
|
|
|
(3,396
|
)
|
|
|
(497
|
)
|
|
|
(4,897
|
)
|
Administrative
expenses
|
|
|
(7,529
|
)
|
|
|
(1,103
|
)
|
|
|
(11,462
|
)
|
Total
operating expenses
|
|
|
(10,925
|
)
|
|
|
(1,600
|
)
|
|
|
(16,359
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss)
|
|
|
1,842
|
|
|
|
270
|
|
|
|
(16,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Interest income
|
|
|
14
|
|
|
|
2
|
|
|
|
101
|
|
-
Interest expense
|
|
|
(1,618
|
)
|
|
|
(237
|
)
|
|
|
-
|
|
-
Others income/(expense), net
|
|
|
44
|
|
|
|
6
|
|
|
|
(445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other expense
|
|
|
(1,559
|
)
|
|
|
(228
|
)
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss)
before income tax benefit/(expense)
|
|
|
283
|
|
|
|
41
|
|
|
|
(16,630
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit/(expense)
|
|
|
(19
|
)
|
|
|
(3
|
)
|
|
|
2,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
264
|
|
|
|
39
|
|
|
|
(14,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) attributable to noncontrolling interests
|
|
|
(36
|
)
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income/(loss) attributable to the Company
|
|
|
300
|
|
|
|
44
|
|
|
|
(14,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income/(loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Foreign currency translation adjustments
|
|
|
(14
|
)
|
|
|
(2
|
)
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income/(loss)
|
|
|
286
|
|
|
|
42
|
|
|
|
(14,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss)
per share, Basic and diluted
|
|
|
0.02
|
|
|
|
0.003
|
|
|
|
(1.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number ordinary shares, Basic and
diluted
|
|
|
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 THREE MONTHS PERIOD ENDED MARCH 31, 2010 AND 2009
(amounts
in thousands except share and per share value)
(UNAUDITED)
|
|
Periods Ended March 31, 2010
|
|
|
Periods Ended
March 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Cash
flow from operating activities
|
|
|
|
|
|
|
|
|
|
Net
income/(loss)
|
|
|
264
|
|
|
|
39
|
|
|
|
(14,136
|
)
|
Adjustments
to reconcile net income/(loss) to net cash
provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Depreciation of property, plant and equipment
|
|
|
9,707
|
|
|
|
1,422
|
|
|
|
7,284
|
|
-
Amortization of intangible assets
|
|
|
113
|
|
|
|
17
|
|
|
|
113
|
|
-
Deferred income taxes
|
|
|
19
|
|
|
|
3
|
|
|
|
(2,493
|
)
|
-
Bad debt expense/
|
|
|
356
|
|
|
|
52
|
|
|
|
6,148
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Accounts receivable
|
|
|
(5,693
|
)
|
|
|
(834
|
)
|
|
|
9,534
|
|
-
Inventories
|
|
|
(1,954
|
)
|
|
|
(286
|
)
|
|
|
(2,632
|
)
|
-
Advance to suppliers
|
|
|
262
|
|
|
|
38
|
|
|
|
4,033
|
|
-
Prepaid expenses and other current assets
|
|
|
23
|
|
|
|
3
|
|
|
|
(5,579
|
)
|
-
Accounts payable
|
|
|
(130
|
)
|
|
|
(19
|
)
|
|
|
(44
|
)
|
-
Accrued expenses and other payables
|
|
|
(419
|
)
|
|
|
(61
|
)
|
|
|
(361
|
)
|
-
Advance from customers
|
|
|
3,075
|
|
|
|
450
|
|
|
|
9,086
|
|
-
Tax payable
|
|
|
978
|
|
|
|
143
|
|
|
|
(1,445
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
6,599
|
|
|
|
967
|
|
|
|
9,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, plant and equipment
|
|
|
(1,469
|
)
|
|
|
(215
|
)
|
|
|
(427
|
)
|
Restricted
cash related to trade finance
|
|
|
2,650
|
|
|
|
388
|
|
|
|
2,647
|
|
Advance
to suppliers – non current
|
|
|
326
|
|
|
|
48
|
|
|
|
(305
|
)
|
Addition
to construction in progress
|
|
|
(663
|
)
|
|
|
(97
|
)
|
|
|
(2,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in)/provided by investing activities
|
|
|
844
|
|
|
|
124
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
payments of short-term bank loans
|
|
|
(10,000
|
)
|
|
|
(1,465
|
)
|
|
|
(12,264
|
)
|
Proceeds
from short-term bank loans
|
|
|
10,000
|
|
|
|
1,465
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,264
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign exchange rate changes
|
|
|
18
|
|
|
|
4
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalent
|
|
|
7,461
|
|
|
|
1,094
|
|
|
|
6,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent
|
|
|
|
|
|
|
|
|
|
|
|
|
At
beginning of periods
|
|
|
26,804
|
|
|
|
3,926
|
|
|
|
15,823
|
|
At
end of periods
|
|
|
34,265
|
|
|
|
5,020
|
|
|
|
22,764
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY
DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
|
2,045
|
|
|
|
299
|
|
|
|
1,777
|
|
Income
tax paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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 a holding company incorporated in the Cayman Islands, established on August
9, 2004 under the Cayman Islands Companies Law as an exempted company with
limited liability. The Company was established for the purpose of acquiring
shares in Fuwei (BVI) Co., Ltd. (“Fuwei (BVI)”), an intermediate holding company
established for the purpose of acquiring all of the ownership interest in Fuwei
Films (Shandong) Co., Ltd. (“Shandong Fuwei”).
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 Shandong Fuwei on October 9, 2003 for RMB156,000 as a result of the
borrower’s 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 that were formerly owned by Shandong
Neo-Luck for RMB119,280 through a public auction. Shandong Fuwei converted into
a wholly-foreign owned enterprise in the PRC on January 5, 2005, with a
registered capital of US$11,000 which increased to US$42,700 on December 31,
2006.
On April
23, 2009, Fuwei Films USA, LLC was set up in South Carolina and co-invested by
Fuwei Films (Holdings) Co., Ltd. and Newell Finance Management Co., Ltd..
Fuwei Films USA, LLC has a registered capital of US$10 and total investment
amount of US$100. Fuwei Films (Holdings) Co., Ltd. and Newell Finance Management
Co., Ltd. own 60% and 40% of the total shares of Fuwei Films USA, LLC,
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 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”) as
applicable to smaller reporting companies, 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 presented in annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) have been omitted pursuant to such
rules and regulations. These consolidated financial statements for
the period ended March 31, 2010 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 three month period
ended March 31, 2010 are not necessarily indicative of the results to be
expected for the full year ending December 31, 2010.
Principles
of Consolidation
The
condensed consolidated financial statements include the financial statements of
the Company and its three 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 U.S.
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. Fuwei Films USA, LLC, the wholly
owned subsidiary of the Company, has its records are maintained in US dollars.
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.
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)
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.
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 reporting 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 RMB9,891 (US$1,449) and RMB12,541 (US$1,837)
as of March 31, 2010 and December 31, 2009, 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
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Trade Accounts
Receivable
Trade
accounts receivable are recorded at the invoiced amount after deduction of trade
discounts, 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 collectability.
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.
Inventories
Inventories
are stated at the lower of cost or market value. Cost is determined using
the weighted 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
|
|
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)
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 new BOPET
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.
Goodwill
Goodwill
represents the excess of purchase price and related costs over the value
assigned to the net tangible and identifiable intangible assets of businesses
acquired. Goodwill is not amortized but is tested for impairment annually, or
when circumstances indicate a possible impairment may exist. Impairment testing
is performed at a reporting unit level. An impairment loss generally would be
recognized when the carrying amount of the reporting unit exceeds the fair value
of the reporting unit, with the fair value of the reporting unit determined
using a discounted cash flow (DCF) analysis. A number of significant assumptions
and estimates are involved in the application of the DCF analysis to forecast
operating cash flows, including the discount rate, the internal rate of return,
and projections of realizations and costs to produce. Management considers
historical experience and all available information at the time the fair values
of its reporting units are estimated.
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.
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)
Revenue
Recognition
Sales of
plastic films are reported, net of value added taxes (“VAT”), sales returns, and
trade discounts. 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.
Stock-Based
Compensation
The
Company accounts for stock based compensation in accordance with Statement
No. 123R, Share-Based Payment (SFAS 123R) (ASC 718), which requires
companies to measure and recognize compensation expense for all stock-based
payments at fair value.
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.
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)
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
In
June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for
determining whether to consolidate a variable interest entity. These amended
standards eliminate a mandatory quantitative approach to determine whether a
variable interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused analysis, and
require an ongoing reassessment of whether an entity is the primary beneficiary.
These amended standards are effective for us beginning in the first quarter of
fiscal year 2010.
The
adoption of this standard is not expected to have a significant impact on the
Company’s consolidated financial statements.
In
October 2009, the FASB issued an amendment to the accounting standards related
to certain revenue arrangements that include software elements. This standard
clarifies the existing accounting guidance such that tangible products that
contain both software and non-software components that function together to
deliver the product’s essential functionality, shall be excluded from the scope
of the software revenue recognition accounting standards. Accordingly, sales of
these products may fall within the scope of other revenue recognition standards
or may now be within the scope of this standard and may require an allocation of
the arrangement consideration for each element of the arrangement. This
standard, for which the Company is currently assessing the impact, will become
effective on January 1, 2011.
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)
In
January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements
and Disclosure, to require reporting entities to separately disclose the amounts
and business rationale for significant transfers in and out of Level 1 and Level
2 fair value measurements and separately present information regarding purchase,
sale, issuance, and settlement of Level 3 fair value measures on a gross basis.
This standard, is effective for interim and annual reporting periods beginning
after December 15, 2009 with the exception of disclosures regarding the
purchase, sale, issuance, and settlement of Level 3 fair value measures which
are effective for fiscal years beginning after December 15, 2010.
The
adoption of this standard is not expected to have a significant impact on the
Company’s consolidated financial statements.
The
Company has implemented all new accounting pronouncements that are in effect and
that may impact its financial statements and does not believe that there are any
other new accounting pronouncements that have been issued that might have a
material impact on its consolidated financial statements.
Reclassifications
Certain
amounts in the 2009 financial statements may have been reclassified to conform
to the 2010 presentation. These reclassifications had on effect on previously
reported results of operations or retained earnings.
NOTE
3 - ACCOUNTS RECEIVABLES, NET
Accounts
receivables at March 31, 2010 and December 31, 2009 consist of the
following:
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
|
Accounts
receivable
|
|
|
28,947
|
|
|
|
4,285
|
|
|
|
22,289
|
|
Less:
Allowance for doubtful accounts
|
|
|
(2,614
|
)
|
|
|
(425
|
)
|
|
|
(2,259
|
)
|
|
|
|
26,332
|
|
|
|
3,860
|
|
|
|
20,030
|
|
Bills
receivable
|
|
|
7,791
|
|
|
|
1,141
|
|
|
|
8,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,123
|
|
|
|
4,999
|
|
|
|
28,785
|
|
Bill
receivables are bank’s acceptance bills, which are guaranteed by
bank.
NOTE 4 -
INVENTORIES
Inventories
at March 31, 2010 and December 31, 2009 consist of the
following:
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 (continued)
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
|
Raw
materials
|
|
|
24,496
|
|
|
|
3,589
|
|
|
|
28,756
|
|
Work-in-progress
|
|
|
1,573
|
|
|
|
230
|
|
|
|
2,274
|
|
Finished
goods
|
|
|
23,650
|
|
|
|
3,465
|
|
|
|
17,617
|
|
Consumables
and spare parts
|
|
|
652
|
|
|
|
95
|
|
|
|
633
|
|
Inventory—impairment
|
|
|
(3,377
|
)
|
|
|
(495
|
)
|
|
|
(4,242
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,993
|
|
|
|
6,885
|
|
|
|
45,039
|
|
NOTE 5 - PROPERTY,
PLANT AND EQUIPMENT, NET
Property,
plant and equipment consist of the following:
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
|
(Unaudited)
|
|
|
|
|
Buildings
|
|
|
43,668
|
|
|
|
6,397
|
|
|
|
43,273
|
|
Plant
and equipment
|
|
|
417,328
|
|
|
|
61,139
|
|
|
|
416,143
|
|
Computer
equipment
|
|
|
1,558
|
|
|
|
228
|
|
|
|
1,421
|
|
Furniture
and fixtures
|
|
|
5,929
|
|
|
|
869
|
|
|
|
5,929
|
|
Motor
vehicles
|
|
|
1,655
|
|
|
|
242
|
|
|
|
1,739
|
|
|
|
|
470,137
|
|
|
|
68,876
|
|
|
|
468,505
|
|
Less:
accumulated depreciation
|
|
|
(159,775
|
)
|
|
|
(23,407
|
)
|
|
|
(149,905
|
)
|
|
|
|
310,362
|
|
|
|
45,468
|
|
|
|
318,600
|
|
Total
depreciation for the three month periods ended March 31, 2010 and 2009 was
RMB9,707 (US$1,422) and RMB7,284 (US$1,064), respectively. For the periods three
months ended March 31, 2010 and 2009, depreciation expenses were RMB8,075
(US$1,183) and RMB6,852 (US$1,001), respectively.
NOTE 6 - CONSTRUCTION IN
PROGRESS
Construction-in-progress
represents capital expenditure in respect of the BOPET production line.
Construction in progress was RMB 237,781 (US$ 34,835) as of March 31,
2010, and RMB237,118 (US$34,732) as of December 31, 2009,
respectively.
Interest
expense capitalized during the period ended March 31, 2010 and 2009 was
RMB418(US$61) and RMB1,777(US$260) 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
March 31, 2010 and December 31, 2009, lease prepayments, net of amortization
were RMB 21,417(US$3,138) and RMB 21,548 (US$3,156),
respectively.
Amortization
of lease prepayments for the three-month period ended March 31, 2010
and 2009 were RMB113 (US$17) and RMB 113 (US$17), respectively.
Amortization
expenses for the next five years after March 31, 2010 are as
follows:
|
|
RMB
|
|
|
US$
|
|
1
year after
|
|
|
454
|
|
|
|
66
|
|
2
year after
|
|
|
454
|
|
|
|
66
|
|
3
year after
|
|
|
454
|
|
|
|
66
|
|
4
year after
|
|
|
454
|
|
|
|
66
|
|
5
year after
|
|
|
454
|
|
|
|
66
|
|
Thereafter
|
|
|
19,147
|
|
|
|
2,803
|
|
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
registered capital 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
to 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 June 30,
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 supplementary agreement signed in June 2008, the prepayment was
decreased by RMB 5,000 and returned to the Company on June 18,
2008.
On June
30, 2009, Shandong Fuwei and the Pledger , the major shareholder of Joyinn,
agreed that the Pledger would pledge another 19% of its interest in Joyinn in
addition to the previous pledge of 52% interest in Joyinn as a guarantee to the
prepayment on the newly increased register capital made by Shandong Fuwei to
Joyinn. As a result, the Pledger’s percentage of pledged interest in Joyinn
increased from 52% to 71%.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
8 – DEPOSIT (continued)
On July
14, 2009, Shandong Fuwei and Joyinn “Supplementary Agreement of Letter of Intent
of Joyinn Capital Increase and Share Expansion” which extended the duration of
former agreement to two (2) years that is,,the expiration date of the agreement
extended to January 14, 2010. As of March 31, 2010, the total amount of the
deposit was RMB 21,000 (US$3,076).
On May 23, 2010, the Pledger and Shandong Fuwei signed a second
Supplementary Agreement to the Share Pledging Agreement which provides that the
Pledging Agreement will stay effective till the share transfer documents and all
stipulated processes are all completed.
NOTE 9 - SHORT-TERM
AND LONG-TERM BANK LOANS
|
|
Interest rate
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
Lender
|
|
per annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
SHORT-TERM LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Communications Co.,
Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
-
June 9, 2009 to June 8, 2010
|
|
|
5.84
|
%
|
|
|
70,000
|
|
|
|
10,254
|
|
|
|
70,000
|
|
-
June 9, 2009 to June 8, 2010
|
|
|
5.84
|
%
|
|
|
70,000
|
|
|
|
10,254
|
|
|
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
January 13, 2009 to January 12, 2010
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of China
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
March 13, 2008 to March 13, 2009
|
|
|
5.45
|
%
|
|
|
(80
|
)
|
|
|
(12
|
)
|
|
|
(80
|
)
|
-
June 4, 2009 to June 4, 2010
|
|
|
1.38
|
%
|
|
|
3,259
|
|
|
|
477
|
|
|
|
3,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
December 2, 2008 to December 2, 2011
|
|
|
0.00
|
%
|
|
|
5,000
|
|
|
|
732
|
|
|
|
5,000
|
|
-
January 16, 2009 to January 12, 2012
|
|
|
0.00
|
%
|
|
|
10,000
|
|
|
|
1,465
|
|
|
|
10,000
|
|
-
January 13, 2010 to January 12, 2012
|
|
|
0.00
|
%
|
|
|
10,000
|
|
|
|
1,465
|
|
|
|
-
|
|
Weifang Dongfang State-owned Assets Management
Co., Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
October 19, 2009 to October 18, 2017
|
|
|
5.346
|
%
|
|
|
10,000
|
|
|
|
1,465
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
178,179
|
|
|
|
26,104
|
|
|
|
178,179
|
|
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
AND LONG-TERM BANK LOANS (continued)
Notes:
During
the periods ended March 31, 2010 and the years ended December 31, 2009, the
Company entered into several loan agreements with commercial banks with terms
ranging from one year to eight years to finance its working capital, R&D
investment, 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 March 31, 2010 and
December 31, 2009 was 5.64% per annum.
The
principal amounts of the above short-term loans are repayable at the end of the
loan period and are secured by property, plant and equipment, lease prepayments
and bill receivable.
The
Company obtained two short-term loans on June 9, 2009 for RMB 70,000 from Bank
of Communications Co., Ltd., respectively, replaced the short-term loans of RMB
82,580 and RMB 60,000 matured on July 10, 2009 and July 23, 2009,
respectively. The annual interest rate is up by 10% based on the
fixed benchmark interest rate 5.31% determined by the People’s Bank of China. As
of March 31, 2009, the effective interest rate is 5.841%.
In
addition, we entered into three interests free Loan Contracts with Bank of
Weifang (which was used to be Weifang City Commercial Bank) for the amount
of (i) RMB 10,000, effective January 16, 2009, with a maturity date of January
12, 2010. We renewed the loan to extend two years from Januray 13, 2010 to
January 2012 after it expired on January 12, 2010;(ii) RMB 10, 000, effective
January 16, 2009, with a maturity date of January 12, 2012, and (iii) RMB 5,000,
effective December 2, 2008, with a maturity date of December 2, 2011. All the
loans above are interest-free loans from the local government who entrust the
Bank of Weifang to provide to enterprises which is called the industrial
development fund loan administrated by the local government of Shandong
Province, for the local high-and–new tech enterprises, with the purpose of
enhancing their independent ability of innovation and technical research and
development so as to support their development. RMB 25,000 (US$3,663) proceeded
from this loan has been invested in the construction of the trial production
line for the R&D center, the assets of which secure these
loans.
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
AND LONG-TERM BANK LOANS (continued)
On June
4, 2009, Shandong Fuwei entered into a one-year foreign currency loan agreement
with Bank of China Weifang Branch for US$477 which is secured by a deposit of
RMB 3,259 with an interest rate of 1.38375%, 0.2% down float by trading day’s
LIBOR interest, in order to reduce the currency translation cost of Shandong
Fuwei.
On
November 20, 2009, we signed a long-term loan contracts of RMB10,000 with
Weifang Dongfang State-owned Assets Management Co., Ltd., with eight-year loan
term which became effective on October 19, 2009 and will expire on October 18,
2017. From 2015 to 2016, the Company will make principal installment payments of
RMB3,350 per year with the remaining principal balance of RMB3,300 paid in
2017. The annual interest rate is 5.346% which is up by 10% compared with the
fixed benchmark of 5-year interest rate announced by the People’s Bank of China.
The loan is guaranteed by Shandong Deqin Investment& Guarantee Co., Ltd. and
is used for the Company's key projects.
Long-term
bank loans maturity for the next three years after March 31, 2010 are as
follows:
|
|
RMB
|
|
|
US$
|
|
1
year after
|
|
|
-
|
|
|
|
-
|
|
2
year after
|
|
|
5,000
|
|
|
|
730
|
|
3
year after
|
|
|
20,000
|
|
|
|
2,930
|
|
NOTE 10 - INCOME
TAX
The
Company is registered in Cayman Islands and has operations primarily in two tax
jurisdictions, the PRC and Cayman Islands.
The
provision for income taxes from operations consists of the following for the
three months periods ended March 31, 2010 and 2009:
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Cayman
Islands Current Income Tax Expense (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRC
Current Income Expense (Benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Deferred
Tax Expense (Benefit)
|
|
|
19
|
|
|
|
3
|
|
|
|
(2,494
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Provision for Income Tax
|
|
|
18
|
|
|
|
3
|
|
|
|
(2,494
|
)
|
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE 10 - 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:
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Tax
expense (credit) – Cayman Islands
|
|
|
0
|
%
|
|
|
0
|
%
|
Foreign
income tax – PRC
|
|
|
15
|
%
|
|
|
15
|
%
|
Exempt
from income tax due to tax holidays
|
|
|
(0
|
)%
|
|
|
(0
|
)%
|
Tax
expense at actual rate
|
|
|
15
|
%
|
|
|
15
|
%
|
Cayman
Islands Tax
Under the
current law of Cayman Islands, 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.
United States
Tax
The
Company’s subsidiary Fuwei Films USA LLC located in South Carolina, which was
established during April 23, 2009, did not record any income tax expenses due to
net losses during the periods ended March 31, 2010. The actual tax benefit
differs from the expected tax benefit computed by applying the United States
corporate tax rate of 39% to loss before income taxes as follows for the periods
ended March 31, 2010:
|
|
March 31, 2010
|
|
|
March 31, 2009
|
|
Expected
tax benefit
|
|
|
34
|
%
|
|
|
34
|
%
|
State
income taxes, net of federal benefit
|
|
|
5
|
%
|
|
|
5
|
%
|
Changes
in valuation allowance
|
|
|
(39
|
)%
|
|
|
(39
|
)%
|
Total
|
|
|
-
|
|
|
|
-
|
|
The
Company recorded an allowance of 100% for its net operating loss carry-forward
due to the uncertainty of its realization.
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 and 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.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE 10 - INCOME
TAX
(continued)
The New
Tax Law was adopted on March 16, 2007 in the PRC. Under the New Tax Law, which
became effective on January 1, 2008, domestic enterprises and foreign-invested
enterprises generally are 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. Shandong
Fuwei was redesignated as a High-and-New Tech Enterprise in December 2008 and is
enjoying the favorable income tax rate of 15% pursuant to the Enterprise Income
Tax Law.
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
March 31, 2010 and December 31, 2009, the Company’s effective tax rates were
both at 15%, as a High-and-New Tech Enterprise located in the Development
District of national level in China. The effective income tax rate for the three
month period ended March 31, 2010 and 2009 were 15% and 15.0%,
respectively.
Tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets/(liabilities) as of March 31, 2010 and December 31, 2009 are
presented below.
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Current
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(299
|
)
|
|
|
(44
|
)
|
|
|
(353
|
)
|
Other
receivables
|
|
|
914
|
|
|
|
134
|
|
|
|
914
|
|
Inventory
Impairment
|
|
|
636
|
|
|
|
93
|
|
|
|
636
|
|
|
|
|
1251
|
|
|
|
183
|
|
|
|
1198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, principally due to differences in depreciation and
capitalized interest
|
|
|
2,170
|
|
|
|
318
|
|
|
|
2134
|
|
Construction
in progress, principally due to capitalized interest
|
|
|
98
|
|
|
|
14
|
|
|
|
161
|
|
Lease
prepayments, principally due to differences in charges
|
|
|
(433
|
)
|
|
|
(63
|
)
|
|
|
(431
|
)
|
Net
operating loss carryforward
|
|
|
3,411
|
|
|
|
500
|
|
|
|
3454
|
|
|
|
|
5,246
|
|
|
|
769
|
|
|
|
5318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred income tax assets
|
|
|
6,497
|
|
|
|
952
|
|
|
|
6516
|
|
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
years ended December 31, 2006, 2007 and 2008 was RMB69,933 (US$8,961), RMB51,941
(US$7,120) and RMB 21,1124 (US$ 3,082), respectively. Based upon the level of
historical performance of Shandong Fuwei, management believes the deferred tax
assets are realizable.
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE 10 - INCOME
TAX
(continued)
Effect of
Adoption of F
ASB
ASC 740, Income Taxes
In 2006,
the Financial Accounting Standards Board (FASB) issued FIN 48 (ASC 740), 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, recognition, 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.
Based on
all known facts and circumstances and current tax law, the Company believes that
the total amount of unrecognized tax benefits as of March 31, 2010 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
March 31, 2010, 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
11- 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
three months periods ended March 31, 2010 and 2009 respectively, and reflect
only the shares outstanding for those periods.
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- EARNINGS PER SHARE (continued)
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 March 31, 2010, the options were anti-dilutive and were not
included when computing diluted earning per share.
Basic and
diluted earnings per share were RMB0.02 (US$0.003) for the three months periods
ended March 31, 2010 and Basic and diluted net loss per share were RMB1.08
(US$0.16) for the three months periods ended March 31, 2009.
NOTE
12 - STOCK OPTION PLAN
FUWEI
FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts
in thousands except share and per share value)
NOTE
12 - STOCK OPTION PLAN (continued)
Following
is a summary of the stock option activity:
|
|
Options
outstanding
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Intrinsic Value
|
|
Outstanding,
December 31, 2009
|
|
|
187,500
|
|
|
$
|
10.35
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
March 31,2010
|
|
|
187,500
|
|
|
$
|
10.35
|
|
|
$
|
-
|
|
Following
is a summary of the status of options outstanding at March 31,
2010:
Outstanding Options
|
|
Exercisable Options
|
Exercise Price
|
|
Number
|
|
Average Remaining
Contractual Life
|
|
Average Exercise
Price
|
|
Number
|
|
Average Exercise Price
|
$
|
10.35
|
|
|
187,500
|
|
|
1.75
|
|
$
|
10.35
|
|
|
187,500
|
|
$
|
10.35
|
NOTE 13 -
COMMITMENTS AND CONTINGENCIES
Commitments
On March
2010, Fuwei Shandong had a meeting with Dornier discussing about the execution
of the equipment contract in Shanghai. Due to the fund shortage of Fuwei
Shandong, Dornier terminated the contract with Fuwei Shandong and asked for
compensation for interests, storage costs, equipment modification costs and
other costs which aggregated to 4.2 million Euros. Fuwei Shandong is
working with the Dornier on the specific implementation of the
contract.
Contingencies
DMT
Arbitration
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- COMMITMENTS AND CONTINGENCIES (continued)
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 Baorui 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, the arbitration should proceed with Fuwei as the respondent pending
adjudication 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 US$180 in two
installments with respect to service and spare parts. The Company made its first
payment in April 2008. As of March 31, 2010, Shandong Fuwei has paid
US$135 and still US$45 is left unpaid.
Under the
Settlement Agreement, the Neoluck Group was obligated to pay an amount equal to
US$900 in RMB by delivery of a bank draft to DMT. In late April, the Neoluck
Group had not performed its obligation under the Settlement Agreement, and, the
Neoluck Group and DMT entered into a Supplemental Agreement pursuant to which
the Neoluck Group would pay the amount owed to DMTin two installments. The
Neoluck Group paid the first installment equal to US$ 450 in April 2008. As
agreed between Neoluck Group and DMT, the remaining US$450 was to be paid in
installments by the end of December 2008. As of March 31, 2010, Neoluck Group
has paid US$ 320 and still has US$130 outstanding to DMT.
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 might have sustainable claims
for damages as against the Neoluck Group for its failure to perform its
obligations under the Settlement Agreement.
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 - COMMITMENTS AND CONTINGENCIES (continued)
Subsequent
to year-end, on January 18, 2010 we were advised by the Secretary of The
International Court of
Arbitration
of International Chamber of Commerce (ICC), the arbitration was withdrew due to
DMT’s failure to pay the balance of the advance on costs.
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 IPO on December 19, 2006 through October 16, 2007. The complaint
alleged that the Company and certain of its present and former officers,
directors, and shareholders 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 IPO on December 19, 2006 through November 12,
2007. The complaint alleged that the Company, its underwriters, and certain of
its executives violated Sections 11, 12(a)(2), and 15 of the Securities Act of
1933 by misrepresenting or omitting material information regarding the Company
and its business operations.
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 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,
Xiaoan He, Mark Stulga, Jun Yin, Tongju Zhou, Duo Wang, and the
Company's IPO underwriters (the “Underwriter Defendants”) — 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. The Company, Messrs. He
and Stulga, and the Underwriter Defendants were served with the Amended
Complaint and, as described below, have moved to dismiss the claims asserted
against them.
On
November 3, 2008, Plaintiffs filed proofs of service with the Court, indicating
that Messrs. Yin, Wang, and Zhou were served with the Amended Complaint on or
about August 14, 2008, and that they had 90 days after such date to serve an
answer to the Amended Complaint or a motion pursuant to Rule 12 of the Federal
Rules of Civil Procedure.
By letter
dated March 17, 2009, Plaintiffs apprised the Court of Fuwei’s March 10, 2009
Press Release disclosing the initial verdict against Messrs. Yin, Wang, and
Zhou. , and requested that the Court take judicial notice of this press release
in adjudicating the pending motions to dismiss.
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 - COMMITMENTS AND CONTINGENCIES (continued)
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. By the
Court’s Memorandum and Order dated July 10, 2009, the motions to dismiss of the
Company, Messrs. He and Stulga, and the Underwriter Defendants were granted in
part and denied in part.
In ruling
on the motion to dismiss, the Court was required to assume that the facts
alleged by the plaintiffs are true and to draw all reasonable inferences in the
plaintiffs’ favor. Applying that standard, the Court dismissed plaintiffs’
claims to the extent they were based upon Fuwei’s alleged failure to disclose
the DMT arbitration proceeding. The Court also dismissed certain of
plaintiffs’ claims to the extent they were brought on behalf of shareholders who
did not purchase their shares directly in the IPO.
The Court
sustained plaintiffs’ remaining claims. However, the Court noted that
defendants may be able to assert affirmative defenses provided by the federal
securities laws in a motion for summary judgment, which could resolve the case
before trial.
On
September 9, 2009, the Company and Messrs. He and Stulga filed their answer to
the Amended Complaint. On October 2, 2009, the Court entered a case management
plan and scheduling order, which sets deadlines relating to pre-trial discovery,
mediation, and dispositive motions. Discovery is proceeding.
The
Company and Plaintiffs engaged in a mediation on March 26, 2010. The case was
not settled at the mediation.
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 March 31, 2010, the
Company has not accrued any liability in connection with these litigations
except for the defense expenses.
NOTE 14 - MAJOR
CUSTOMERS AND VENDORS
There
were no major customers which accounted over 10% of the total net revenue for
the three months period ended March 31, 2010and 2009.
One
vendor provided approximately 47.42% of the Company’s raw materials for the
three months ended March 31, 2010. The Company had RMB1,543 (US$226) advance to
the vendor as of March 31, 2010. Two vendors provided approximately 57.7% of the
Company’s raw materials for the three months ended March 31, 2009 with each
vendor individually accounting for about 45.2% and 12.5%,
respectively.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
References
to "dollars" and "US$" 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 three month period ended March 31, 2010 compared to March
31, 2009
With the
recovery of Chinese economy, domestic demand began to gradually restore in the
first quarter of 2010. In addition, the demand of high value-added specialty
films and export of our products began to recover, particularly the increase in
the sales prices. However, our operation results have not been significantly
improved due to the competition in the domestic market. In 2009, we have taken
actions, such as reducing the number of employees, reducing expenses and closing
our office in Japan, in order to improve our profitability and as a result, we
have seen a gradual positive effect on our operation. For example, our operation
cost is lower than the same period of last year. However, if the economy
does not continue to improve, our operation may continue to face such decline.
Currently, several countries have taken trade protection measures against
Chinese manufacturing, which may continue to adversely affect our
exports.
During
2009, based on the judgment in connection with the inventory fair value, an
amount of RMB 4.2 million was classified as the inventory impairment and
recorded as a component of cost of goods sold for the period ended of December
31, 2009, and RMB 0.3 million recorded as the provision for doubtful debts for
the account receivables by the Company.
The table
below sets forth certain line items from our Statement of Income as a percentage
of revenue:
|
|
Three Month Period Ended
March 31, 2010
|
|
|
Three Month Period Ended
March 31, 2009
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
14.4
|
|
|
|
0.1
|
|
Operating
expenses
|
|
|
(12.4
|
)
|
|
|
(22.0
|
)
|
Operating
income/(loss)
|
|
|
2.1
|
|
|
|
(
21.9
|
)
|
Other
income/(expense)
|
|
|
(1.8
|
)
|
|
|
(0.5
|
)
|
Income
tax benefit/(expense)
|
|
|
0.0
|
|
|
|
3.4
|
|
Net
income/(loss)
|
|
|
0.3
|
|
|
|
(19.0
|
)
|
Revenue
The
Company’s revenue is primarily derived from the manufacture and sale of plastic
films.
Net sales
during the three months period ended March 31, 2010 were RMB 88.5 million
(US$13.0 million), compared to RMB 74.5 million (US$10.9 million) during the
same period in 2009, representing a 18.7% increase. The increase is mainly
due to the increase of sales price.
The sales
of specialty films during the three month period ended March 31, 2010 were RMB
8.5 million (US$ 1.3 million), an increase of 105.7%, compared to the same
period last year. The increase was largely attributable to the increase of sales
volume and sales price.
The
following is a breakdown of commodity and specialty film sales (amounts in
thousands):
|
|
Three Month Period Ended
March 31, 2010
|
|
|
% of Total
|
|
|
Three Month Period
Ended
March 31, 2009
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Printing
film
|
|
|
9,286
|
|
|
|
1,360
|
|
|
|
10.5
|
%
|
|
|
7,128
|
|
|
|
9.6
|
%
|
Stamping
film
|
|
|
57,683
|
|
|
|
8,451
|
|
|
|
65.2
|
%
|
|
|
31,188
|
|
|
|
41.9
|
%
|
Metallization
film
|
|
|
7,705
|
|
|
|
1,129
|
|
|
|
8.7
|
%
|
|
|
12,273
|
|
|
|
16.5
|
%
|
Special
film
|
|
|
8,532
|
|
|
|
1,250
|
|
|
|
9.6
|
%
|
|
|
4,148
|
|
|
|
5.6
|
%
|
Base
film for other application
|
|
|
5,250
|
|
|
|
769
|
|
|
|
5.9
|
%
|
|
|
19,780
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,455
|
|
|
|
12,959
|
|
|
|
100.0
|
%
|
|
|
74,517
|
|
|
|
100.0
|
%
|
Overseas
sales during the three month ended March 31, 2010 were RMB 11.3 million (US$1.7
million), which accounted for 12.8 % of our total net revenues, as compared with
RMB 10.5 million (US$1.5 million) and 14.1% in the same period in 2009. The
increase in export sales was mainly due to the increase of sales volume and
sales prices.
The
following is a breakdown of PRC domestic and overseas sales (amounts in
thousands):
|
|
Three Month Period
Ended
March 31, 2010
|
|
|
|
|
|
Three Month Period
Ended March 31,
2009
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
% of Total
|
|
|
RMB
|
|
|
% of Total
|
|
Sales
in China
|
|
|
77,125
|
|
|
|
11,299
|
|
|
|
87.2
|
%
|
|
|
64,034
|
|
|
|
85.9
|
%
|
Sales
in other countries
|
|
|
11,331
|
|
|
|
1,660
|
|
|
|
12.8
|
%
|
|
|
10,483
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,455
|
|
|
|
12,959
|
|
|
|
100.0
|
%
|
|
|
74,517
|
|
|
|
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:
|
|
Three Month Period
Ended
March 31, 2010
|
|
|
Three Month Period
Ended
March 31, 2009
|
|
|
|
%
of total
|
|
|
%
of total
|
|
Materials
costs
|
|
|
76.5
|
|
|
|
71.4
|
|
Factory
overhead
|
|
|
11.3
|
|
|
|
11.6
|
|
Power
|
|
|
7.9
|
|
|
|
11.5
|
|
Packaging
materials
|
|
|
3.0
|
|
|
|
3.3
|
|
Direct
labor
|
|
|
1.3
|
|
|
|
2.2
|
|
Cost of
goods sold during the first three months of 2010 totaled RMB 75.7 million
(US$11.1 million) as compared to RMB 74.4 million (US$10.9 million) for the same
period in the prior year. This was 1.7% higher than the same period in 2009,
mainly due to the increase in the price of the raw materials in the first three
months of 2010 compared to the same period in 2009.
Gross
Profit
Our gross
profit was RMB 12.8 million (US$1.9 million) for the first three months of 2010,
representing a gross margin of 14.4%, as compared to a gross profit of 0.1% from
the same period in 2009, an increase of 14.3%. This was mainly due to the
increase in average sales price of our products during the first three months of
2010 compared with the same period in 2009.
Operating
expenses
Operating
expenses for the three months ended March 31, 2010 were RMB10.9 million (US$1.6
million), as compared to RMB16.4 million (US$2.4 million) or 33.2% lower than
the same period in 2009. This decrease was mainly due to decreased delivery
costs and decreased allowances for doubtful account receivable and other
receivables.
Other
Income /(Expense)
Other
expense for the three months ended March 31, 2010 was RMB 1.6 million (US$ 0.2
million), mainly included interest expense RMB 1.6 million (US$0.2 million)
during the first three months of 2010.
Income
Tax Benefit/(expense)
During
the first three months of 2010, the Company recorded an income tax expense of
RMB 19,000 (US$ 3,000) compared to the tax benefit RMB 2.5 million (US$ 0.3
million) during the same period in 2009. This change was due to decreased
deferred income tax benefit from bad debt allowances and net loss
carryforward.
Net
Income/(Loss)
Net
income during the first three months of 2010 was RMB 0.3 million (US$ 0.04
million) compared to net loss of RMB 14.1 million (US$2.1 million) during the
same period in 2009, representing an increase of RMB14.4 million from the same
period in 2009. The increase of net income was mainly due to the increase in
gross margin and decrease of the operating expenses.
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 2009
to the first three months of 2010, our capital expenditures have been primarily
financed through short-term borrowings from financial institutions. The interest
rates of short-term borrowings from financial institutions during the periods
from first quarter of 2009 to the first quarter of 2010 ranged from 0% to
8.22%.
We
obtained two short-term loans on June 9, 2009 for RMB 70,000,
respectively. The maturity dates for both loans is on June 8, 2010.
The annual interest rate is up by 10% compared with the fixed benchmark interest
rate announced by the People’s Bank of China. As of March 31, 2010, the interest
rate in effect is 5.841%.
We
entered into three interests free Loan Contracts with Bank of
Weifang (which was used to be Weifang City Commercial Bank) for the amount
of (i) RMB 10,000, effective January 16, 2009, with a maturity date of January
12, 2010. We renewed the loan to extend two years from Januray 13, 2010 to
January 12, 2012 after it expired on January 12, 2010; (ii) RMB 10, 000,
effective January 16, 2009, with a maturity date of January 12, 2012; and (iii)
RMB 5,000, effective December 2, 2008, with a maturity date of December 2,
2011.
On June
4, 2009, Shandong Fuwei entered into a one-year foreign currency loan agreement
with Bank of China Weifang Branch for US$477 which is secured by a deposit of
RMB 3,259 with an interest rate of 1.38375%, 0.2% down float by trading day’s
LIBOR interest, in order to reduce the currency translation cost of Shandong
Fuwei.
On
November 20, 2009, we signed a long-term loan contracts of RMB10,000 with
Weifang Dongfang State-owned Assets Management Co., Ltd., with eight-year loan
term which became effective on October 19, 2009 and will expire on October 18,
2017. From 2015 to 2016, we will make principal installment payments of RMB3,350
per year with the remaining principal balance of RMB3,300 paid in 2017. The
annual interest rate is 5.346% which is up by 10% compared with the fixed
benchmark of 5-year interest rate announced by the People’s Bank of China. The
loan is guaranteed by Shandong Deqin Investment & Guarantee Co., Ltd. and is
used for our key projects.
We
believe that, after taking into consideration our present banking facilities,
existing cash and the expected cash flows to be generated from our operations,
we have adequate sources of liquidity to meet our short-term obligations and our
working capital.
Operating
Activities
Net cash
flows provided by operating activities for the three months ended March 31,
2010, was RMB6.6 million (US$ 1.0 million) compared to net cash flows used by
operating activities of RMB 9.5 million (U$S1.3 million) for the three months
ended March 31, 2009, which is an decrease of RMB2.6 million (US$0.4 million).
This decrease in cash flows from operating activities was attributable primarily
to the increase of accounts receivable and inventories.
Working
Capital
As of
March 31, 2010 and December 31, 2009, we had negative working capital of RMB
61.0 million (US$8.9 million) and RMB 79.4 million (US$11.6 million),
respectively. Although we have material negative working capital, the short-term
current liability is mainly due to the short-term bank loans, which amounted to
RMB143.2 million (US$21.0 million). We have entered into negotiations with
our lenders to extend the maturity date of these loans.
We
anticipate that we will have adequate working capital in the foreseeable future.
However, we may wish to borrow additional capital or sell our common stock to
realize additional funds in order to expand and grow our
operations.
Contractual
Obligations
The
following table is a summary of the Company's contractual obligations as of
March 31, 2010 (in thousands RMB):
|
|
Payments due by period
|
|
|
|
|
|
Less than
1
|
|
1-3
|
|
3-5
|
|
More than
5
|
Contractual obligations
|
|
Total
|
|
|
year
|
|
Years
|
|
Years
|
|
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
obligations
|
|
|
346
|
|
|
|
346
|
|
|
|
|
|
|
Purchase
obligations
|
|
|
149,340
|
|
|
|
149,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
149,776
|
|
|
|
149,776
|
|
|
|
|
|
|
Exhibit
Index
Exhibit
No.
|
|
Description
|
99.1
|
|
Press
Release dated May 28, 2010.
|
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:
May 28, 2010