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, 2011

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 (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, negative effects of the global financial crisis and European debt crisis on the Company, competition in the BOPET film industry, especially the significant oversupply of BOPET films resulting from the rapid growth of the Chinese BOPET industry capacity, changes in the international market and trade barriers, especially the uncertainty of the antidumping investigation and imposition of an anti-dumping duty on imports of the BOPET films originating from the People’s Republic of China (“China”) conducted by certain countries; fluctuations of RMB exchange rate, the reduce in demand for the Company’s products or the loss of main customers which may result in the decrease of sales, and negatively influencing the Company’s financial performance, uncertainty as to the future profitability and the Company’s ability to obtain adequate financing for its planned capital expenditure requirements, uncertainty as to the Company’s ability to successfully obtain additional financing and  the operation of the new BOPET production line, its timely delivery by its production line equipment supplier, uncertainty as to the Company’s 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 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, instability of power and energy supply, and the uncertainty regarding the future operation of the Company in connection with the change of the major shareholders. The Company’s expectations are as of the date of filing of this Form 6-K, and the Company does not intend to update any of the forward-looking statements after the date this Form 6-K is filed to confirm these statements to actual results, unless required by law.

On August 10, 2011, the Company announced its unaudited consolidated financial results for the six-month period ended June 30, 2011.

 
2

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 AND DECEMBER 31, 2010
(amounts in thousands except share and per share value)
(Unaudited)

 
Notes
 
June 30, 2011
   
December 31, 2010
 
     
RMB
   
US$
   
RMB
 
ASSETS
                   
Current assets
                   
Cash and cash equivalents
      78,446       12,137       171,227  
Restricted cash
      88,689       13,721       1,314  
Accounts and bills receivable, net
3
    34,364       5,317       25,482  
Inventories
4
    43,217       6,686       52,577  
Advance to suppliers
      5,370       831       10,974  
Prepayments and other receivables
      30,063       4,651       540  
Deferred tax assets - current
      745       115       1,344  
Total current assets
      280,894       43,458       263,458  
                           
Plant, properties and equipment, net
5
    299,613       46,355       284,891  
Construction in progress
6
    169,698       26,255       197,193  
Lease prepayments, net
7
    20,309       3,142       21,024  
Advance to suppliers - Long term
      4,116       637       2,787  
Goodwill
      10,276       1,590       10,276  
Long-term deposit
8
    16,760       2,593       16,760  
Deferred tax assets - non current
      1,692       262       1,763  
                           
Total assets
      803,358       124,292       798,152  
                           
LIABILITIES AND SHAREHOLDERS’ EQUITY
                         
Current liabilities
                         
Short-term borrowings
9
    173,501       26,843       142,000  
Accounts payables
      18,328       2,836       14,296  
Advance from customers
      9,308       1,440       37,291  
Accrued expenses and other payables
    8,875       1,373       20,993  
Deferred tax liabilities
      1,816       281       1,822  
        211,828       32,773       216,402  
Long-term loan
9
    10,000       1,547       30,000  
                           
Total liabilities
      221,828       34,320       246,402  
                           
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       2,061       13,323  
Additional paid-in capital
      311,907       48,257       311,907  
Statutory reserve
      35,195       5,445       35,195  
Retained earnings
      220,697       34,145       190,933  
Cumulative translation adjustment
      1,211       187       1,186  
Total shareholders’ equity
      582,333       90,096       552,544  
Non-controlling interest
      (803 )     (124 )     (794 )
Total equity
      581,530       89,972       551,750  
Total liabilities and equity
      803,358       124,292       798,152  
 
The accompanying notes are an integral part of these unaudited condensed consolidated statements.

 
3

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
(amounts in thousands except share and per share value)
(Unaudited)
 
   
The Three-Month Period Ended June 30,
   
The Six-Month Period Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
RMB
   
US$
   
RMB
   
RMB
   
US$
   
RMB
 
                                     
Net sales
    137,316       21,245       110,319       311,470       48,189       198,774  
Cost of sales
    (114,789 )     (17,760 )     (90,648 )     (243,807 )     (37,721 )     (166,337 )
                                                 
Gross profit
    22,527       3,485       19,670       67,663       10,468       32,437  
                                                 
Operating expenses
                                               
Selling expenses
    (4,945 )     (765 )     (4,159 )     (9,039 )     (1,399 )     (7,555 )
Administrative expenses
    (7,242 )     (1,120 )     (12,896 )     (18,878 )     (2,920 )     (20,425 )
Total operating expenses
    (12,187 )     (1,885 )     (17,055 )     (27,917 )     (4,319 )     (27,980 )
                                                 
Operating income
    10,340       1,600       2,615       39,746       6,149       4,457  
                                                 
Other income (expense)
                                               
- Interest income
    525       81       157       1,076       167       171  
- Interest expense
    (2,427 )     (376 )     (2,669 )     (4,727 )     (731 )     (4,287 )
- Others income, net
    (132 )     (20 )     (180 )     (236 )     (37 )     (136 )
                                                 
Total other income (expense)
    (2,034 )     (315 )     (2,692 )     (3,887 )     (601 )     (4,251 )
                                                 
Income before income tax benefit (expense)
    8,306       1,285       (77 )     35,859       5,548       205  
                                                 
Income tax benefit (expense)
    (2,191 )     (339 )     42       (6,104 )     (944 )     23  
                                                 
Net Income (loss)
    6,115       946       (35 )     29,756       4,604       228  
                                                 
Net loss attributable to noncontrolling interests
    (5 )     (1 )     (32 )     (9 )     (1 )     (69 )
Net income (loss) attributable to the Company
    6,120       947       (3 )     29,764       4,605       297  
                                                 
Other comprehensive income
                                               
- Foreign currency translation adjustments attributable to noncontrolling interest
    12       2       -       17       2       -  
- Foreign currency translation adjustments attributable to the Company
    18       3       -       6       2       (16 )
                                                 
Comprehensive income (loss) attributable to non-controlling interest
    7       1       (32 )     8       1       (69 )
Comprehensive income attribute to the Company
    6,138       950       (3 )     29,770       4,607       281  
                                                 
Earnings per share,
Basic and diluted
    0.47       0.07       (0.0002 )     2.28       0.35       0.02  
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.

 
4

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
(amounts in thousands except share and per share value)
(Unaudited)

   
Period Ended June 30, 2011
   
Period Ended June 30, 2010
 
   
RMB
   
US$
   
RMB
 
Cash flow from operating activities
                 
Net income
    29,756       4,604       228  
Adjustments to reconcile net income to net cash
                       
(used in) provided by operating activities
                       
- Depreciation of property, plant and equipment
    18,868       2,919       18,158  
- Amortization of intangible assets
    227       35       227  
- Deferred income taxes
    664       103       (23 )
- Bad debt expense (recovery)
    (5,638 )     (872 )     (2 )
- Accounts receivable
    (9,130 )     (1,413 )     (8,502 )
- Inventories
    9,360       1,448       5,682  
- Advance to suppliers
    5,605       867       (2,670 )
- Prepaid expenses and other current assets
    (23,184 )     (3.587 )     87  
- Accounts payable
    4,032       624       (4,147 )
- Accrued expenses and other payables
    (8,153 )     (1,262 )     5,922  
- Advance from customers
    (27,983 )     (4,329 )     613  
- Tax payable
    (3,816 )     (590 )     1,610  
                         
Net cash provided by (used in) operating activities
    (9,392 )     (1,453 )     17,184  
                         
Cash flow from investing activities
                       
Addition of property, plant and equipment
    (33,556 )     (5,192 )     (1,234 )
Restricted cash related to trade finance
    (87,383 )     (13,519 )     12,041  
Advanced to suppliers - non current
    (1,329 )     (206 )     910  
Subtraction to construction in progress
    27,495       4,254       1,114  
                         
Net cash provided by (used in) investing activities
    (94,773 )     (14,663 )     12,832  
                         
Cash flow from financing activities
                       
Principal payments of short-term bank loans
    (7,000 )     (1,083 )     (16,179 )
Proceeds from short-term bank loans
    18,501       2,862       10,000  
                         
Net cash provided by (used in) financing activities
    11,501       1,779       (6,179 )
                         
Effect of foreign exchange rate changes
    (116 )     575       (26 )
                         
Net increase (decrease) in cash and cash equivalent
    (92,780 )     (13,760 )     23,810  
                         
Cash and cash equivalent
                       
At beginning of period
    171,227       25,897       26,804  
At end of period
    78,446       12,137       50,615  
                         
SUPPLEMENTARY DISCLOSURE :
                       
Interest paid
    4,727       731       4,441  
Income tax paid
    8,456       1,308       -  
 
The accompanying notes are an integral part of these unaudited condensed consolidated statements.

 
5

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)
 
NOTE 1 – BACKGROUND
 
Fuwei Films (Holdings) Co., Ltd. and its subsidiaries (the “Company”) 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 Company.

On April 23, 2009, Fuwei Films USA, LLC was set up 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.

 
6

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 unaudited condensed 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-month period ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year ended December 31, 2011.

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 Company 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 Company’s reporting currency is the Renminbi (“RMB”).

Fuwei Films (Holdings) Co., Ltd. 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 comprehensive income.

 
7

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

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 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.

 
8

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Restricted cash refers to the cash balance held by bank as deposit for Letters of Credit. The Company has restricted cash of RMB88,689 (US$13,721) and RMB1,314 (US$199) as of June 30, 2011 and December 31, 2010, respectively.

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 Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.

The Company 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 Company does not have any off-balance-sheet credit exposure related to its customers.

The Company 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 Company does not obtain collateral from customers.

Inventories
 
Inventories are stated at the lower of cost or market value. Cost is determined using the average-weighted 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. Any inventory markdown is classified in the income statement as a component of cost of goods sold.

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. They are as follows:

 
9

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

   
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 represents capital expenditures in respect to the new BOPET production line. No depreciation is provided in respect to 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 more frequently 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.

 
10

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

 
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
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, and trade discounts. The standard terms and conditions under which the Company 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 Company within 30 days of receipt for both PRC and overseas customers. The Company 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 the invoice amount is collected in respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company, 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 Company 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.

Retirement and Other Post-retirement Benefits
 
Contributions to retirement schemes (which are defined as contribution plans) are charged to expense as and when the related employee service is provided.

 
11

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
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 is 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 the Company’s stock option plan.

Share-Based Payments

The Company accounts for share based payments under the modified-prospective transition method, which 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.

Contingencies

In the normal course of business, the Company 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 Company 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 Company may consider many factors in making these assessments including past history and the specifics of each matter. As the Company has not become aware of any product liability claim since operations commenced, the Company has not recognized a liability for any product liability claims.

 
12

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recently Issued Accounting Standards
 
Business Combinations:   In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when an acquisition occurs.

Intangibles-Goodwill and Other:   In December 2010, the FASB issued amended guidance related to Intangibles-Goodwill and Other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.

Subsequent Events:  The FASB has issued amended guidance for subsequent events. The amendment removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC's literature. All of the amendments were effective upon issuance (February 24, 2010). The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.

Fair Value Measurements:  In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  ASU 2011-04 attempts to improve the comparability of fair value measurements disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS.  Amendments in ASU 2011-04 clarify the intent of the application of existing fair value measurement and disclosure requirements, as well as change certain measurement requirements and disclosures.  The amended guidance is effective for interim and annual periods beginning after December 15, 2011. As the impact of the guidance is primarily limited to enhanced disclosures, the Company does not believe that this will have a material impact on its consolidated financial statements.

 
13

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Receivables: In July 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU No. 2010-20 amends the guidance with ASC Topic 310, “Receivables” to facilitate financial statement users’ evaluation of (1) the nature of credit risk inherent in the entity’s portfolio of financing receivables; (2) how that risk is analyzed and assessed in arriving at the allowance for credit losses; and (3) the changes and reasons for those changes in the allowance for credit losses. The amendments in ASU No. 2010-20 also require an entity to provide additional disclosures such as a roll-forward schedule of the allowance for credit losses on a portfolio segment basis, credit quality indicators of financing receivables and the aging of past due financing receivables followed by The Company is required to adopt ASU No. 2010-20 as of December 15, 2010. The Company does not believe that this will have a material impact on its consolidated financial statements.

Comprehensive income: In June 2011, the FASB issued amended guidance on the presentation of comprehensive income. The amendments provide an entity with an option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The guidance is effective for fiscal years, and interim periods within those years beginning after December 15, 2011 and should be applied on a retrospective basis. As the amendments are limited to presentation only, the Company does not believe that this will have a material impact on its consolidated financial statements.

Reclassifications

For comparative purposes, the prior year’s consolidated financial statements have been reclassified to conform with reporting classifications of the current year periods.

 
14

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 3 - ACCOUNTS RECEIVABLES
 
Accounts receivables as of June 30, 2011 and December 31, 2010, consist of the following:
 
   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
Accounts receivable
    20,416       3,159       7,097  
Less: Allowance for doubtful accounts
    (2,387 )     (369 )     (2,140 )
      18,029       2,790       4,957  
Bills receivable
    16,335       2,527       20,525  
                         
      34,364       5,317       25,482  
 
Bill receivables are bank’s acceptance bills, which are guaranteed by bank.

NOTE 4-INVENTORIES 
 
 Inventories as of June 30, 2011 and December 31, 2010 consist of the following:
 
   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
Raw materials
    20,991       3,248       25,254  
Work-in-progress
    1,854       287       1,419  
Finished goods
    22,146       3,426       27,634  
Consumables and spare parts
    804       124       849  
Inventory—impairment
    (2,578 )     (399 )     (2,578 )
                         
      43,217       6,686       52,577  

NOTE 5-PROPERTY, PLANT AND EQUIPMENT, NET 
 
Property, plant and equipment consist of the following: 
 
   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
Buildings
    44,869       6,942       44,398  
Plant and equipment
    449,114       69,485       417,696  
Computer equipment
    2,165       335       1,602  
Furniture and fixtures
    8,158       1,262       6,958  
Motor vehicles
    2,280       353       1,906  
      506,586       78,377       472,561  
Less: accumulated depreciation
    (206,973 )     (32,022 )     (187,670 )
      299,613       46,355       284,891  
 
Total depreciation for the six-month periods ended June 30, 2011 and 2010 was RMB19,303 (US$2,987) and RMB18,756 (US$2,766), respectively. For the three-month periods ended June 30, 2011 and 2010, depreciation expenses were RMB10,387 (US$1,607) and RMB8,887 (US$1,310), respectively.

 
15

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 6 - CONSTRUCTION IN PROGRESS
 
Construction-in-progress represents capital expenditure in respect to the BOPET production line. Construction in progress was RMB169,698 (US$26,255) ended June 30, 2011, and RMB197,193 (US$29,824) ended December 31, 2010, respectively.

NOTE 7 - 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.

As of June 30, 2011 and December 31, 2010, lease prepayments consist of the following:
  
   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
Lease prepayment – non-current
    20,309       3,142       20,570  
Lease prepayment – current
    454       70       454  
      20,763       3,212       21,024  
 
Amortization of land use rights for the six months ended June 30, 2011 and 2010 was RMB227 (US$35) and RMB227 (US$33), respectively. Amortization of land use rights for the three months ended June 30, 2011 and 2010 was RMB113 (US$18) and RMB113 (US$17), respectively.

Amortization expenses for the next five years after June 30, 2011 are as follows: 

   
RMB
   
US$
 
1 year after
    454       70  
2 years after
    454       70  
3 years after
    454       70  
4 years after
    454       70  
5 years after
    454       70  
Thereafter
    18,493       2,861  

NOTE 8 – LONG-TERM 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 RMB50,000.

 
16

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 8 – LONG-TERM DEPOSIT (continued)

According to the LOI, Shandong Fuwei deposited RMB26,000 (half of the would-be added register capital of RMB52,000), to Joyinn as the prepayment as of June 30, 2008. The prepayment to Joyinn would be regarded as investment payment after all parties entered 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 RMB5,000 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%.

On July 14, 2009, Shandong Fuwei and Joyinn entered into a Supplementary Agreement of Letter of Intent of Joyinn Capital Increase and Share Expansion (“Supplementary Agreement”) which extended the duration of former agreement to two (2) years that is, Shandong Fuwei has the option to determine whether to continue or withdraw the investment prior to January 14, 2010, the expiration date of the Supplementary Agreement.

Upon the expiration of the Supplementary Agreement on January 14, 2010, Shandong Fuwei and the Pledger entered into an agreement pursuant to which the Pledger agreed to transfer a 71% interest in Joyinn to Shandong Fuwei. The transaction shall be subject to the approval from the board of directors and shareholder meeting of Joyinn. In the year ended December 31, 2010, the Company impaired the deposit amount by RMB4,240 (US$641). The impairment was determined based on an independent appraisal study. As of June 30, 2011, the total amount of the deposit was RMB16,760 (US$2,593).

 
17

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 9 - SHORT-TERM AND LONG-TERM BANK LOANS
 
Lender
 
Interest rate
   
June 30, 2011
   
December 31, 2010
 
   
per annum
   
RMB
   
US$
   
RMB
 
SHORT-TERM LOANS
                       
Bank of Communications Co., Ltd.
                       
- June 8, 2010 to June 7, 2011
    6.666 %     -       -       67,000  
- June 7, 2010 to June 6, 2011
    6.666 %     -       -       70,000  
- May 25, 2011 to May 7, 2012
    7.57 %     30,000       4,641       -  
- May 25, 2011 to May 14, 2012
    7.57 %     35,000       5,415       -  
- May 25, 2011 to May 21, 2012
    7.57 %     35,000       5,415       -  
- May 30, 2011 to April 17, 2012
    7.57 %     30,000       4,641       -  
- April 26, 2011 to April 25, 2012
    4.2725 %     18,501       2,862       -  
                                 
Bank of Weifang
                               
- December 2, 2008 to December 2, 2011
    0.00 %     5,000       774       5,000  
- January 16, 2009 to January 12, 2012
    0.00 %     10,000       1,547       -  
- January 13, 2010 to January 12, 2012
    0.00 %     10,000       1,547       -  
                                 
LONG-TERM LOANS
                               
Bank of Weifang
                               
- January 16, 2009 to January 12, 2012
    0.00 %     -       -       10,000  
- January 13, 2010 to January 12, 2012
    0.00 %     -       -       10,000  
                                 
Weifang Dongfang State-owned Assets Management Co., Ltd.
                               
- October 19, 2009 to October 18, 2017
    6.12 %     10,000       1,547       10,000  
              183,501       28,390       172,000  

Notes: 
 
The Company has 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 and construction. The weighted average interest rate of short-term bank loans outstanding as of June 30, 2011 and December 31, 2010 was 6.75% and 5.14% per annum, respectively.

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, and lease prepayments.

 
18

 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 9-SHORT-TERM AND LONG-TERM BANK LOANS (continued)

The Company obtained four short-term loans from Bank of Communications Co., Ltd. on May 25, 2011 and May 30, 2011, for a total amount of RMB130,000 (US$20,113), including: (i) RMB30,000 (US$4,641) on May 25, 2011, maturing on May 7, 2012; (ii) two bank loans each for the amount of RMB35,000 (US$5,415) on May 25, 2011, maturing on May 14, 2012 and May 21, 2012, respectively; and (iii) RMB30,000 (US$4,641) on May 30, 2011, maturing on April 17, 2012.   The Company repaid Bank of Communications the proceeds of RMB7,000 (US$1,083) at the end of January 2011. The Company repaid RMB60,000 (US$9,283) and RMB70,000 (US$10,830) to Bank of Communications Co. Ltd. at the end of May 2011,with respect to the loans maturing on June 7, 2011 and June 6, 2011, respectively. The annual interest rate of the new bank loans is up by 20% compared with the fixed benchmark interest rate announced by the People’s Bank of China. As of June 30, 2011, the effective interest rate is 7.57%.

On April 26, 2011, pursuant to a contract between Shandong Fuwei and Lindauer Dornier GmbH (“Dornier”), Shandong Fuwei wired a €2,006 Euros prepayment to Dornier through Bank of Communications, and Shandong Fuwei deposited a payment of RMB18,501 to Bank of Communications. In addition, in order to save the foreign exchange charges, Bank of Communications provided a one-year loan of €2,006 Euros to Shandong Fuwei, with a term starting on from April 26, 2011 to April 25, 2012 with an annual interest of 4.2725%.

The Company entered into three interest free loan agreements with Bank of Weifang (formerly known as Weifang City Commercial Bank) for the amount of (i) RMB10,000 (US$1,547), effective on January 13, 2010, with a maturity date of January 12, 2012; (ii) RMB10,000 (US$1,547), effective on January 16, 2009, with a maturity date of January 12, 2012; and (iii) RMB5,000 (US$774), effective on December 2, 2008, with a maturity date of December 2, 2011.

On November 20, 2009, the Company signed a long-term loan agreement of RMB10,000 (US$1,547) with Weifang Dongfang State-owned Assets Management Co., Ltd., with an 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 (US$518) per year with the remaining principal balance of RMB3,300 (US$511) due in 2017. The annual interest rate is 6.12%. The loan is guaranteed by Shandong Deqin Investment & Guarantee Co., Ltd. and is used for the Company's projects.

Long-term bank loans maturity for the next five years after June 30, 2011 are as follows: 

   
RMB
   
US$
 
1 year after
    -       -  
2 years after
    -       -  
3 years after
    -       -  
4 years after
    3,350       518  
5 years after
    6,650       1,029  
 
 
19

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

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 consists of the following for the six-month periods ended June 30, 2011 and 2010:
 
   
June 30, 2011
   
June 30, 2010
 
   
RMB
   
US$
   
RMB
 
Cayman Islands current income tax benefit (expense)
    -       -       -  
                         
PRC current income benefit (expense)
    (5,440 )     (842 )     -  
Deferred tax benefit (expense)
    (664 )     (102 )     23  
                         
Total provision for income tax
    (6,104 )     (944 )     23  

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:
 
   
June 30, 2011
   
June 30, 2010
 
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 on April 23, 2009, did not record any income tax expenses due to net losses during the period ended June 30, 2011. The actual tax benefit differs from the expected tax benefit computed by applying the United States aggregate corporate tax rate of 39% to loss before income taxes as follows for the period ended June 30, 2011: 
 
   
June 30, 2011
   
June 30, 2010
 
Expected tax benefit
    34 %     34 %
State income taxes, net of federal benefit
    5 %     5 %
Changes in valuation allowance
    (39 )%     (39 )%
Total
    -       -  
 
 
20

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 10-INCOME TAX (continued)

PRC Tax
 
Effective January 1, 2008, the new Enterprise Income Tax (“EIT”) law of the PRC replaced the existing tax laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”). The new EIT rate of 25% replaced the 33% rate that was applicable to both DES and FIEs. The two-year tax exemption and three-year 50% tax reduction tax holiday for production-oriented FIEs was also eliminated as of that date. In addition, the PRC has designated a 15% tax rate for encouraged “high-tech” companies. Shandong Fuwei was designated a high-tech company in December 2008, which is effective from December 5, 2008, for a term of 3 years, and has been subject to an income tax rate of 15% pursuant to the applicable EIT law of the PRC. In 2011, the Company intends to apply for a review of the designated tax rate for Shandong Fuwei.

Income Tax Rate Reconciliation
 
Income tax expense reported in the consolidated statements of income differs from the income tax expense amount computed by applying the PRC income tax rate of 15% (the statutory tax rate of the Company’s principal subsidiary) for the six months ended June 30, 2011 and 2010 for the following reasons:
 
   
June 30, 2011
   
June 30, 2010
 
   
RMB
   
US$
   
RMB
 
Income before income taxes
    35,859       5,548       205  
                         
Computed “expected” tax expense    
    9,067       1,403       63  
Non-taxable income
    -       -       (63 )
Tax holiday
    (3,627 )     (561 )     -  
Tax rate differential of other tax jurisdictions
    664       102       (23 )
                         
Actual income tax expenses (benefit)
    6,104       944       (23 )
 
Deferred Income Taxes
 
Tax effects of temporary differences that give rise to significant portions of the deferred tax assets (liabilities) as of June 30, 2011 and December 31, 2010 are presented below.
 
 
21

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 10-INCOME TAX (continued)

   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
Current
                 
Accounts receivable
    358       55       321  
Other receivables
    -       -       636  
Inventory impairment
    387       60       387  
      745       115       1,344  
Non-current
                       
Property, plant and equipment, principally due to differences in depreciation and capitalized interest
    1,692       262       1,763  
Construction in progress, principally due to capitalized interest
    (1,417 )     (219 )     (1,417 )
                         
Lease prepayments, principally due to differences in charges
    (399 )     (62 )     (404 )
      (124 )     (19 )     (58 )
                         
Net deferred income tax assets
    622       96       1,286  

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, the Company will need to generate future taxable income of approximately RMB14,047 prior to 2031. The net income before taxation for the Company for the year ended December 31, 2008 was RMB21,124, net loss before taxation for the year ended December 31, 2009 was RMB23,024, and net income before taxation for the year ended December 31, 2010 and June 30, 2011 were RMB50,754 and RMB35,859 (US$5,548). Based upon the level of historical performance of the Company, management believes the deferred tax assets are realizable.

Uncertainly in Income Taxes
 
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.

 
22

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 10-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, 2011 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, 2011, 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 uses the treasury stock method to compute dilution related to outstanding stock options. Because the option price exceeded the market price for common stock as of June 30, 2011, the options were anti-dilutive and were not included when computing diluted earning per share.

Basic and diluted earnings per share was RMB2.28 (US$0.35) and RMB0.02 (US$0.003) for the six-month periods ended 2011 and 2010.

Basic and diluted earnings per share was RMB0.47 (US$0.07) for the three-month period ended June 30, 2011 and basic and diluted net loss per share was RMB0.0002 (US$0.00003) for the three-month period ended June 30, 2010.

NOTE 12 - 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 initial public offering, or IPO, of the Company. The stock options are exercisable at an exercise price equal to US$10.35 per ordinary share and expire on December 22, 2011. The stock options and ordinary shares underlying the stock options 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 from the effective date.

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: 
 
 
23

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 12 - STOCK OPTION PLAN (continued)

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.

The Company recognized share-based compensation expenses of RMB5,643 for the year ended December 31, 2006, as listing expense deducted from IPO proceeds and recorded in additional paid-in capital. As of June 30, 2011, there was no unrecognized compensation costs related to unvested stock options.

The following is a summary of the stock option activity:
 
   
Options
Outstanding
   
Weighted Average
Exercise Price
   
Aggregate
Intrinsic Value
 
Outstanding, December 31, 2010
    187,500     $ 10.35       -  
Granted
    -       -       -  
Forfeited
    -       -       -  
Exercised
    -       -       -  
Outstanding, June 30, 2011
    187,500     $ 10.35          
 
The following is a summary of the status of options outstanding on June 30, 2011:
 
 
Outstanding Options
   
Exercisable Options
 
Exercise
Price
   
Number
   
Average Remaining
Contractual Life
   
Average Exercise
Price
   
Number
   
Average Exercise
Price
 
$ 10.35       187,500       0.50     $ 10.35       187,500     $ 10.35  
 
NOTE 13 – CONTINGENCIES

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 persons who purchased 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. 
 
 
24

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 13 – CONTINGENCIES (continued)

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 persons who purchased the Company’s stock pursuant or traceable to the Registration Statement and Prospectus issued in connection with the Company’s IPO, during the period from 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. The complaint also alleged the defendants 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, 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 had been 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 Films’ 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.

 
25

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 13 – CONTINGENCIES (continued)

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 motions to dismiss of the defendants were granted in part and denied in part by the court. The Court dismissed plaintiffs’ claims to the extent they were based upon Fuwei Films’ 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 set deadlines relating to pre-trial discovery, mediation, and dispositive motions. Discovery thereafter proceeded.

On March 26, 2010, Fuwei Films, Messrs. He and Stulga, the Underwriter Defendants, and Plaintiffs, through their respective attorneys, engaged in a mediation aimed at resolving the litigation. On June 24, 2010, the parties reached a settlement in principle.

On September 16, 2010, subject to the Court’s approval, Plaintiffs agreed to accept US$2.15 million in full and final settlement of all claims they have or may have against the Company, certain of its present and former officers, directors, and shareholders, and the underwriters.  Fuwei Films agreed to contribute US$1.0 million towards the settlement.  The signed settlement agreement was submitted to the Court for its preliminary approval.  On January 4, 2011, the Court preliminarily approved the settlement, directed that notice be given to the class, and set a fairness hearing for April 27, 2011.

In accordance with the settlement agreement, the Company deposited US$0.8 million into the Securities Litigation Settlement Fund Account in January 2011.

On April 27, 2011, the Court approved the settlement of the class action at the fairness hearing and dismissed the action with prejudice. Pursuant to the terms of the settlement agreement, the Company paid the remaining US$0.2 million into the Securities Litigation Settlement Fund Account on May 10, 2011.

As of December 31, 2010, the Company accrued US$1.0 million liability in connection with this litigation excluding the defense expenses.
 
 
26

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share value)
(Unaudited)

NOTE 14 – OTHER EVENTS

Shandong Fuwei and Lindauer Dornier GmbH (“Dornier”), a German equipment supplier, entered into a renewed BOPET equipment purchase contract on March 30, 2011 (“Contract”), to purchase equipment for its thick film BOPET production line. The products of the new production line, with a designed annual capacity of 23,000 metric tons and thickness ranging from 38 to 250µm, will be widely used in electronics, electrical and solar energy industries, including TFT-LCD. Pursuant to the terms of the contract, the total purchase price is €16,450 Euros (US$23,672) with a delivery date of June 2, 2012 to July 14, 2012. The original contract between Shandong Fuwei and Dornier to purchase equipment for the Company’s thick film BOPET production line was entered into on January 20, 2007, as amended on February 2, 2007. However, as a result of Shandong Fuwei’s inability to pay the balance of the purchase price, the contract was cancelled and the construction of the production line was suspended.

Pursuant to the terms of the Contract, Shandong Fuwei made a down payment of € 2,006 Euros (US$2,887) on April 26, 2011, and on June 22, 2011, Shandong Fuwei issued a Letter of Credit in the amount of € 10,700 Euros (US$15,397) to Dornier.

On July 22, 2011, Shandong Fuwei and Dornier entered into a supplementary agreement to the Contract entered into on March 30, 2011, pursuant to which, among other things, both parties agreed to change the scheduled delivery to between March 30, 2012 and April 21, 2012, three months earlier than the original Contract delivery date. In addition, pursuant to the supplementary agreement, there were certain modifications to design of the production line in addition to changes in the total price of the production line which was increased by €403 Euros (US$580) and the total contract price was increased to €16,853 Euros (US$24,250).

NOTE 15 - MAJOR CUSTOMERS AND VENDORS
 
There were no major customers who accounted over 10% of the total net revenue for the six-month periods ended June 30, 2011 and 2010.

One vendor provided approximately 44.0% of the Company’s raw materials for the three months ended June 30, 2011. The Company had RMB2,621 (US$406) advance to the vendor as of June 30, 2011. Two vendors provided approximately 55.5% of the Company’s raw materials for the six months ended June 30, 2010 with each vendor accounting for about 43.0% and 12.5%, respectively.
 
 
27

 
 
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 Films" include Fuwei Films (Holdings) Co., Ltd. and its subsidiaries, except where the context requires otherwise.

In the first half of 2011, the sales price of BOPET film products in the Chinese market decreased, largely due to an increase in available supply than demand in the market, and the rapid increase in new capacity of international BOPET producers, including China and India. In addition, the price of raw material has increased since the first quarter of 2011. Even though there was a slight reduction in the price of raw materials due to less demand from downstream clients and decline of crude oil prices, the decrease in price is far less than the decline of the sales price of BOPET film products. However, because the orders for the second quarter were obtained one to three months in advance, and because of the strong performance in the first quarter of 2011, the negative influence of the price decline in the overseas market on our performance will happen a few moths late. In addition, the sales increase of our specialty products resulted in our good performance in the first half of 2011 which was significantly higher than the same period in the previous year.

With the continued decrease in demand, we are challenged with more competitors whose capacity is enhanced in the domestic BOPET films market. And the competition in global BOPET industry will be even more intense in 2011. Additionally, as noted above, the price of raw materials has continued to be high which has adversely affected our sales and profitability. In the event that we are unable to compete successfully or retain effective control over the pricing of our products, our profit margins will decrease significantly.

Additionally, some countries such as the United States of America and Republic of Korea are currently resorting to trade protection against Chinese manufacturers, using anti-dumping investigations and imposing anti-dumping duties, which also adversely affect our exports to those countries.

Results of operations for the six-month periods ended June 30, 2011 compared to June 30, 2010

The table below sets forth certain line items from our Statement of Income as a percentage of revenue:
 
   
Six-Month Period
Ended
   
Six-Month
Period Ended
 
    
June 30, 2011
   
June 30, 2010
 
   
(as % of Revenue)
 
Gross profit
    21.7       16.3  
Operating expenses
    (9.0)       (14.1)  
Operating income
    12.8       2.2  
Other income (expense)
    (1.2)       (2.1)  
Income tax benefit (expense)
    (2.0)       (0.01)  
Net income (loss)
    9.6       0.1  

 
28

 
 
Revenue 

The Company’s revenue is primarily derived from the manufacture and sale of plastic films.

Net sales during the six-month period ended June 30, 2011 were RMB311.5 million (US$48.2 million), compared to RMB198.8 million (US$29.3 million) during the same period in 2010, representing a 56.7% increase, mainly due to the rise of sales prices.

The sales of specialty films during the six-month period ended June 30, 2011 were RMB79.5 million (US$12.3 million), reflected 25.5% of total net sales as compared to 12.5 % in the same period of 2010, an increase of 13.0% compared to the same period last year. The increase was largely attributable to the increase in demand for films in electronics and high-end packaging.

The following is a breakdown of commodity and specialty film sales (amounts in thousands):
 
   
Six-Month Period Ended 
June 30, 2011
   
% of Total
   
Six-Month Period
Ended
June 30, 2010
   
% of Total
 
   
RMB
   
US$
          RMB        
Printing film
    30,419       4,706       9.8 %     28,087       14.1 %
Stamping film
    170,335       26,353       54.7 %     122,580       61.7 %
Metallization film
    17,157       2,654       5.5 %     12,683       6.4 %
Specialty film
    79,541       12,306       25.5 %     24,780       12.5 %
Base film for other application
    14,018       2,170       4.5 %     10,644       5.4 %
                                         
      311,470       48,189       100.0 %     198,774       100.0 %
 
Overseas sales during the six months ended June 30, 2011 were RMB107.9 million (US$16.7 million), which accounted for 34.6% of our total net revenues, as compared with RMB36.7 million (US$5.4 million) and 18.5% in the same period in 2010, which was 194.1% higher with respect to sales compared to the same period last year. The increase in overseas sales was mainly due to the increase in the overseas market demand and the large increase of the sales prices compared to the same period of 2010.

The following is a breakdown of PRC domestic and overseas sales (amounts in thousands):

   
Six-Month Period Ended 
 June 30, 2011
         
Six-Month Period
Ended
June 30, 2010
       
   
RMB
   
US$
   
% of Total
    RMB    
% of Total
 
Sales in China
    203,556       31,493       65.4 %     162,084       81.5 %
Sales in other countries
    107,914       16,696       34.6 %     36,690       18.5 %
                                         
      311,470       48,189       100.0 %     198,774       100.0 %

 
29

 
 
Cost of Goods Sold 
 
Our cost of goods sold comprises mainly of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:

   
Six-Month Period
Ended
   
Six-Month Period
Ended
 
   
June 30, 2011
   
June 30, 2010
 
   
% of total
   
% of total
 
Materials costs
    81.0%       76.2%  
Factory overhead
    8.8%       11.7%  
Energy expense
    6.3%       7.8%  
Packaging materials 
    2.6%       3.0%  
Direct labor
    1.3%       1.3%  

Cost of goods sold during the first six months of 2011 totaled RMB243.8 million (US$37.7 million) as compared to RMB166.3 million (US$24.5 million) for the same period in the prior year. This was 46.6% higher than the same period in 2010, mainly due to the increased price of raw materials in the first six months of 2011 compared to the same period in 2010.

Gross Profit

Our gross profit was RMB67.7 million (US$10.5 million) for the first six months of 2011, representing a gross margin of 21.7%, as compared to a gross margin of 16.3% from the same period in 2010, an increase of 5.4%. This was mainly due to the significant increase of sales price during the first six months of 2011 compared with the same period in 2010.

Operating expenses
 
Operating expenses for the six months ended June 30, 2011 were RMB27.9 million (US$4.3 million), compared to RMB28.0 million (US$4.1 million) in the same period in 2010, which was 0.4% lower than the same period in 2010. This decrease is mainly due to the reduced class action litigation and related legal fees.

Interest Expense
 
Interest expense totaled RMB4.7 million (US$0.7 million) during the six months of 2011, 9.3% higher than the same period of 2010. The increase is mainly due to the increased interest rate of bank loans.

Other Income (Expense)

Our total other expense during the six-month period ended June 30, 2011 amounted to RMB3.9 million (US$0.6 million). It decreased 9.3% compared to the corresponding period of 2010, mainly due to the increase of short-term financial income.

 
30

 
 
Income Tax Benefit (expense)

Income tax expense during the first six months of 2011 was RMB6.1 million (US$0.9 million) compared to a recorded income tax benefit of RMB23,000 (US$3,000) during the same period in 2010. This increase was due to increased earnings in the first six months of 2011.

Net Income (Loss)
 
Net income during the first six months of 2011 was RMB29.8 million (US$4.6 million) compared to net income of 297,000 (US$ 44,000) during the same period in 2010, representing an increase of RMB29.5 million (US$4.6 million). The increase was mainly due to the increased revenue and gross margin.

Results of operations for the three-month periods ended June 30, 2011 compared to June 30, 2010

The table below sets forth certain line items from our Statement of Income as a percentage of revenue:

   
Three-Month Period
Ended
   
Three-Month
Period Ended
 
    
June 30, 2011
   
June 30, 2010
 
   
(as % of Revenue)
 
Gross profit
    16.4       17.8  
Operating expenses
    (8.9)       (15.5)  
Operating income
    7.5       2.4  
Other income (expense)
    (1.5)       (2.4)  
Income tax benefit (expense)
    (1.6)       0.04  
Net income (loss)
    4.5       (0.002)  

Revenue 

Net sales during the second quarter ended June 30, 2011 were RMB137.3 million (US$21.2 million), compared to RMB110.3 million (US$16.3 million), during the same period in 2010, representing a 24.5% increase, mainly due to the increase of the sales price compared to the same period in 2010.

The sales of specialty films during the second quarter ended June 30, 2011 were RMB39.6 million (US$6.1 million), reflected 28.9% of total net sales as compared to 14.7% in the same period of 2010, an increase of 14.2% compared to the same period last year. The increase was largely attributable to the increase in demand for films in electronics and high-end packaging.

The following is a breakdown of commodity and specialty film sales (amounts in thousands):

   
Three-Month Period Ended
 June 30, 2011
   
% of Total
   
Three-Month Period
Ended
June 30, 2010
   
% of Total
 
   
RMB
   
US$
         
RMB
       
Printing film
    16,955       2,623       12.3 %     18,801       17.0 %
Stamping film
    69,235       10,712       50.4 %     64,897       58.8 %
Metallization film
    6,017       931       4.4 %     4,978       4.5 %
Specialty film
    39,637       6,132       28.9 %     16,248       14.7 %
Base film for other application
    5,472       847       4.0 %     5,395       4.9 %
                                         
      137,316       21,245       100.0 %     110,319       100.0 %
 
 
31

 
 
Overseas sales during the second quarter ended June 30, 2011 were RMB43.1 million (US$6.7 million), which accounted for 31.4% of our total net revenues, as compared with RMB25.4 million (US$3.7million), and 23.0% in the same period in 2010, which was 70.1% higher in terms of sales compared to the same period last year. The increase in overseas sales was mainly due to the increase of overseas market demand and the increase of sales price .

The following is a breakdown of PRC domestic and overseas sales (amounts in thousands):

   
Three-Month Period Ended
 June 30, 2011
   
 
   
Three-Month Period
Ended
June 30, 2010
   
 
 
   
RMB
   
US$
   
% of Total
   
RMB
   
% of Total
 
Sales in China
    94,189       14,573       68.6 %     84,959       77.0 %
Sales in other countries
    43,127       6,672       31.4 %     25,359       23.0 %
                                         
      137,316       21,245       100.0 %     110,319       100.0 %

Cost of Goods Sold 
 
Our cost of goods sold comprises mainly of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:

   
Three-Month Period
Ended
   
Three-Month Period
Ended
 
   
June 30, 2011
   
June 30, 2010
 
   
% of total
   
% of total
 
Materials costs
    79.2%       75.9%  
Factory overhead
    9.9%       12.0%  
Energy expense
    6.7%       7.7%  
Packaging materials 
    2.8%       3.1%  
Direct labor
    1.4%       1.3%  

Cost of goods sold during the second quarter ended June 30, 2011 totaled RMB114.8 million (US$17.8 million) as compared to RMB 90.6 million (US$ 13.4 million) for the same period in the prior year. This was 26.7% higher than the same period in 2010, mainly due to the increase in the price of the raw materials in the second quarter ended June 30, 2011 compared to the same period in 2010.

Gross Profit

Our gross profit was RMB22.5 million (US$3.5 million) for the second quarter ended June 30, 2011, representing a gross margin of 16.4%, as compared to a gross margin of 17.8% from the same period in 2010. Gross margin was decreased by 1.4% compared to the same period in 2010. This was mainly due to an increase in cost of sales during the second quarter ended June 30, 2011 compared with the same period in 2010.
 
 
32

 
 
Operating expenses
 
Operating expenses for the second quarter ended June 30, 2011 were RMB12.2 million (US$1.9 million), which was RMB4.9 million (US$0.8 million), or 28.7% lower than the same period in 2010. This decrease was mainly due to reduced class action litigation and related legal fees.

Interest Expense
 
Interest expense totaled RMB2.4 million (US$0.4 million) during the second quarter ended June 30, 2011, 11.1% lower than the same period of 2010. The decrease is mainly due to repayment of RMB7.0 million (US$1.0 million) of short-term bank loan.

Other Income (Expense)

Total other expense during the second quarter ended June 30, 2011 was RMB2.0 million (US$0.3 million), RMB0.7 million (US$0.1 million) lower than the same period in 2010. The decrease is primarily due to the increased interest income and decreased interest expense.

Income Tax Benefit/(expense)

The income tax expense was RMB2.2 million (US$0.3 million) during the second quarter ended June 30, 2011, compared to income tax benefit of RMB42,000 (US$ 6,000) during the same period in 2010. This increase was due to increased earnings in the second quarter of 2011.

Net Income/(Loss)
 
Net income during the second quarter ended of 2011 was RMB6.1 million (US$0.9 million) compared to net loss of RMB3,000 (US$400) during the same period in 2010, representing an increase of RMB6.1 million (US$0.9 million) from the same period in 2010. The increase was mainly due to the increase of revenue and gross profit, and decrease of operating expense.

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 January 1, 2010 to June 30, 2011, our capital expenditures have been primarily from cash generated from our operations and borrowings from financial institutions. The interest rates of borrowings from financial institutions during the periods from second quarter of 2010 to the second quarter of 2011 ranged from 0% to 7.57%.

 
33

 
 
We obtained four short-term loans from Bank of Communications Co., Ltd. on May 25, 2011 and May 30, 2011, for a total amount of RMB130.0 million (US$20.1 million), including: (i) RMB30.0 million (US$4.6 million) on May 25, 2011, maturing on May 7, 2012; (ii) two bank loans each for the amount of RMB35.0 million (US$5.4 million) on May 25, 2011, maturing on May 14, 2012 and May 21, 2012, respectively; and (iii) RMB30.0 million (US$4.6 million) on May 30, 2011, maturing on April 17, 2012. The Company repaid Bank of Communications the proceeds of RMB7.0 million (US$1.0 million) at the end of January 2011. The Company repaid RMB60.0 million (US$9.3 million) and RMB70.0 million (US$10.8 million) to Bank of Communications Co. Ltd. at the end of May 2011, with respect to the loans maturing on June 7, 2011 and June 6, 2011, respectively. The annual interest rate of the new bank loans is up by 20% compared with the fixed benchmark interest rate announced by the People’s Bank of China. As of June 30, 2011, the effective interest rate is 7.57%.

On April 26, 2011, pursuant to a contract between Shandong Fuwei and Dornier, Shandong Fuwei wired a € 2.0 million Euros prepayment to Dornier through Bank of Communications, and Shandong Fuwei deposited a payment of RMB18.5 million (US$ 2.9 million) in Bank of Communications. In addition, in order to save the foreign exchange charges, Bank of Communications provided a one-year loan of €2.0 million Euros to Shandong Fuwei, with a term starting on from April 26, 2011 to April 25, 2012, with an annual interest of 4.2725%.

We entered into three interest free loan agreements with Bank of Weifang (formerly known as Weifang City Commercial Bank) for the amount of (i) RMB10.0 million (US$1.5 million), effective on January 13, 2010, with a maturity date of January 12, 2012; (ii) RMB10.0 million (US$1.5 million), effective on January 16, 2009, with a maturity date of January 12, 2012; and (iii) RMB5.0 million (US$0.8 million), effective on December 2, 2008, with a maturity date of December 2, 2011.

On November 20, 2009, we signed a long-term loan agreement of RMB10.0 million (US$1.5 million) with Weifang Dongfang State-owned Assets Management Co., Ltd., with an 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 RMB3.35 million (US$0.5 million) per year with the remaining principal balance of RMB3.3 million (US$0.5 million) due in 2017. The annual interest rate is 6.12%. The loan is guaranteed by Shandong Deqin Investment& Guarantee Co., Ltd. and is used for the Company's projects.

On June 22, 2011, Shandong Fuwei applied for a Letter of Credit from Bank of China for its production line equipment vendor - Dornier with an amount of €10.7 million Euros. As such, Shandong Fuwei deposited RMB68.5 million (US$10.6 million) into Bank of China and obtained RMB31.0 million (U S$4.8 million) credit line from Bank of China. According to the Contract between Shandong Fuwei and Dornier, Dornier should deliver the equipment in a period from June to July 2012. The Letter of Credit will be paid upon shipment of the equipment from Dornier.

On July 22, Shandong Fuwei and Dornier entered into a supplementary agreement to the Contract dated March 30, 2011, pursuant to which, among other things, both parties agreed to change the scheduled delivery to between March 10, 2012 and April 21, 2012, three months earlier than the original Contract delivery date. In addition, pursuant to the supplementary agreement, there were certain modifications to design of the production line in addition to changes in the total price of the production line which was increased by €402,800 Euros and the total contract price was increased to €16.85 million Euros  (US$24.2 million) .

 
34

 
 
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 used in operating activities for the six months ended June 30, 2011 was RMB9.4 million (US$3.0 million) compared to net cash flows provided by operating activities of RMB17.2 million (US$ 2.6 million) for the six months ended June 30, 2010, which is a decrease of RMB26.6 million (US$4.1 million). This decrease in cash flows from operating activities was attributable primarily to the increase in other receivables and decrease in advance from customers.

Working Capital

As of June 30, 2011 and December 31, 2010, we had working capital of RMB69.1 million (US$10.7 million) and RMB47.1 million (US$7.1 million), respectively. Working capital increased RMB22.0 million (US$3.4 million), or 46.7% compared to the same period in the prior year. We have short-term bank loans RMB173.5 million (US$26.8 million) in the short-term current liability.  We will repay RMB5.0 million (US$0.8 million) of short-term loans at maturity date on December 2, 2011 and RMB20.0 million (US$3.1 million) at maturity date on January 12, 2012.

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 for financing in the expanded business.

Contractual Obligations

The following table is a summary of our contractual obligations as of June 30, 2011 (in thousands RMB): 

   
Payments due by period
 
         
Less than
   
1-3
   
3-5
   
More than
 
Contractual obligations
 
Total
   
1 year
   
years
   
years
   
5 years
 
                               
Rental obligations
    126       126       -       -       -  
Purchase obligations
    114,690       114,690       -       -       -  
                                         
Total
    114,816       114,816       -       -       -  
 
Exhibit Index
 
Exhibit No.
  
Description 
4.1
 
Loan Contract between Fuwei Films (Shandong) Co. Ltd. and Bank of Communications, dated May 25, 2011
4.2
 
Loan Contract between Fuwei Films (Shandong) Co. Ltd. and Bank of Communications, dated May 25, 2011
4.3
 
Loan Contract between Fuwei Films (Shandong) Co. Ltd. and Bank of Communications, dated May 25, 2011
4.4
 
Loan Contract between Fuwei Films (Shandong) Co. Ltd. and Bank of Communications, dated May 30, 2011
4.5
 
Loan Contract between Fuwei Films (Shandong) Co. Ltd. and Bank of Communications, dated April 26, 2011.
99.1
 
Press Release dated August 10, 2011.
   
 
35

 
 
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 and Chief Executive Officer

Dated: August 10, 2011
 
 
36

 

 
Exhibit 4.1

Loan No.: 3770502011M100000300

Loan Contract
(Unofficial English Translation Solely for Convenience)

Bank of Communications

 
 

 

Loan No.: 3770502010M100000500

Loan Contract

Borrower:
Fuwei Films (Shandong) Co., Ltd.
 
Legal Representative:
Xiaoan He
 
Legal Address:
Hi-Tech Development Zone, No. 387 Dong Ming Road , Weifang
 
Correspondence Address:
Same as above

Lender:
Weifang Branch, Bank of Communications
 
Responsible Person:
Ankui Liu
 
Correspondence Address:
No. 358 Dong Feng, Dong Street, Weifang
 
Both parties agree on the following terms :
 
1
Loan
 
1.1
Currency: Renminbi (RMB)
 
1.2
Amount: 30,000,000
 
1.3
The proceeds of the Loan under this Contract shall be used for procurement of raw materials .
 
1.4
Loan Period: Commencing from the date of first loan drawing and expiring on May 7 , 2012 with a term of no more than twelve (12) months.

2
Interest Rate and Computation of Interest
 
2.1
1 Interest rate: The annual interest rate is up 20% based on the benchmark interest rate of the Central Bank of China ( þ annually  o monthly).

 
2 In case that the Central Bank of China adjusts the benchmark interest rate during the Contract term, the date of interest rate adjustment herein is set according to option I . Lender has the right to enforce the adjusted interest rate after the date of interest rate adjustment herein with the increase percentage unchanged.

 
 

 

Option I: date when the Central Bank of China adjusts its benchmark interest rate;
Option II: After date of allocation of the loan, date after _____ month(s)/quarter/six months/year is the date of interest rate adjustment herein.

 
3 The two parties shall negotiate for an appropriate interest rate in case that the adjusted benchmark interest rate by the Central Bank of China is floating interest rate or it cancels the benchmark interest rate; in case that the two parties fail to reach on the interest rate terms for the Contract one (1) month after the Central Bank of China adjusts the benchmark interest rate, Lender has the right to announce that all the loans hereunder expire earlier than stipulated herein .
 
2.2 Daily interest rate is monthly interest rate divided by thirty (30) days while the monthly interest rate is equal to annual interest rate divided by twelve (12) months.

2.3
Computation of Interest
 
2.3.1
Normal interest = interest rate under this Contract X proceeds of the Loan X number of days of use.  Number of days of use is calculated from the drawing date to the maturity date.
 
2.3.2
The penalty interest of the overdue loan and appropriated loan is calculated based on the amount and the actual number of days overdue or appropriated. If the currency of the loan is Renminbi (RMB), the overdue penalty interest rate is equal to the loan interest rate set forth in this Contract plus 50% of such loan’s interest rate, and the appropriated penalty interest rate is equal to the loan interest rate set forth in this Contract plus 100% of such loan interest rate. If the currency of the loan is a foreign currency, the aforesaid penalty interest rates are equal to the loan interest rate set forth in this Contract plus (not applicable) of such loan interest rate.
 
2.4
The loan under this Contract uses the second (2 nd ) method mentioned below for payment of interest. On the maturity date, the interest shall be paid together with the principal. The date of payment of interest is the date of the settlement of interest:
 
 
1.
Interest settlement on the 20 th day of the last month of each quarter; or
 
2.
Interest settlement on the 20 th day of each month.

 2.5 
In the event of earlier repayment by the Borrower or loan recalling pre-maturely by Lender, the applicable interest rate is still valid.

3
Granting and Payment of Loan
 
3.1
Borrower is allowed to make multiple withdrawals of proceeds of the loan with total amount withdrawn not to exceed the amount stipulated in Clause 1. And Borrower shall draw the proceeds of the Loan in accordance with the following loan drawing schedule:

 
 

 

Drawing Date                                              Drawing Amount
_ 25th _ days __ 5th _ month __ 2011 Year; _ thirty million (amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )

3.2
Unless all of the following conditions are satisfied, Lender has the right to refuse to grant the Loan:
 
 
1)
Borrower has already completed the statutory procedures including obtaining related permit, approval and registration from the government together with other statutory procedures and such permit, approval and registration remain in full force and effect.
 
 
2)
The guarantee contract (if any) under this Contract has come into effect and remains in full force and effect. In case that the guarantee contract is a mortgage or pledge contract, the security interest is established and remains in effect.
 
 
3)
The business and financial condition of the Borrower does not have any substantial adverse changes; and
 
 
4)
Borrower is not in breach of this Contract;

 
5) 
The repayment method is compliant with the terms and conditions in the Contract and the lender consents to pay as authorized by borrower;

6)   For loan withdrawal in foreign currency, Borrower has opened an account according to the requirements of foreign exchange administration and provided support documents for the loan which reflect compliance with foreign exchange administration including but not limited to certification for purposes of the loan in foreign currency, registration or verification instruments;

7)   Borrower has designated a capital return account as requested by the Lender and executed account management agreement .

3.3
The Borrower designates the following account as loan deposit account; the said account is not an account set up by the Borrower with the Lender specifically for loan deposit.
 
Account Title: Fuwei Films (Shandong) Co., Ltd.
 
Account Number: 377005086900000002273
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

 
 

 

If an account is set up specifically for loan deposit, the release and the payment of the loan must be done through that account.  Such account can only be used for the release and external payment of the proceeds of the loan; it can only issue "Settlement Service Application" certificate but cannot be used for check, bank draft, and bank draft acceptance services or for other settlement.  When the Borrower processes, in its sole discretion, loan proceeds transfer, such transfer must be done over the counter of the bank that holds the account.  The interest on the deposit in such account is included in the Borrower's repayment account.

3.4 
Before each withdrawal, the Borrower process the relevant withdrawal procedures at least three (3) bank business days in advance and specify the payment method (entrusting the Lender with the payment or the Borrower itself making the payment); only one of the payment methods can be used for each withdrawal.
 
3.5
Entrusting the Lender with making the payment means that the Lender, pursuant to the payment entrustment engagement letter from the Borrower and after the release of the loan pursuant to the provisions herein, makes the payment from the loan proceeds through the Borrower's account directly to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

Upon satisfying one of the following conditions, the method of entrusting the Lender with the payment can be adopted:
(1)           The amount of single payment exceeds RMB200,000 (this amount is the limit that the Borrower can pay if the payment is made by the Borrower)

 
________________________________________________________________
________________________________________________________________

If the method of entrusting the Lender with the payment is adopted, the Borrower must submit to the Lender withdrawal application, payment engagement letter in the format specified by the Lender, loan certificate, relevant payment certificate and other documents requested by the Lender (including but not limited to commercial contract, invoices and goods acceptance documents and other trading documents), specify the amount to be withdrawn and the recipient and amount of the payment; the amount to be withdrawn must be equal to the amount of the payment.

If the payment proposed by the Borrower does not comply with the provisions herein or those in the relevant commercial contracts or has other defects, the Lender has the right to refuse the payment and return the payment engagement letter submitted by the Borrower.

When the Lender agrees to make such payment,  if the external payment cannot be made or the payment made is returned due to the error in the information provided by the Borrower, the Borrower must re-submit relevant certificate and documents with the correct information within the time specified by the Lender.  The Lender will not be responsible for any loss from unsuccessful payment.

 
 

 
 
3.6 
The Borrower making the payment at its sole discretion means that, after the Lender releases the loan proceeds into the Borrower's account pursuant to the provisions herein, the Borrower makes the payment from the loan proceeds to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

If the method of the Borrower making the payment is adopted, the Borrower must submit to the Lender withdrawal application, loan certificate, explanation of the use of the proceeds and other documents requested by the Lender.  The Borrower shall report to Lender payment of the proceeds within ___ days after withdrawal. The Lender has right to analyze through the Borrower's account, verify the certificate and conduct on-site investigation to verify if the payment of the loan proceeds complies with the specified purpose of use, and the Borrower must assist with the Lender's verification.
 
3.7 
 The actual loan release date and the amount released must be based on the records in the "Loan Certificate."

4
Repayment of Loan

 
4.1   The Borrower must repay the loan at the maturity date specified in 1.4 herein and according to the following schedule; if the maturity date in the "Loan Certificate" is inconsistent with that specified herein, the record in the "Loan Certificate" shall prevail:
 
Date of Repayment
 
Amount Withdrawn
7th day of  May,  2012;
 
Thirty Million (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )

4.2
Borrower shall not repay the Loan prior to the scheduled date without having a written consent from Lender.

4.3
Borrower assigns the following accounts:
(1) Repayment Account:
Account Title: Fuwei Films (Shandong) Co., Ltd.
Account Number: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
 
 

 
 
(2) Account for Capital Return:
Account Title: Fuwei Films (Shandong) Co., Ltd.
Account Number: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

5
Representation and Guarantee of the Borrower
 
5.1
Borrower is an independent entity and has the necessary contractual capacity to perform this Contract and will be liable for its non-performance of its obligations hereunder.
 
5.2
The execution and performance of this Contract is the true intention of the Borrower, and the Borrower has all necessary consents, approvals and authorizations to perform its obligations.
 
5.3
Borrower operates legally, is able to make profits continually and has legal source of fund for repayment with no material bad credit history. The officers of Borrower have no criminal records.

5.4
All the documents, reports, data and information provided by the Borrower to the Lender during the execution and performance of this Contract are true, accurate, complete and in full effect, and Borrower has not withheld any information which may affect the evaluation of its financial status and repayment ability. Since the date of the most recent financial statements published, there has been no material adverse effect on the financial position of Borrower.

5.5
Borrower is neither the shareholder of Guarantor nor the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor, and it does not intend to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

5.6 
Borrower promises that 1) notify Lender once it is informed that the real estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

6
Rights and Obligations of Lender
 
6.1
Lender has the right to be repaid the principal, receive interest (including compound, overdue and appropriated penalty interest) and the necessary expenses from the Borrower in accordance with this Contract. Lender has the right to exercise any other rights under the relevant laws and regulations or stipulated in this Contract.
 
6.2
Lender shall only conduct routine review for documents provided by Borrower and it shall not be liable for any failure of entrusted payment by Borrower caused by incomplete, fault documents.
 
 
 

 
 
 
Except as otherwise specified under this contract, Lender shall keep all the financial and operation data and information confidential unless compelled by requirements of applicable laws and regulations.

6.3 
Lender shall not be liable for any failure in loan release or payment caused by freezing of the Borrower’s loan release account or Borrower's trading partner’s account or any reasons otherwise.

7
Rights and Obligations of Borrower
 
7.1
Borrower shall repay the Loan under this Contract and pay the interest hereunder in accordance with the date, amount, currency set forth in this Contract.
 
7.2
Borrower shall not use the proceeds of the Loan for any usage not stipulated in this Contract.
 
7.3
Borrower shall be liable for the expenses under this Contract, including but not limited to, expenses for notary service, authentication, evaluation and registration.
 
7.4
Borrower shall comply with the operation procedure and the general practice of the Lender and loan application, including but not limited to, facilitating Lender’s examination and supervision on Borrower’s operation status, and providing all the financial statements, or any other data and information requested by Lender, and shall guarantee that such documents, data and information are true, complete and accurate.
 
7.5
If any one of the following events occurs, Borrower shall notify the Lender within thirty (30) days and shall not commence such activities unless the Loan and interest under this Contract are repaid completely, or a repayment schedule and guarantee are approved and accepted by the Lender. These are as follows:
 
 
(1)
Selling, donating, renting, lending, assigning, mortgaging, pledging or disposing of all or substantial part of its assets; and
 
 
(2)
any potential or actual substantial changes in organization or structure of the Borrower, including but not limited to, its operation, subcontracting, lease, affiliation, company restructuring, joint-stock, merger (consolidation), equity joint-venture (non-equity), spin-off, incorporation of subsidiary, asset assignment, reduction of registered capital, etc.
 
7.6
Borrower shall notify the Lender within seven (7) days of occurrence of any of the following events:
 
 
(1)
Amendment of the Articles of Association, change of Borrower’s name, change of legal representative, change of domicile, change of address, and change in the scope of its business.
 
 
 

 
 
 
(2)
Borrower, its related party or Guarantor’s intention to file for bankruptcy.

 
(3)
Borrower’s involvement in any major litigation or arbitration, or any lien or encumbrance is imposed on its assets.
 
 
(4)
Borrower’s or its related party’s guarantee to any other third party, which will have a material adverse effect on its financial status and ability to perform its obligations under this Contract.

 
(5)
Borrower or its related enters into a contract which will have a material adverse effect on its operation and financial status.

 
(6)
Borrower, its related party or Guarantor (if any) stops its operation, its business terminates, winds up, or its business license is revoked.

 
(7)
Borrower’s or its related party, major individual investor of Borrower or its related party, Borrower’s or its related party’s legal representative or senior management has committed a criminal offence, is missing, or has been changed.

 
(8)
Borrower faces substantial hardship in managing its business or any other event which will have an adverse effect on the financial status or ability of the Borrower to repay the Loan.

 
(9)
Related-party transaction occurs with the total amount at or more than 10% of the most recent audited net assets.

 
(10)
Borrower will become or is very likely to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

 
(11)
Borrower or its related party is covered by media or causes accidents due to any and all violation of laws and regulations, state policies or industrial standards.

 
(12)
The controlling relationship between its related party and Borrower has material change.

 
(13)
There has been material adverse effect on the repayment ability of Borrower or its related party.

7.7
Upon the occurrence of any change to the guarantee hereunder that is adverse to the Lender’s claims, the Borrower must promptly provide other guarantee approved by the Lender as requested.
 
 
 

 
 
The “change” herein includes but not limited to : the guarantor’s merger, spin-off, ceasing operation, going out of business, dissolution, shut-down for rectification, being cancelled, having its business license revoked, filing for or being forced into bankruptcy; material change in the guarantor’s operation or financial situation; the guarantor’s involvement in major litigation or arbitration or administrative sanctions, or imposition of a lien or other enforcement measures on its major assets; the decrease, or likely decrease, of the value of its collateral or the imposition of a lien or other enforcement measures thereupon; impact, or likely impact, on the sound condition of its collaterals; the guarantor or its legal representative (responsible person) or major management officer’s violation of the law and statutes or the rules of the applicable exchanges; if the guarantor is an individual, the guarantor’s disappearance or death (being declared dead); the guarantor’s act of breach as defined in the guarantee contract; disputes between the guarantor and the Borrower; demand by the guarantor to dissolve the guarantee contract; the guarantee contract not coming into effect or becoming invalid or being cancelled; security interest not being established or invalid; or other events that will affect the security of the Lender’s claims.

 8
Other Terms

Borrower promises that 1) notify Lender once it is informed that the real estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

This Contract is pledged by the two Collateral Contract of Maximum Amount entered into between Weifang Branch of Bank of Communications and Fuwei Films (Shandong) Co., Ltd with the Contract No. 3770502011AF00000300.

9
Maturity Repayment of the Loan before the Maturity Date
 
9.1
The occurrence of any of the following will be considered an “advance maturity event” for this Contract:
 
 
(1)
Borrower’s representations and warranties in Section 5 are not true;
 
 
(2)
Borrower is in breach of this Contract;
 
 
(3)
The events set forth in Section 7.6 have occurred and Lender believes that such event will have a material adverse effect on its rights as a creditor;

 
 

 

 
(4)
Lender decides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situation;
 
 
(5)
Lender may violate or will violate laws by releasing the loan due to changes to current regulatory laws and regulations; or

 
(6)
Borrower violates any provisions herein the Contract with Lender or stipulated in any other contracts entered into with any other third party, or its debt may or has been declared due ahead of maturity date.

9.2
In the event of any of the aforesaid events, Lender has the right to take one, more or all of the following actions:

(1)   Suspend the release of the remainder of the loan;
(2)   Suspend the payment for the withdrawn but yet not allocated loan;
(3)   request the Borrower to enter into supplementary agreement with respect to loan release terms and payment terms;
(4)   request the Borrower to change its payment method in accordance with Lender’s requirements; and
(5)   unilaterally declare due of the released loan herein and ask the Borrower to repay all its proceeds and interests.

10
Breach of Contract
 
10.1
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, or to use the proceeds of the Loan as set forth in this Contract, Lender has the right to use the overdue penalty interest rate and appropriate penalty interest rate to calculate the interest.
 
10.2
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, Borrower shall be liable for the Lender’s expenses in exercising its creditor’s rights, including litigation cost (arbitration fee), costs of preservation of asset, costs of publication, enforcement costs, legal fees, travel and other expenses.
 
10.3
In the event that Borrower avoids Lender’s supervision, fails to repay the principal or the interest of the Loan or avoids the repayment intentionally, Lender has the right to inform relevant government authority and to publish the payment notification on news media.
 
11
Withdrawal Instructions
 
11.1
In the event that Borrower is overdue in payment in respect of principal, interest, penalty interest, compound interest or other expenses, Lender is authorized to withdraw the money from any other bank accounts of Borrower with Bank of Communications to offset the said outstanding payment.
 
 
 

 
 
11.2
After the aforesaid withdrawal, Lender shall inform the Borrower of such account number, loan contract reference number, promissory note reference number, amount of withdrawal, and the outstanding Loan amount.

11.3
If the amount of withdrawal is not sufficient to offset the aforesaid payment, the overdue expenses shall be settled first. If the principal and interest are overdue for less than ninety (90) days, the remaining balance shall be first used to settle the overdue interest, penalty interest and compound interest, then shall be used to settle the overdue principal. In the event that the overdue payment or interest is overdue for more than ninety (90) days, the remaining balance shall be used to settle the overdue principal, and then shall be used to settle the overdue interest, penalty interest or compound interest.
 
11.4
If the currency of the aforesaid withdrawal amount is different from the currency of the Loan, the exchange rate determined by Bank of Communications on the date of withdrawal shall be used for the currency conversion calculation.
 
12
Notification

12.1
The contact information (including mail address, phone number and fax number) herein provided by Borrower is true. In case of any changes to the information, Borrower shall notify Lender by delivering the written updated information in ordinary post, courier or in person. The updated information shall be in effect upon actual receipt and update in records by Lender.

12.2
Unless expressly specified otherwise herein, the Lender has the right to use any of the following means for sending notification to the Borrower. The Lender has the right to choose the notification method it deems appropriate and shall not be responsible under any circumstance for any error, miss or delay of the postal mail, fax, telephone or any other communication system. If the Lender chooses several notification methods, the notification will be considered served on the basis of the faster method.  The methods include:
(1)  Public announcement: the notification will be considered served on the day when the Lender publish such announcement on its website, online banking site, telephone banking system or business website;
(2)  Courier delivery: the notification will be considered served on the day when the Borrower signs the delivery receipt;
(3)  Postal mail (including special express mail, ordinary mail and registered mail): the notification will be considered served 3 days (if, in the same city)/5 days (if, in different regions) such mail is sent to the Borrower’s most recent mailing address that the Lender knows (even though such mail may be returned); and
(4)  Notification by fax or by other electronic method will be considered served when it is sent to the most recent fax number or email address that the Lender knows.

 
 

 

13
Information Disclosure and Non-Disclosure

13.1
The Lender must have the responsibility to keep confidential the Borrower’s commercial secrets and other information and documents which carry written legends requiring confidentiality; however the following circumstances are excepted:
(1)  Disclosure as required by the applicable law and statutes or by the public offering rules;
(2)  Disclosure as required by judicial or government authorities;
(3)  Disclosure made to the Lender’s outside business experts; and
(4)  Disclosure made with the Borrower’s consent or authorization.
 
13.2
Borrower agrees that Lender can use or disclosure all the information and materials of Borrower with respect to the loan in case of the following event and it shall be liable for any arising from that:
(1)  Disclose to and allow the use of such information and documents by business out-source organization, third party service provider, other financial institution and other agencies or individuals deemed necessary by the Lender for the following purposes: (a) to develop lending business or in connection with lending business, such as promoting Bank of Communications’s lending service, collecting the Borrower’s delinquent debt and transferring creditor’s claims; (b) to provide, or is likely to provide, new products or services or further services to the Borrower; and (c) to maintain, manage and improve customer relations;
(2)  Provide such information and documents to Credit Reference Center of the People’s bank of China or other credit information agency or credit information data bank established with the approval of the People’s Bank of China; and
(3)  Use, or allow the use by a third party, such information and documents on a confidential basis for the purposes of business operation, management, statistics and risk control.

14
Applicable Law and Dispute Resolution
 
The Contract shall be governed and construed by laws of the People’s Republic of China.
 
Any dispute arising from or in connection with this Contract shall be resolved by filing a lawsuit to the competent court in the place where Lender is locate. During arbitration, both parties are still bound by other terms and conditions herein where there are no disputes.

15
Miscellaneous

15.1 
Borrower consents that Lender can search for and keep its credit related information for the purposes of loan application and post-loan-release management.

15.2 
Lender shall not be liable for failing to release the loan or make payment caused by force majeure, communication or internet connection failure or systematic trouble but it shall notify Borrower promptly.
 
 
 

 
 
15.3 
With drawal application template and signed withdraw application, loan certificate and other instruments, materials confirmed by both parties under this Contract shall constitute the entire agreement between Lender and Borrower of the Contract.

15.4 
The terms “related-party”, “related-party transaction” and “primary individual investor” herein are in compliance with those defined in Related-Party Disclosures of Chapter 36 in The Accounting Standards for Business Enterprises (CK No. [2006] 3) and its amendments promulgated by Ministry of Finance of PRC.

15.5
This Contract comes into effect upon both Parties’ signing and stamping on this contract.
 
15.6
This Contract is executed in four (4) counterparts. Each of the Parties and their Guarantors (if any) shall keep one counterpart.
 
IN WITNESS WHEREOF , the parties hereto have executed this Contract as of the day and year first set forth below.
 
May 25, 2011
May 25, 2011
 
Borrower (seal):
Lender (seal):
 
Fuwei Films (Shandong) Co., Ltd.
Bank of Communications
 
Legal Representative or Authorized Person
Responsible Person or Authorized Person

Xiaoan He
Ankui Liu
 
(signature or seal)
(signature or seal)

 
 

 


Exhibit 4.2

Loan No.: 3770502011M100000400
 
Loan Contract
 
(Unofficial English Translation Solely for Convenience)

Bank of Communications

 
 

 

Loan No.: 3770502010M100000400

Loan Contract

Borrower:
Fuwei Films (Shandong) Co., Ltd.
 
Legal Representative:
Xiaoan He
 
Legal Address:
Hi-Tech Development Zone, No. 387 Dong Ming Road, Weifang
 
Correspondence Address:
Same as above

Lender:
Weifang Branch, Bank of Communications
 
Responsible Person:
Ankui Liu
 
Correspondence Address:
No. 358 Dong Feng, Dong Street, Weifang
 
Both parties agree on the following terms :
 
1
Loan
 
1.1
Currency: Renminbi (RMB)
 
 
1.2
Amount: 35,000,000
 
 
1.3
The proceeds of the Loan under this Contract shall be used for procurement of raw materials .
 
 
1.4
Loan Period: Commencing from the date of first loan drawing and expiring on May14, 2012 with a term of no more thantwelve (12) months.

2
Interest Rate and Computation of Interest
 
 
2.1
1 Interest rate: The annual interest rate is up 20% based on the benchmark interest rate of the Central Bank of China ( þ annually o monthly).

 
2  In case that the Central Bank of China adjusts the benchmark interest rate during the Contract term, the date of interest rate adjustment herein is set according to option I . Lender has the right to enforce the adjusted interest rate after the date of interest rate adjustment herein with the increase percentage unchanged.

Option I: date when the Central Bank of China adjusts its benchmark interest rate;
Option II:After date of allocation of the loan,date after _____ month(s)/quarter/six months/yearis the date of interest rate adjustment herein.

 
The two parties shall negotiate for an appropriate interest rate in case that the adjusted benchmark interest rate by the Central Bank of China is floating interest rate or it cancels the benchmark interest rate; in case that the two parties fail to reach on the interest rate terms for the Contract one (1) month after the Central Bank of China adjusts the benchmark interest rate, Lender has the right to announce that all the loans hereunder expire earlier than stipulated herein.
 
 
 

 
   
2.2
Daily interest rate is monthly interest rate divided by thirty (30) days while the monthly interest rate is equal to annual interest rate divided by twelve (12) months.

 2.3
Computation of Interest
 
2.3.1
Normal interest = interest rate under this Contract X proceeds of the Loan X number of days of use.  Number of days of use is calculated from the drawing date to the maturity date.
 
2.3.2
The penalty interest of the overdue loan and appropriated loan is calculated based on the amount and the actual number of days overdue or appropriated. If the currency of the loan is Renminbi (RMB), the overdue penalty interest rate is equal to the loan interest rate set forth in this Contract plus 50% of such loan’s interest rate, and the appropriated penalty interest rate is equal to the loan interest rate set forth in this Contract plus 100% of such loan interest rate. If the currency of the loan is a foreign currency, the aforesaid penalty interest rates are equal to the loan interest rate set forth in this Contract plus (not applicable) of such loan interest rate.
 
2.4
The loan under this Contract uses the second (2 nd ) method mentioned below for payment of interest. On the maturity date, the interest shall be paid together with the principal. The date of payment of interest is the date of the settlement of interest:
 
 
1.
Interest settlement on the 20 th day of the last month of each quarter; or
 
2.
Interest settlement on the 20 th day of each month.

 2.5
In the event of earlier repayment by the Borrower or loan recalling pre-maturely by Lender, the applicable interestrate is still valid.

3
Granting and Payment of Loan
 
3.1
Borrower is allowed to make multiplewithdrawals of proceeds of the loanwith total amount withdrawnnot to exceed the amount stipulated in Clause 1. And Borrower shall draw the proceeds of the Loan in accordance with the following loan drawing schedule:
 
Drawing Date                                            Drawing Amount
_ 25th _ days __ 5th _ month __ 2011 Year; _ thirty-five million (amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )

3.2
Unless all of the following conditions are satisfied, Lender has the right to refuse to grant the Loan:

 
1)
Borrower has already completed the statutory procedures including obtaining related permit, approval and registration from the government together with other statutory procedures and such permit, approval and registration remain in full force and effect.

 
2)
The guarantee contract (if any) under this Contract has come into effect and remains in full force and effect. In case that the guarantee contract is a mortgage or pledge contract, the security interest is established and remains in effect.

 
3)
The business and financial condition of the Borrower does not have any substantial adverse changes; and

 
4)
Borrower is not in breach of this Contract;
 
 
 

 
 
 
5) 
The repayment method is compliant with the terms and conditions in the Contract and the lender consents to pay as authorized by borrower;

 
6) 
For loan withdrawal in foreign currency, Borrower has opened an account according to the requirements of foreign exchange administration and provided support documents for the loanwhich reflectcompliance with foreign exchange administration including but not limited to certificationfor purposes of the loan in foreign currency, registration or verification instruments;

 
7) 
Borrower has designated a capital return account as requested by the Lender and executed account management agreement .
 
3.3
The Borrower designates the following account as loan deposit account; the said account is not an account set up by the Borrower with the Lender specifically for loan deposit.
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086900000002273
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
If an account is set up specifically for loan deposit, the release and the payment of the loan must be done through that account.  Such account can only be used for the release and external payment of the proceeds of the loan; it can only issue "Settlement Service Application" certificate but cannot be used for check, bank draft, and bank draft acceptance services or for other settlement.  When the Borrower processes, in its sole discretion, loan proceeds transfer, such transfer must be done over the counter of the bank that holds the account.  The interest on the deposit in such account is included in the Borrower's repayment account.

3.4 
Before each withdrawal, the Borrower process the relevant withdrawal procedures at least three (3) bank business days in advance and specify the payment method (entrusting the Lender with the payment or the Borrower itself making the payment); only one of the payment methods can be used for each withdrawal.

3.5 
Entrusting the Lender with making the payment means that the Lender, pursuant to the payment entrustment engagement letter from the Borrower and after the release of the loan pursuant to the provisions herein, makes the payment from the loan proceeds through the Borrower's account directly to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

Upon satisfying one of the following conditions, the method of entrusting the Lender with the payment can be adopted:
(1)           The amount of single payment exceeds RMB200,000 (this amount is the limit that the Borrower can pay if the payment is made by the Borrower)
 
 
 

 

________________________________________________________________
________________________________________________________________
 
If the method of entrusting the Lender with the payment is adopted, the Borrower must submit to the Lender withdrawal application, payment engagement letter in the format specified by the Lender, loan certificate, relevant payment certificate and other documents requested by the Lender (including but not limited to commercial contract, invoices and goods acceptance documents and other trading documents), specify the amount to be withdrawn and the recipient and amount of the payment; the amount to be withdrawn must be equal to the amount of the payment.

If the payment proposed by the Borrower does not comply with the provisions herein or those in the relevant commercial contracts or has other defects, the Lender has the right to refuse the payment and return the payment engagement letter submitted by the Borrower.

When the Lender agrees to make such payment,  if the external payment cannot be made or the payment made is returned due to the error in the information provided by the Borrower, the Borrower must re-submit relevant certificate and documents with the correct information within the time specified by the Lender.  The Lender will not be responsible for any loss from unsuccessful payment.
 
3.6 
The Borrower making the payment at its sole discretion means that, after the Lender releases the loan proceeds into the Borrower's account pursuant to the provisions herein, the Borrower makes the payment from the loan proceeds to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

If the method of the Borrower making the payment is adopted, the Borrower must submit to the Lender withdrawal application, loan certificate, explanation of the use of the proceeds and other documents requested by the Lender.  The Borrower shall report to Lender payment of the proceeds within ___ days after withdrawal. The Lender has right to analyze through the Borrower's account, verify the certificate and conduct on-site investigation to verify if the payment of the loan proceeds complies with the specified purpose of use, and the Borrower must assist with the Lender's verification.

3.7 
The actual loan release date and the amount released must be based on the records in the "Loan Certificate."

Repayment of Loan

4.1 
The Borrower must repay the loan at the maturity date specified in 1.4 herein and according to the following schedule; if the maturity date in the "Loan Certificate" is inconsistent with that specified herein, the record in the "Loan Certificate" shall prevail:
 
 
 

 
 
Date of Repayment
 
Amount Withdrawn
14th day of  May ,  2012;
 
Thirty-Five Million (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )

4.2
Borrower shall not repay the Loan prior to the scheduled date without having a written consent from Lender.

4.3 
Borrower assigns the following accounts:
    (1) Repayment Account:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
(2) Account for Capital Return:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

5
Representation and Guarantee of the Borrower
 
5.1
Borrower is an independent entity and has the necessary contractual capacity to perform this Contract and will be liable for its non-performance of its obligations hereunder.
 
5.2
The execution and performance of this Contract is the true intention of the Borrower, and the Borrower has all necessary consents, approvals and authorizations to perform its obligations.
 
5.3 
Borrower operates legally, is able to make profits continually and has legal sourceof fund for repayment with no material bad credit history. The officers of Borrower have no criminal records.

5.4
All the documents, reports, data and information provided by the Borrower to the Lender during the execution and performance of this Contract are true, accurate, complete and in full effect, and Borrower has not withheld any information which may affect the evaluation of its financial status and repayment ability.Since the date of the most recent financial statements published, there has been no material adverse effect on the financial position of Borrower.

5.5 
Borrower is neither the shareholder of Guarantor nor the “actual controller” as defined in Company Lawof the People’s Republic of China of Guarantor, and it does not intend to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

5.6 
Borrowerpromises that 1) notify Lender once it is informed that thereal estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.
 
 
 

 
 
6
Rights and Obligations of Lender
 
6.1
Lender has the right to be repaid the principal, receive interest (including compound, overdue and appropriated penalty interest) and the necessary expenses from the Borrower in accordance with this Contract. Lender has the right to exercise any other rights under the relevant laws and regulations or stipulated in this Contract.
 
6.2
Lender shall only conduct routine review for documents provided by Borrower and it shall not be liable for any failure of entrusted payment by Borrower caused by incomplete, fault documents.

 
Except as otherwise specified under this contract, Lender shall keep all the financial and operation data and information confidential unless compelled by requirements of applicable laws and regulations.

6.3 
Lender shall not be liable for any failure in loan release or payment caused by freezing of the Borrower’s loan release account or Borrower's trading partner’s account or any reasons otherwise.

7
Rights and Obligations of Borrower
 
7.1
Borrower shall repay the Loan under this Contract and pay the interest hereunder in accordance with the date, amount, currency set forth in this Contract.
 
7.2
Borrower shall not use the proceeds of the Loan for any usage not stipulated in this Contract.
 
7.3
Borrower shall be liable for the expenses under this Contract, including but not limited to, expenses for notary service, authentication, evaluation and registration.
 
7.4
Borrower shall comply with the operation procedure and the general practice of the Lender and loan application, including but not limited to, facilitating Lender’s examination and supervision on Borrower’s operation status, and providing all the financial statements, or any other data and information requested by Lender, and shall guarantee that such documents, data and information are true, complete and accurate.
 
7.5
If any one of the following events occurs, Borrower shall notify the Lender within thirty (30) days and shall not commence such activities unless the Loan and interest under this Contract are repaid completely, or a repayment schedule and guarantee are approved and accepted by the Lender. These are as follows:

 
(1)
Selling, donating, renting, lending, assigning, mortgaging, pledging or disposing of all or substantial part of its assets; and
 
 
(2)
any potential or actual substantial changes in organization or structure of the Borrower, including but not limited to, its operation, subcontracting, lease, affiliation, company restructuring, joint-stock, merger (consolidation), equity joint-venture (non-equity), spin-off, incorporation of subsidiary, asset assignment, reduction of registered capital, etc.
 
7.6
Borrower shall notify the Lender within seven (7) days of occurrence of any of the following events:
 
 
(1)
Amendment of the Articles of Association, change of Borrower’s name, change of legal representative, change of domicile, change of address, and change in the scope of its business.
 
 
 

 

 
(2)
Borrower, its related party or Guarantor’s intention to file for bankruptcy.
 
 
(3)
Borrower’s involvement in any major litigation or arbitration, or any lien or encumbrance is imposed on its assets.
 
 
(4)
Borrower’s or its related party’s guarantee to any other third party, which will have a material adverse effect on its financial status and ability to perform its obligations under this Contract.
 
 
(5)
Borrower or its relatedenters into a contract which will have a material adverse effect on its operation and financial status.
 
 
(6)
Borrower, its related party or Guarantor (if any) stops its operation, its business terminates, winds up, or its business license is revoked.

 
(7)
Borrower’s or its related party, major individual investor of Borrower or its related party, Borrower’s or its related party’s legal representativeor senior management has committed a criminal offence, is missing, or has been changed.
 
 
(8) 
Borrower faces substantial hardship in managing its business or any other event which will have an adverse effect on the financial status or ability of the Borrower to repay the Loan.

 
(9) 
Related-party transaction occurs with the total amount at or more than 10% of the most recent audited net assets.

 
(10) 
Borrower will become or is very likely to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

 
(11) 
Borrower or its related party is covered by media or causes accidents due to any and all violation of laws and regulations, state policies or industrial standards.

 
(12) 
The controlling relationship between its related party and Borrower has material change.

 
(13) 
There has been material adverse effect on the repayment ability of Borrower or its related party.

7.7 
Upon the occurrence of any change to the guarantee hereunder that is adverse to the Lender’s claims, the Borrower must promptly provide other guarantee approved by the Lender as requested.

The “change” herein includes but not limited to :the guarantor’s merger, spin-off, ceasing operation, going out of business, dissolution, shut-down for rectification, being cancelled, having its business license revoked, filing for or being forced into bankruptcy; material change in the guarantor’s operation or financial situation; the guarantor’s involvement in major litigation or arbitration or administrative sanctions, or imposition of a lien or other enforcement measures on its major assets; the decrease, or likely decrease, of the value of its collateral or the imposition of a lien or other enforcement measures thereupon; impact, or likely impact, on the sound condition of its collaterals; the guarantor or its legal representative (responsible person) or major management officer’s violation of the law and statutes or the rules of the applicable exchanges; if the guarantor is an individual, the guarantor’s disappearance or death (being declared dead); the guarantor’s act of breach as defined in the guarantee contract; disputes between the guarantor and the Borrower; demand by the guarantor to dissolve the guarantee contract; the guarantee contract not coming into effect or becoming invalid or being cancelled; security interest not being established or invalid; or other events that will affect the security of the Lender’s claims.
 
 
 

 
 
 8 
Other Terms

Borrower promises that 1) notify Lender once it is informed that thereal estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

This Contract is pledged by the two Collateral Contract of Maximum Amount entered into between Weifang Branch of Bank of Communications and Fuwei Films (Shandong) Co., Ltd with the Contract No. of 3770502011AF00000300 and 3770502011AF00000500.

9
Maturity Repayment of the Loan before the Maturity Date
 
9.1
The occurrence of any of the following will be considered an “advance maturity event” for this Contract:
 
 
(1)
Borrower’s representations and warranties in Section 5 are not true;
 
 
(2)
Borrower is in breach of this Contract;
 
 
(3)
The events set forth in Section 7.6 have occurred and Lender believes that such event will have a material adverse effect on its rights as a creditor;
  
 
(4) 
Lender decides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situation;
 
 
(5) 
Lender may violate or will violate laws by releasing the loan due to changes tocurrent regulatory laws and regulations; or

 
(6) 
Borrower violates any provisions herein the Contract with Lender or stipulated in any other contracts entered into with any other third party, or its debt may or has been declared due ahead of maturity date.

9.2 
In the event of any of the aforesaid events, Lender has the right to take one, more or all of the following actions:

 
(1)
Suspend the release of the remainder of the loan;
 
(2)
Suspend the payment for the withdrawn but yet not allocated loan;
 
(3)
request the Borrower to enter into supplementary agreement with respect to loan release terms and payment terms;
 
(4)
request the Borrower to change its payment method in accordance with Lender’s requirements; and
 
(5)
unilaterally declare due of the released loan herein and ask the Borrower to repay all its proceeds and interests.
 
 
 

 
 
10
Breach of Contract
 
10.1
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, or to use the proceeds of the Loan as set forth in this Contract, Lender has the right to use the overdue penalty interest rate and appropriate penalty interest rate to calculate the interest.
 
10.2
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, Borrower shall be liable for the Lender’s expenses in exercising its creditor’s rights, including litigation cost (arbitration fee), costs of preservation of asset, costs of publication, enforcement costs, legal fees, travel and other expenses.

10.3
In the event that Borrower avoids Lender’s supervision, fails to repay the principal or the interest of the Loan or avoids the repayment intentionally, Lender has the right to inform relevant government authority and to publish the payment notification on news media.
 
11
Withdrawal Instructions
 
11.1
In the event that Borrower is overdue in payment in respect of principal, interest, penalty interest, compound interest or other expenses, Lender is authorized to withdraw the money from any other bank accounts of Borrower with Bank of Communications to offset the said outstanding payment.
 
11.2
After the aforesaid withdrawal, Lender shall inform the Borrower of such account number, loan contract reference number, promissory note reference number, amount of withdrawal, and the outstanding Loan amount.
 
11.3
If the amount of withdrawal is not sufficient to offset the aforesaid payment, the overdue expenses shall be settled first. If the principal and interest are overdue for less than ninety (90) days, the remaining balance shall be first used to settle the overdue interest, penalty interest and compound interest, then shall be used to settle the overdue principal. In the event that the overdue payment or interest is overdue for more than ninety (90) days, the remaining balance shall be used to settle the overdue principal, and then shall be used to settle the overdue interest, penalty interest or compound interest.
 
11.4
If the currency of the aforesaid withdrawal amount is different from the currency of the Loan, the exchange rate determined by Bank of Communications on the date of withdrawal shall be used for the currency conversion calculation.
 
12 
Notification

12.1
The contact information (including mail address, phone number and fax number) herein provided by Borrower is true. In case of any changes to the information, Borrower shall notify Lender by delivering the written updated information in ordinary post, courier or in person. The updated information shall be in effect upon actual receipt and update in records by Lender.

12.2
Unless expressly specified otherwise herein, the Lender has the right to use any of the following means for sending notification to the Borrower. The Lender has the right to choose the notification method it deems appropriate and shall not be responsible under any circumstance for any error, miss or delay of the postal mail, fax, telephone or any other communication system. If the Lender chooses several notification methods, the notification will be considered served on the basis of the faster method.  The methods include:
 
 
 

 
 
(1)  Public announcement: the notification will be considered served on the day when the Lender publish such announcement on its website, online banking site, telephone banking system or business website;
(2) Courier delivery: the notification will be considered served on the day when the Borrower signs the delivery receipt;
(3)  Postal mail (including special express mail, ordinary mail and registered mail): the notification will be considered served 3 days (if, in the same city)/5 days (if, in different regions) such mail is sent to the Borrower’s most recent mailing address that the Lender knows (even though such mail may be returned); and
(4)  Notification by fax or by other electronic method will be considered served when it is sent to the most recent fax number or email address that the Lender knows.

13 
Information Disclosure and Non-Disclosure

13.1 
The Lender must have the responsibility to keep confidential the Borrower’s commercial secrets and other information and documents which carry written legends requiring confidentiality; however the following circumstances are excepted:
(1)  Disclosure as required by the applicable law and statutes or by the public offering rules;
(2)  Disclosure as required by judicial or government authorities;
(3)  Disclosure made to the Lender’s outside business experts; and
(4) Disclosure made with the Borrower’s consent or authorization.

13.2
Borrower agrees that Lender can use or disclosure all the information and materials of Borrower with respect to the loan in case of the following event and it shall be liable for any arising from that:
(1)  Disclose to and allow the use of such information and documents by business out-source organization, third party service provider, other financial institution and other agencies or individuals deemed necessary by the Lender for the following purposes: (a) to develop lending business or in connection with lending business, such as promoting Bankof Communications’s lending service, collecting the Borrower’s delinquent debt and transferring creditor’s claims; (b) to provide, or is likely to provide, new products or services or further services to the Borrower; and (c) to maintain, manage and improve customer relations;
(2) Provide such information and documents to Credit Reference Center of the People’s bank ofChinaor other credit information agency or credit information data bank established with the approval of the People’s Bank of China; and
(3)  Use, or allow the use by a third party, such information and documents on a confidential basis for the purposes of business operation, management, statistics and risk control.

14
Applicable Law and Dispute Resolution
 
The Contract shall be governed and construed by laws of the People’s Republic of China.

Any dispute arising from or in connection with this Contract shall be resolved by filing a lawsuit to the competent court in the place where Lender is locate. During arbitration, both parties are still bound by other terms and conditions herein where there are no disputes.

 
 

 

15 
Miscellaneous

15.1 
Borrower consents that Lender can search for and keep its credit related information for the purposes of loan applicationand post-loan-release management.

15.2 
Lender shall not be liable for failing to release the loan or make payment caused by force majeure, communication or internet connection failure or systematictrouble but it shall notify Borrower promptly.

15.3
With drawal application template and signed withdraw application,loan certificate and other instruments, materials confirmed by both parties under this Contract shall constitute the entire agreement between Lender and Borrower of the Contract.

15.4
The terms “related-party”, “related-party transaction” and “primary individual investor” herein are in compliance with those defined in Related-Party Disclosures of Chapter 36 in The Accounting Standards for Business Enterprises (CK No. [2006] 3) and its amendmentspromulgated by Ministry of Finance of PRC.

15.5
This Contract comes into effect upon both Parties’ signing and stamping on this contract.
 
15.6
This Contract is executed in four (4) counterparts. Each of the Parties and their Guarantors (if any) shall keep one counterpart.
 
IN WITNESS WHEREOF , the parties hereto have executed this Contract as of the day and year first set forth below.
 
May 25, 2011
May 25, 2011
 
Borrower (seal):
Lender (seal):
 
Fuwei Films (Shandong) Co., Ltd.
Bank of Communications
 
Legal Representative or Authorized Person
Responsible Person or Authorized Person

Xiaoan He
Ankui Liu
 
(signature or seal)
(signature or seal)
 
 
 

 
 
Exhibit 4.3

Loan No.: 3770502011M100000500

Loan Contract
(Unofficial English Translation Solely for Convenience)
 
Bank of Communications

 
 

 

Loan No.: 3770502010M100000500

Loan Contract

Borrower:
Fuwei Films (Shandong) Co., Ltd.
 
Legal Representative:
Xiaoan He
 
Legal Address:
Hi-Tech Development Zone, No. 387 Dong Ming Road, Weifang
 
Correspondence Address:
Same as above

Lender:
Weifang Branch, Bank of Communications
 
Responsible Person:
Ankui Liu
 
Correspondence Address:
No. 358 Dong Feng, Dong Street, Weifang
 
Both parties agree on the following terms :
 
1
Loan
 
1.1
Currency: Renminbi (RMB)
 
1.2
Amount: 35,000,000
 
1.3
The proceeds of the Loan under this Contract shall be used for procurement of raw materials .
 
1.4
Loan Period: Commencing from the date of first loan drawing and expiring on May21 , 2012 with a term of no more than twelve (12) months.

2
Interest Rate and Computation of Interest
 
2.1
1 Interest rate: The annual interest rate is up 20% based on the benchmark interest rate of the Central Bank of China ( þ annually o monthly).

2 In case that the Central Bank of China adjusts the benchmark interest rate during the Contract term, the date of interest rate adjustment herein is set according to option I . Lender has the right to enforce the adjusted interest rate after the date of interest rate adjustment herein with the increase percentage unchanged.

 
 

 
 
Option I: date when the Central Bank of China adjusts its benchmark interest rate;
Option II:After date of allocation of the loan,date after _____ month(s)/quarter/six months/yearis the date of interest rate adjustment herein.

3 The two parties shall negotiate for an appropriate interest rate in case that the adjusted benchmark interest rate by the Central Bank of China is floating interest rate or it cancels the benchmark interest rate; in case that the two parties fail to reach on the interest rate terms for the Contract one (1) month after the Central Bank of China adjusts the benchmark interest rate, Lender has the right to announce that all the loans hereunder expire earlier than stipulated herein.
 
2.2
Daily interest rate is monthly interest rate divided by thirty (30) days while the monthly interest rate is equal to annual interest rate divided by twelve (12) months.

2.3
Computation of Interest
 
2.3.1
Normal interest = interest rate under this Contract X proceeds of the Loan X number of days of use.  Number of days of use is calculated from the drawing date to the maturity date.
 
2.3.2
The penalty interest of the overdue loan and appropriated loan is calculated based on the amount and the actual number of days overdue or appropriated. If the currency of the loan is Renminbi (RMB), the overdue penalty interest rate is equal to the loan interest rate set forth in this Contract plus 50% of such loan’s interest rate, and the appropriated penalty interest rate is equal to the loan interest rate set forth in this Contract plus 100% of such loan interest rate. If the currency of the loan is a foreign currency, the aforesaid penalty interest rates are equal to the loan interest rate set forth in this Contract plus (not applicable) of such loan interest rate.
 
2.4
The loan under this Contract uses the second (2 nd ) method mentioned below for payment of interest. On the maturity date, the interest shall be paid together with the principal. The date of payment of interest is the date of the settlement of interest:
 
 
1.
Interest settlement on the 20 th day of the last month of each quarter; or
 
2.
Interest settlement on the 20 th day of each month.

2.5 
In the event of earlier repayment by the Borrower or loan recalling pre-maturely by Lender, the applicable interestrate is still valid.

3
Granting and Payment of Loan
 
3.1
Borrower is allowed to make multiplewithdrawals of proceeds of the loanwith total amount withdrawnnot to exceed the amount stipulated in Clause 1. And Borrower shall draw the proceeds of the Loan in accordance with the following loan drawing schedule:

 
 

 

Drawing Date                                              Drawing Amount
_ 25th _ days __ 5th _ month __ 2011 Year; _ thirty-five million (amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )

3.2
Unless all of the following conditions are satisfied, Lender has the right to refuse to grant the Loan:

 
1)
Borrower has already completed the statutory procedures including obtaining related permit, approval and registration from the government together with other statutory procedures and such permit, approval and registration remain in full force and effect.

 
2)
The guarantee contract (if any) under this Contract has come into effect and remains in full force and effect. In case that the guarantee contract is a mortgage or pledge contract, the security interest is established and remains in effect.

 
3)
The business and financial condition of the Borrower does not have any substantial adverse changes; and

 
4)
Borrower is not in breach of this Contract;

 
5)
The repayment method is compliant with the terms and conditions in the Contract and the lender consents to pay as authorized by borrower;

 
6)
For loan withdrawal in foreign currency, Borrower has opened an account according to the requirements of foreign exchange administration and provided support documents for the loanwhich reflectcompliance with foreign exchange administration including but not limited to certificationfor purposes of the loan in foreign currency, registration or verification instruments;

 
7)
Borrower has designated a capital return account as requested by the Lender and executed account management agreement .

3.3
The Borrower designates the following account as loan deposit account; the said account is not an account set up by the Borrower with the Lender specifically for loan deposit.
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086900000002273
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications
Weifang Branch  

 
 

 

If an account is set up specifically for loan deposit, the release and the payment of the loan must be done through that account.  Such account can only be used for the release and external payment of the proceeds of the loan; it can only issue "Settlement Service Application" certificate but cannot be used for check, bank draft, and bank draft acceptance services or for other settlement.  When the Borrower processes, in its sole discretion, loan proceeds transfer, such transfer must be done over the counter of the bank that holds the account.  The interest on the deposit in such account is included in the Borrower's repayment account.

3.4
Before each withdrawal, the Borrower process the relevant withdrawal procedures at least three (3) bank business days in advance and specify the payment method (entrusting the Lender with the payment or the Borrower itself making the payment); only one of the payment methods can be used for each withdrawal.

3.5
Entrusting the Lender with making the payment means that the Lender, pursuant to the payment entrustment engagement letter from the Borrower and after the release of the loan pursuant to the provisions herein, makes the payment from the loan proceeds through the Borrower's account directly to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

Upon satisfying one of the following conditions, the method of entrusting the Lender with the payment can be adopted:
(1)           The amount of single payment exceeds RMB200,000 (this amount is the limit that the Borrower can pay if the payment is made by the Borrower)




If the method of entrusting the Lender with the payment is adopted, the Borrower must submit to the Lender withdrawal application, payment engagement letter in the format specified by the Lender, loan certificate, relevant payment certificate and other documents requested by the Lender (including but not limited to commercial contract, invoices and goods acceptance documents and other trading documents), specify the amount to be withdrawn and the recipient and amount of the payment; the amount to be withdrawn must be equal to the amount of the payment.

If the payment proposed by the Borrower does not comply with the provisions herein or those in the relevant commercial contracts or has other defects, the Lender has the right to refuse the payment and return the payment engagement letter submitted by the Borrower.

When the Lender agrees to make such payment,  if the external payment cannot be made or the payment made is returned due to the error in the information provided by the Borrower, the Borrower must re-submit relevant certificate and documents with the correct information within the time specified by the Lender.  The Lender will not be responsible for any loss from unsuccessful payment.

 
 

 
 
3.6
The Borrower making the payment at its sole discretion means that, after the Lender releases the loan proceeds into the Borrower's account pursuant to the provisions herein, the Borrower makes the payment from the loan proceeds to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

If the method of the Borrower making the payment is adopted, the Borrower must submit to the Lender withdrawal application, loan certificate, explanation of the use of the proceeds and other documents requested by the Lender.  The Borrower shall report to Lender payment of the proceeds within ___ days after withdrawal. The Lender has right to analyze through the Borrower's account, verify the certificate and conduct on-site investigation to verify if the payment of the loan proceeds complies with the specified purpose of use, and the Borrower must assist with the Lender's verification.

3.7
The actual loan release date and the amount released must be based on the records in the "Loan Certificate."

4
Repayment of Loan

4.1
The Borrower must repay the loan at the maturity date specified in 1.4 herein and according to the following schedule; if the maturity date in the "Loan Certificate" is inconsistent with that specified herein, the record in the "Loan Certificate" shall prevail:
 
  Date of Repayment
 
Amount Withdrawn
21th day of  May ,  2012;
 
Thirty-Five Million (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
  
_______________ (amount in  Capital Letters  )

4.2
Borrower shall not repay the Loan prior to the scheduled date without having a written consent from Lender.

4.3 
Borrower assigns the following accounts:
(1) Repayment Account:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

 
 

 
 
(2) Account for Capital Return:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

5
Representation and Guarantee of the Borrower
 
5.1
Borrower is an independent entity and has the necessary contractual capacity to perform this Contract and will be liable for its non-performance of its obligations hereunder.
 
5.2
The execution and performance of this Contract is the true intention of the Borrower, and the Borrower has all necessary consents, approvals and authorizations to perform its obligations.
 
5.3
Borrower operates legally, is able to make profits continually and has legal sourceof fund for repayment with no material bad credit history. The officers of Borrower have no criminal records.

5.4
All the documents, reports, data and information provided by the Borrower to the Lender during the execution and performance of this Contract are true, accurate, complete and in full effect, and Borrower has not withheld any information which may affect the evaluation of its financial status and repayment ability.Since the date of the most recent financial statements published, there has been no material adverse effect on the financial position of Borrower.

5.5
Borrower is neither the shareholder of Guarantor nor the “actual controller” as defined in Company Lawof the People’s Republic of China of Guarantor, and it does not intend to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

5.6
Borrowerpromises that 1) notify Lender once it is informed that thereal estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

6
Rights and Obligations of Lender
 
6.1
Lender has the right to be repaid the principal, receive interest (including compound, overdue and appropriated penalty interest) and the necessary expenses from the Borrower in accordance with this Contract. Lender has the right to exercise any other rights under the relevant laws and regulations or stipulated in this Contract.
 
6.2
Lender shall only conduct routine review for documents provided by Borrower and it shall not be liable for any failure of entrusted payment by Borrower caused by incomplete, fault documents.

 
 

 

Except as otherwise specified under this contract, Lender shall keep all the financial and operation data and information confidential unless compelled by requirements of applicable laws and regulations.

6.3
Lender shall not be liable for any failure in loan release or payment caused by freezing of the Borrower’s loan release account or Borrower's trading partner’s account or any reasons otherwise.

7
Rights and Obligations of Borrower
 
 
7.1
Borrower shall repay the Loan under this Contract and pay the interest hereunder in accordance with the date, amount, currency set forth in this Contract.
 
 
7.2
Borrower shall not use the proceeds of the Loan for any usage not stipulated in this Contract.
 
 
7.3
Borrower shall be liable for the expenses under this Contract, including but not limited to, expenses for notary service, authentication, evaluation and registration.
 
 
7.4
Borrower shall comply with the operation procedure and the general practice of the Lender and loan application, including but not limited to, facilitating Lender’s examination and supervision on Borrower’s operation status, and providing all the financial statements, or any other data and information requested by Lender, and shall guarantee that such documents, data and information are true, complete and accurate.
 
 
7.5
If any one of the following events occurs, Borrower shall notify the Lender within thirty (30) days and shall not commence such activities unless the Loan and interest under this Contract are repaid completely, or a repayment schedule and guarantee are approved and accepted by the Lender. These are as follows:

 
(1)
Selling, donating, renting, lending, assigning, mortgaging, pledging or disposing of all or substantial part of its assets; and

 
(2)
any potential or actual substantial changes in organization or structure of the Borrower, including but not limited to, its operation, subcontracting, lease, affiliation, company restructuring, joint-stock, merger (consolidation), equity joint-venture (non-equity), spin-off, incorporation of subsidiary, asset assignment, reduction of registered capital, etc.
 
7.6
Borrower shall notify the Lender within seven (7) days of occurrence of any of the following events:
 
 
(1)
Amendment of the Articles of Association, change of Borrower’s name, change of legal representative, change of domicile, change of address, and change in the scope of its business.
 
 
 

 

 
(2)
Borrower, its related party or Guarantor’s intention to file for bankruptcy.

 
(3)
Borrower’s involvement in any major litigation or arbitration, or any lien or encumbrance is imposed on its assets.

 
(4)
Borrower’s or its related party’s guarantee to any other third party, which will have a material adverse effect on its financial status and ability to perform its obligations under this Contract.

 
(5)
Borrower or its relatedenters into a contract which will have a material adverse effect on its operation and financial status.

 
(6)
Borrower, its related party or Guarantor (if any) stops its operation, its business terminates, winds up, or its business license is revoked.

 
(7)
Borrower’s or its related party, major individual investor of Borrower or its related party, Borrower’s or its related party’s legal representativeor senior management has committed a criminal offence, is missing, or has been changed.

 
(8)
Borrower faces substantial hardship in managing its business or any other event which will have an adverse effect on the financial status or ability of the Borrower to repay the Loan.

 
(9)
Related-party transaction occurs with the total amount at or more than 10% of the most recent audited net assets.

 
(10)
Borrower will become or is very likely to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

 
(11)
Borrower or its related party is covered by media or causes accidents due to any and all violation of laws and regulations, state policies or industrial standards.

 
(12)
The controlling relationship between its related party and Borrower has material change.

 
(13)
There has been material adverse effect on the repayment ability of Borrower or its related party.

7.7
Upon the occurrence of any change to the guarantee hereunder that is adverse to the Lender’s claims, the Borrower must promptly provide other guarantee approved by the Lender as requested.

 
 

 

The “change” herein includes but not limited to :the guarantor’s merger, spin-off, ceasing operation, going out of business, dissolution, shut-down for rectification, being cancelled, having its business license revoked, filing for or being forced into bankruptcy; material change in the guarantor’s operation or financial situation; the guarantor’s involvement in major litigation or arbitration or administrative sanctions, or imposition of a lien or other enforcement measures on its major assets; the decrease, or likely decrease, of the value of its collateral or the imposition of a lien or other enforcement measures thereupon; impact, or likely impact, on the sound condition of its collaterals; the guarantor or its legal representative (responsible person) or major management officer’s violation of the law and statutes or the rules of the applicable exchanges; if the guarantor is an individual, the guarantor’s disappearance or death (being declared dead); the guarantor’s act of breach as defined in the guarantee contract; disputes between the guarantor and the Borrower; demand by the guarantor to dissolve the guarantee contract; the guarantee contract not coming into effect or becoming invalid or being cancelled; security interest not being established or invalid; or other events that will affect the security of the Lender’s claims.

 8 
Other Terms

Borrower promises that 1) notify Lender once it is informed that thereal estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

This Contract is pledged by the two Collateral Contract of Maximum Amount entered into between Weifang Branch of Bank of Communications and Fuwei Films (Shandong) Co., Ltd with the Contract No. of 3770502011AF00000500 and 3770502011AF00000300.

9
Maturity Repayment of the Loan before the Maturity Date

9.1
The occurrence of any of the following will be considered an “advance maturity event” for this Contract:

 
(1)
Borrower’s representations and warranties in Section 5 are not true;

 
(2)
Borrower is in breach of this Contract;

 
(3)
The events set forth in Section 7.6 have occurred and Lender believes that such event will have a material adverse effect on its rights as a creditor;

 
 

 

 
(4)
Lender decides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situation;

 
(5)
Lender may violate or will violate laws by releasing the loan due to changes tocurrent regulatory laws and regulations; or

 
(6)
Borrower violates any provisions herein the Contract with Lender or stipulated in any other contracts entered into with any other third party, or its debt may or has been declared due ahead of maturity date.

9.2
In the event of any of the aforesaid events, Lender has the right to take one, more or all of the following actions:

 
(1)
Suspend the release of the remainder of the loan;
 
(2)
Suspend the payment for the withdrawn but yet not allocated loan;
 
(3)
request the Borrower to enter into supplementary agreement with respect to loan release terms and payment terms;
 
(4)
request the Borrower to change its payment method in accordance with Lender’s requirements; and
 
(5)
unilaterally declare due of the released loan herein and ask the Borrower to repay all its proceeds and interests.

10
Breach of Contract
 
 
10.1
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, or to use the proceeds of the Loan as set forth in this Contract, Lender has the right to use the overdue penalty interest rate and appropriate penalty interest rate to calculate the interest.
 
 
10.2
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, Borrower shall be liable for the Lender’s expenses in exercising its creditor’s rights, including litigation cost (arbitration fee), costs of preservation of asset, costs of publication, enforcement costs, legal fees, travel and other expenses.

10.3
In the event that Borrower avoids Lender’s supervision, fails to repay the principal or the interest of the Loan or avoids the repayment intentionally, Lender has the right to inform relevant government authority and to publish the payment notification on news media.
 
 
11
Withdrawal Instructions
 
 
11.1
In the event that Borrower is overdue in payment in respect of principal, interest, penalty interest, compound interest or other expenses, Lender is authorized to withdraw the money from any other bank accounts of Borrower with Bank of Communications tooffset the said outstanding payment.
 
 
 

 

11.2
After the aforesaid withdrawal, Lender shall inform the Borrower of such account number, loan contract reference number, promissory note reference number, amount of withdrawal, and the outstanding Loan amount.
 
 
11.3
If the amount of withdrawal is not sufficient to offset the aforesaid payment, the overdue expenses shall be settled first. If the principal and interest are overdue for less than ninety (90) days, the remaining balance shall be first used to settle the overdue interest, penalty interest and compound interest, then shall be used to settle the overdue principal. In the event that the overdue payment or interest is overdue for more than ninety (90) days, the remaining balance shall be used to settle the overdue principal, and then shall be used to settle the overdue interest, penalty interest or compound interest.
 
 
11.4
If the currency of the aforesaid withdrawal amount is different from the currency of the Loan, the exchange rate determined by Bank of Communications on the date of withdrawal shall be used for the currency conversion calculation.
 
12 
Notification

12.1
The contact information (including mail address, phone number and fax number) herein provided by Borrower is true. In case of any changes to the information, Borrower shall notify Lender by delivering the written updated information in ordinary post, courier or in person. The updated information shall be in effect upon actual receipt and update in records by Lender.

12.2
Unless expressly specified otherwise herein, the Lender has the right to use any of the following means for sending notification to the Borrower. The Lender has the right to choose the notification method it deems appropriate and shall not be responsible under any circumstance for any error, miss or delay of the postal mail, fax, telephone or any other communication system. If the Lender chooses several notification methods, the notification will be considered served on the basis of the faster method.  The methods include:
(1)  Public announcement: the notification will be considered served on the day when the Lender publish such announcement on its website, online banking site, telephone banking system or business website;
(2) Courier delivery: the notification will be considered served on the day when the Borrower signs the delivery receipt;
(3)  Postal mail (including special express mail, ordinary mail and registered mail): the notification will be considered served 3 days (if, in the same city)/5 days (if, in different regions) such mail is sent to the Borrower’s most recent mailing address that the Lender knows (even though such mail may be returned); and
(4)  Notification by fax or by other electronic method will be considered served when it is sent to the most recent fax number or email address that the Lender knows.
 
 
 

 
 
13 
Information Disclosure and Non-Disclosure

13.1
The Lender must have the responsibility to keep confidential the Borrower’s commercial secrets and other information and documents which carry written legends requiring confidentiality; however the following circumstances are excepted:
(1)  Disclosure as required by the applicable law and statutes or by the public offering rules;
(2)  Disclosure as required by judicial or government authorities;
(3)  Disclosure made to the Lender’s outside business experts; and
(4) Disclosure made with the Borrower’s consent or authorization.

13.2
Borrower agrees that Lender can use or disclosure all the information and materials of Borrower with respect to the loan in case of the following event and it shall be liable for any arising from that:
(1)  Disclose to and allow the use of such information and documents by business out-source organization, third party service provider, other financial institution and other agencies or individuals deemed necessary by the Lender for the following purposes: (a) to develop lending business or in connection with lending business, such as promoting Bankof Communications’s lending service, collecting the Borrower’s delinquent debt and transferring creditor’s claims; (b) to provide, or is likely to provide, new products or services or further services to the Borrower; and (c) to maintain, manage and improve customer relations;
(2) Provide such information and documents to Credit Reference Center of the People’s bank ofChinaor other credit information agency or credit information data bank established with the approval of the People’s Bank of China; and
(3)  Use, or allow the use by a third party, such information and documents on a confidential basis for the purposes of business operation, management, statistics and risk control.

14
Applicable Law and Dispute Resolution
 
     The Contract shall be governed and construed by laws of the People’s Republic of China.

Any dispute arising from or in connection with this Contract shall be resolved by filing a lawsuit to the competent court in the place where Lender is locate. During arbitration, both parties are still bound by other terms and conditions herein where there are no disputes.
 
15 
Miscellaneous

15.1
Borrower consents that Lender can search for and keep its credit related information for the purposes of loan applicationand post-loan-release management.

15.2
Lender shall not be liable for failing to release the loan or make payment caused by force majeure, communication or internet connection failure or systematictrouble but it shall notify Borrower promptly.

 
 

 

15.3
With drawal application template and signed withdraw application,loan certificate and other instruments, materials confirmed by both parties under this Contract shall constitute the entire agreement between Lender and Borrower of the Contract.

15.4
The terms “related-party”, “related-party transaction” and “primary individual investor” herein are in compliance with those defined in Related-Party Disclosures of Chapter 36 in The Accounting Standards for Business Enterprises (CK No. [2006] 3) and its amendmentspromulgated by Ministry of Finance of PRC.

15.5
This Contract comes into effect upon both Parties’ signing and stamping on this contract.
 
15.6
This Contract is executed in four (4) counterparts. Each of the Parties and their Guarantors (if any) shall keep one counterpart.
 
IN WITNESS WHEREOF , the parties hereto have executed this Contract as of the day and year first set forth below.
 
May 25, 2011
May 25, 2011
 
Borrower (seal):
Lender (seal):
 
Fuwei Films (Shandong) Co., Ltd.
Bank of Communications
 
Legal Representative or Authorized Person
Responsible Person or Authorized Person

Xiaoan He
Ankui Liu
 
(signature or seal)
(signature or seal)

 
 

 


Exhibit 4.4

Loan No.: 3770502011M100000600

Loan Contract
(Unofficial English Translation Solely for Convenience)

Bank of Communications

 
 

 

Loan No.: 3770502010M100000600

Loan Contract

Borrower:
Fuwei Films (Shandong) Co., Ltd.
   
Legal Representative:
Xiaoan He
   
Legal Address:
Hi-Tech Development Zone, No. 387 Dong Ming Road, Weifang
   
Correspondence Address:
Same as above
   
Lender:
Weifang Branch, Bank of Communications
   
Responsible Person:
Ankui Liu
   
Correspondence Address:
No. 358 Dong Feng, Dong Street, Weifang
 
Both parties agree on the following terms :
 
1
Loan
 
1.1
Currency: Renminbi (RMB)
 
1.2
Amount: 30,000,000
 
1.3
The proceeds of the Loan under this Contract shall be used for procurement of raw materials .
 
1.4
Loan Period: Commencing from the date of first loan drawing and expiring on April17 , 2012 with a term of no more than twelve (12) months.

2
Interest Rate and Computation of Interest
 
2.1
1 Interest rate: The annual interest rate is up 20% based on the benchmark interest rate of the Central Bank of China ( þ annually o monthly).

2 In case that the Central Bank of China adjusts the benchmark interest rate during the Contract term, the date of interest rate adjustment herein is set according to option I . Lender has the right to enforce the adjusted interest rate after the date of interest rate adjustment herein with the increase percentage unchanged.

Option I: date when the Central Bank of China adjusts its benchmark interest rate;
Option II:After date of allocation of the loan,date after _____ month(s)/quarter/six months/year is the date of interest rate adjustment herein.

3 The two parties shall negotiate for an appropriate interest rate in case that the adjusted benchmark interest rate by the Central Bank of China is floating interest rate or it cancels the benchmark interest rate; in case that the two parties fail to reach on the interest rate terms for the Contract one (1) month after the Central Bank of China adjusts the benchmark interest rate, Lender has the right to announce that all the loans hereunder expire earlier than stipulated herein .

 
 

 
 
2.2
Daily interest rate is monthly interest rate divided by thirty (30) days while the monthly interest rate is equal to annual interest rate divided by twelve (12) months.

2.3
Computation of Interest
 
2.3.1
Normal interest = interest rate under this Contract X proceeds of the Loan X number of days of use.  Number of days of use is calculated from the drawing date to the maturity date.
 
2.3.2
The penalty interest of the overdue loan and appropriated loan is calculated based on the amount and the actual number of days overdue or appropriated. If the currency of the loan is Renminbi (RMB), the overdue penalty interest rate is equal to the loan interest rate set forth in this Contract plus 50% of such loan’s interest rate, and the appropriated penalty interest rate is equal to the loan interest rate set forth in this Contract plus 100% of such loan interest rate. If the currency of the loan is a foreign currency, the aforesaid penalty interest rates are equal to the loan interest rate set forth in this Contract plus (not applicable) of such loan interest rate.
 
2.4
The loan under this Contract uses the second (2 nd ) method mentioned below for payment of interest. On the maturity date, the interest shall be paid together with the principal. The date of payment of interest is the date of the settlement of interest:
 
 
1.
Interest settlement on the 20 th day of the last month of each quarter; or
 
2.
Interest settlement on the 20 th day of each month.

 2.5  In the event of earlier repayment by the Borrower or loan recalling pre-maturely by Lender, the applicable interestrate is still valid.

3
Granting and Payment of Loan
 
3.1
Borrower is allowed to make multiplewithdrawals of proceeds of the loanwith total amount withdrawnnot to exceed the amount stipulated in Clause 1. And Borrower shall draw the proceeds of the Loan in accordance with the following loan drawing schedule:

Drawing Date                                                              Drawing Amount
_ 25th _ days __ 5th _ month __ 2011 Year; _ thirty million (amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )
___ day ___ month ___ Year; _______________(amount in capitalization )

3.2
Unless all of the following conditions are satisfied, Lender has the right to refuse to grant the Loan:
 
 
1)
Borrower has already completed the statutory procedures including obtaining related permit, approval and registration from the government together with other statutory procedures and such permit, approval and registration remain in full force and effect.

 
2)
The guarantee contract (if any) under this Contract has come into effect and remains in full force and effect. In case that the guarantee contract is a mortgage or pledge contract, the security interest is established and remains in effect.

 
3)
The business and financial condition of the Borrower does not have any substantial adverse changes; and
 
 
 

 

 
 
4)
Borrower is not in breach of this Contract;
 
 
5)
The repayment method is compliant with the terms and conditions in the Contract and the lender consents to pay as authorized by borrower;

 
6) 
For loan withdrawal in foreign currency, Borrower has opened an account according to the requirements of foreign exchange administration and provided support documents for the loanwhich reflectcompliance with foreign exchange administration including but not limited to certificationfor purposes of the loan in foreign currency, registration or verification instruments;

 
7) 
Borrower has designated a capital return account as requested by the Lender and executed account management agreement .

3.3
The Borrower designates the following account as loan deposit account; the said account is not an account set up by the Borrower with the Lender specifically for loan deposit.
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086900000002273
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
If an account is set up specifically for loan deposit, the release and the payment of the loan must be done through that account.  Such account can only be used for the release and external payment of the proceeds of the loan; it can only issue "Settlement Service Application" certificate but cannot be used for check, bank draft, and bank draft acceptance services or for other settlement.  When the Borrower processes, in its sole discretion, loan proceeds transfer, such transfer must be done over the counter of the bank that holds the account.  The interest on the deposit in such account is included in the Borrower's repayment account.

3.4
Before each withdrawal, the Borrower process the relevant withdrawal procedures at least three (3) bank business days in advance and specify the payment method (entrusting the Lender with the payment or the Borrower itself making the payment); only one of the payment methods can be used for each withdrawal.

3.5
Entrusting the Lender with making the payment means that the Lender, pursuant to the payment entrustment engagement letter from the Borrower and after the release of the loan pursuant to the provisions herein, makes the payment from the loan proceeds through the Borrower's account directly to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

Upon satisfying one of the following conditions, the method of entrusting the Lender with the payment can be adopted:
(1)           The amount of single payment exceeds RMB200,000 (this amount is the limit that the Borrower can pay if the payment is made by the Borrower)

 
 

 
________________________________________________________________
________________________________________________________________

If the method of entrusting the Lender with the payment is adopted, the Borrower must submit to the Lender withdrawal application, payment engagement letter in the format specified by the Lender, loan certificate, relevant payment certificate and other documents requested by the Lender (including but not limited to commercial contract, invoices and goods acceptance documents and other trading documents), specify the amount to be withdrawn and the recipient and amount of the payment; the amount to be withdrawn must be equal to the amount of the payment.

If the payment proposed by the Borrower does not comply with the provisions herein or those in the relevant commercial contracts or has other defects, the Lender has the right to refuse the payment and return the payment engagement letter submitted by the Borrower.

When the Lender agrees to make such payment,  if the external payment cannot be made or the payment made is returned due to the error in the information provided by the Borrower, the Borrower must re-submit relevant certificate and documents with the correct information within the time specified by the Lender.  The Lender will not be responsible for any loss from unsuccessful payment.

3.6
The Borrower making the payment at its sole discretion means that, after the Lender releases the loan proceeds into the Borrower's account pursuant to the provisions herein, the Borrower makes the payment from the loan proceeds to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

If the method of the Borrower making the payment is adopted, the Borrower must submit to the Lender withdrawal application, loan certificate, explanation of the use of the proceeds and other documents requested by the Lender.  The Borrower shall report to Lender payment of the proceeds within ___ days after withdrawal. The Lender has right to analyze through the Borrower's account, verify the certificate and conduct on-site investigation to verify if the payment of the loan proceeds complies with the specified purpose of use, and the Borrower must assist with the Lender's verification.

3.7
The actual loan release date and the amount released must be based on the records in the "Loan Certificate."

4
Repayment of Loan

4.1
The Borrower must repay the loan at the maturity date specified in 1.4 herein and according to the following schedule; if the maturity date in the "Loan Certificate" is inconsistent with that specified herein, the record in the "Loan Certificate" shall prevail:

 
 

 

  Date of Repayment
 
Amount Withdrawn
17th day of  April ,  2012;
 
Thirty Million (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
  
_______________ (amount in  Capital Letters  )

4.2 
Borrower shall not repay the Loan prior to the scheduled date without having a written consent from Lender.

4.3 
Borrower assigns the following accounts:
(1) Repayment Account:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
(2) Account for Capital Return:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

5
Representation and Guarantee of the Borrower
 
5.1
Borrower is an independent entity and has the necessary contractual capacity to perform this Contract and will be liable for its non-performance of its obligations hereunder.
 
5.2
The execution and performance of this Contract is the true intention of the Borrower, and the Borrower has all necessary consents, approvals and authorizations to perform its obligations.
 
5.3
Borrower operates legally, is able to make profits continually and has legal sourceof fund for repayment with no material bad credit history. The officers of Borrower have no criminal records.

5.4
All the documents, reports, data and information provided by the Borrower to the Lender during the execution and performance of this Contract are true, accurate, complete and in full effect, and Borrower has not withheld any information which may affect the evaluation of its financial status and repayment ability.Since the date of the most recent financial statements published, there has been no material adverse effect on the financial position of Borrower.

5.5
Borrower is neither the shareholder of Guarantor nor the “actual controller” as defined in Company Lawof the People’s Republic of China of Guarantor, and it does not intend to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

5.6 
Borrowerpromises that 1) notify Lender once it is informed that thereal estate pledged as security for the repayment of the loan mortgaged house will be demolished; and 2) in the event that the real estate is demolished with the property right of Borrower transferred, Borrower shall repay the loan pre-maturely, or promptly provide other guarantee approved by the Lender as requested.

 
 

 

6
Rights and Obligations of Lender
 
6.1
Lender has the right to be repaid the principal, receive interest (including compound, overdue and appropriated penalty interest) and the necessary expenses from the Borrower in accordance with this Contract. Lender has the right to exercise any other rights under the relevant laws and regulations or stipulated in this Contract.
 
6.2
Lender shall only conduct routine review for documents provided by Borrower and it shall not be liable for any failure of entrusted payment by Borrower caused by incomplete, fault documents.

Except as otherwise specified under this contract, Lender shall keep all the financial and operation data and information confidential unless compelled by requirements of applicable laws and regulations.

6.3
Lender shall not be liable for any failure in loan release or payment caused by freezing of the Borrower’s loan release account or Borrower's trading partner’s account or any reasons otherwise.

7
Rights and Obligations of Borrower
 
7.1
Borrower shall repay the Loan under this Contract and pay the interest hereunder in accordance with the date, amount, currency set forth in this Contract.
 
7.2
Borrower shall not use the proceeds of the Loan for any usage not stipulated in this Contract.
 
7.3
Borrower shall be liable for the expenses under this Contract, including but not limited to, expenses for notary service, authentication, evaluation and registration.
 
7.4
Borrower shall comply with the operation procedure and the general practice of the Lender and loan application, including but not limited to, facilitating Lender’s examination and supervision on Borrower’s operation status, and providing all the financial statements, or any other data and information requested by Lender, and shall guarantee that such documents, data and information are true, complete and accurate.
 
7.5
If any one of the following events occurs, Borrower shall notify the Lender within thirty (30) days and shall not commence such activities unless the Loan and interest under this Contract are repaid completely, or a repayment schedule and guarantee are approved and accepted by the Lender. These are as follows:

 
(1)
Selling, donating, renting, lending, assigning, mortgaging, pledging or disposing of all or substantial part of its assets; and

 
(2)
any potential or actual substantial changes in organization or structure of the Borrower, including but not limited to, its operation, subcontracting, lease, affiliation, company restructuring, joint-stock, merger (consolidation), equity joint-venture (non-equity), spin-off, incorporation of subsidiary, asset assignment, reduction of registered capital, etc.
 
7.6
Borrower shall notify the Lender within seven (7) days of occurrence of any of the following events:
 
 
(1)
Amendment of the Articles of Association, change of Borrower’s name, change of legal representative, change of domicile, change of address, and change in the scope of its business.
 
 
 
 

 

 
(2)
Borrower, its related party or Guarantor’s intention to file for bankruptcy.

 
(3)
Borrower’s involvement in any major litigation or arbitration, or any lien or encumbrance is imposed on its assets.

 
(4)
Borrower’s or its related party’s guarantee to any other third party, which will have a material adverse effect on its financial status and ability to perform its obligations under this Contract.

 
(5)
Borrower or its relatedenters into a contract which will have a material adverse effect on its operation and financial status.

 
(6)
Borrower, its related party or Guarantor (if any) stops its operation, its business terminates, winds up, or its business license is revoked.

 
(7)
Borrower’s or its related party, major individual investor of Borrower or its related party, Borrower’s or its related party’s legal representativeor senior management has committed a criminal offence, is missing, or has been changed.

 
(8)
Borrower faces substantial hardship in managing its business or any other event which will have an adverse effect on the financial status or ability of the Borrower to repay the Loan.

 
(9) 
Related-party transaction occurs with the total amount at or more than 10% of the most recent audited net assets.

 
(10) 
Borrower will become or is very likely to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor.

 
(11) 
Borrower or its related party is covered by media or causes accidents due to any and all violation of laws and regulations, state policies or industrial standards.

 
(12) 
The controlling relationship between its related party and Borrower has material change.

 
(13) 
There has been material adverse effect on the repayment ability of Borrower or its related party.

7.7
Upon the occurrence of any change to the guarantee hereunder that is adverse to the Lender’s claims, the Borrower must promptly provide other guarantee approved by the Lender as requested.

The “change” herein includes but not limited to :the guarantor’s merger, spin-off, ceasing operation, going out of business, dissolution, shut-down for rectification, being cancelled, having its business license revoked, filing for or being forced into bankruptcy; material change in the guarantor’s operation or financial situation; the guarantor’s involvement in major litigation or arbitration or administrative sanctions, or imposition of a lien or other enforcement measures on its major assets; the decrease, or likely decrease, of the value of its collateral or the imposition of a lien or other enforcement measures thereupon; impact, or likely impact, on the sound condition of its collaterals; the guarantor or its legal representative (responsible person) or major management officer’s violation of the law and statutes or the rules of the applicable exchanges; if the guarantor is an individual, the guarantor’s disappearance or death (being declared dead); the guarantor’s act of breach as defined in the guarantee contract; disputes between the guarantor and the Borrower; demand by the guarantor to dissolve the guarantee contract; the guarantee contract not coming into effect or becoming invalid or being cancelled; security interest not being established or invalid; or other events that will affect the security of the Lender’s claims.

 
 

 

 8
Other Terms

This Contract is pledged by the two Collateral Contract of Maximum Amount entered into between Weifang Branch of Bank of Communications and Fuwei Films (Shandong) Co., Ltd with the Contract No. of 3770502011AF00000500 and 3770502011AF00000300.

9
Maturity Repayment of the Loan before the Maturity Date
 
9.1
The occurrence of any of the following will be considered an “advance maturity event” for this Contract:
 
 
(1)
Borrower’s representations and warranties in Section 5 are not true;

 
(2)
Borrower is in breach of this Contract;

 
(3)
The events set forth in Section 7.6 have occurred and Lender believes that such event will have a material adverse effect on its rights as a creditor;

 
(4) 
Lender decides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situation;

 
 (5) 
Lender may violate or will violate laws by releasing the loan due to changes tocurrent regulatory laws and regulations; or
 
 
(6) 
Borrower violates any provisions herein the Contract with Lender or stipulated in any other contracts entered into with any other third party, or its debt may or has been declared due ahead of maturity date.

9.2 
In the event of any of the aforesaid events, Lender has the right to take one, more or all of the following actions:

 
(1)
Suspend the release of the remainder of the loan;
 
(2)
Suspend the payment for the withdrawn but yet not allocated loan;
 
(3)
request the Borrower to enter into supplementary agreement with respect to loan release terms and payment terms;
 
(4)
request the Borrower to change its payment method in accordance with Lender’s requirements; and
 
(5)
unilaterally declare due of the released loan herein and ask the Borrower to repay all its proceeds and interests.

 
 

 

 
10
  Breach of Contract
 
10.1
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, or to use the proceeds of the Loan as set forth in this Contract, Lender has the right to use the overdue penalty interest rate and appropriate penalty interest rate to calculate the interest.
 
10.2
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, Borrower shall be liable for the Lender’s expenses in exercising its creditor’s rights, including litigation cost (arbitration fee), costs of preservation of asset, costs of publication, enforcement costs, legal fees, travel and other expenses.

10.3
In the event that Borrower avoids Lender’s supervision, fails to repay the principal or the interest of the Loan or avoids the repayment intentionally, Lender has the right to inform relevant government authority and to publish the payment notification on news media.
 
11
  Withdrawal Instructions
 
11.1
In the event that Borrower is overdue in payment in respect of principal, interest, penalty interest, compound interest or other expenses, Lender is authorized to withdraw the money from any other bank accounts of Borrower with Bank of Communications to offset the said outstanding payment.
 
11.2
After the aforesaid withdrawal, Lender shall inform the Borrower of such account number, loan contract reference number, promissory note reference number, amount of withdrawal, and the outstanding Loan amount.
 
11.3
If the amount of withdrawal is not sufficient to offset the aforesaid payment, the overdue expenses shall be settled first. If the principal and interest are overdue for less than ninety (90) days, the remaining balance shall be first used to settle the overdue interest, penalty interest and compound interest, then shall be used to settle the overdue principal. In the event that the overdue payment or interest is overdue for more than ninety (90) days, the remaining balance shall be used to settle the overdue principal, and then shall be used to settle the overdue interest, penalty interest or compound interest.
 
11.4
If the currency of the aforesaid withdrawal amount is different from the currency of the Loan, the exchange rate determined by Bank of Communications on the date of withdrawal shall be used for the currency conversion calculation.
 
12 
Notification

12.1
The contact information (including mail address, phone number and fax number) herein provided by Borrower is true. In case of any changes to the information, Borrower shall notify Lender by delivering the written updated information in ordinary post, courier or in person. The updated information shall be in effect upon actual receipt and update in records by Lender.

12.2
Unless expressly specified otherwise herein, the Lender has the right to use any of the following means for sending notification to the Borrower. The Lender has the right to choose the notification method it deems appropriate and shall not be responsible under any circumstance for any error, miss or delay of the postal mail, fax, telephone or any other communication system. If the Lender chooses several notification methods, the notification will be considered served on the basis of the faster method.  The methods include:
 
 
(1) 
Public announcement: the notification will be considered served on the day when the Lender publish such announcement on its website, online banking site, telephone banking system or business website;

 
 

 

 
(2)
Courier delivery: the notification will be considered served on the day when the Borrower signs the delivery receipt;
 
(3) 
Postal mail (including special express mail, ordinary mail and registered mail): the notification will be considered served 3 days (if, in the same city)/5 days (if, in different regions) such mail is sent to the Borrower’s most recent mailing address that the Lender knows (even though such mail may be returned); and
 
(4) 
Notification by fax or by other electronic method will be considered served when it is sent to the most recent fax number or email address that the Lender knows.

13 
Information Disclosure and Non-Disclosure

13.1 
The Lender must have the responsibility to keep confidential the Borrower’s commercial secrets and other information and documents which carry written legends requiring confidentiality; however the following circumstances are excepted:
 
 
(1) 
Disclosure as required by the applicable law and statutes or by the public offering rules;
 
(2) 
Disclosure as required by judicial or government authorities;
 
(3) 
Disclosure made to the Lender’s outside business experts; and
 
(4)
Disclosure made with the Borrower’s consent or authorization.

13.2
Borrower agrees that Lender can use or disclosure all the information and materials of Borrower with respect to the loan in case of the following event and it shall be liable for any arising from that:
(1)  Disclose to and allow the use of such information and documents by business out-source organization, third party service provider, other financial institution and other agencies or individuals deemed necessary by the Lender for the following purposes: (a) to develop lending business or in connection with lending business, such as promoting Bankof Communications’s lending service, collecting the Borrower’s delinquent debt and transferring creditor’s claims; (b) to provide, or is likely to provide, new products or services or further services to the Borrower; and (c) to maintain, manage and improve customer relations;
(2) Provide such information and documents to Credit Reference Center of the People’s bank ofChinaor other credit information agency or credit information data bank established with the approval of the People’s Bank of China; and
(3)  Use, or allow the use by a third party, such information and documents on a confidential basis for the purposes of business operation, management, statistics and risk control.

14
Applicable Law and Dispute Resolution
 
 The Contract shall be governed and construed by laws of the People’s Republic of China.

Any dispute arising from or in connection with this Contract shall be resolved by filing a lawsuit to the competent court in the place where Lender is locate. During arbitration, both parties are still bound by other terms and conditions herein where there are no disputes.

 
 

 

15 
Miscellaneous

15.1 
Borrower consents that Lender can search for and keep its credit related information for the purposes of loan applicationand post-loan-release management.

15.2 
Lender shall not be liable for failing to release the loan or make payment caused by force majeure, communication or internet connection failure or systematictrouble but it shall notify Borrower promptly.

15.3
With drawal application template and signed withdraw application,loan certificate and other instruments, materials confirmed by both parties under this Contract shall constitute the entire agreement between Lender and Borrower of the Contract.
 
15.4
The terms “related-party”, “related-party transaction” and “primary individual investor” herein are in compliance with those defined in Related-Party Disclosures of Chapter 36 in The Accounting Standards for Business Enterprises (CK No. [2006] 3) and its amendmentspromulgated by Ministry of Finance of PRC.

15.5
This Contract comes into effect upon both Parties’ signing and stamping on this contract.
 
15.6
  This Contract is executed in four (4) counterparts. Each of the Parties and their Guarantors (if any) shall keep one counterpart.
 
IN WITNESS WHEREOF , the parties hereto have executed this Contract as of the day and year first set forth below.
 
May 30, 2011
May 30, 2011
   
Borrower (seal):
Lender (seal):
   
Fuwei Films (Shandong) Co., Ltd.
Bank of Communications
   
Legal Representative or Authorized Person
Responsible Person or Authorized Person
   
Xiaoan He
Ankui Liu
   
(signature or seal)
(signature or seal)

 
 

 


Exhibit 4.5

Contract No.: 3770502011ML00000


Import Outward
Remittance Financing
Contract
(Unofficial English Translation Solely for Convenience)
 
 
 
 
 

 
Bank of Communications

 
 

 

Contract No.: 3770502011ML00000

Import Outward Remittance Financing Contract

Party A:
Fuwei Films (Shandong) Co., Ltd.
   
Legal Representative:
Xiaoan He
   
Legal Address:
Hi-Tech Development Zone, No. 387 Dong Ming Road, Weifang
   
Correspondence Address:
Same as above
   
Party B:
Weifang Branch, Bank of Communications
   
Responsible Person:
Ankui Liu
   
Correspondence Address:
No. 358 Dong Feng, Dong Street, Weifang
 
Both parties agree on the following terms :
 
1
Financing Content

1.1
Currency: Euro (€)

1.2
Amount: two million six thousand two hundred and fifty euros

1.3
The fund financed under this Contract shall be solely used for payment of import outward remittance stipulated in Article 1.5 .

1.4
Method to release fund financed herein:
Party B releases fund to Party A’s account; or
Party B remits the fund to an account assigned by Party A.

1.5 
The information such as released amount, date and maturity date are shown as follows:

Import Outward Remittance Information
   
Fund Financed
Name and
Number of
Import
Contract
Invoice
Number
Invoice
Currency
 
Invoice
Amount  (in 
ten
thousand)
   
Amount (in
ten
thousand)
 
Release
Date
Maturity
Date
   
EUR
    200.625       200.625  
April 26, 2011
April 25, 2012

2
Interest Rate and Computation of Interest

2.1 
Interest rate: 4.2725% per annum. Daily interest rate is monthly interest rate divided by thirty (30) days while the monthly interest rate is equal to annual interest rate divided by twelve (12) months.
 
 
 

 
 
2.2
Computation of Interest

2.2.1
Normal interest = interest rate under this Contract X proceeds of the fund X number of days of use.  Number of days of use is calculated from the drawing date to the maturity date.

2.2.2
The overdue penalty interest rate is equal to the loan interest rate set forth in Article 2.1 under this Contract plus 20% of such loan’s interest rate, and actual penalty is calculated according to the actual days due (from date due to date the fund is paid off).
 
2.3 
Inthe event of earlier repayment by the Borrower or loan recalling pre-maturely by Lender, the applicable interestrate is still valid.

3
Granting, Payment and Repayment of Fund Financed

3.1
Unless all of the following conditions are satisfied, Lender has the right to refuse to grant the fund financed:

 
1)
Party A has already completed the statutory procedures including obtaining related permit, approval and registration from the government together with other statutory procedures and such permit, approval and registration remain in full force and effect.

 
2)
The guarantee contract (if any) under this Contract has come into effect and remains in full force and effect. In case that the guarantee contract is a mortgage or pledge contract, the security interest is established and remains in effect.

 
3)
The business and financial condition of the Borrower does not have any substantial adverse changes; and

 
4)
Borrower is not in breach of this Contract;

 
5)
The repayment method is compliant with the terms and conditions in the Contract and the lender consents to pay as authorized by borrower;

 
6)
For loan withdrawal in foreign currency, Borrower has opened an account according to the requirements of foreign exchange administration and provided support documents for the loanwhich reflectcompliance with foreign exchange administration including but not limited to certificationfor purposes of the loan in foreign currency, registration or verification instruments;

 
7)
Borrower has designated a capital return account as requested by the Lender and executed account management agreement .

3.3
The Borrower designates the following account as loan deposit account; the said account is not an account set up by the Borrower with the Lender specifically for loan deposit.
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086900000002273
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch
 
If an account is set up specifically for loan deposit, the release and the payment of the loan must be done through that account.  Such account can only be used for the release and external payment of the proceeds of the loan; it can only issue "Settlement Service Application" certificate but cannot be used for check, bank draft, and bank draft acceptance services or for other settlement.  When the Borrower processes, in its sole discretion, loan proceeds transfer, such transfer must be done over the counter of the bank that holds the account.  The interest on the deposit in such account is included in the Borrower's repayment account.
 
 
 

 
 
3.4
Before each withdrawal, the Borrower process the relevant withdrawal procedures at least three (3) bank business days in advance and specify the payment method (entrusting the Lender with the payment or the Borrower itself making the payment); only one of the payment methods can be used for each withdrawal.

3.5
Entrusting the Lender with making the payment means that the Lender, pursuant to the payment entrustment engagement letter from the Borrower and after the release of the loan pursuant to the provisions herein, makes the payment from the loan proceeds through the Borrower's account directly to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

Upon satisfying one of the following conditions, the method of entrusting the Lender with the payment can be adopted:
(1)       The amount of single payment exceeds RMB200,000 (this amount is the limit that the Borrower can pay if the payment is made by the Borrower)

________________________________________________________________
________________________________________________________________

If the method of entrusting the Lender with the payment is adopted, the Borrower must submit to the Lender withdrawal application, payment engagement letter in the format specified by the Lender, loan certificate, relevant payment certificate and other documents requested by the Lender (including but not limited to commercial contract, invoices and goods acceptance documents and other trading documents), specify the amount to be withdrawn and the recipient and amount of the payment; the amount to be withdrawn must be equal to the amount of the payment.

If the payment proposed by the Borrower does not comply with the provisions herein or those in the relevant commercial contracts or has other defects, the Lender has the right to refuse the payment and return the payment engagement letter submitted by the Borrower.

When the Lender agrees to make such payment,  if the external payment cannot be made or the payment made is returned due to the error in the information provided by the Borrower, the Borrower must re-submit relevant certificate and documents with the correct information within the time specified by the Lender.  The Lender will not be responsible for any loss from unsuccessful payment.
 
 
 

 
3.6
The Borrower making the payment at its sole discretion means that, after the Lender releases the loan proceeds into the Borrower's account pursuant to the provisions herein, the Borrower makes the payment from the loan proceeds to the Borrower's trading partner that meets the requirement of the loan purpose stipulated herein.

If the method of the Borrower making the payment is adopted, the Borrower must submit to the Lender withdrawal application, loan certificate, explanation of the use of the proceeds and other documents requested by the Lender.  The Borrower shall report to Lender payment of the proceeds within ___ days after withdrawal. The Lender has right to analyze through the Borrower's account, verify the certificate and conduct on-site investigation to verify if the payment of the loan proceeds complies with the specified purpose of use, and the Borrower must assist with the Lender's verification.

3.7
The actual loan release date and the amount released must be based on the records in the "Loan Certificate."

4
Repayment of Loan

4.1
The Borrower must repay the loan at the maturity date specified in 1.4 herein and according to the following schedule; if the maturity date in the "Loan Certificate" is inconsistent with that specified herein, the record in the "Loan Certificate" shall prevail:
 
  Date of Repayment
 
Amount Withdrawn
17th day of  April ,  2012;
 
Thirty Million (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
 
_______________ (amount in  Capital Letters  )
___ day ___ month ___ Year;
  
_______________ (amount in  Capital Letters  )

3.4 
Party A shall repay the proceeds and interest of the fund financed once the goods imported are sold.

Party A assigns the following accounts:
(1) Repayment Account:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

 
(2) Account for Capital Return:
Account Title: Fuwei Films (Shandong) Co., Ltd.
AccountNumber: 377005086018000163911
Beneficiary Bank: High-Tech Development Region Sub-Branch, Bank of Communications Weifang Branch

3.5
Party A shall not repay the Loan prior to the scheduled date without having a written consent from Party B.
 
 
 

 
 
4
Representation and Guarantee of Party A

4.1
Party A is an independent entity and has the necessary contractual capacity to perform this Contract and will be liable for its non-performance of its obligations hereunder.

4.2
The execution and performance of this Contract is the true intention of Party A, and the Borrower has all necessary consents, approvals and authorizations to perform its obligations.
 
4.3 
Party A operates legally, is able to make profits continually and has legal sourceof fund for repayment with no material bad credit history. The officers of Party A have no criminal records.

4.4
All the documents, reports, data and information provided by Party A to Party B during the execution and performance of this Contract are true, accurate, complete and in full effect, and Borrower has not withheld any information which may affect the evaluation of its financial status and repayment ability.Since the date of the most recent financial statements published, there has been no material adverse effect on the financial position of Party A.

4.5 
Party A has import permit, the remitted party for import goods is a legal entity for export trade, the imported good are within the scope of business of Party A and are not those that are not allowed to be imported or smuggled in China.

4.6 
Party A agrees to pay the import goods according to the fund financed herein and shall pay as per the terms in Article 3.3.

4.7
Party A is neither the shareholder of Guarantor nor the “actual controller” as defined in Company Lawof the People’s Republic of China of Guarantor, and it does not intend to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor when signingthis Contract.

5
Rights and Obligations of Party B

5.1
Party B has the right to be repaid the principal, interest (including compound, overdue and appropriated penalty interest) and necessary expenses from Party Ain accordance with this Contract. Party Bdecides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situationand has the right to exercise any other rights under the relevant laws and regulations or stipulated in this Contract.

5.2
Party B shall only conduct routine review for documents provided by Borrower and it shall not be liable for any failure of entrusted payment by Borrower caused by incomplete, fault documents.

6
Rights and Obligations of Party A

6.1
Party A shall repay the Loan under this Contract and pay the interest hereunder in accordance with the date, amount, currency set forth in this Contract.

6.2
Party A shall not use the proceeds of the Loan for any usage not stipulated in this Contract.

6.3
Party A shall be liable for the expenses under this Contract, including but not limited to, expenses for notary service, authentication, evaluation and registration.
 
 
 

 
 
6.4
Party A shall comply with the operation procedure and the general practice of Party B for import outward remittance fund application, including but not limited to, facilitating Party B’s examination and supervision on Party A’s operation status, and providing all the financial statements, or any other data and information requested by Party B, and shall guarantee that such documents, data and information are true, complete and accurate.

6.5
If any one of the following events occurs, Party A shall notify Party B within thirty (30) days and shall not commence such activities unless the fund financed and its interest under this Contract are paid off, or a repayment schedule and guarantee are approved and accepted by the Party B. These are as follows:

 
(1)
Selling, donating, renting, lending, assigning, mortgaging, pledging or disposing of all or substantial part of its assets; and

 
(2)
any potential or actual substantial changes in organization or structure of the Borrower, including but not limited to, its operation, subcontracting, lease, affiliation, company restructuring, joint-stock, merger (consolidation), equity joint-venture (non-equity), spin-off, incorporation of subsidiary, asset assignment, reduction of registered capital, etc.

6.6
Party A shall notify the Lender within seven (7) days of occurrence of any of the following events:

 
(1)
Amendment of the Articles of Association, change of Party A’s name, change of legal representative, change of domicile, change of address, and change in the scope of its business.

 
(2)
Party A, its related party or Guarantor’s intention to file for bankruptcy.

 
(3)
Party A’s involvement in any major litigation or arbitration, or any lien or encumbrance is imposed on its assets.

 
(4)
Party A’s or its related party’s guarantee to any other third party, which will have a material adverse effect on its financial status and ability to perform its obligations under this Contract.

 
(5)
Party Aor its relatedparty enters into a contract which will have a material adverse effect on its operation and financial status.

 
(6)
Party A, its related party or Guarantor (if any) stops its operation, its business terminates, winds up, or its business license is revoked.

 
(7)
Party A’s or its related party, major individual investor of Party Aor its related party, Party A’s or its related party’s legal representativeor senior management has committed a criminal offence, is missing, or has been changed.

 
(8)
Party A or its related party faces substantial hardship in managing its business or any other event which will have an adverse effect on the financial status or ability of the Borrower to repay the Loan.

 
(9)
Related-party transaction occurs with the total amount at or more than 10% of the most recent audited net assets.
 
 
 

 
   
 
(10)
Party Awill become or is very likely to become the shareholder of Guarantor or the “actual controller” as defined in Company Law of the People’s Republic of China of Guarantor before paying off the fund financed under this Contract.

 
(11)
Party Aor its related party is covered by media or causes accidents due to any and all violation of laws and regulations, state policies or industrial standards.

 
(12) 
The controlling relationship between its related party and Party A has material change.

 
(13)
There has been material adverse effect on the repayment ability of Party A or its related party.

6.7
Upon the occurrence of any change to the guarantee hereunder that is adverse to the Lender’s claims, the Borrower must promptly provide other guarantee approved by the Lender as requested.

The “change” herein includes but not limited to :the guarantor’s merger, spin-off, ceasing operation, going out of business, dissolution, shut-down for rectification, being cancelled, having its business license revoked, filing for or being forced into bankruptcy; material change in the guarantor’s operation or financial situation; the guarantor’s involvement in major litigation or arbitration or administrative sanctions, or imposition of a lien or other enforcement measures on its major assets; the decrease, or likely decrease, of the value of its collateral or the imposition of a lien or other enforcement measures thereupon; impact, or likely impact, on the sound condition of its collaterals; the guarantor or its legal representative (responsible person) or major management officer’s violation of the law and statutes or the rules of the applicable exchanges; if the guarantor is an individual, the guarantor’s disappearance or death (being declared dead); the guarantor’s act of breach as defined in the guarantee contract; disputes between the guarantor and the Borrower; demand by the guarantor to dissolve the guarantee contract; the guarantee contract not coming into effect or becoming invalid or being cancelled; security interest not being established or invalid; or other events that will affect the security of the Lender’s claims.

Other Terms

Party B shall charge Party A GBP800,000 for charges.

8
Maturity Repayment of the Loan before the Maturity Date

8.1
The occurrence of any of the following will be considered an “advance maturity event” for this Contract:

 
(1)
Borrower’s representations and warranties in Section 4 are not true;

 
(2)
Borrower is in breach of this Contract;

 
(3)
The events set forth in Section 6.6 have occurred and Lender believes that such event will have a material adverse effect on its rights as a creditor;


 
(4)
Lender decides at its discretion that Borrower shall repay the proceeds and interests of the loan based on to its current capital return situation;

 
(5)
Lender may violate or will violate laws by releasing the loan due to changes tocurrent regulatory laws and regulations; or
 
 
 

 
 
 
(6)
Borrower violates any provisions herein the Contract with Lender or stipulated in any other contracts entered into with any other third party, or its debt may or has been declared due ahead of maturity date.

8.2 
In the event of any of the aforesaid events, Lender has the right to take one, more or all of the following actions:

 
(1)
Suspend the release of the remainder of the loan;

 
(2)
Suspend the payment for the withdrawn but yet not allocated loan;

 
(3)
request the Borrower to enter into supplementary agreement with respect to loan release terms and payment terms;

 
(4)
unilaterally declare due of the released loan herein and ask the Borrower to repay all its proceeds and interests.

9
Breach of Contract

9.1
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, or to use the proceeds of the Loan as set forth in this Contract, Lender has the right to use the overdue penalty interest rate and appropriate penalty interest rate to calculate the interest.

9.2
In the event that Borrower fails to repay the principal or interest in full in a timely fashion, Borrower shall be liable for the Lender’s expenses in exercising its creditor’s rights, including litigation cost (arbitration fee), costs of preservation of asset, costs of publication, enforcement costs, legal fees, travel and other expenses.

9.3
In the event that Borrower avoids Lender’s supervision, fails to repay the principal or the interest of the Loan or avoids the repayment intentionally, Lender has the right to inform relevant government authority and to publish the payment notification on news media.

10
Withdrawal Instructions

10.1
In the event that Borrower is overdue in payment in respect of principal, interest, penalty interest, compound interest or other expenses, Lender is authorized to withdraw the money from any other bank accounts of Borrower with Bank of Communications to offset the said outstanding payment.

10.2
After the aforesaid withdrawal, Lender shall inform the Borrower of such account number, loan contract reference number, promissory note reference number, amount of withdrawal, and the outstanding Loan amount.

10.3
If the amount of withdrawal is not sufficient to offset the aforesaid payment, the overdue expenses shall be settled first. If the principal and interest are overdue for less than ninety (90) days, the remaining balance shall be first used to settle the overdue interest, penalty interest and compound interest, then shall be used to settle the overdue principal. In the event that the overdue payment or interest is overdue for more than ninety (90) days, the remaining balance shall be used to settle the overdue principal, and then shall be used to settle the overdue interest, penalty interest or compound interest.

10.4
If the currency of the aforesaid withdrawal amount is different from the currency of the Loan, the exchange rate determined by Bank of Communications on the date of withdrawal shall be used for the currency conversion calculation.
 
 
 

 
 
11 
Notification

11.1
The contact information (including mail address, phone number and fax number) herein provided by Borrower is true. In case of any changes to the information, Borrower shall notify Lender by delivering the written updated information in ordinary post, courier or in person. The updated information shall be in effect upon actual receipt and update in records by Lender.

11.2
Unless expressly specified otherwise herein, the Lender has the right to use any of the following means for sending notification to the Borrower. The Lender has the right to choose the notification method it deems appropriate and shall not be responsible under any circumstance for any error, miss or delay of the postal mail, fax, telephone or any other communication system. If the Lender chooses several notification methods, the notification will be considered served on the basis of the faster method.  The methods include:
(1)  Public announcement: the notification will be considered served on the day when the Lender publish such announcement on its website, online banking site, telephone banking system or business website;
(2)  Courier delivery: the notification will be considered served on the day when the Borrower signs the delivery receipt;
(3)  Postal mail (including special express mail, ordinary mail and registered mail): the notification will be considered served 3 days (if, in the same city)/5 days (if, in different regions) such mail is sent to the Borrower’s most recent mailing address that the Lender knows (even though such mail may be returned); and
(4)  Notification by fax or by other electronic method will be considered served when it is sent to the most recent fax number or email address that the Lender knows.

12 
Information Disclosure and Non-Disclosure

12.1 
The Lender must have the responsibility to keep confidential the Borrower’s commercial secrets and other information and documents which carry written legends requiring confidentiality; however the following circumstances are excepted:
(1)  Disclosure as required by the applicable law and statutes or by the public offering rules;
(2)  Disclosure as required by judicial or government authorities;
(3)  Disclosure made to the Lender’s outside business experts; and
(4)  Disclosure made with the Borrower’s consent or authorization.

12.2
Borrower agrees that Lender can use or disclosure all the information and materials of Borrower with respect to the loan in case of the following event and it shall be liable for any arising from that:
(1)  Disclose to and allow the use of such information and documents by business out-source organization, third party service provider, other financial institution and other agencies or individuals deemed necessary by the Lender for the following purposes: (a) to develop lending business or in connection with lending business, such as promoting Bankof Communications’s lending service, collecting the Borrower’s delinquent debt and transferring creditor’s claims; (b) to provide, or is likely to provide, new products or services or further services to the Borrower; and (c) to maintain, manage and improve customer relations;
 
 
 

 
 
(2)  Provide such information and documents to Credit Reference Center of the People’s bank ofChinaor other credit information agency or credit information data bank established with the approval of the People’s Bank of China; and
(3)  Use, or allow the use by a third party, such information and documents on a confidential basis for the purposes of business operation, management, statistics and risk control.
 
13
Applicable Law and Dispute Resolution
 
    The Contract shall be governed and construed by laws of the People’s Republic of China.

Any dispute arising from or in connection with this Contract shall be resolved by filing a lawsuit to the competent court in the place where Lender is locate. During arbitration, both parties are still bound by other terms and conditions herein where there are no disputes.

14
Miscellaneous

14.1 
Borrower consents that Lender can search for and keep its credit related information for the purposes of loan applicationand post-loan-release management.

14.2 
Lender shall not be liable for failing to release the loan or make payment caused by force majeure, communication or internet connection failure or systematictrouble but it shall notify Borrower promptly.

14.3 
With drawal application template and signed withdraw application,loan certificate and other instruments, materials confirmed by both parties under this Contract shall constitute the entire agreement between Lender and Borrower of the Contract.

14.4 
The terms “related-party”, “related-party transaction” and “primary individual investor” herein are in compliance with those defined in Related-Party Disclosures of Chapter 36 in The Accounting Standards for Business Enterprises (CK No. [2006] 3) and its amendmentspromulgated by Ministry of Finance of PRC.

14.5
This Contract comes into effect upon both Parties’ signing and stamping on this contract.

14.6
This Contract is executed in two (2) counterparts. Each of the Parties and their Guarantors (if any) shall keep one counterpart.
 
IN WITNESS WHEREOF , the parties hereto have executed this Contract as of the day and year first set forth below.
 
April 26, 2011
April 26, 2011
   
Borrower (seal):
Lender (seal):
   
Fuwei Films (Shandong) Co., Ltd.
Bank of Communications
   
Legal Representative or Authorized Person
Responsible Person or Authorized Person
   
Xiaoan He
Ankui Liu
   
(signature or seal)
(signature or seal)

 
 

 
 
Fuwei Films Announces Its Unaudited Financial Results for the Second Quarter of 2011
 
- Teleconference to be Held on August 11, 2011 at 8:00 a.m. EDT
 
BEIJING, August 10, 2011 – Fuwei Films (Holdings) Co., Ltd. (Nasdaq: FFHL) (“Fuwei Films” or the “Company”), a manufacturer and distributor of high-quality BOPET plastic films in China, today announced its unaudited financial results for the second quarter and first six months of 2011.
 
Highlights
 
§  
Net sales for the second quarter were RMB137.3 million (US$21.2 million), compared with RMB 110.3 million in the same period of 2010;

§  
Gross profit for the second quarter was RMB22.5 million (US$3.5 million), compared with RMB 19.7 million in the same period of 2010;

§  
Net sales during the first six months were RMB311.5 million (US$48.2 million), compared with RMB 198.8 million in the same period of 2010;

§  
Net income for the first six months was RMB29.8 million (US$4.6 million), compared with RMB 297,000 in the same six-month period of 2010;

§  
Basic and diluted earnings per share for the first six months was RMB2.28 (US$0.35), compared with RMB 0.02 in the same period of 2010;

§  
Sales of Specialty films for the first six months were RMB79.5 million (US$12.3 million) compared to RMB 24.8 million in the same period of 2010;

§  
Overseas sales during the first six months were RMB107.9 million (US$16.7 million) compared to RMB 36.7 million in the same period of 2010.

 
Mr. Xiaoan He, Chairman and CEO of Fuwei Films, said, “I am particularly pleased to see the percentage growth of our high-end specialty films and overseas sales, which we believe indicates our product portfolio is improving in accordance with the differentiation and overseas market expansion strategy.”
 
 
Second Quarter of 2011 Results
 
Net sales during the second quarter ended June 30, 2011 were RMB137.3 million (US$21.2 million), compared to RMB110.3 million (US$16.3 million), during the same period in 2010, representing a 24.5% increase, mainly due to the increase of the sales price compared to the same period in 2010.

 
1

 
 
The sales of specialty films during the second quarter ended June 30, 2011 were RMB 39.6 million (US$ 6.1 million), reflected 28.9% of total net sales as compared to 14.7% in the same period of 2010. The increase was largely attributable to the increase in demand for films for electronics and high-end packaging.

The following is a breakdown of commodity and specialty film sales for the three-month periods ended June 30, 2011 and 2010 (amounts in thousands):

   
Three-Month Period Ended
 June 30, 2011
   
% of Total
     
Three-Month Period
Ended
June 30, 2010
   
% of Total
 
   
RMB
   
US$
           
RMB
       
Printing film
    16,955       2,623       12.3 %       18,801       17.0 %
Stamping film
    69,235       10,712       50.4 %       64,897       58.8 %
Metallization film
    6,017       931       4.4 %       4,978       4.5 %
Specialty film
    39,637       6,132       28.9 %       16,248       14.7 %
Base film for other application
    5,472       847       4.0 %       5,395       4.9 %
                                           
 
    137,316       21,245       100.0 %       110,319       100.0 %

Overseas sales during the second quarter ended June 30, 2011 were RMB43.1 million (US$6.7 million), which accounted for 31.4% of total net sales, as compared with RMB 25.4 million (US$3.7 million), and 23.0% in the same period in 2010, which is 70.1% higher than the same period last year. The increase in overseas sales was mainly due to the increase of overseas market demand and increase of sales price.

The following is a breakdown of domestic and overseas sales for the three-month periods ended June 30, 2011 and 2010 (amounts in thousands):

 
     
Three-Month Period Ended
 June 30, 2011
             
Three-Month Period Ended
June 30, 2010
         
     
RMB
     
US$
     
% of Total
     
RMB
     
% of Total
 
Sales in China
    94,189       14,573       68.6 %     84,959       77.0 %
Sales in other countries
    43,127       6,672       31.4 %     25,359       23.0 %
 
                                       
      137,316       21,245       100.0 %     110,319       100.0 %

Gross profit was RMB22.5 million (US$3.5 million) for the second quarter ended June 30, 2011, representing a gross margin of 16.4%, as compared to a gross margin of 17.8% from the same period in 2010. This decrease was mainly due to an increase in cost of goods sold during the second quarter ended June 30, 2011 compared with the same period in 2010.

Operating expenses for the second quarter ended June 30, 2011 were RMB12.2 million (US$1.9 million), which was RMB4.9 million (US$0.8 million), or 28.7% lower than the same period in 2010. This decrease was mainly due to reduced class action litigation and related legal fees.

Net income during the second quarter ended June 30, 2011 was RMB6.1 million (US$0.9 million) compared to net loss of RMB3,000 (US$400) during the same period in 2010, representing an increase of RMB 6.1 million (US$0.9 million) from the same period in 2010. The increase was mainly due to the increase of revenue and gross profit, and decrease of operating expense.

Net cash flows used in operating activities for the six months ended June 30, 2011 was RMB9.4 million (US$1.5 million) compared to net cash flows provided by operating activities of RMB17.2 million (US$2.6 million) for the six months ended June 30, 2010, which is a decrease of RMB26.6 million (US$4.1 million). This decrease in cash flows from operating activities was attributable primarily to the increase in other receivables and decrease in advances from customers.

 
2

 
 
Total shareholders’ equity was RMB582.3 million (US$90.1 million) as of June 30, 2011, compared with RMB552.5 million (US$ 83.6 million) as of December 31, 2010.

As of June 30, 2011, the Company had 13,062,500 basic and diluted total ordinary shares outstanding.

In addition, the Company received a second notification, dated May 17, 2011 (the “Second Notification”) from the Weifang State-Owned Assets Operation Administration Company, a wholly-owned subsidiary of Weifang State-Owned Asset Management and Supervision Committee (the “Administration Company”), regarding the transfer of ownership of the Company stock previously controlled by the Company's major shareholders. The Company received the first notification dated May 5, 2011 from the Administrative Company pursuant to which the former major shareholders of the Company, Messrs. Jun Yin, Duo Wang and Tong Ju Zhou, transferred their entire ownership in several intermediate holding companies to the Administration Company, Ms. Qing Liu, and Mr. Zhixin Han. Pursuant to the Second Notification, the Company was informed that Ms. Qing Liu and Mr. Zhixin Han transferred their entire ownership in the intermediate holding company, Easebright Investments Limited, to the Administration Company. As a result of the transfer, and based on the information provided by the Administration Company, the Company believes that 65.45% of its outstanding ordinary shares are controlled indirectly by the Administration Company.

On June 30, 2011, our wholly-owned subsidiary, Fuwei Films (Shandong) Co., Ltd. (“Shandong Fuwei”) signed a letter of intent on PETG heat shrinkable label film supply for the second half of this year with China Bottlers Procurement Consortium (“CBPC”), the authorized procurement service provider for the Coca-Cola Bottling system in China. PETG is an improved BOPET material, which is widely used in the international label industry due to its environmentally friendly nature. Shandong Fuwei developed its propriety PETG heat shrinkable label films through years of independent R&D. This product not only fills the gap in China but also is widely recognized and approved by many internationally renowned suppliers, such as Coca-Cola. The patent application for this product filed by Shandong Fuwei has been accepted. According to the letter of intent, Shandong Fuwei, as the exclusive local supplier of Coca-Cola in China, will supply PETG heat shrinkable label films to designated label suppliers within the Coca-Cola bottling system. Once the letter of intent is fully implemented, it is estimated that the sales of heat shrinkable label films to be supplied to Coca-Cola may account for 8 to10 percent of Shandong Fuwei’s total sales in the second half of 2011.

On July 22, 2012, Shandong Fuwei entered into a supplementary agreement to the contract entered into on March 30, 2011 with Lindauer Dornier GmbH (“Dornier”), a German equipment supplier, pursuant to which, among other things, both parties agreed to change the scheduled delivery to between March 2012 to April 2012, three months earlier than the original agreement.

 
3

 
 
Additionally, in accordance with the recent meeting attended by the engineers from both parties to discuss latest products and technology developments in Lindauer, Germany, this supplementary agreement includes some targeted adjustments regarding technical specifications and equipment configuration. Accordingly, the total price of this production line has been increased by EUR 402,800 to EUR 16.85 million.

Mr. He concluded, “We are grateful to our shareholders for their support and loyalty.  We are focused on providing the highest quality results for our customers, investors and employees and will continue to keep everyone informed of our progress.”
 
Conference Call Information
 
The Company will host a teleconference on Thursday, August 11, 2011, at 8:00 a.m. EDT / 8:00 p.m. Beijing time to discuss the financial results. To participate in the call, please dial +1-877-407-9205 in North America, or +1-201-689-8054 internationally, approximately 10 minutes prior to the scheduled start time.
 
A replay of the call can also be accessed via telephone by calling +1-877-660-6853 in North America, or +1-201-612-7415 internationally, and entering the following access codes: Account#: 286 and Conference ID: 376428. The replay will be available until September 11, 2011, at 11:59 p.m. EDT.
 
About Fuwei Films
 
Fuwei Films conducts its business through its wholly owned subsidiary, Fuwei Films (Shandong) Co., Ltd. (“Shandong Fuwei”). Shandong Fuwei develops, manufactures and distributes high-quality plastic films using the biaxial oriented stretch technique, otherwise known as BOPET (biaxially-oriented polyethylene terephthalate) film. Fuwei Films' BOPET film is widely used to package food, medicine, cosmetics, tobacco, and alcohol, as well as in the imaging, electronics, and magnetic products industries.
 
Safe Harbor
 
This press release contains information that constitutes forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks. Risk factors that could contribute to such differences include those matters more fully disclosed in the Company's reports filed with the U.S. Securities and Exchange Commission which, among other things, include competition in the BOPET film industry; growth of, and risks inherent in, the BOPET film industry in China; 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. The forward-looking information provided herein represents the Company's estimates as of the date of the press release, and subsequent events and developments may cause the Company's estimates to change. The Company specifically disclaims any obligation to update the forward-looking information in the future. Therefore, this forward-looking information should not be relied upon as representing the Company's estimates of its future financial performance as of any date subsequent to the date of this press release. Actual results of our operations may differ materially from information contained in the forward-looking statements as a result of the risk factors.
 
 
4

 
 
For more information, please contact:
 
In China:

Ms. Amy Gao
Investor Relations Manager
Phone: +86-10-6852-2612
Email: fuweiIR@fuweifilms.com

In the U.S.:

Ms. Leslie Wolf-Creutzfeldt
Investor Relations
Grayling
Phone: +1-646-284-9472
Email: leslie.wolf-creutzfeldt@grayling.com

 
Financial Tables to Follow
 
 
5

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2011 AND DECEMBER 31, 2010
(amounts in thousands except share and per share value)
(Unaudited)

   
June 30, 2011
   
December 31, 2010
 
   
RMB
   
US$
   
RMB
 
ASSETS
 
Current assets
                 
Cash and cash equivalents
    78,446       12,137       171,227  
Restricted cash
    88,689       13,721       1,314  
Accounts and bills receivable, net
    34,364       5,317       25,482  
Inventories
    43,217       6,686       52,577  
Advance to suppliers
    5,370       831       10,974  
Prepayments and other receivables
    30,063       4,651       540  
Deferred tax assets - current
    745       115       1,344  
Total current assets
    280,894       43,458       263,458  
                         
Plant, properties and equipment, net
    299,613       46,355       284,891  
Construction in progress
    169,698       26,255       197,193  
Lease prepayments, net
    20,309       3,142       21,024  
Advance to suppliers - Long Term
    4,116       637       2,787  
Goodwill
    10,276       1,590       10,276  
Long-term deposit
    16,760       2,593       16,760  
Deferred tax assets - non current
    1,692       262       1,763  
                         
Total assets
    803,358       124,292       798,152  
                         
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
Current liabilities
 
 
   
 
   
 
 
Short-term borrowings
    173,501       26,843       142,000  
Accounts payables
    18,328       2,836       14,296  
Advance from customers
    9,308       1,440       37,291  
Accrued expenses and other payables
    8,875       1,373       20,993  
Deferred tax liabilities
    1,816       281       1,822  
      211,828       32,773       216,402  
Long-term loan
    10,000       1,547       30,000  
                         
Total liabilities
    221,828       34,320       246,402  
                         
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       2,061       13,323  
Additional paid-in capital
    311,907       48,257       311,907  
Statutory reserve
    35,195       5,445       35,195  
Retained earnings
    220,697       34,145       190,933  
Cumulative translation adjustment
    1,211       187       1,186  
Total shareholders’ equity
    582,333       90,096       552,544  
Non-controlling interest
    (803 )     (124 )     (794 )
Total equity
    581,530       89,972       551,750  
Total liabilities and equity
    803,358       124,292       798,152  

 
6

 

FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE- AND SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
(amounts in thousands except share and per share value)
(Unaudited)
   
The Three-Month Period Ended June 30,
   
The Six-Month Period Ended June 30,
 
   
2011
   
2010
   
2011
   
2010
 
   
RMB
   
US$
   
RMB
   
RMB
   
US$
   
RMB
 
                                     
Net sales
    137,316       21,245       110,319       311,470       48,189       198,774  
Cost of sales
    (114,789 )     (17,760 )     (90,648 )     (243,807 )     (37,721 )     (166,337 )
                                                 
Gross profit
    22,527       3,485       19,670       67,663       10,468       32,437  
                                                 
Operating expenses
 
 
   
 
   
 
   
 
   
 
   
 
 
Selling expenses
    (4,945 )     (765 )     (4,159 )     (9,039 )     (1,399 )     (7,555 )
Administrative expenses
    (7,242 )     (1,120 )     (12,896 )     (18,878 )     (2,920 )     (20,425 )
Total operating expenses
    (12,187 )     (1,885 )     (17,055 )     (27,917 )     (4,319 )     (27,980 )
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Operating income (loss)
    10,340       1,600       2,615       39,746       6,149       4,457  
 
 
 
   
 
   
 
   
 
   
 
   
 
 
Other income (expense)
                                               
- Interest income
    525       81       157       1,076       167       171  
- Interest expense
    (2,427 )     (376 )     (2,669 )     (4,727 )     (731 )     (4,287 )
- Others income, net
    (132 )     (20 )     (180 )     (236 )     (37 )     (136 )
                                                 
Total other income (expense)
    (2,034 )     (315 )     (2,692 )     (3,887 )     (601 )     (4,251 )
                                                 
Income before income tax benefit (expense)
    8,306       1,285       (77 )     35,859       5,548       205  
                                                 
Income tax benefit (expense)
    (2,191 )     (339 )     42       (6,104 )     (944 )     23  
                                                 
Net Income (loss)
    6,115       946       (35 )     29,756       4,604       228  
                                                 
Net loss attributable to noncontrolling interests
    (5 )     (1 )     (32 )     (9 )     (1 )     (69 )
Net income (loss) attributable to the Company
    6,120       947       (3 )     29,764       4,605       297  
                                                 
Other comprehensive income
                                               
- Foreign currency translation adjustments attributable
to noncontrolling interest
    12       2       -       17       2       -  
- Foreign currency translation adjustments attributable
to the Company
    18       3       -       6       2       (16 )
                                                 
Comprehensive income (loss) attributable to noncontrolling interest
    7       1       (32 )     8       1       (69 )
Comprehensive income attribute to the Company
    6,138       950       (3 )     29,770       4,607       281  
                                                 
Earnings per share,
Basic and diluted
    0.47       0.07       (0.0002 )     2.28       0.35       0.02  
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  
 
 
7

 
 
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2011 AND 2010
(amounts in thousands except share and per share value)
(Unaudited)
 
 
Period Ended June 30, 2011
   
Period Ended June 30, 2010
 
   
RMB
   
US$
   
RMB
 
Cash flow from operating activities
 
 
   
 
   
 
 
Net income
    29,756       4,604       228  
Adjustments to reconcile net income to net cash
 
 
   
 
   
 
 
(used in) provided by operating activities
                       
- Depreciation of property, plant and equipment
    18,868       2,919       18,158  
- Amortization of intangible assets
    227       35       227  
- Deferred income taxes
    664       103       (23 )
- Bad debt expense (recovery)
    (5,638 )     (872 )     (2 )
- Accounts receivable
    (9,130 )     (1,413 )     (8,502 )
- Inventories
    9,360       1,448       5,682  
- Advance to suppliers
    5,605       867       (2,670 )
- Prepaid expenses and other current assets
    (23,184 )     (3,587 )     87  
- Accounts payable
    4,032       624       (4,147 )
- Accrued expenses and other payables
    (8,153 )     (1,262 )     5,922  
- Advance from customers
    (27,983 )     (4,329 )     613  
- Tax payable
    (3,816 )     (590 )     1,610  
 
 
 
   
 
   
 
 
Net cash provided by (used in) operating activities
    (9,392 )     (1,453 )     17,184  
 
 
 
   
 
   
 
 
Cash flow from investing activities
                       
Purchases of property, plant and equipment
    (33,556 )     (5,192 )     (1,234 )
Restricted cash related to trade finance
    (87,383 )     (13,519 )     12,041  
Advanced to suppliers - non current
    (1,329 )     (206 )     910  
Amount decrease (addition) to construction in progress
    27,495       4,254       1,114  
                         
Net cash provided by (used in) investing activities
    (94,773 )     (14,663 )     12,832  
                         
Cash flow from financing activities
 
 
   
 
   
 
 
Principal payments of short-term bank loans
    (7,000 )     (1,083 )     (16,179 )
Proceeds from short-term bank loans
    18,501       2,862       10,000  
                         
Net cash provided by (used in) financing activities
    11,501       1,779       (6,179 )
                         
Effect of foreign exchange rate changes
    (116 )     575       (26 )
                         
Net increase (decrease) in cash and cash equivalent
    (92,780 )     (13,760 )     23,810  
                         
Cash and cash equivalent
 
 
   
 
   
 
 
At beginning of period
    171,227       25,897       26,804  
At end of period
    78,446       12,137       50,615  
                         
SUPPLEMENTARY DISCLOSURE:
 
 
   
 
   
 
 
Interest paid
    4,727       731       4,441  
Income tax paid
    8,456       1,308       -  
 
 
8