The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
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” or the “Group”) are principally engaged in the production and distribution of BOPET film,
a high quality plastic film widely used in packaging, imaging, electronics, electrical and magnetic products in the People’s
Republic of China (the “PRC”). The Company is a holding company incorporated in the Cayman Islands, established on
August 9, 2004 under the Cayman Islands Companies Law as an exempted company with limited liability. The Company was established
for the purpose of acquiring shares in Fuwei (BVI) Co., Ltd. (“Fuwei (BVI)”), an intermediate holding company established
for the purpose of acquiring all of the ownership interest in Fuwei Films (Shandong) Co., Ltd. (“Shandong Fuwei”).
On August 20, 2004, the Company was allotted
and issued one ordinary share of US$1.00 in Fuwei (BVI) (being the entire issued share capital of Fuwei (BVI)), thereby establishing
Fuwei (BVI) as the intermediate investment holding company of the Company.
On April 23, 2009, Fuwei Films USA, LLC was
set up and co-invested by the Company and Newell Finance Management Co., Ltd. Fuwei Films USA, LLC had a registered capital
of US$10 and total investment amount of US$100. Fuwei Films (Holdings) Co., Ltd. and Newell Finance Management Co., Ltd. owned
60% and 40% of the total shares of Fuwei Films USA, LLC, respectively. In December 2016, Fuwei Films USA, LLC was dissolved.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company, pursuant to the rules and regulations of the U.S. 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 for
the year ended December 31, 2016 filed on April 6, 2017 with the SEC. The results of the nine-month period ended September 30,
2017 are not necessarily indicative of the results to be expected for the full year ended December 31, 2017.
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Use of Estimates
The preparation of the condensed 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 Chinese
Yuan (Renminbi or “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. The financial records of Fuwei Films USA, LLC, a former 60% owned subsidiary
of the Company, are maintained in US dollars. Assets and liabilities are translated into RMB at the exchange rates at the balance
sheet date, equity accounts are translated at historical exchange rates and income, expenses, and cash flow items are translated
using the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income in the
statements of equity. The changes in the translation adjustments for the current period were reported as the line items of other
comprehensive income in the consolidated statements of comprehensive income.
Transactions denominated in currencies other
than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing
at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the
applicable exchange rates quoted by the PBOC at the balance sheet dates. The resulting exchange differences are recorded in the
consolidated statements of comprehensive 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.
Commencing July 21, 2005, the PRC government
moved the RMB into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.
For the convenience of the readers, the third
quarter of 2017 RMB amounts included in the accompanying condensed consolidated financial statements in our quarterly report have
been translated into U.S. dollars at the rate of US$1.00 = RMB6.6533, on the last trading day of the third quarter of 2017 (September
30, 2017) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB
amounts could have been, or could be, converted into U.S. dollar at that rate or at any other certain rate on September 30, 2017,
or at any other date.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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, maintained within the United States as well as in foreign
countries to be cash and cash equivalents. The Company maintains balances at financial institutions which, from time to time, may
exceed Federal Deposit Insurance Corporation insured limits for the banks located in the United States. Balances at financial institutions
within certain foreign countries are not covered by insurance.
Restricted cash refers to the cash balance
held by bank as deposit for Letters of Credit and Bank Acceptance Bill. The Company has restricted cash of RMB72,551 (US$10,905)
and RMB73,421 as of September 30, 2017 and December 31, 2016, respectively.
Trade Accounts Receivable
Trade accounts receivable are recorded at the
invoiced amount after deduction of trade discounts, value added taxes and allowances, if any, and do not bear interest. The allowance
for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing
accounts receivable. The Group determines the allowance based on historical write-off experience, customer specific facts and economic
conditions.
The Group reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for 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.
Inventories
Inventories are stated at the lower of cost
or market value as of balance sheet date. Inventory valuation and cost-flow is determined using Moving Weighted Average Method
basis. The Group estimates excess and slow moving inventory based upon assumptions of future demands and market conditions. If
actual market conditions are less favorable than projected by management, additional inventory write-downs may be required. Cost
of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production
overheads based on normal operating capacity.
Property, Plant and Equipment
Property, plant and equipment are stated at
cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line
method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets. They
are as follows:
|
|
Years
|
|
Buildings and improvements
|
|
25 - 30
|
|
Plant and equipment
|
|
10 - 15
|
|
Computer equipment
|
|
5
|
|
Furniture and fixtures
|
|
5
|
|
Motor vehicles
|
|
5
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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 general and administrative expenses for the
period incurred.
Construction in progress represents capital
expenditures in respect of the BOPET production line. No depreciation is provided with respect to construction in progress.
Leased Assets
An arrangement, comprising a transaction or
a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific
asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based
on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
Classification of assets leased to the Group
.
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership
are classified as being held under capital leases. Leases which do not transfer substantially all the risks and rewards of ownership
to the Group are classified as operating leases.
Assets acquired under capital leases.
Where the Group acquires the use of assets under capital leases, the amounts representing the fair value of the leased asset, or,
if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the
corresponding liabilities, net of finance charges, are recorded as obligations under capital leases. Depreciation is provided at
rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group
will obtain ownership of the asset, the life of the asset. Finance charges implicit in the lease payments are charged to the consolidated
income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining
balance of the obligations for each accounting period. Contingent rentals are charged to the consolidated income statement in the
accounting period in which they are incurred.
Operating lease charges
. Where the Group
has the use of assets held under operating leases, payments made under the leases are charged to the consolidated income statement
in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative
of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in the consolidated income
statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the consolidated income
statement in the accounting period in which they are incurred.
Sale and leaseback transactions.
Gains
or losses on equipment sale and leaseback transactions which result in capital leases are deferred and amortized over the terms
of the related leases. Gains or losses on equipment sale and leaseback transactions which result in operating leases are recognized
immediately if the transactions are established at fair value. Any loss on the sale perceived to be a real economic loss is recognized
immediately. However, if a loss is compensated for by future rentals at a below-market price, then the artificial loss is deferred
and amortized over the period that the equipment is expected to be used. If the sale price is above fair value, then any gain is
deferred and amortized over the useful life of the assets.
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 non-current portion and current portion of lease prepayments have been reported in Lease Prepayments,
Prepayments and Other Receivables in the balance sheets, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Goodwill
Goodwill represents the excess of purchase
price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill
is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment
testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount
of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using
a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the
application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and
projections of realizations and costs to produce. Management considers historical experience and all available information
at the time the fair values of its reporting units are estimated. Goodwill was determined to be fully impaired during the year
ended December 31, 2012.
Impairment of Long-lived Assets
The Company recognizes an impairment loss when
circumstances indicate that the carrying value of long-lived assets with finite lives may not be recoverable. Management’s
policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria
at an asset group level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event,
the Company uses assumptions, which are predominately identified from the Company’s strategic long-range plans, in determining
the impairment amount. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of the
asset group with the estimated future cash flows expected to result from the use of the assets. If the carrying amount of the asset
group exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing
the carrying amount of the asset group with their estimated fair value. We estimate the fair value of assets based on market prices
(i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market prices are not
available, we estimate the fair value of the asset group using discounted expected future cash flows at the Company’s weighted-average
cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash flows are based
upon estimates that, if not achieved, may result in significantly different results.
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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.
(Loss) Earnings Per Share
Basic (loss) earnings per share is computed
by dividing net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted (loss) 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.
Non-controlling interest
Non-controlling interest represents the portion
of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests are separately
presented in the accompanying statements of income and other comprehensive income. Losses attributable to non-controlling interests
in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be
attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance.
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.
Reclassification
For comparative purposes, the prior year’s
consolidated financial statements have been reclassified to conform to reporting classifications of the current year periods. These
reclassifications had no effect on net loss or total net cash flows as previously reported.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Going Concern Matters
The accompanying condensed consolidated financial
statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the
company as a going concern. However, as of September 30, 2017 and 2016, the Company had a working capital deficiency of RMB176,150
(US$26,467) and RMB166,931 and accumulated deficit of RMB35,877 (US$5,392) and RMB35,680 from net losses incurred during the first
nine months of 2017 and 2016. Confronted with the fierce competition in the BOPET industry in China, the Company may still witness
losses over the next twelve months. The ability of the Company to operate as a going concern depends upon its ability to obtain
loans from financial institutions and a related party and/or generate positive cash flow from operations. The Company accordingly
has obtained loans from financial institutions and related party to meet the need of working capital for our operation or debts.
At the same time, the Company will continue implementing strict cost reductions on both manufacturing costs and operating expenses
to improve profit margins. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company
be unable to continue as a going concern.
Recently Issued Accounting Standards
Revenue
Recognition
: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under
U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers
in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a
five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within
the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the
contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price
to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two
methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients
as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized
at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The adoption of this
ASU is not expected to have a material impact on the Company's consolidated financial statements.
Financial Instrument
In January 2016, the FASB issued ASU No. 2016-01,
“Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”
(“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation, and disclosure of
financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December
15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018. The Company
is currently evaluating the impact that the standard will have on the Company’s consolidated financial statements.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Leases
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) (“ASU 2016-2”), which provides guidance on lease amendments to the FASB Accounting Standard Codification.
This ASU will be effective for us beginning in May 1, 2019. The Company is currently in the process of evaluating the impact of
the adoption of ASU 2016-2 on the Company consolidated financial statements.
Stock-based Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09
changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes,
forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09
is effective for us in the first quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this
guidance will have on our consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial
assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the
information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively
or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss,
which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating the
effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.
Statement of Cash Flows:
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities,
including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic
230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement
to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity
in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is
still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.
Statement of Cash Flows:
In
November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash”(“ASU
2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in
fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The adoption of this
guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes
in restricted cash activity, which are currently recognized in Other financing activities, on the Statements of Consolidated Cash
Flows. Furthermore, an additional reconciliation will be required to reconcile Cash and cash equivalents and restricted cash reported
within the Consolidated Balance Sheets to sum to the total shown in the Statements of Consolidated Cash Flows. The Company anticipates
adopting this new guidance effective January 1, 2018. The Company is currently evaluating this guidance and the impact it will
have on the Consolidated Financial Statements and disclosures.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Stock-based Compensation
:
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification
accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition
of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment
awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company
is currently assessing the impact of ASU 2017-09 on its condensed consolidated financial statements.
Other
pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not
applicable or not significant to the consolidated financial statements of the Company.
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts and bills receivables consisted of the
following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
22,583
|
|
|
|
3,394
|
|
|
|
17,502
|
|
Less: Allowance for doubtful accounts
|
|
|
(3,927
|
)
|
|
|
(590
|
)
|
|
|
(3,213
|
)
|
|
|
|
18,656
|
|
|
|
2,804
|
|
|
|
13,839
|
|
Bills receivable
|
|
|
4,495
|
|
|
|
676
|
|
|
|
15,614
|
|
|
|
|
23,151
|
|
|
|
3,480
|
|
|
|
29,453
|
|
The Group has a credit policy in place and
the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit
over a certain amount. These receivables are due within 7 to 90 days from the date of billing. Generally, the Group does not obtain
collateral from customers. Bills receivable are banker’s acceptance bills, which are guaranteed by the bank.
NOTE 4-INVENTORIES
Inventories consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
16,289
|
|
|
|
2,449
|
|
|
|
21,463
|
|
Work-in-progress
|
|
|
1,074
|
|
|
|
161
|
|
|
|
1,072
|
|
Finished goods
|
|
|
8,177
|
|
|
|
1,229
|
|
|
|
6,796
|
|
Consumables and spare parts
|
|
|
602
|
|
|
|
90
|
|
|
|
602
|
|
Inventory—impairment
|
|
|
(4,723
|
)
|
|
|
(710
|
)
|
|
|
(4,780
|
)
|
|
|
|
21,419
|
|
|
|
3,219
|
|
|
|
25,153
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
NOTE 5-PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of
the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,319
|
|
|
|
10,269
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
803,340
|
|
|
|
120,743
|
|
|
|
799,067
|
|
Computer equipment
|
|
|
3,082
|
|
|
|
463
|
|
|
|
2,484
|
|
Furniture and fixtures
|
|
|
14,685
|
|
|
|
2,207
|
|
|
|
14,668
|
|
Motor vehicles
|
|
|
1,936
|
|
|
|
291
|
|
|
|
2,094
|
|
|
|
|
891,362
|
|
|
|
133,973
|
|
|
|
886,632
|
|
Less: accumulated depreciation
|
|
|
(501,799
|
)
|
|
|
(75,421
|
)
|
|
|
(468,759
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,085
|
)
|
|
|
(7,219
|
)
|
|
|
|
382,344
|
|
|
|
57,467
|
|
|
|
410,654
|
|
Total depreciation for the nine-month periods
ended September 30, 2017 and 2016 was RMB32,334 (US$4,860) and RMB32,122, respectively. For the three-month periods ended September
30, 2017 and 2016, depreciation expenses were RMB10,606 (US$1,655) and RMB10,758, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB366 (US$55) ended September 30, 2017, and
RMB431 ended December 31, 2016, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of land
use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
Lease prepayments consisted of the following:
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
16,963
|
|
|
|
2,550
|
|
|
|
17,358
|
|
Lease prepayment - current
|
|
|
524
|
|
|
|
79
|
|
|
|
524
|
|
|
|
|
17,487
|
|
|
|
2,629
|
|
|
|
17,882
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Amortization of land use rights for the nine
months ended September 30, 2017 and 2016 was RMB394 (US$59) and RMB393, respectively. Amortization of land use rights for the three
months ended September 30, 2017 and 2016 was RMB132 (US$20) and RMB132, respectively.
Estimated amortization expenses for the next
five years after September 30, 2017 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
79
|
|
2 years after
|
|
|
524
|
|
|
|
79
|
|
3 years after
|
|
|
524
|
|
|
|
79
|
|
4 years after
|
|
|
524
|
|
|
|
79
|
|
5 years after
|
|
|
524
|
|
|
|
79
|
|
Thereafter
|
|
|
14,867
|
|
|
|
2,235
|
|
As of September 30, 2017, the amount of RMB524
(US$78) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan consisted
of the following:
Lender
|
|
Interest
rate per
annum
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of SPD.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- November 16, 2016 to November 16, 2017
|
|
|
5.22
|
%
|
|
|
15000
|
|
|
|
2,215
|
|
|
|
15,000
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- July 15, 2016 to July 15, 2017
|
|
|
7.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
19,500
|
|
- July 15, 2016 to July 15, 2017
|
|
|
7.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
- July 20, 2016 to July 20, 2017
|
|
|
7.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
6,400
|
|
- July 20, 2016 to July 20, 2017
|
|
|
7.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
- July 20, 2016 to July 20, 2017
|
|
|
7.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,300
|
|
- July 28, 2017 to July 28, 2018
|
|
|
6.5
|
%
|
|
|
50,000
|
|
|
|
7,515
|
|
|
|
-
|
|
Weifang Dongfang State-owned Assets Management Co., Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- October 19, 2009 to October 18, 2017
|
|
|
4.41
|
%
|
|
|
1,625
|
|
|
|
244
|
|
|
|
3,300
|
|
|
|
|
|
|
|
|
66,625
|
|
|
|
10,014
|
|
|
|
63,300
|
|
Less: amounts classified as short-term loan
|
|
|
|
|
|
|
(65,000
|
)
|
|
|
(9,770
|
)
|
|
|
(60,000
|
)
|
Less: long-term loan, current portion;
|
|
|
|
|
|
|
(1,625
|
)
|
|
|
(244
|
)
|
|
|
(3,300
|
)
|
Long-term Loan
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Notes:
The principal amounts of the above loans are
repayable at the end of the loan period.
On November 20, 2009, the Company signed a
long-term loan agreement in the amount of RMB10,000 (US$1,475) 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$504) per year with the remaining principal balance of RMB3,300 (US$496)
due in 2017. The annual interest rate for the loan is the benchmark interest rate for over five-year loans announced by the People’s
Bank of China reduced by 10% and the applicable annual interest rate for the period ended September 30, 2017 is 4.41%. The loan
is guaranteed by Shandong Deqin Investment& Guarantee Co., Ltd. and is used for the Company's projects.
Long-term bank loans maturity for the next
year after September 30, 2017 are as follows:
|
|
RMB
|
|
|
US$
|
|
within one year
|
|
|
1,625
|
|
|
|
244
|
|
NOTE 9- RELATED PARTY TRANSACTIONS
Due to related parties
In April 2014, the Company obtained a loan
for a total amount of RMB105,000 from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”)
to pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate,
plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China.
The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this
loan and the interest have not been paid. In March 2015, the Company entered into a supplemental agreement with Shandong SNTON
pursuant to which the parties agreed that the Company will pay off the principal of this loan plus interest upon availability of
new loans from banks or other financial institutions.
As of December 31, 2016, the principal of this
loan from Shandong SNTON was RMB104,708 and the interest payable was RMB17,373.
As of September 30, 2017, the principal of
this loan from Shandong SNTON was RMB104,708 and the interest payable was RMB21,529.
In May 2017, SNTON Group provided the Company
with a loan for the amount of RMB10,000.
In July 2017, SNTON Group provided the Company
with a loan for the amount of RMB25,000.
In August 2017, the Company paid off the loans
for a total amount of RMB35,000 to SNTON Group.
As of September 30, 2017, the principal of
all loans from SNTON Group was zero and the interest payable was zero.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
As of September 30, 2017, the total balance
of principal of loans from related party was RMB104,708 and the interest payable was RMB21,529.
As of September 30, 2017, the accounts payable
resulting from purchasing from related party was RMB8,176.
During January 2017 to September 2017, the
Company purchased 645 Metric Tons of final products of BOPET from Shandong SNTON for a total amount of RMB6,554.
The related accounts payable as of September
30, 2017 and December 31, 2016 was RMB134,413 and RMB131,747, respectively
During January 2017 to September 2017 and January
2016 to September 2016, we paid approximately RMB36 and RMB44, respectively, to Fuhua Industrial Material Management Co., Ltd.
as rental payments in connection with living quarters for our staff.
NOTE 10 - NOTES PAYABLE
As of September 30, 2017 and December 31, 2016,
Shandong Fuwei had banker’s acceptances opened with a maturity from three to six months totaling RMB100,000 (US$15,030) and
RMB100,888, respectively, for payment in connection with raw materials for a total security deposits of RMB72,551 (US$10,905) and
RMB72,421 made to the SPD Bank and Bank of Weifang, respectively.
Notes payable consisted of the following:
Issuing bank
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
SPD Bank
|
|
|
70,000
|
|
|
|
10,521
|
|
|
|
70,920
|
|
Bank of Weifang
|
|
|
30,000
|
|
|
|
4,509
|
|
|
|
29,968
|
|
|
|
|
100,000
|
|
|
|
15,030
|
|
|
|
100,888
|
|
NOTE 11- INCOME TAX
Income tax benefit was RMB168 (US$25) and RMB492
for the nine months ended September 30, 2017 and 2016, respectively.
Income tax benefit was RMB54 (US$8) and RMB10
for the three months ended September 30, 2017 and 2016, respectively.
NOTE 12 - LOSS PER SHARE
Basic and diluted net loss per share was RMB10.99
(US$1.65) and RMB10.93 for the nine-month period ended September 30, 2017 and 2016, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Basic and diluted net loss per share was RMB3.70
(US$0.56) and RMB4.11 for the three-month period ended September 30, 2017 and 2016, respectively.
NOTE 13 - MAJOR CUSTOMERS AND VENDORS
There were no major customers who accounted
for more than 10% of the total net revenue for the three-month periods ended September 30, 2017 and 2016.
The following are the vendors that supplied
10% or more of our raw materials for September 30, 2017 and 2016:
|
|
|
|
Percentage of total purchases (%)
|
|
Supplier
|
|
Item
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Sinopec Yizheng Chemical Fibre Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additives
|
|
|
42.5
|
%
|
|
|
64.2
|
%
|
PetroChina Company Limited Chemicals Sales East China Branch (“PetroChina”)
|
|
PET resin and Additives
|
|
|
25.2
|
%
|
|
|
0
|
%
|
Weifang Power Supply Company.
|
|
Electric power
|
|
|
10.7
|
%
|
|
|
12.8
|
%
|
The balance of advance to supplier to Sinopec
Yizheng and PetroChina was RMB2,854 (US$429) and RMB5,425 as of September 30, 2017, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
References to "dollars" and "US$"
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 third quarter of 2017, although sales
were higher, we continued to be adversely affected by enhanced competition and increased supply over demand in China’s BOPET
market.
We believe that in the remaining quarter of
2017, there will be growing capacity of BOPET films in China and stronger competition in the market. Our ability to retain effective
control over the pricing of our products on a timely basis is limited due to the enhanced competition in the BOPET market.
On August 14, 2013, we announced the receipt
of the first notice from our controlling shareholder, the Weifang State-owned Assets Operation Administration Company, a wholly-owned
subsidiary of Weifang State-owned Asset Management and Supervision Committee (collectively, the “Administration Company”)
indicating that the Administration Company had determined to place control over 6,912,503 (or 52.9%) of its outstanding ordinary
shares up for sale at a public auction to be held in China. Four public auctions were held in Jinan, Shandong Province, China.
We learned that they failed due to a lack of bidders registered for the auction. On March 25, 2014, the fifth public auction was
held in Jinan, Shandong Province, China. The beneficial ownership of 6,912,503 of our ordinary shares previously owned by the Administration
Company through Apex Glory Holdings Limited, a British Virgin Islands corporation, was bid by Shandong SNTON Optical Materials
Technology Co., Ltd. (“Shandong SNTON”) through the public auction. Shandong SNTON received 6,912,503 (or 52.9%) of
our outstanding ordinary shares at a price of RMB101,800,000 (approximately US$16,572,787) or approximately US$2.40 per ordinary
share.
On May 12, 2014, we announced that we had learned
that the successful bidder, Shandong SNTON in the fifth public auction of 6,912,503 (or 52.9%) of our outstanding ordinary shares
(the “Shares”) held on March 25, 2014, was entrusted by Hongkong Ruishang International Trade Co., Ltd., a Hong Kong
corporation, (“Hongkong Ruishang”) to handle all the formalities and procedure in connection with the public auction.
As a result of the entrusted arrangement, we believe Hongkong Ruishang is the party controlling the Shares acquired in the fifth
public auction. According to publicly available information in the People’s Republic of China, Shandong SNTON is a wholly
owned subsidiary of Shandong SNTON Group Co., Ltd. (the “SNTON Group”). Mr. Xiusheng Wang, the chairman of the Board
of Directors of SNTON Group is also Hongkong Ruishang’s chairman.
On May 14, 2014, we announced that we had received
a notification from Shandong Fuhua Investment Company Limited. (“Shandong Fuhua”) with respect to an entire ownership
transfer of our 12.55% outstanding ordinary shares from the Administration Company to Shandong Fuhua. The Administration Company
originally held these shares indirectly through an intermediate holding company, Easebright Investments Limited (“Easebright”).
As a result of this transfer, Shandong Fuhua indirectly owns 12.55% of our outstanding ordinary shares through Easebright. Mr.
Jingang Yang has been appointed as the director of Easebright.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Results of operations for the nine-month periods
ended September 30, 2017 compared to September 30, 2016
The table below sets forth certain line items
from our Statement of Income as a percentage of revenue:
|
|
Nine-Month Period Ended
|
|
|
Nine-Month Period Ended
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
(as % of Revenue)
|
|
Gross profit(loss)
|
|
|
7.3
|
|
|
|
6.7
|
|
Operating expenses
|
|
|
(20.9
|
)
|
|
|
(23.0
|
)
|
Operating income (loss)
|
|
|
(13.6
|
)
|
|
|
(16.3
|
)
|
Other income (expense)
|
|
|
(3.4
|
)
|
|
|
(3.4
|
)
|
Provision for income taxes
|
|
|
0.1
|
|
|
|
0.3
|
|
Net income (loss)
|
|
|
(16.9
|
)
|
|
|
(19.5
|
)
|
Revenue
Our revenue is primarily derived from the manufacture
and sale of plastic films.
Net sales during the nine-month period ended
September 30, 2017 were RMB211.9 million (US$31.8 million), compared to RMB183.0 million, during the same period in 2016, representing
an increase of RMB28.9 million or 15.8%. The increase of average sales price caused an increase of RMB21.3 million and the increase
in the sales volume caused an increase of RMB7.6 million.
In the nine-month period ended September 30,
2017, sales of specialty films were RMB75.8 million (US$11.4 million) or 35.8% of our total revenues as compared to RMB68.0 million
or 37.1% in the same period of 2016, which was an increase of RMB7.8 million, or 11.5% as compared to the same period in 2016.
The increase of average sales price caused an increase of RMB0.1 million and the increase in the sales volume caused an increase
of RMB7.7 million.
The following is a breakdown of commodity and
specialty film sales (amounts in thousands):
|
|
Nine-Month Period Ended
September 30, 2017
|
|
|
% of
Total
|
|
|
Nine-Month Period
Ended
September 30, 2016
|
|
|
% of
Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
83,038
|
|
|
|
12,480
|
|
|
|
39.2
|
%
|
|
|
67,436
|
|
|
|
36.8
|
%
|
Printing film
|
|
|
18,627
|
|
|
|
2,800
|
|
|
|
8.8
|
%
|
|
|
16,231
|
|
|
|
8.9
|
%
|
Metallization film
|
|
|
6,976
|
|
|
|
1,049
|
|
|
|
3.3
|
%
|
|
|
5,280
|
|
|
|
2.9
|
%
|
Specialty film
|
|
|
75,817
|
|
|
|
11,395
|
|
|
|
35.8
|
%
|
|
|
67,950
|
|
|
|
37.1
|
%
|
Base film for other applications
|
|
|
27,409
|
|
|
|
4,120
|
|
|
|
12.9
|
%
|
|
|
26,126
|
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,867
|
|
|
|
31,844
|
|
|
|
100.0
|
%
|
|
|
183,023
|
|
|
|
100.0
|
%
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Overseas sales during the nine months ended
September 30, 2017 were RMB44.2 million or US$6.7 million, or 20.9% of total revenues, compared with RMB35.1 million or 19.2% of
total revenues in the same period in 2016. This was RMB9.2 million higher than the same period in 2016. The increase in sales volume
resulted in an increase of RMB5.2 million and the increase of average sales price caused an increase of RMB3.9 million.
The following is a breakdown of PRC domestic and
overseas sales (amounts in thousands):
|
|
Nine-Month Period Ended
September 30, 2017
|
|
|
% of
Total
|
|
|
Nine-Month Period Ended
September 30, 2016
|
|
|
% of
Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
167,622
|
|
|
|
25,193
|
|
|
|
79.1
|
%
|
|
|
147,944
|
|
|
|
80.8
|
%
|
Sales in other countries
|
|
|
44,245
|
|
|
|
6,651
|
|
|
|
20.9
|
%
|
|
|
35,079
|
|
|
|
19.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,867
|
|
|
|
31,844
|
|
|
|
100.0
|
%
|
|
|
183,023
|
|
|
|
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:
|
|
Nine-Month Period Ended
September 30, 2017
|
|
|
Nine-Month Period Ended
September 30, 2016
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
69.4
|
%
|
|
|
67.7
|
%
|
Factory overhead
|
|
|
10.3
|
%
|
|
|
10.1
|
%
|
Energy expense
|
|
|
11.3
|
%
|
|
|
12.7
|
%
|
Packaging materials
|
|
|
4.4
|
%
|
|
|
4.4
|
%
|
Direct labor
|
|
|
4.6
|
%
|
|
|
5.1
|
%
|
Cost of goods sold during the first nine months
of 2017 totaled RMB196.4 million (US$29.5 million) as compared to RMB170.8 million in the same period of 2016. This was RMB25.6
million or 15.0% higher than the same period in 2016.. The increase of unit cost of goods sold caused an increase of RMB18.6 million
and the increase in sales volumes caused an increase of RMB7.0 million.
Gross Loss
Our gross profit was RMB15.5 million (US$2.3
million) for the first nine months ended September 30, 2017, representing a gross profit rate of 7.3%, as compared to a gross profit
rate of 6.7% for the same period in 2016. Correspondingly, gross profit rate increased by 0.6 percentage. Our average product sales
prices increased by 11.2% compared to the same period last year while the average cost of goods sold increased by 10.5% compared
to the same period last year. Consequently, the amount of increase in sales price was higher than that in cost of goods sold during
the nine months ended September 30, 2017 compared with the same period in 2016, which resulted in an increase in our gross profit.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Operating Expenses
Operating expenses for the nine months ended
September 30, 2017 were RMB44.3 million (US$6.7 million), compared to RMB42.2 million in the same period in 2016, which was RMB2.1
million or 5.0% higher than the same period in 2016. This increase is mainly due to increased expenses on research and development.
Other Expense
Total other expense is a combination result
of interest income, interest expense and other income (expense). Total other expense during the first nine months of 2017 was RMB7.3
million (US$1.1 million), RMB1.0 million higher than the same period in 2016. This is mainly attributed to the increased interest
expense.
Income Tax Expense
The income tax benefit was RMB0.2 million (US$0.03
million) during the nine months ended September 30, 2017, compared to income tax benefit of RMB0.05 million during the same period
in 2016. This increase of income tax expense was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the first nine-month period of 2017 was RMB35.9 million (US$5.4 million) compared to net loss attributable to the Company of RMB35.7
million during the same period in 2016, representing an increase of RMB0.2 million from the same period in 2016 due to the factors
described above.
Results of operations for the three-month periods
ended September 30, 2017 compared to September 30, 2016
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
|
|
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
|
(as % of Revenue)
|
|
Gross profit (loss)
|
|
|
9.1
|
|
|
|
1.7
|
|
Operating expenses
|
|
|
(22.1
|
)
|
|
|
(20.6
|
)
|
Operating income (loss)
|
|
|
(13.0
|
)
|
|
|
(18.9
|
)
|
Other income (expense)
|
|
|
(3.4
|
)
|
|
|
(2.9
|
)
|
Provision for income taxes
|
|
|
0.07
|
|
|
|
0.02
|
|
Net income (loss)
|
|
|
(16.4
|
)
|
|
|
(21.8
|
)
|
Revenue
Net sales during the third quarter ended September
30, 2017 were RMB73.9 million (US$11.1 million), compared to RMB61.6 million during the same period in 2016, representing an increase
of RMB12.3 million or 20.0%. The increase of average sales price caused an increase of RMB8.7 million and the sales volume increase
caused an increase of RMB3.6 million.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
In the third quarter of 2017, sales of specialty
films were RMB28.5 million (US$4.3 million) or 38.6% of our total revenues as compared to RMB22.7 million or 36.8% in the same
period of 2016, which was an increase of RMB5.8 million, or 25.6% as compared to the same period in 2016. The increase in average
sales price caused an increase of RMB0.1 million and the increase in the sales volume caused an increase of RMB5.7 million.
The following is a breakdown of commodity and
specialty film sales (amounts in thousands):
|
|
Three-Month Period Ended
September 30, 2017
|
|
|
% of
Total
|
|
|
Three-Month Period
Ended
September 30, 2016
|
|
|
% of
Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
29,588
|
|
|
|
4,447
|
|
|
|
40.0
|
%
|
|
|
23,715
|
|
|
|
38.4
|
%
|
Printing film
|
|
|
7,068
|
|
|
|
1,062
|
|
|
|
9.6
|
%
|
|
|
7,173
|
|
|
|
11.7
|
%
|
Metallization film
|
|
|
1,874
|
|
|
|
282
|
|
|
|
2.5
|
%
|
|
|
1,634
|
|
|
|
2.7
|
%
|
Specialty film
|
|
|
28,487
|
|
|
|
4,282
|
|
|
|
38.6
|
%
|
|
|
22,666
|
|
|
|
36.8
|
%
|
Base film for other application
|
|
|
6,839
|
|
|
|
1,028
|
|
|
|
9.3
|
%
|
|
|
6,373
|
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,857
|
|
|
|
11,101
|
|
|
|
100.0
|
%
|
|
|
61,560
|
|
|
|
100.0
|
%
|
Overseas sales were RMB15.2 million or US$2.3
million, or 20.6% of total revenues, compared with RMB11.4 million or 18.4% of total revenues in the third quarter of 2016. This
is an increase of RMB3.8 million. The increase in average sales price caused an increase of RMB1.1 million and the increase in
sales volume resulted in an increase of RMB2.7 million.
The following is a breakdown of PRC domestic and
overseas sales (amounts in thousands):
|
|
Three-Month Period Ended
September 30, 2017
|
|
|
% of
Total
|
|
|
Three-Month Period Ended
September 30, 2016
|
|
|
% of
Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
58,614
|
|
|
|
8,810
|
|
|
|
79.4
|
%
|
|
|
50,205
|
|
|
|
81.6
|
%
|
Sales in other countries
|
|
|
15,243
|
|
|
|
2,291
|
|
|
|
20.6
|
%
|
|
|
11,355
|
|
|
|
18.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,857
|
|
|
|
11,101
|
|
|
|
100.0
|
%
|
|
|
61,560
|
|
|
|
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
September 30, 2017
|
|
|
Three-Month Period Ended
September 30, 2016
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
68.2
|
%
|
|
|
67.1
|
%
|
Factory overhead
|
|
|
11.5
|
%
|
|
|
10.6
|
%
|
Energy expense
|
|
|
11.3
|
%
|
|
|
13.2
|
%
|
Packaging materials
|
|
|
4.4
|
%
|
|
|
4.1
|
%
|
Direct labor
|
|
|
4.5
|
%
|
|
|
5.0
|
%
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Cost of goods sold during the third quarter
of 2017 totaled RMB67.1 million (US$10.1 million) as compared to RMB60.5 million in the same period of 2016. This was RMB6.6 million
or 10.9% higher than the same period in 2016. The increase in unit cost of goods sold caused an increase of RMB3.1 million and
the increase in sales volume caused an increase of RMB3.5 million.
Gross Profit (Loss)
Our gross profit was RMB6.7 million (US$1.0
million) for the third quarter ended September 30, 2017, representing a gross profit rate of 9.1%, as compared to a gross profit
rate of 1.7% for the same period in 2016. Correspondingly, gross profit rate increased by 7.4 percentage point compared to the
same period in 2016 mainly due to the increase of average sales price.
Operating Expenses
Operating expenses for the third quarter ended
September 30, 2017 were RMB16.3 million (US$2.5million), which was RMB3.6 million, or 28.3% higher than the same period in 2016.
This increase was mainly due to increased expenses on research and development.
Other Expense
Total other expense is a combination result
of interest income, interest expense and others income (expense). Total other expense during the third quarter ended September
30, 2017 was RMB2.5 million (US$0.4 million), RMB0.7 million higher than the same period in 2016. The increase was mainly attributed
to increased interest expense.
Income Tax Expense
The income tax benefit was RMB0.05 million
(US$0.01 million) during the third quarter ended September 30, 2017, compared to income tax benefit of RMB0.01 million during the
same period in 2016. This increase of income tax benefit was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the third quarter ended September 30, 2017 was RMB12.1 million (US$1.8 million) compared to net loss attributable to the Company
of RMB13.4 million during the same period in 2016, representing a decrease in loss of RMB1.3 million.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Liquidity and Capital Resources
Our capital expenditures have been financed
primarily through cash generated from our operations and borrowings from related parties, financial institutions, and entering
into sale-leaseback transactions. The interest rates of borrowings from financial institutions during the period from the third
quarter of 2016 to the third quarter of 2017 ranged from 4.41% to 7.50%.
On November 20, 2009, we signed a long-term
loan agreement of RMB10.0 million (US$1.50 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$0.504 million) per year with the remaining principal balance of RMB3.30 million (US$0.496
million) due in 2017. The annual interest rate for the loan is the benchmark interest rate for over five-year loans announced by
the People’s Bank of China reduced by 10% and the applicable annual interest rate for the period ended September 30, 2017
is 4.41%. The loan is guaranteed by Shandong Deqin Investment & Guarantee Co., Ltd. and is used for our projects.
In April 2014, we obtained a loan for a total
amount of RMB105.0 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”) to pay
off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate, plus
an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China. The
interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this loan
and the interest have not been paid. In March 2015, we entered into a supplemental agreement with Shandong SNTON pursuant to which
the parties agreed that we will pay off the principal of this loan plus interest upon availability of new loans from banks or other
financial institutions.
As of December 31, 2016, the principal of this
loan from Shandong SNTON was RMB104.71 million and the interest payable was RMB17.4 million.
As of September 30, 2017, the principal of
this loan from Shandong SNTON was RMB104.71 million and the interest payable was RMB21.53 million.
In May 2017, SNTON Group provided us with a
loan for the amount of RMB10.0 million.
In July 2017, SNTON Group provided us with
a loan for the amount of RMB25.0 million.
In August 2017, we paid off the loans for a
total amount of RMB35.0 million to SNTON Group.
As of September 30, 2017, the principal of
all loans from SNTON Group was zero and the interest payable was zero.
As of September 30, 2017, the total balance
of principal of loans from related party was RMB104.71 million and the interest payable was RMB21.53 million.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
We believe that, after taking into consideration
our present and potential future loans from related parties and banking facilities, existing cash and the expected cash flows to
be generated from our operations, we will have adequate sources of liquidity to meet our short-term obligations and our working
capital requirements.
Operating Activities
Net cash provided by operating activities for
the nine months ended September 30, 2017 was RMB7.3 million (US$1.1 million) compared to net cash used in operating activities
of RMB5.6 million for the nine months ended September 30, 2016. This increase in cash flows provided by operating activities was
primarily attributable to the changes in accounts receivable.
Investing Activities
Net cash flows used in investing activities
for the nine months ended September 30, 2017 was RMB2.9 million (US$0.4 million) compared to net cash used in investing activities
of RMB37.8 million for the nine months ended September 30, 2016. This decrease in cash flows used in investing activities was primarily
attributable to the changes of restricted cash.
Financing Activities
Net cash provided by financing activities for
the nine months ended September 30, 2017 was RMB5.1 million (US$0.8 million) compared to net cash provided by financing activities
of RMB44.7 million for the nine months ended September 30, 2016, which is a decrease of RMB39.6 million (US$6.0 million). This
decrease in cash flows provided by financing activities was primarily attributable to decreased cash resulting from bank loans.
Working Capital
As of September 30, 2017 and December 31, 2016,
we had a working capital deficit of RMB176.2 million (US$26.5 million) and RMB170.1 million, respectively. Working capital deficit
increased by RMB6.1 million (US$0.9 million), or 3.6% compared to the amount as of December 31, 2016. Our main current liability
was loans from related party.
Contractual Obligations
The following table is a summary of our contractual
obligations as of September 30, 2017 (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
|
|
|
140
|
|
|
|
140
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase commitment
|
|
|
1,398
|
|
|
|
1,398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,538
|
|
|
|
1,538
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Third Production Line Update
The third production line started its trial
operation at the end of January 2013. Our third production line manufactures high-performance electric insulation film, base film
for solar backsheet and TFT-LCD optical film with an annual design capacity of 23,000 metric tons and thickness between 38 and
250µm. It officially started its operation in September 2013. A sample diffusion film (a type of TFT-LCD optical film) was
preliminarily accepted by four customers after being delivered to them for testing. We supplied small batches of products according
to one of the four customer’s purchase order. In addition, a sample base film for solar backsheets was delivered to a customer
for initial testing and we received an initial feedback from this customer and are adjusting the formulas accordingly. The third
production line has not been able to continue its production since April 2015 due to lack of purchase orders. The total volume
of the third production line from January 2015 to March 2015 was 293 Metric Tons.
Legal Proceedings
From time to time, we may be subject to legal
actions and other claims arising in the ordinary course of business. Shandong Fuwei is currently a party to one legal proceedings
in China.
On July 9, 2012, a client filed a lawsuit in
Beijing Daxing District People’s Court against Shandong Fuwei claiming RMB953,113 plus interest over disputes arising from
a Procurement Contract between the parties. Shandong Fuwei raised a jurisdictional objection upon filing its plea, and Beijing
Daxing District People’s Court overruled the objection. Shandong Fuwei filed an appeal against the judgment in the First
Intermediate People’s Court of Beijing. The appeal was dismissed on January 23, 2013. On May 15, 2013, Beijing Daxing District
People’s Court heard the case and adjourned the hearing due to the fact that plaintiff failed to provide sufficient evidence.
On June 25, 2013, the case was heard in Beijing Daxing District People’s Court again and it was further adjourned due to
plaintiff’s failure to provide sufficient evidence. The case was then scheduled to be heard on August 7, 2013. However, on
the day prior to re-scheduled hearing, Shandong Fuwei was informed by Beijing Daxing District People’s Court that the hearing
was adjourned further for the same reason that plaintiff failed to provide sufficient evidence. On April 21, 2014, the case was
heard, and the plaintiff failed to provide sufficient evidence and the hearing was further adjourned. On May 28, 2014, the case
was heard and the plaintiff provided some evidence. On August 25, 2014, the case was heard again. On November 5, 2014, the court
accepted the withdrawal application from the plaintiff. On November 26, 2014, the plaintiff filed a second lawsuit in Beijing Daxing
District People’s Court against Shandong Fuwei over disputes arising from the Procurement Contract between the parties claiming
RMB618,230 plus interest as a result of non- payment. The case was heard on January 26, 2015, where the two parties testified over
the relevant evidence. The case was heard on March 3, 2015, October 26, 2015 and May 11, 2016. To date, the case has not been decided.
Exhibit Index
Exhibit
No.
|
|
Description
|
4.1
|
|
Loan Contract No.20170728124 between Fuwei Films (Shandong) Co., Ltd. and Bank of Weifang, dated July 28, 2017 .
|
99.1
|
|
Press Release dated November 28, 2017.
|