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.
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, 2019 filed on April 28, 2020, with the SEC. The results of the three-month period ended March 31, 2020
are not necessarily indicative of the results to be expected for the full year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements
include the financial statements of the Company and its two subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the 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.
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands
except share and per share value)
(Unaudited)
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. 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
first quarter of 2020 RMB amounts included in the accompanying consolidated financial statements in our quarterly report have been
translated into U.S. dollars at the rate of US$1.00 = RMB7.0808, on the last trading day of the first quarter of 2020 (March 31,
2020) 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 March 31, 2020, or at any
other date.
Cash and Cash Equivalents and Restricted
Cash
For statements of cash flow purposes, the
Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other
highly-liquid investments with maturities of three months or less, when purchased, to be cash and cash equivalents.
Restricted cash refers to the cash balance
held by bank as deposit for Letters of Credit and Bank Acceptance Bill. The Company has restricted cash of RMB15,000 (US$2,118)
and RMB25,500 as of March 31, 2020 and December 31, 2019, respectively.
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands
except share and per share value)
(Unaudited)
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. Estimates of collectability are principally based on an evaluation of
the current financial condition of the customer and the potential risks to collection, the customers’ payment history, expected
future credit losses and other factors which are regularly monitored by the Group.
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
|
|
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 with respect to the BOPET production line. No depreciation is provided with respect to construction in progress.
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands
except share and per share value)
(Unaudited)
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 sale prices is fixed or determinable.
In the PRC, VAT of 13% on the invoice amount
is collected with 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.
Income Taxes
Income taxes are accounted for under
the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
Earnings (loss) Per Share
Basic earnings (loss) 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.
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.
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 March 31, 2020, the Company had a working capital
deficiency of RMB90,427 (US$12,771). The ability of the Company to operate as a going concern depends upon its ability to
obtain outside sources of working capital and/or generate positive cash flow from operations. The Company seeks loans from
financing 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 cost reductions on both manufacturing costs and operating expenses to improve profit
margins. The accompanying consolidated financial statements do not include any necessary adjustments, should the Company fail
to continue as a going concern.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
Recently Issued Accounting Standards
Disclosure
Framework
In August
2018, the FASB issued ASU No. 2018-13, "Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement"
("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. ASU 2018-13 is effective
for fiscal years and interim periods beginning after December 15, 2019; early adoption is permitted. As
a result of adoption, this standard did not have a material impact on the Group’s consolidated financial statements.
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. From an evaluation of the Group’s existing credit portfolio, which includes trade receivables from commodity sales
and other receivables, historical credit losses during 90 days have
been de minimis and are expected to remain so in the future assuming no substantial changes to the business. ASU 2016-13 did not
have a significant impact on the Group’s consolidated financial statements upon adoption on January 1, 2020..
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 receivables consisted of the following:
|
|
March 31, 2020
|
|
December
31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
22,398
|
|
|
|
3,163
|
|
|
|
13,990
|
|
Less: Allowance for doubtful accounts
|
|
|
(1,280
|
)
|
|
|
(181
|
)
|
|
|
(833
|
)
|
|
|
|
21,118
|
|
|
|
2,982
|
|
|
|
13,157
|
|
Bills receivable
|
|
|
20,378
|
|
|
|
2,878
|
|
|
|
13,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,496
|
|
|
|
5,860
|
|
|
|
26,960
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
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.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
20,481
|
|
|
|
2,893
|
|
|
|
19,108
|
|
Work-in-progress
|
|
|
1,061
|
|
|
|
150
|
|
|
|
1,152
|
|
Finished goods
|
|
|
9,437
|
|
|
|
1,333
|
|
|
|
10,041
|
|
Consumables and spare parts
|
|
|
895
|
|
|
|
126
|
|
|
|
892
|
|
Inventory-impairment
|
|
|
(7,609
|
)
|
|
|
(1,075
|
)
|
|
|
(7,609
|
)
|
|
|
|
24,265
|
|
|
|
3,427
|
|
|
|
23,584
|
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following:
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,319
|
|
|
|
9,648
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
817,951
|
|
|
|
115,518
|
|
|
|
817,715
|
|
Computer equipment
|
|
|
3,163
|
|
|
|
447
|
|
|
|
3,163
|
|
Furniture and fixtures
|
|
|
19,995
|
|
|
|
2,824
|
|
|
|
19,631
|
|
Motor vehicles
|
|
|
1,452
|
|
|
|
205
|
|
|
|
1,452
|
|
|
|
|
910,880
|
|
|
|
128,642
|
|
|
|
910,280
|
|
Less: accumulated depreciation
|
|
|
(607,502
|
)
|
|
|
(85,796
|
)
|
|
|
(600,419
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,020
|
)
|
|
|
(7,219
|
)
|
|
|
|
296,159
|
|
|
|
41,826
|
|
|
|
302,642
|
|
For the three-month periods ended March
31, 2020 and 2019, depreciation expenses were RMB6,847 (US$967) and RMB12,044, respectively.
NOTE 6 - LEASE PREPAYMENTS
Lease prepayments represent the costs of
land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
Lease prepayments consisted of the following:
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
15,628
|
|
|
|
2,207
|
|
|
|
15,762
|
|
Lease prepayment - current
|
|
|
524
|
|
|
|
74
|
|
|
|
524
|
|
|
|
|
16,152
|
|
|
|
2,281
|
|
|
|
16,286
|
|
Amortization of land use rights for the
three months ended March 31, 2020 and 2019 was RMB134 (US$19) and RMB133, respectively.
Estimated amortization expenses for the
next five years are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
74
|
|
2 years after
|
|
|
524
|
|
|
|
74
|
|
3 years after
|
|
|
524
|
|
|
|
74
|
|
4 years after
|
|
|
524
|
|
|
|
74
|
|
5 years after
|
|
|
524
|
|
|
|
74
|
|
Thereafter
|
|
|
13,532
|
|
|
|
1,911
|
|
As of March 31, 2020, the amount of RMB524
(US$74) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
NOTE 7 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan
consisted of the following:
Lender
|
|
Interest
rate per
annum
|
|
|
31 March,
2020
|
|
December 31, 2019
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- June 19, 2019 to June 18, 2020
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,118
|
|
|
|
15,000
|
|
- July 15, 2019 to July 15, 2020
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
2,825
|
|
|
|
20,000
|
|
- July 18, 2019 to July 9, 2020
|
|
|
6.5
|
%
|
|
|
30,000
|
|
|
|
4,237
|
|
|
|
30,000
|
|
Notes:
The principal amounts of the above loans
are repayable at the end of the loan period.
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 - 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 March 31, 2020, the principal of
this loan from Shandong SNTON was RMB86,796 and the interest payable was RMB33,649.
The related accounts payable as of March
31, 2020 and December 31, 2019 was RMB120,445 and RMB119,297, respectively.
NOTE 9 - NOTES PAYABLE
As of March 31, 2020, Shandong Fuwei had
banker’s acceptances opened with a maturity from three to six months totaling RM26,800 (US$3,785) for payment in connection
with raw materials for a total deposit of RMB15,000 (US$2,118) made to Bank of Weifang.
NOTE 10 - INCOME TAX
Income tax benefit was RMB94 and Income
tax expense was RMB17 for the three months ended March 31, 2020 and 2019, respectively.
NOTE 11 - EARNINGS (LOSS) PER SHARE
Basic and diluted net benefit per share
was RMB3.97 (US$0.56) and basic and diluted net loss per share RMB1.03 for the three-month period ended March 31, 2020 and 2019,
respectively.
NOTE 12 - 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 March 31, 2020 and 2019.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
The following are the vendors that supplied
10% or more of our raw materials for March 31, 2020 and 2019:
|
|
|
|
Percentage of total purchases (%)
|
|
Supplier
|
|
Item
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
Sinopec Yizheng Chemical Fiber Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additive
|
|
|
52.3
|
%
|
|
|
61.6
|
%
|
Hefei Lucky Technology Industry Co., LTD. Jiangyin Branch (“Lucky”)
|
|
PET resin and Additives
|
|
|
12.2
|
%
|
|
|
9.2
|
%
|
As of March 31, 2020, the balance of advance
to suppliers to Sinopec Yizheng and Lucky was RMB969 (US$137) and RMB 8,196 (US$1,157), respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
References to "dollars" and "US$"
are to United States Dollars. References to "we", "us", the "Company" or "Fuwei Films"
include Fuwei Films (Holdings) Co., Ltd. and its subsidiaries, except where the context requires otherwise.
In the first quarter of 2020, we continued
to be adversely affected by intense competition and increase in supply over demand in China’s BOPET market.
We believe that in the coming quarters
of 2020, there will be continued higher supply over demand in China’s BOPET films industry 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 such competition
in the BOPET market. As a result, we may continue to witness losses in the future.
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 on 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. Fuwei
was informed by Easebright that Mr. Qingxin Dong has replaced Mr. Jingang Yang since 2018.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On January 28, 2019, we entered into
a Securities Purchase Agreement (the “Purchase Agreement”) with Gold Glory Blockchain Inc. ("Gold
Glory"), a California-headquartered company focused on blockchain technology applications and digital asset services.
The Purchase Agreement will result in the issuance by us of 9,500,000 new ordinary shares in exchange for all outstanding
shares of Gold Glory. We concurrently entered into a Share Transfer Agreement (the “Transfer Agreement”) with
Hong Kong Ruishang International Trade Co. Ltd. ("Ruishang"), the current majority owner of our equity shares.
Pursuant to the Transfer Agreement, we agreed to sell, assign and deliver all shares of Fuwei Films (BVI) Co. Ltd.
("Fuwei BVI"), a subsidiary directly owned by us, plus cash consideration of USD3 million to Ruishang, in exchange
for all 1,728,126 ordinary shares of the Company owned by Ruishang, representing 52.9% of our outstanding shares. This
transaction will effectively transfer our existing business to Ruishang, after which we will only own the shares of Gold
Glory.
The closing of the transaction is subject
to the following conditions, (i) concurrent divesture of our current business, which is to be effected through sale of Fuwei BVI
to Ruishang, pursuant to the Transfer Agreement (ii) approval of the transactions contemplated by the Purchase Agreement and the
Transfer Agreement by our Board of Directors and shareholders; (iii) receipt of necessary regulatory approvals, including NASDAQ
approval, and (iv) a private placement of ordinary shares by Gold Glory raising at least USD10 million.
We were previously informed that Gold Glory
needs additional time to complete its audit. No formal amendment reflecting an extension has been entered into by the parties.
We are still waiting for the completion of Gold Glory’s audit and will provide further updates when available.
Results of operations for the three months
ended March 31, 2020 and March 31, 2019
The table below sets forth certain line items
from our Statement of Operations as a percentage of revenue:
|
|
Three-Month Period Ended
|
|
|
Three-Month Period Ended
|
|
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
35.8
|
|
|
|
15.3
|
|
Operating expenses
|
|
|
(18.1
|
)
|
|
|
(16.7
|
)
|
Operating income (loss)
|
|
|
17.7
|
|
|
|
(1.4
|
)
|
Other income (expense)
|
|
|
(2.2
|
)
|
|
|
(2.7
|
)
|
Income tax benefit (expense)
|
|
|
0.1
|
|
|
|
-
|
|
Net income (loss)
|
|
|
15.6
|
|
|
|
(4.2
|
)
|
Revenue
Net sales during the first quarter ended
March 31, 2020 were RMB83.2 million (US$11.8 million), compared to RMB81.1 million, during the same period in 2019, representing
an increase of RMB2.1 million or 2.6%, mainly due to the increased sales price.
In the first quarter of 2020, sales of specialty
films were RMB39.9 million (US$5.6 million) or 47.9% of our total revenues as compared to RMB32.2 million or 39.7% in the same
period of 2019. The increase was mainly due to increased sales volume.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Three-Month Period Ended
March
31, 2020
|
|
|
% of Total
|
|
|
Three-Month Period Ended
March
31, 2019
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
Stamping and transfer film
|
|
|
34,522
|
|
|
|
4,876
|
|
|
|
41.5
|
%
|
|
|
31,529
|
|
|
|
38.9
|
%
|
Printing film
|
|
|
5,845
|
|
|
|
825
|
|
|
|
7.0
|
%
|
|
|
12,219
|
|
|
|
15.1
|
%
|
Metallization film
|
|
|
1,501
|
|
|
|
212
|
|
|
|
1.8
|
%
|
|
|
676
|
|
|
|
0.8
|
%
|
Specialty film
|
|
|
39,877
|
|
|
|
5,632
|
|
|
|
47.9
|
%
|
|
|
32,196
|
|
|
|
39.7
|
%
|
Base film for other application
|
|
|
1,488
|
|
|
|
210
|
|
|
|
1.8
|
%
|
|
|
4,454
|
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,233
|
|
|
|
11,755
|
|
|
|
100.0
|
%
|
|
|
81,074
|
|
|
|
100.0
|
%
|
Overseas sales were RMB5.8 million or US$0.8
million, or 6.9% of total revenues, compared with RMB16.2 million or 20.0% of total revenues in the first quarter of 2019, representing
a decrease of RMB10.4 million or 64.2%. The decrease was mainly due to decreased sales volume.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands except percentages):
|
|
Three-Month Period Ended
March 31, 2020
|
|
|
% of Total
|
|
|
Three-Month Period Ended
March 31, 2019
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
77,448
|
|
|
|
10,938
|
|
|
|
93.1
|
%
|
|
|
64,854
|
|
|
|
80.0
|
%
|
Sales in other countries
|
|
|
5,785
|
|
|
|
817
|
|
|
|
6.9
|
%
|
|
|
16,220
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,233
|
|
|
|
11,755
|
|
|
|
100.0
|
%
|
|
|
81,074
|
|
|
|
100.0
|
%
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Cost of Goods Sold
Our cost of goods sold is mainly comprised
of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
March 31, 2020
|
|
|
March 31, 2019
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
74.0
|
%
|
|
|
73.2
|
%
|
Factory overhead
|
|
|
8.2
|
%
|
|
|
11.0
|
%
|
Energy expense
|
|
|
9.9
|
%
|
|
|
7.8
|
%
|
Packaging materials
|
|
|
4.5
|
%
|
|
|
4.1
|
%
|
Direct labor
|
|
|
3.4
|
%
|
|
|
3.9
|
%
|
Cost of goods sold during the first quarter
of 2020 totaled RMB53.5 million (US$7.6 million) as compared to RMB68.7 million in the same period of 2019. This was RMB15.2 million
or 22.1% lower than the same period in 2019. This decrease was mainly due to decreased prices of main raw materials.
Gross Profit
Our gross profit was RMB29.8 million
(US$4.2 million) for the first quarter ended March 31, 2020, representing a gross margin of 35.8%, as compared to a gross
profit of RMB12.4 million and gross margin of 15.3% for the same period in 2019. Our average product sales prices increased
by 5.4% while our average cost of goods sold decreased by 20.0% compared to the same period in 2019. Consequently, the
increase in average product sales prices and the decrease in the average cost of goods sold during the first quarter ended
March 31, 2020 contributed to the increase in our gross profit and gross margin during the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
Operating expenses for the first quarter
ended March 31, 2020 were RMB15.0 million (US$2.1 million), which was RMB1.5 million, or 11.1% higher than the same period in 2019.
This increase was mainly due to the increased allowance for doubtful accounts receivable and increased transportation expenses.
Other Income (Expense)
Total other income is a combination of
interest income, interest expense and others income (expense). Total other expense during the first quarter ended March 31, 2020
was RMB1.9 million (US$0.3 million), while total other expense was RMB2.2 million for the same period in 2019.
Income Tax Benefit (Expense)
The income tax benefit was RMB0.09 million
(US$0.01 million) during the first quarter ended March 31, 2020, compared to income tax expense of RMB0.02 million during the same
period in 2019. This increase of income tax benefit was due to changes in deferred tax.
Net Profit (Loss)
Net profit attributable to the Company
during the first quarter ended March 31, 2020 was RMB13.0 million (US$1.8 million) compared to net loss attributable to the Company
of RMB3.4 million during the same period in 2019.
Liquidity and Capital Resources
Our capital expenditures have been primarily
from cash generated from our operations and borrowings from related parties, financial institutions. The interest rates of borrowings
during the period from the first quarter of 2019 to the first quarter of 2020 ranged from 5.22% to 6.5%.
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, the Company 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 March 31, 2020, the principal of
this loan from Shandong SNTON was RMB86.80 million and the interest payable was RMB33.6 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The related accounts payable as of March
31, 2020 and December 31, 2019 was RMB120.4 million and RMB119.3 million, respectively.
The main source of cash inflow for the
next twelve months will come from sales of products, and the estimated inflow is RMB354.4 million. The estimated cash outflow is
RMB254.0 million. The amount of cash used in the purchase of raw materials and packaging materials is estimated to be RMB157.8
million and RMB11.2 million, respectively. Cash used for power costs, labor costs, maintenance and renovation expenses is estimated
to be RMB24.4 million, RMB17.5 million and RMB10.3 million, respectively. Total cash used in sales expenses, financial expenses
and administrative expenses is estimated to be RMB32.8 million. The foregoing description has been prepared based on the information
available to us as of the date of this report on Form 6-K and there are numerous factors that could contribute to a different result
such as risks inherent in, the BOPET film industry in China; uncertainty as to future profitability and competition in the BOPET
film industry; growth of, and risks inherent in, the BOPET film industry in China and numerous other factors as more fully disclosed
in our reports filed with the U.S. Securities and Exchange Commission.
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 used in operating activities for
the three months ended March 31, 2020 was RMB2.3 million (US$0.3 million) compared to net cash provided by operating activities
of RMB5.6 million for the three months ended March 31, 2019. This increase in net cash flows used in operating activities was primarily
attributable to the increase in accounts receivable.
Working Capital
As of March 31, 2020 and December 31, 2019,
we had a working capital deficit of RMB90.4 million (US$12.8 million) and RMB110.0 million, respectively. Working capital deficit
decreased by RMB19.6 million (US$2.8 million), or 17.8% compared to the amount as of December 31, 2019. Our current liability is
mainly borrowings from related parties.
Contractual Obligations
The following table is a summary of our contractual
obligations as of March 31, 2020 (in thousands RMB):
Contractual Commitments
|
|
Total
|
|
|
Less than 1
Total Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
More than 5
Years
|
|
|
|
(RMB in thousands)
|
|
Equipment Purchase Contract
|
|
|
1,010
|
|
|
|
1,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Due to related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
86,796
|
|
|
|
86,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,531
|
|
|
|
4,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,225
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Notes payable
|
|
|
26,800
|
|
|
|
26,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
20
|
|
|
|
20
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
188,382
|
|
|
|
188,382
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 proceeding
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
|
99.1
|
|
Press Release dated June 22, 2020.
|