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, 2020 filed on April 22,
2021 with the SEC. The results of the six-month period ended June 30, 2021 are not necessarily indicative of the results to be expected
for the full year ended December 31, 2021.
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 second
quarter of 2021 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 = RMB 6.4566, on the last trading day of the second quarter of 2021 (June 30,
2021) 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 June 30, 2021, 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 had restricted cash of RMB0 (US$0) and RMB7,500 as of June 30,
2021 and December 31, 2020, 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.
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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 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 Per Share
Basic earnings per share is computed by dividing
net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated by
dividing net earnings by the weighted average number of ordinary and dilutive potential ordinary shares outstanding during the year. Diluted
potential ordinary shares consist of shares issuable pursuant to the Company’s stock option plan.
Share-Based Payments
The Company accounts for share based payments
under the modified-prospective transition method, which requires companies to measure and recognize the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value.
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)
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. We are in the process of evaluating the impact of this standard on our disclosures
but do not currently believe that it will have a material impact.
Leases
In
February 2016, the FASB issued ASU 2016-02,"Leases" to provide a new comprehensive model for lease accounting. Under this
guidance, lessees and lessors should apply a "right-of-use" model in accounting for all leases (including subleases) and eliminate
the concept of operating leases and off-balance sheet leases. This guidance is effective for annual periods and interim periods within
those annual periods beginning after December 15, 2018. Early adoption is permitted. We adopted the provision of ASU 2016-02. The
adoption of ASU 2016-02 did not have a material impact on our 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.
In February 2020,
the FASB issued ASU 2020-02, “Financial Statements - Credit losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Relating to Accounting Standards
Update No. 2016-02, Leases (Topic 842)” (“ASU 2020-02”), which provides guidance on the measurement and requirements
related to credit losses. The new guidance was effective upon issuance of this final accounting standards update. The Company has adopted
this standard and the adoption did not have a material impact on its condensed consolidated financial statements or disclosures.
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.
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands except share
and per share value)
(Unaudited)
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts and bills receivables consisted of the following:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
30,074
|
|
|
|
4,658
|
|
|
|
15,331
|
|
Less: Allowance for doubtful accounts
|
|
|
(1,750
|
)
|
|
|
(271
|
)
|
|
|
(485
|
)
|
|
|
|
28,324
|
|
|
|
4,387
|
|
|
|
14,846
|
|
Bills receivable
|
|
|
15,473
|
|
|
|
2,396
|
|
|
|
17,547
|
|
|
|
|
43,797
|
|
|
|
6,783
|
|
|
|
32,393
|
|
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:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
21,632
|
|
|
|
3,350
|
|
|
|
21,018
|
|
Work-in-progress
|
|
|
845
|
|
|
|
131
|
|
|
|
1,233
|
|
Finished goods
|
|
|
8,497
|
|
|
|
1,316
|
|
|
|
10,187
|
|
Consumables and spare parts
|
|
|
882
|
|
|
|
137
|
|
|
|
874
|
|
Inventory-reserve
|
|
|
(7,379
|
)
|
|
|
(1,143
|
)
|
|
|
(7,876
|
)
|
|
|
|
24,477
|
|
|
|
3,791
|
|
|
|
25,436
|
|
NOTE 5 - Assets Held for Sale
On
November 30, 2020, our Board approved and authorized to sell the Dornier Production Line and the trial production line by
way of open tendering at a realizable price. On December 20, 2020, Huizhou Yidu Yuzheng Digital Technology Co. LTD. (“Huizhou
Yidu Yuzheng”) won the bidding at a total price of RMB141,100 (or approximately US$21,625) for the Dornier Production Line and the
trial production line.
As
of June 30, 2021, assets of Dornier Production Line and the trial production line which was made by Mitsubishi for R &
D met the criteria to be classified as held for sale in accordance with ASC 360-10 and are presented at the lower of the assets' carrying
amount or fair value less cost to sell by segment in current assets in the table below. These assets are considered non-core assets to
the company's operations and are idle asset for many years.
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Dornier Production Line and the trial production line
|
|
|
-
|
|
|
|
-
|
|
|
|
122,919
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
122,919
|
|
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(amounts in thousands except share
and per share value)
(Unaudited)
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the
following:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
76,613
|
|
|
|
11,866
|
|
|
|
76,613
|
|
Plant and equipment
|
|
|
434,366
|
|
|
|
67,275
|
|
|
|
431,072
|
|
Computer equipment
|
|
|
3,275
|
|
|
|
507
|
|
|
|
3,171
|
|
Furniture and fixtures
|
|
|
19,042
|
|
|
|
2,949
|
|
|
|
20,855
|
|
Motor vehicles
|
|
|
1,393
|
|
|
|
216
|
|
|
|
1,546
|
|
|
|
|
534,689
|
|
|
|
82,813
|
|
|
|
533,257
|
|
Less: accumulated depreciation
|
|
|
(428,761
|
)
|
|
|
(66,407
|
)
|
|
|
(421,949
|
)
|
Less: impairment of plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
105,928
|
|
|
|
16406
|
|
|
|
111,308
|
|
Total depreciation for the six-month periods ended
June 30, 2021 and 2020 was RMB6,109 (US$946) and RMB17,986, respectively. For the three-month periods ended June 30, 2021 and
2020, total depreciation was RMB2,947 (US$463) and RMB11,139, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of land
use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective periods
of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables in the balance
sheet.
Lease prepayments consisted of the following:
|
|
June 30, 2021
|
|
|
December 31, 2020
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
14,952
|
|
|
|
2,316
|
|
|
|
15,219
|
|
Lease prepayment - current
|
|
|
534
|
|
|
|
83
|
|
|
|
534
|
|
|
|
|
15,486
|
|
|
|
2,399
|
|
|
|
15,753
|
|
Amortization of land use rights for the six months
ended June 30, 2021 and 2020 was RMB266 (US$41) and RMB267, respectively. Amortization of land use rights for the three months ended
June 30, 2021 and 2020 was RMB132 (US$21) and RMB133, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except
share and per share value)
(Unaudited)
Estimated amortization expenses for the next five
years after June 30, 2021 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
534
|
|
|
|
83
|
|
2 years after
|
|
|
534
|
|
|
|
83
|
|
3 years after
|
|
|
534
|
|
|
|
83
|
|
4 years after
|
|
|
534
|
|
|
|
83
|
|
5 years after
|
|
|
534
|
|
|
|
83
|
|
Thereafter
|
|
|
12,816
|
|
|
|
1,984
|
|
As of June 30, 2021, the amount of RMB534
(US$83) will be charged into amortization expenses within one year, and is classified as current asset under the separate line item captioned
as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM LOAN
Short-term borrowings and long-term loan consisted
of the following:
|
|
Interest
|
|
|
June 30 ,
2021
|
|
|
December 31, 2020
|
|
Lender
|
|
rate per annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- June 17, 2021 to June 16, 2022
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,323
|
|
|
|
15,000
|
|
- July 15, 2020 to July 9, 2021
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
3,098
|
|
|
|
20,000
|
|
- July 9, 2020 to July 9, 2021
|
|
|
6.5
|
%
|
|
|
30,000
|
|
|
|
4,646
|
|
|
|
30,000
|
|
Notes:
The principal amounts of the above loans are repayable
at the end of the loan period.
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.
On
June 23, 2020, Shandong SNTON Group Co., Ltd. (the “SNTON Group”) transferred its equity in Hongkong Ruishang
International Trade Co., Ltd. (“Hongkong Ruishang”) to Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai
Meicheng”). SNTON Group previously held the Company’s 52.9% controlling outstanding ordinary shares (the “Shares”)
indirectly through Hongkong Ruishang. As a result of this transfer, there is no longer relationship between the Company and Shandong SNTON.
FUWEI FILMS (HOLDINGS) CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
According
to the credit of assignment agreement between Shandong SNTON and Shandong Shengjia Industrial Park Operation and Management (“Shandong
Shengjia”), Shandong SNTON transferred its right of credit in the Company to Shandong Shengjia. Shandong Shengjia further transferred
it to Shanghai Meicheng. Due to the transfer, the related accounts payable to Shanghai Meicheng as of December 31, 2020 was
RMB73,571 (US$11,394) after paying back part of the loan. As of June 30, 2021, we have paid off all the principle and interest.
NOTE 10 - NOTES PAYABLE
As of June 30, 2021 and December 31,
2020, Shandong Fuwei had banker’s acceptances opened with a maturity span from three to six months totaling RMB0 (US$0) and RMB15,000
for payment in connection with raw materials.
NOTE 11 - INCOME TAX
Income tax expense was RMB5,755 (US$891) and income
tax benefit was RMB81 for the six months ended June 30, 2021 and 2020, respectively.
Income tax expense was RMB5,736 (US$888) and RMB13 for the three months
ended June 30, 2021 and 2020, respectively.
NOTE 12 - EARNINGS PER SHARE
Basic and diluted net profit per share was RMB15.67
(US$2.43) and RMB8.27 for the six months period ended June 30, 2021 and 2020, respectively.
Basic and diluted net profit per share was RMB6.06
(US$0.94) and RMB4.30 for the three months period ended June 30, 2021 and 2020, respectively.
NOTE 13 - MAJOR CUSTOMERS AND VENDORS
There was one and no major customer who accounted
for more than 10% of the total net revenue for the six-month periods ended June 30, 2021 and 2020, respectively.
|
|
Percentage of total revenue (%)
|
|
Customer
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
Hunan Wujo Hi-Tech Materials Co., Ltd.
|
|
|
16.3
|
%
|
|
|
7.1
|
%
|
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 June 30, 2021 and 2020:
|
|
|
|
Percentage of total
purchases (%)
|
|
Supplier
|
|
Item
|
|
June 30,
2021
|
|
|
June 30,
2020
|
|
Sinopec Yizheng Chemical
Fibre Company Limited (“Sinopec Yizheng”)
|
|
PET
resin and Additives
|
|
|
52.0
|
%
|
|
|
51.3
|
%
|
Jiangyin Branch, Hefei Lucky
Science& Technology Industry Company Ltd. (“Hefei Lucky”)
|
|
PET resin
and Additives
|
|
|
-
|
|
|
|
10.6
|
%
|
Weifang Power Supply Company
|
|
Electric
power
|
|
|
8.9
|
%
|
|
|
10.5
|
%
|
The balance of advance to supplier Sinopec Yizheng
was RMB1,110 (US$172) as of June 30, 2021, respectively.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to "dollars" and "US$"
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 second quarter of 2021, we continued to
be adversely affected by enhanced competition and increased supply over demand in China’s BOPET market. In addition, fierce competition
from overseas as well as anti-dumping measures taken by the United States of America and South Korea caused orders from international
markets to decrease.
We believe that in the remaining quarters of 2021,
there will be a 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 July 2, 2020, we announced receipt
of a notification from Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai Meicheng”) with respect
to an ownership transfer from Shandong SNTON Group Co., Ltd. (the “SNTON Group”) to Shanghai Meicheng, of our 52.9%
controlling outstanding ordinary shares (the “Shares”). SNTON Group held the Shares indirectly through an intermediate
holding company, Hongkong Ruishang International Trade Co., Ltd. (“Hongkong Ruishang”). SNTON Group transferred its
equity in Hongkong Ruishang to Shanghai Meicheng on June 23, 2020, due to SNTON Group’s asset reorganization. As a result
of this transfer, Shanghai Meicheng now indirectly owns the Shares through Hongkong Ruishang and Hongkong Ruishang in turn holds the
Shares through we Apex Glory Holdings Limited, a British Virgin Islands corporation.
Shanghai Meicheng is a diversified investment
management company located in the Yuhaitang Science and Technology Park of Chongwen District in Shanghai, P.R. China. Its area of investment
includes new material, smart city, new energy, culture and entertainment.
We
announced that we have entered into a Securities Purchase Agreement (as
amended) (the “Purchase Agreement”) with Enesoon New Energy Limited, a British Virgin Islands
company (“Enesoon”), directly and indirectly holding subsidiaries in China primarily engaged in green thermal energy storage
businesses, and Enesoon’s shareholders. The Purchase Agreement will result in the issuance by the Company of 111,111,111 new ordinary
shares (“Consideration Shares”) in exchange for all outstanding shares of Enesoon. As a result of this transaction, the former
shareholders of Enesoon will beneficially own in the aggregate approximately 97.1% of our outstanding shares.
The closing of the transactions contemplated under
the Purchase Agreement is subject to various closing conditions, including approval of the issuance of Consideration Shares by the shareholders
of the Company, receipt of NASDAQ approval, receipt by the Company of a satisfactory fairness opinion or valuation and other customary
conditions.
On August 26, 2021, we announced the results
of our Extraordinary General Meeting of Shareholders (the “Meeting”), which was held on August 26, 2021 at 10:00 a.m. (Beijing
Time) at Fuwei Films (Shandong) Co., Ltd., No. 387 Dongming Road, Weifang, Shandong, China. Holders of approximately 73.7%
of our outstanding ordinary shares, as of the record date, July 27, 2021, were present in person or represented by proxy at the
Meeting and approved the (1) the issuance of 111,111,111 ordinary shares of par value of US$0.519008 each of the Company to the
shareholders of Enesoon in exchange for all issued shares of Enesoon; (2) the increase of the authorised share capital of the Company
from US$2,595,040 divided into 5,000,000 ordinary shares of US$0.519008 each to US$70,066,080 divided into 135,000,000 ordinary shares
of US$0.519008 each; and (3) authorization of our directors to do all acts and things considered by them to be necessary or desirable
in connection with the implementation the forgoing resolutions.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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.
Results of operations for the three-month periods ended June 30,
2021 compared to June 30, 2020
The table below sets forth certain line items from our Statement of
Income as a percentage of revenue:
|
|
Three-Month Period Ended
|
|
|
Three-Month Period Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
39.6
|
|
|
|
41.6
|
|
Operating expenses
|
|
|
(13.9
|
)
|
|
|
(22.6
|
)
|
Operating income (loss)
|
|
|
25.7
|
|
|
|
18.9
|
|
Other income (expense)
|
|
|
(0.4
|
)
|
|
|
(2.0
|
)
|
Provision for income taxes
|
|
|
(5.7
|
)
|
|
|
-
|
|
Net income (loss)
|
|
|
19.7
|
|
|
|
17.0
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue
Net
sales during the second quarter ended June 30, 2021 were RMB100.6 million (US$15.6 million), compared to RMB82.9 million during the
same period in 2020, representing a year-over-year increase of RMB17.7 million or 21.4%. The increase of average sales price caused
a year-over-year increase of RMB15.6 million and higher sales volume caused an increase of RMB2.1 million.
In the second quarter of 2021, sales of specialty
films were RMB69.0 million (US$10.7 million) or 68.6% of our total revenues as compared to RMB48.1 million or 58.0% in the same period
of 2020, which was an increase of RMB20.9 million, or 43.5% as compared to the same period in 2020. The increase of sales volume caused
an increase of RMB16.0 million and the increase in the average sales price caused an increase of RMB4.9 million.
The following is a breakdown of commodity and specialty film sales
(amounts in thousands):
|
|
Three-Month Period Ended
June 30, 2021
|
|
|
% of Total
|
|
|
Three-Month Period Ended
June 30, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
21,762
|
|
|
|
3,371
|
|
|
|
21.6
|
%
|
|
|
25,885
|
|
|
|
31.3
|
%
|
Printing film
|
|
|
5,232
|
|
|
|
810
|
|
|
|
5.2
|
%
|
|
|
5,746
|
|
|
|
6.9
|
%
|
Metallization film
|
|
|
1,090
|
|
|
|
169
|
|
|
|
1.1
|
%
|
|
|
1,159
|
|
|
|
1.4
|
%
|
Specialty film
|
|
|
68,979
|
|
|
|
10,683
|
|
|
|
68.6
|
%
|
|
|
48,088
|
|
|
|
58.0
|
%
|
Base film for other application
|
|
|
3,519
|
|
|
|
545
|
|
|
|
3.5
|
%
|
|
|
1,978
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,582
|
|
|
|
15,578
|
|
|
|
100.0
|
%
|
|
|
82,856
|
|
|
|
100.0
|
%
|
Overseas sales were RMB13.4 million or US$2.1
million, or 13.3% of total revenues, compared with RMB7.5 million or 9.1% of total revenues in the second quarter of 2020. The increase
of average sales price caused an increase of RMB0.6 million and the increase in sales volume resulted in an increase of RMB5.3 million.
The following is a breakdown of PRC domestic and overseas sales (amounts
in thousands):
|
|
Three-Month Period Ended
June 30, 2021
|
|
|
% of Total
|
|
|
Three-Month Period Ended
June 30, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
87,205
|
|
|
|
13,506
|
|
|
|
86.7
|
%
|
|
|
75,334
|
|
|
|
90.9
|
%
|
Sales in other countries
|
|
|
13,377
|
|
|
|
2,072
|
|
|
|
13.3
|
%
|
|
|
7,522
|
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,582
|
|
|
|
15,578
|
|
|
|
100.0
|
%
|
|
|
82,856
|
|
|
|
100.0
|
%
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cost of Goods Sold
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
June 30, 2021
|
|
|
Three-Month Period Ended
June 30, 2020
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
73.8
|
%
|
|
|
71.4
|
%
|
Factory overhead
|
|
|
7.2
|
%
|
|
|
6.3
|
%
|
Energy expense
|
|
|
9.6
|
%
|
|
|
12.9
|
%
|
Packaging materials
|
|
|
4.0
|
%
|
|
|
5.5
|
%
|
Direct labor
|
|
|
5.4
|
%
|
|
|
3.9
|
%
|
Cost
of goods sold during the second quarter of 2021 totaled RMB60.7 million (US$9.4 million) as compared to RMB48.4 million in the same period
of 2020. This was RMB12.3 million or 25.4% higher than the same period in 2020. The increase in unit cost of goods sold caused an increase
of RMB11.0 million and the increase in sales volume caused an increase of RMB1.3 million.
Gross Profit
Gross profit was RMB39.9 million (US$6.2 million)
for the second quarter ended June 30, 2021, representing a gross profit rate of 39.6%, as compared to a gross profit rate of 41.6%
for the same period in 2020.
Operating Expenses
Operating
expenses for the second quarter ended June 30, 2021 were RMB14.0 million (US$2.2 million), as compared to RMB18.7 million for the
same period in 2020. This decrease was mainly due to the decrease of accrual depreciation of the third production line as these
two production lines were sold.
Other Expense
Total other expense is a combination result of
interest income, interest expense and others income (expense). Total other expense during the second quarter ended June 30, 2021
was RMB0.4 million (US$0.1 million), RMB1.2 million lower than the same period in 2020.
Income Tax Expense
The income tax expense was RMB5.7 million (US$0.9
million) during the second quarter ended June 30, 2021, compared to income tax expense of RMB0.013 million during the same period
in 2020. This increase of the income tax expense was due to changes in deferred tax.
Net Profit
Net profit attributable to the Company during
the second quarter ended June 30, 2021 was RMB19.8 million (US$3.1 million) while net profit attributable to the Company was RMB14.1
million during the same period in 2020.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations for the six-month periods ended June 30,
2021 compared to June 30, 2020
The table below sets forth certain line items from our Statement of
Operations and Comprehensive Income as a percentage of revenue:
|
|
Six-Month Period Ended
|
|
|
Six-Month Period Ended
|
|
|
|
June 30, 2021
|
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
40.7
|
|
|
|
38.7
|
|
Operating expenses
|
|
|
(12.1
|
)
|
|
|
(20.3
|
)
|
Operating income (loss)
|
|
|
28.6
|
|
|
|
18.3
|
|
Other income (expense)
|
|
|
(0.5
|
)
|
|
|
(2.1
|
)
|
Provision for income taxes
|
|
|
(2.8
|
)
|
|
|
-
|
|
Net income (loss)
|
|
|
25.3
|
|
|
|
16.3
|
|
Revenue
Net
sales during the six-month period ended June 30, 2021 were RMB202.2 million (US$31.3 million), compared to RMB166.1 million
in the same period in 2020, representing an increase of RMB36.1 million or 21.7%. The increase in average sales price caused an increase
of RMB22.0 million and the increase in the sales volume caused an increase of RMB14.1 million.
In
the six-month period ended June 30, 2021, sales of specialty films were RMB133.9 million (US$20.7 million) or 66.2% of our
total revenues as compared to RMB88.0 million or 53.0% in the same period of 2020, which was an increase of RMB45.9 million, or 52.2%
as compared to the same period in 2020. The increase in sales volume caused an increase of RMB41.6 million and the increase in the average
sales price caused an increase of RMB4.3 million.
The following is a breakdown of commodity and specialty film sales
(amounts in thousands):
|
|
Six-Month Period Ended
June 30, 2021
|
|
|
% of Total
|
|
|
Six-Month Period Ended
June 30, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
47,113
|
|
|
|
7,298
|
|
|
|
23.3
|
%
|
|
|
60,406
|
|
|
|
36.3
|
%
|
Printing film
|
|
|
10,714
|
|
|
|
1,659
|
|
|
|
5.3
|
%
|
|
|
11,591
|
|
|
|
7.0
|
%
|
Metallization film
|
|
|
2,733
|
|
|
|
423
|
|
|
|
1.4
|
%
|
|
|
2,661
|
|
|
|
1.6
|
%
|
Specialty film
|
|
|
133,941
|
|
|
|
20,745
|
|
|
|
66.2
|
%
|
|
|
87,965
|
|
|
|
53.0
|
%
|
Base film for other application
|
|
|
7,705
|
|
|
|
1,193
|
|
|
|
3.8
|
%
|
|
|
3,466
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,206
|
|
|
|
31,318
|
|
|
|
100.0
|
%
|
|
|
166,089
|
|
|
|
100.0
|
%
|
Overseas
sales during the six months ended June 30, 2021 were RMB22.4 million or US$3.5 million, or 11.1% of total revenues, compared
with RMB13.3 million or 8.0% of total revenues in the same period in 2020. This was RMB9.1 million higher than the same period in 2020.
The increase in sales volume resulted in an increase of RMB8.1 million while higher average sales price caused an increase of RMB1.0 million.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a breakdown of PRC domestic and overseas sales (amounts
in thousands):
|
|
Six-Month Period Ended
June 30, 2021
|
|
|
% of Total
|
|
|
Six-Month Period Ended
June 30, 2020
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
179,801
|
|
|
|
27,848
|
|
|
|
88.9
|
%
|
|
|
152,783
|
|
|
|
92.0
|
%
|
Sales in other countries
|
|
|
22,405
|
|
|
|
3,470
|
|
|
|
11.1
|
%
|
|
|
13,306
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,206
|
|
|
|
31,318
|
|
|
|
100.0
|
%
|
|
|
166,089
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Cost of goods sold comprises mainly of material
costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage is as follows:
|
|
Six-Month Period Ended
June 30, 2021
|
|
|
Six-Month Period Ended
June 30, 2020
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
72.1
|
%
|
|
|
72.8
|
%
|
Factory overhead
|
|
|
8.1
|
%
|
|
|
7.3
|
%
|
Energy expense
|
|
|
9.8
|
%
|
|
|
11.3
|
%
|
Packaging materials
|
|
|
4.3
|
%
|
|
|
5.0
|
%
|
Direct labor
|
|
|
5.7
|
%
|
|
|
3.6
|
%
|
Cost
of goods sold during the first six months of 2021 totaled RMB119.9 million (US$18.6 million) as compared to RMB101.9 million in
the same period of 2020. This was RMB18.0 million or 17.7% higher than the same period in 2020. The increase in sales volume resulted
in an increase of RMB8.7 million and the increase in average sales cost caused an increase of RMB9.3 million which was mainly due to the
price increase of main raw materials.
Gross Profit
Our gross profit was RMB82.3 million (US$12.7
million) for the first six months ended June 30, 2021, representing a gross margin rate of 40.7%, as compared to a gross margin rate
of 38.7% for the same period in 2020. Correspondingly, gross margin rate increased by 2.0 percentage points. Our average product sales
prices increased by 12.2% compared to the same period last year while the average cost of goods sold increased by 8.4% compared to the
same period last year. Consequently, it resulted in an increase in our gross margin.
Operating Expenses
Operating expenses for the six months ended June 30,
2021 were RMB24.4 million (US$3.8 million), compared to RMB33.8 million in the same period in 2020, which was RMB9.4 million or 27.8%
lower than the same period in 2020. This decrease was mainly due to the decrease of accrual depreciation of the third production line
and trial production line.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other Expense
Total other expense is a combination result of
interest income, interest expense and others income (expense). Total other expense during the first half of 2021 was RMB1.0 million (US$0.1
million) while total other expense was RMB3.5 million for the same period in 2020.
Income Tax Benefit/Expense
The income tax expense was RMB5.8 million (US$0.9
million) during the six months ended June 30, 2021, compared to income tax benefit of RMB0.08 million during the same period in 2020.
This increase of the income tax expense was due to changes in deferred tax.
Net Income
Net income attributable to the Company during
the first half of 2021 was RMB51.2 million (US$7.9 million) compared to net income attributable to the Company of RMB27.0 million during
the same period in 2020, representing an increase of RMB24.2 million from the same period in 2020 due to the factors described above.
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 from
financial institutions during the period from the second quarter of 2020 to the second quarter of 2021 ranged from 6.5% 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 the Company will pay off the principal of this loan plus interest upon availability of new loans from banks or other financial
institutions.
On
June 23, 2020, Shandong SNTON Group Co., Ltd. (the “SNTON Group”) transferred its equity in Hongkong Ruishang
International Trade Co., Ltd. (“Hongkong Ruishang”) to Shanghai Meicheng Enterprise Management Co., Ltd., (“Shanghai
Meicheng”). SNTON Group previously held the Company’s 52.9% controlling outstanding ordinary shares (the “Shares”)
indirectly through Hongkong Ruishang. As a result of this transfer, there is no longer relationship between the Company and Shandong SNTON.
According
to the credit of assignment agreement between Shandong SNTON and Shandong Shengjia Industrial Park Operation and Management
(“Shandong Shengjia”), Shandong SNTON transferred its right of credit in the Company to Shandong Shengjia. Shandong
Shengjia further transferred it to Shanghai Meicheng. Due to the transfer, the related accounts payable to Shanghai Meicheng
as of December 31, 2020 was RMB73.6 million (US$11.4 million) after paying back part of the loan. As of June 30, 2021, we
have paid off all the principle and interest.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 six months ended June 30, 2021 was RMB20.0 million (US$3.1 million) compared to net cash provided by operating activities of
RMB25.9 million for the six months ended June 30, 2020.
Investing Activities
Net cash flows provided by investing activities
for the six months ended June 30, 2021 was RMB123.7 million (US$19.2 million) compared to net cash flows used in investing activities
of RMB2.2 million for the six months ended June 30, 2020. This increase in cash flows provided by investing activities was primarily
attributable to increased cash inflow as a result of the sale of production lines.
Financing Activities
Net cash flows used in financing activities for
the six months ended June 30, 2021 was RMB88.6 million (US$13.7 million) compared to net cash flows used in financing activities
of RMB28.7 million for the six months ended June 30, 2020. This increase in cash flows used in financing activities was primarily
attributable to paying back loans to the related party.
Working Capital
As of June 30, 2021 and December 31,
2020, we had a working capital surplus of RMB159.6 million (US$24.7 million) and RMB101.1 million, respectively. Working capital increased
by RMB58.5 million (US$9.1 million), or 57.9% compared to the amount as of December 31, 2020. Our main current liability is a loan
from banks.
`
The following table is a summary of our contractual obligations as
of June 30, 2021 (in thousands RMB):
|
|
Payments
due by period
|
|
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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,225
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Operating leases
|
|
|
81
|
|
|
|
68
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
70,316
|
|
|
|
70,303
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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