No. 387 Dongming Road
Indicate by check mark whether the registrant
files or will file annual reports under cover Form 20-F or Form 40-F.
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule
Indicate by check mark if the registrant
is submitting the Form 6-K in paper as permitted by Regulation S-T Rule
Indicate by check mark whether the
registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
If “Yes” marked, indicate below
the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________
This Report of Foreign Private Issuer on
Form 6-K (this “Form 6-K”) contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or the future financial
performance of Fuwei Films (Holdings) Co., Ltd. (the “Company”). The Company has attempted to identify forward-looking
statements by terminology, including, but not limited to, “anticipates”, “believes”, “expects”,
“can”, “continue”, “could”, “estimates”, “intends”, “may”,
“plans”, “potential”, “predicts”, “should” or “will” or the negative
of these terms or other comparable terminology.
On August 17, 2017, the Company announced
its unaudited consolidated financial results for the six-month period ended June 30, 2017.
The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
The accompanying notes are an integral
part of these unaudited condensed consolidated statements.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE
30, 2017 AND 2016
(amounts in thousands except share and per
share value)
(Unaudited)
|
|
The Six-Month Period Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Cash flow from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(23,802
|
)
|
|
|
(3,511
|
)
|
|
|
(22,252
|
)
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
|
|
|
used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Depreciation of property, plant and equipment
|
|
|
21,728
|
|
|
|
3,205
|
|
|
|
21,364
|
|
- Amortization of intangible assets
|
|
|
262
|
|
|
|
39
|
|
|
|
261
|
|
- Deferred income taxes
|
|
|
(114
|
)
|
|
|
(17
|
)
|
|
|
(482
|
)
|
- Bad debt recovery
|
|
|
512
|
|
|
|
76
|
|
|
|
2,197
|
|
-Inventory provision
|
|
|
(57
|
)
|
|
|
(8
|
)
|
|
|
(226
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
- Accounts and bills receivable
|
|
|
(98
|
)
|
|
|
(14
|
)
|
|
|
(13,076
|
)
|
- Inventories
|
|
|
303
|
|
|
|
45
|
|
|
|
1,869
|
|
- Advance to suppliers
|
|
|
(30
|
)
|
|
|
(4
|
)
|
|
|
(2,699
|
)
|
- Prepaid expenses and other current assets
|
|
|
(1,104
|
)
|
|
|
(163
|
)
|
|
|
72
|
|
- Accounts payable
|
|
|
(1,489
|
)
|
|
|
(221
|
)
|
|
|
(341
|
)
|
- Accrued expenses and other payables
|
|
|
288
|
|
|
|
42
|
|
|
|
(1,045
|
)
|
- Advance from customers
|
|
|
171
|
|
|
|
25
|
|
|
|
(308
|
)
|
- Tax payable
|
|
|
3,959
|
|
|
|
584
|
|
|
|
9,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in)
operating activities
|
|
|
529
|
|
|
|
78
|
|
|
|
(4,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(447
|
)
|
|
|
(66
|
)
|
|
|
(2,722
|
)
|
Restricted cash related to trade finance
|
|
|
43,421
|
|
|
|
6,405
|
|
|
|
(9,344
|
)
|
Advanced to suppliers - non current
|
|
|
(257
|
)
|
|
|
(38
|
)
|
|
|
(266
|
)
|
Amount change in construction in progress
|
|
|
(2,157
|
)
|
|
|
(318
|
)
|
|
|
(1,496
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
40,560
|
|
|
|
5,983
|
|
|
|
(13,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments of bank loans
|
|
|
(1,675
|
)
|
|
|
(247
|
)
|
|
|
(1,675
|
)
|
Proceeds from short-term bank loans
|
|
|
(10,500
|
)
|
|
|
(1,549
|
)
|
|
|
-
|
|
Proceeds from related party
|
|
|
15,322
|
|
|
|
2,260
|
|
|
|
3,167
|
|
Payment of capital lease obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
(302
|
)
|
Change in notes payable
|
|
|
(40,888
|
)
|
|
|
(6,031
|
)
|
|
|
11,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by
financing activities
|
|
|
(37,741
|
)
|
|
|
(5,567
|
)
|
|
|
12,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes
|
|
|
(239
|
)
|
|
|
11
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease ( increase) in cash and cash equivalent
|
|
|
3,109
|
|
|
|
505
|
|
|
|
(5,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalent
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of period
|
|
|
13,343
|
|
|
|
1,922
|
|
|
|
14,355
|
|
At end of period
|
|
|
16,452
|
|
|
|
2,427
|
|
|
|
8,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
4,853
|
|
|
|
716
|
|
|
|
3,461
|
|
Income tax paid
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Account payable for plant and equipment:
|
|
|
1,398
|
|
|
|
206
|
|
|
|
2,354
|
|
Obligations for acquired equipment under capital lease:
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
NOTE 1 – BACKGROUND
Fuwei Films (Holdings) Co., Ltd. and its
subsidiaries (the “Company” or the “Group”) are principally engaged in the production and distribution
of BOPET film, a high quality plastic film widely used in packaging, imaging, electronics, electrical and magnetic products in
the People’s Republic of China (the “PRC”). The Company is a holding company incorporated in the Cayman Islands,
established on August 9, 2004 under the Cayman Islands Companies Law as an exempted company with limited liability. The Company
was established for the purpose of acquiring shares in Fuwei (BVI) Co., Ltd. (“Fuwei (BVI)”), an intermediate holding
company established for the purpose of acquiring all of the ownership interest in Fuwei Films (Shandong) Co., Ltd. (“Shandong
Fuwei”).
On August 20, 2004, the Company was allotted
and issued one ordinary share of US$1.00 in Fuwei (BVI) (being the entire issued share capital of Fuwei (BVI)), thereby establishing
Fuwei (BVI) as the intermediate investment holding company of the Company.
On April 23, 2009, Fuwei Films USA, LLC
was set up and co-invested by the Company and Newell Finance Management Co., Ltd. Fuwei Films USA, LLC has a registered capital
of US$10 and total investment amount of US$100. Fuwei Films (Holdings) Co., Ltd. and Newell Finance Management Co., Ltd. own 60%
and 40% of the total shares of Fuwei Films USA, LLC, respectively. In December 2016, Fuwei Films USA, LLC was dissolved.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission (the “SEC”) as applicable to smaller reporting companies, and generally accepted accounting principles for
interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals
and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally presented in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted
pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 20-F for
the year ended December 31, 2016 filed on April 6, 2017 with the SEC. The results of the six-month period ended June 30, 2017 are
not necessarily indicative of the results to be expected for the full year ended December 31, 2017.
Principles of Consolidation
The condensed consolidated financial statements
include the financial statements of the Company and its 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.
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 2017 RMB amounts included in the accompanying condensed consolidated financial statements in our quarterly report
have been translated into U.S. dollars at the rate of US$1.00 = RMB6.7793, on the last trading day of second quarter of 2017 (June
30, 2017) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB
amounts could have been, or could be, converted into U.S. dollar at that rate or at any other certain rate on June 30, 2017, 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 RMB30,001 (US$4,425)
and RMB73,421 as of June 30, 2017 and December 31, 2016, respectively.
Trade Accounts Receivable
Trade accounts receivable are recorded
at the invoiced amount after deduction of trade discounts, value added taxes and allowances, if any, and do not bear interest.
The allowance for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s
existing accounts receivable. The Group determines the allowance based on historical write-off experience, customer specific facts
and economic conditions.
The Group reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All
other balances are reviewed on a pooled basis by aging of such balances. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of
cost or market value as of balance sheet date. Inventory valuation and cost-flow is determined using Moving Weighted Average Method
basis. The Group estimates excess and slow moving inventory based upon assumptions of future demands and market conditions. If
actual market conditions are less favorable than projected by management, additional inventory write-downs may be required. Cost
of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production
overheads based on normal operating capacity.
Property, Plant and Equipment
Property, plant and equipment are stated
at cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line
method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets. They
are as follows:
|
|
Years
|
Buildings and improvements
|
|
25 - 30
|
Plant and equipment
|
|
10 - 15
|
Computer equipment
|
|
5
|
Furniture and fixtures
|
|
5
|
Motor vehicles
|
|
5
|
Depreciation of property, plant and equipment
attributable to manufacturing activities is capitalized as part of the inventory, and expensed to cost of goods sold when inventory
is sold. Depreciation related to abnormal amounts from idle capacity is charged to general and administrative expenses for the
period incurred.
Construction in progress represents capital
expenditures in respect to the BOPET production line. No depreciation is provided in respect to construction in progress.
Leased Assets
An arrangement, comprising a transaction
or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific
asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based
on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
Classification of assets leased to the
Group.
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of
ownership are classified as being held under capital leases. Leases which do not transfer substantially all the risks and rewards
of ownership to the Group are classified as operating leases.
Assets acquired under capital leases.
Where the Group acquires the use of assets under capital leases, the amounts representing the fair value of the leased asset, or,
if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the
corresponding liabilities, net of finance charges, are recorded as obligations under capital leases. Depreciation is provided at
rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group
will obtain ownership of the asset, the life of the asset. Finance charges implicit in the lease payments are charged to the consolidated
income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining
balance of the obligations for each accounting period. Contingent rentals are charged to the consolidated income statement in the
accounting period in which they are incurred.
Operating lease charges.
Where the
Group has the use of assets held under operating leases, payments made under the leases are charged to the consolidated income
statement in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in the
consolidated income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the
consolidated income statement in the accounting period in which they are incurred.
Sale and leaseback transactions.
Gains
or losses on equipment sale and leaseback transactions which result in capital leases are deferred and amortized over the terms
of the related leases. Gains or losses on equipment sale and leaseback transactions which result in operating leases are recognized
immediately if the transactions are established at fair value. Any loss on the sale perceived to be a real economic loss is recognized
immediately. However, if a loss is compensated for by future rentals at a below-market price, then the artificial loss is deferred
and amortized over the period that the equipment is expected to be used. If the sale price is above fair value, then any gain is
deferred and amortized over the useful life of the assets.
Lease Prepayments
Lease prepayments represent the costs of
land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The non-current portion and current portion of lease prepayments have been reported in Lease Prepayments,
Prepayments and Other Receivables in the balance sheets, respectively.
Goodwill
Goodwill represents the excess of purchase
price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill
is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment
testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount
of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using
a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the
application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and
projections of realizations and costs to produce. Management considers historical experience and all available information
at the time the fair values of its reporting units are estimated. Goodwill was determined to be fully impaired during the year
ended December 31, 2012.
Impairment of Long-lived Assets
The Company recognizes an impairment loss
when circumstances indicate that the carrying value of long-lived assets with finite lives may not be recoverable. Management’s
policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria
at an asset group level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event,
the Company uses assumptions, which are predominately identified from the Company’s strategic long-range plans, in determining
the impairment amount. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of the
asset group with the estimated future cash flows expected to result from the use of the assets. If the carrying amount of the asset
group exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing
the carrying amount of the asset group with their estimated fair value. We estimate the fair value of assets based on market prices
(i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market prices are not
available, we estimate the fair value of the asset group using discounted expected future cash flows at the Company’s weighted-average
cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash flows are based
upon estimates that, if not achieved, may result in significantly different results.
Revenue Recognition
Sales of plastic films are reported, net
of value added taxes (“VAT”), sales returns, and trade discounts. The standard terms and conditions under which the
Company generally delivers allow a customer the right to return product for refund only if the product does not conform to product
specifications; the non-conforming product is identified by the customer; and the customer rejects the non-conforming product and
notifies the Company within 30 days of receipt for both PRC and overseas customers. The Company recognizes revenue when products
are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive
evidence of an arrangement exists and the sales price is fixed or determinable.
In the PRC, VAT of 17% on the invoice amount
is collected 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.
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.
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 June 30, 2017 and 2016, the Company had a working capital deficiency of RMB175,058
(US$25,822) and RMB158,474 and accumulated deficit of RMB23,802 (US$3,511) and RMB22,252 from net losses incurred during the first
half year of 2017 and 2016. Faced with the fierce competition in the BOPET industry in China, the Company may still witness losses
over the next twelve months. The ability of the Company to operate as a going concern depends upon its ability to obtain loans
from financial institutions and a related party and/or generate positive cash flow from operations. The Company accordingly has
obtained loans from financial institutions and a related party to meet the need of working capital for our operation or debts.
At the same time, the Company will continue implementing strict cost reductions on both manufacturing costs and operating expenses
to improve profit margins. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company
be unable to continue as a going concern.
Recently Issued
Accounting Standards
Revenue
Recognition
: In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under
U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers
in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines
a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required
within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations
in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction
price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either
of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients
as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized
at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The adoption of this
ASU is not expected to have a material impact on the Company's consolidated financial statements.
Financial Instrument
In January 2016, the FASB issued ASU No.
2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition, measurement, presentation,
and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning
after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective for us on September 1, 2018.
The Company is currently evaluating the impact that the standard will have on the Company’s consolidated financial statements.
Leases
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic
842) (“ASU 2016-2”), which provides guidance on lease amendments to the FASB Accounting Standard Codification. This
ASU will be effective for us beginning in May 1, 2019. The Company is currently in the process of evaluating the impact of the
adoption of ASU 2016-2 on the Company consolidated financial statements.
Stock-based Compensation
In March 2016, the FASB issued ASU 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). ASU 2016-09
changes how companies account for certain aspects of stock-based awards to employees, including the accounting for income taxes,
forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09
is effective for us in the first quarter of 2018, and earlier adoption is permitted. We are still evaluating the effect that this
guidance will have on our consolidated financial statements and related disclosures.
Financial Instruments - Credit Losses
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial asset (or a group of financial
assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments broaden the
information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively
or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss,
which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for the Company for fiscal years
beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is allowed as of the fiscal
years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is still evaluating
the effect that this guidance will have on the Company’s consolidated financial statements and related disclosures.
Statement of Cash Flows:
In
August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): The amendments in this Update apply to all entities,
including both business entities and not-for-profit entities that are required to present a statement of cash flows under Topic
230. The amendments in this Update provide guidance on the following eight specific cash flow issues. The amendments are an improvement
to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity
in practice described above. ASU 2016-15 is effective for the Company for fiscal years beginning after December 15, 2017, including
interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is
still evaluating the effect that this guidance will have on the Company’s consolidated financial statements and related
disclosures.
Statement of Cash Flows:
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash
Flows (Topic 230): “Restricted Cash”(“ASU 2016-18”). ASU 2016-18 requires that a statement of cash
flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. This update is effective in fiscal years, including interim periods, beginning after December
15, 2017 and early adoption is permitted. The adoption of this guidance will result in the inclusion of the restricted cash balances
within the overall cash balance and removal of the changes in restricted cash activity, which are currently recognized in Other
financing activities, on the Statements of Consolidated Cash Flows. Furthermore, an additional reconciliation will be required
to reconcile Cash and cash equivalents and restricted cash reported within the Consolidated Balance Sheets to sum to the total
shown in the Statements of Consolidated Cash Flows. The Company anticipates adopting this new guidance effective January 1, 2018.
The Company is currently evaluating this guidance and the impact it will have on the Consolidated Financial Statements and disclosures.
Stock-based Compensation
:
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock compensation (Topic 718): Scope of modification
accounting” (“ASU 2017-09”). The purpose of the amendment is to clarify which changes to the terms or condition
of a share-based payment award require an entity to apply modification accounting. For all entities that offer share based payment
awards, ASU 2017-09 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company
is currently assessing the impact of ASU 2017-09 on its condensed consolidated financial statements.
Other
pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not
applicable or not significant to the consolidated financial statements of the Company.
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts and bills receivables consisted of
the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
21,696
|
|
|
|
3,200
|
|
|
|
17,052
|
|
Less: Allowance for doubtful accounts
|
|
|
(3,726
|
)
|
|
|
(550
|
)
|
|
|
(3,213
|
)
|
|
|
|
17,970
|
|
|
|
2,650
|
|
|
|
13,839
|
|
Bills receivable
|
|
|
11,069
|
|
|
|
1,633
|
|
|
|
15,614
|
|
|
|
|
29,039
|
|
|
|
4,283
|
|
|
|
29,453
|
|
The Group has a credit policy in place
and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit
over a certain amount. These receivables are due within 7 to 90 days from the date of billing. Generally, the Group does not obtain
collateral from customers. Bills receivable are banker’s acceptance bills, which are guaranteed by the bank.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
18,318
|
|
|
|
2,702
|
|
|
|
21,463
|
|
Work-in-progress
|
|
|
1,202
|
|
|
|
177
|
|
|
|
1,072
|
|
Finished goods
|
|
|
9,508
|
|
|
|
1,403
|
|
|
|
6,796
|
|
Consumables and spare parts
|
|
|
602
|
|
|
|
89
|
|
|
|
602
|
|
Inventory-reserve
|
|
|
(4,723
|
)
|
|
|
(697
|
)
|
|
|
(4,780
|
)
|
|
|
|
24,907
|
|
|
|
3,674
|
|
|
|
25,153
|
|
NOTE 5 - PROPERTY, PLANT AND
EQUIPMENT, NET
Property, plant and equipment consisted
of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,319
|
|
|
|
10,078
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
799,969
|
|
|
|
118,002
|
|
|
|
799,067
|
|
Computer equipment
|
|
|
2,484
|
|
|
|
366
|
|
|
|
2,484
|
|
Furniture and fixtures
|
|
|
14,685
|
|
|
|
2,166
|
|
|
|
14,668
|
|
Motor vehicles
|
|
|
2,093
|
|
|
|
309
|
|
|
|
2,094
|
|
|
|
|
887,550
|
|
|
|
130,921
|
|
|
|
886,632
|
|
Less: accumulated depreciation
|
|
|
(490,958
|
)
|
|
|
(72,420
|
)
|
|
|
(468,759
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,065
|
)
|
|
|
(7,219
|
)
|
|
|
|
389,373
|
|
|
|
57,436
|
|
|
|
410,654
|
|
Total depreciation for the six-month periods
ended June 30, 2017 and 2016 was RMB21,728 (US$3,205) and RMB21,364, respectively. For the three-month periods ended June 30, 2017
and 2016, total depreciation was RMB10,747 (US$1,610) and RMB10,696, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB2,588 (US$382) ended June 30, 2017, and RMB431
ended December 31, 2016, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of
land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
Lease prepayments consisted of the following:
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
17,096
|
|
|
|
2,522
|
|
|
|
17,358
|
|
Lease prepayment - current
|
|
|
524
|
|
|
|
77
|
|
|
|
524
|
|
|
|
|
17,620
|
|
|
|
2,599
|
|
|
|
17,882
|
|
Amortization of land use rights for the
six months ended June 30, 2017 and 2016 was RMB262 (US$39) and RMB261, respectively. Amortization of land use rights for the three
months ended June 30, 2017 and 2016 was RMB131 (US$20) and RMB130, respectively.
Estimated amortization expenses for the
next five years after June 30, 2017 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
77
|
|
2 years after
|
|
|
524
|
|
|
|
77
|
|
3 years after
|
|
|
524
|
|
|
|
77
|
|
4 years after
|
|
|
524
|
|
|
|
77
|
|
5 years after
|
|
|
524
|
|
|
|
77
|
|
Thereafter
|
|
|
15,000
|
|
|
|
2,214
|
|
As of June 30, 2017, the amount of RMB524
(US$84) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan
consisted of the following:
Lender
|
|
Interest
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
|
rate per annum
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of SPD.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- November 16, 2016 to November 16, 2017
|
|
5.22%
|
|
|
15000
|
|
|
|
2,213
|
|
|
|
15,000
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- July 15, 2016 to July 15, 2017
|
|
7.5%
|
|
|
19,500
|
|
|
|
2,876
|
|
|
|
19,500
|
|
- July 15, 2016 to July 15, 2017
|
|
7.5%
|
|
|
15,000
|
|
|
|
2,213
|
|
|
|
15,000
|
|
- July 20, 2016 to July 20, 2017
|
|
7.5%
|
|
|
-
|
|
|
|
-
|
|
|
|
6,400
|
|
- July 20, 2016 to July 20, 2017
|
|
7.5%
|
|
|
-
|
|
|
|
-
|
|
|
|
1,800
|
|
- July 20, 2016 to July 20, 2017
|
|
7.5%
|
|
|
-
|
|
|
|
-
|
|
|
|
2,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weifang Dongfang State-owned Assets Management Co., Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- October 19, 2009 to October 18, 2017
|
|
4.41%
|
|
|
1,625
|
|
|
|
240
|
|
|
|
3,300
|
|
|
|
|
|
|
51,125
|
|
|
|
7,541
|
|
|
|
63,300
|
|
Less: amounts classified as short-term loan
|
|
|
|
|
(49,500
|
)
|
|
|
(7,302
|
)
|
|
|
(60,000
|
)
|
Less: long-term loan, current portion;
|
|
|
|
|
(1,625
|
)
|
|
|
(240
|
)
|
|
|
(3,300
|
)
|
Long-term Loan
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Notes:
The principal amounts of the above loans
are repayable at the end of the loan period.
On November 20, 2009, the Company signed
a long-term loan agreement in the amount of RMB10,000 (US$1,475) with Weifang Dongfang State-owned Assets Management Co., Ltd.,
with an eight-year loan term, which became effective on October 19, 2009 and will expire on October 18, 2017. From 2015 to 2016,
the Company will make principal installment payments of RMB3,350 (US$494) per year with the remaining principal balance of RMB3,300 (US$487)
due in 2017. The annual interest rate for the loan is the benchmark interest rate for over five-year loans announced by the People’s
Bank of China reduced by 10% and the applicable annual interest rate for the period ended June 30, 2017 is 4.41%. The loan is guaranteed
by Shandong Deqin Investment& Guarantee Co., Ltd. and is used for the Company's projects.
Long-term bank loans maturity for the next
year after June 30, 2017 are as follows:
|
|
RMB
|
|
US$
|
within one year
|
|
1,625
|
|
240
|
NOTE 9- RELATED PARTY TRANSACTIONS
Due to related parties
In April 2014, the Company obtained a loan
for a total amount of RMB105,000 from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”)
to pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate,
plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China.
The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this
loan and the interest have not been paid. In March 2015, the Company entered into a supplemental agreement with Shandong SNTON
pursuant to which the parties agreed that the Company will pay off the principal of this loan plus interest upon availability of
new loans from banks or other financial institutions.
As of December 31, 2016, the principal
of this loan from Shandong SNTON was RMB104,708 and the interest payable was RMB17,373.
As of June 30, 2017, the principal of this
loan from Shandong SNTON was RMB104,708 and the interest payable was RMB20,128.
In May 2017, SNTON Group provided the Company
with a loan for the amount of RMB10,000.
As of June 30, 2017, the principal of this
loan from SNTON Group was RMB10,000 and the interest payable was zero.
As of June 30, 2017, the total balance
of principal of loans from related party was RMB114,708 and the interest payable was RMB20,128.
As of June 30, 2017, the accounts payable
resulting from purchasing from related party was RMB12,233.
During the first half of 2017, the Company
purchased 496 Metric Tons of final products of BOPET from Shandong SNTON for a total amount of RMB5,007.
The related accounts payable as of June
30, 2017 and December 31, 2016 was RMB147,069 and RMB131,747, respectively.
During the first half of 2017 and 2016,
we paid approximately RMB25 and RMB27, respectively, to Fuhua Industrial Material Management Co., Ltd. as rental payments in connection
with living quarters for our staff.
NOTE 10 - NOTES PAYABLE
As of June 30, 2017 and December 31, 2016,
Shandong Fuwei held banker’s acceptances opened in a maturity span from three to six months totaling RMB60,000 (US$8,850)
and RMB100,888 for payment in connection with raw materials on a total deposit of RMB30,000 (US$4,425) at SPD Bank.
NOTE 11 - INCOME TAX
Income tax benefit was RMB114 (US$16) and
RMB482 for the six months ended June 30, 2017 and 2016, respectively.
Income tax benefit was RMB49 (US$7) and RMB64
for the three months ended June 30, 2017 and 2016, respectively.
NOTE 12 - LOSS PER SHARE
Basic and diluted net loss per share was
RMB7.29 (US$1.08) and RMB6.81 for the six months period ended June 30, 2017 and 2016, respectively.
Basic and diluted net loss per share was
RMB3.57 (US$0.53) and RMB3.12 for the three months period ended June 30, 2017 and 2016, respectively.
NOTE 13- MAJOR CUSTOMERS AND VENDORS
There were no major customers who accounted
for more than 10% of the total net revenue for the three-month periods ended June 30, 2017 and 2016.
The following are the vendors that supplied
10% or more of our raw materials for June 30, 2017 and 2016:
Supplier
|
|
Item
|
|
Percentage of total purchases (%)
|
|
|
|
|
June 30, 2017
|
|
June 30, 2016
|
Sinopec Yizheng Chemical Fibre Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additives
|
|
44.0%
|
|
64.3%
|
PetroChina Company Limited Chemicals Sales East China Branch (“PetroChina”)
|
|
PET resin and Additives
|
|
23.9%
|
|
0%
|
Weifang Power Supply Company.
|
|
Electric power
|
|
11.5%
|
|
13.1%
|
The balance of advance to supplier to Sinopec
Yizheng and PetroChina was RMB1,534 (US$226) and RMB2,007 as of June 30, 2017, respectively.
References to "dollars" and "US$"
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 2017, 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 coming quarters
of 2017, 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 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 sharesthrough Easebright. Mr. Jingang
Yang has been appointed as the director of Easebright.
Results of operations for the six-month
periods ended June 30, 2017 compared to June 30, 2016
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, 2017
|
|
June 30, 2016
|
|
|
(as % of Revenue)
|
Gross profit
|
|
6.4
|
|
9.2
|
Operating expenses
|
|
(20.3)
|
|
(24.3)
|
Operating income (loss)
|
|
(13.9)
|
|
(15.0)
|
Other income (expense)
|
|
(3.4)
|
|
(3.7)
|
Provision for income taxes
|
|
0.1
|
|
0.4
|
Net income (loss)
|
|
(17.2)
|
|
(18.3)
|
Revenue
Our revenue is primarily derived from the
manufacture and sale of plastic films.
Net sales during the six-month period ended
June 30, 2017 were RMB138.0 million (US$20.4 million), compared to RMB121.5 million in the same period in 2016, representing an
increase of RMB16.5 million or 13.6%. The increase in average sales price caused an increase of RMB12.6 million and the increase
in the sales volume caused an increase of RMB3.9 million.
In the six-month period ended June 30,
2017, sales of specialty films were RMB47.3 million (US$7.0 million) or 34.3% of our total revenues as compared to RMB45.3 million
or 37.3% in the same period of 2016, which was an increase of RMB2.0 million, or 4.4% as compared to the same period in 2016. The
increase in the sales volume caused an increase of RMB1.8 million and the increase in average sales price caused an increase of
RMB0.2 million.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Six-Month Period Ended
June 30, 2017
|
|
|
% of
Total
|
|
|
Six-Month Period Ended
June 30, 2016
|
|
|
% of
Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
53,450
|
|
|
|
7,884
|
|
|
|
38.7
|
%
|
|
|
43,721
|
|
|
|
35.9
|
%
|
Printing film
|
|
|
11,559
|
|
|
|
1,705
|
|
|
|
8.4
|
%
|
|
|
9,058
|
|
|
|
7.5
|
%
|
Metallization film
|
|
|
5,101
|
|
|
|
752
|
|
|
|
3.7
|
%
|
|
|
3,646
|
|
|
|
3.0
|
%
|
Specialty film
|
|
|
47,330
|
|
|
|
6,982
|
|
|
|
34.3
|
%
|
|
|
45,284
|
|
|
|
37.3
|
%
|
Base film for other application
|
|
|
20,570
|
|
|
|
3,035
|
|
|
|
14.9
|
%
|
|
|
19,754
|
|
|
|
16.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,010
|
|
|
|
20,358
|
|
|
|
100.0
|
%
|
|
|
121,463
|
|
|
|
100.0
|
%
|
Overseas sales during the six months ended
June 30, 2017 were RMB29.0 million or US$4.3 million, or 21.0% of total revenues, compared with RMB23.7 million or 19.5% of total
revenues in the same period in 2016. This was RMB5.3 million higher than the same period in 2016. The increase in sales volume
resulted in an increase of RMB2.5 million and the increase in average sales price caused an increase of RMB2.8 million.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Six-Month Period Ended
June 30, 2017
|
|
|
% of Total
|
|
|
Six-Month Period Ended
June 30, 2016
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
109,008
|
|
|
|
16,080
|
|
|
|
79.0
|
%
|
|
|
97,738
|
|
|
|
80.5
|
%
|
Sales in other countries
|
|
|
29,002
|
|
|
|
4,278
|
|
|
|
21.0
|
%
|
|
|
23,725
|
|
|
|
19.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,010
|
|
|
|
20,358
|
|
|
|
100.0
|
%
|
|
|
121,463
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold comprises mainly
of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
Six-Month Period Ended
June 30, 2017
|
|
Six-Month Period Ended
June 30, 2016
|
|
|
% of total
|
|
% of total
|
Materials costs
|
|
69.8%
|
|
68.0%
|
Factory overhead
|
|
9.8%
|
|
9.8%
|
Energy expense
|
|
11.3%
|
|
12.5%
|
Packaging materials
|
|
4.4%
|
|
4.6%
|
Direct labor
|
|
4.7%
|
|
5.1%
|
Cost of goods sold during the first six
months of 2017 totaled RMB129.2 million (US$19.1 million) as compared to RMB110.2 million in the same period of 2016. This was
RMB19.0 million or 17.2% higher than the same period in 2016. The increase in sales volume resulted in an increase of RMB3.6 million
and the increase in average sales cost caused an increase of RMB15.4 million which was mainly due to the price increase of main
raw materials.
Gross Loss
Our gross margin was RMB8.8 million (US$1.3
million) for the first six months ended June 30, 2017, representing a gross margin rate of 6.4%, as compared to a gross margin
rate of 9.2% for the same period in 2016. Correspondingly, gross margin rate decreased by 2.8 percentage points. Our average product
sales prices increased by 10.0% compared to the same period last year while the average cost of goods sold increased by 13.5% compared
to the same period last year. Consequently, the amount of increase in cost of goods sold was higher than that in sales revenue
during the six months ended June 30, 2017 compared with the same period in 2016, which resulted in a decrease in our gross margin.
Operating Expenses
Operating expenses for the six months ended
June 30, 2017 were RMB28.0 million (US$4.1 million), compared to RMB29.5 million in the same period in 2016, which was RMB1.5 million
or 5.1% lower than the same period in 2016. This decrease was mainly due to decreased allowance for doubtful accounts receivable.
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 2017 was RMB4.7
million (US$0.7 million) while total other income was RMB4.5 million for the same period in 2016.
Income Tax Benefit (Expense)
The income tax benefit was RMB0.1 million
(US$0.02 million) during the six months ended June 30, 2017, compared to income tax benefit of RMB0.5 million during the same period
in 2016. This decrease of the income tax benefit was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the first half of 2017 was RMB23.8 million (US$3.5 million) compared to net loss attributable to the Company of RMB22.3 million
during the same period in 2016, representing an increase of RMB1.5 million from the same period in 2016 due to the factors described
above.
Results of operations for the three-month
periods ended June 30, 2017 compared to June 30, 2016
The table below sets forth certain line items
from our Statement of Income as a percentage of revenue:
|
|
Three-Month Period Ended
|
|
Three-Month Period Ended
|
|
|
June 30, 2017
|
|
June 30, 2016
|
|
|
(as % of Revenue)
|
Gross profit
|
|
7.2
|
|
9.5
|
Operating expenses
|
|
(20.2)
|
|
(24.4)
|
Operating income (loss)
|
|
(13.1)
|
|
(14.9)
|
Other income (expense)
|
|
(3.6)
|
|
(2.4)
|
Provision for income taxes
|
|
0.1
|
|
0.1
|
Net income (loss)
|
|
(16.6)
|
|
(17.2)
|
Revenue
Net sales during the second quarter ended
June 30, 2017 were RMB70.1 million (US$10.3 million), compared to RMB59.3 million during the same period in 2016, representing
an increase of RMB10.8 million or 18.2%. The increase of average sales price caused an increase of RMB7.0 million and the sales
volume increase caused an increase of RMB3.8 million.
In the second quarter of 2017, sales of
specialty films were RMB25.6 million (US$3.8 million) or 36.5% of our total revenues as compared to RMB23.5 million or 39.7% in
the same period of 2016, which was an increase of RMB2.1 million, or 8.9% as compared to the same period in 2016. The increase
of average sales price caused an increase of RMB0.3 million and the increase in the sales volume caused an increase of RMB1.8 million.
The increase was largely attributable to the increase in sales volume.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Three-Month Period Ended
June 30, 2017
|
|
|
% of Total
|
|
|
Three-Month
Period Ended
June 30, 2016
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
26,378
|
|
|
|
3,891
|
|
|
|
37.7
|
%
|
|
|
19,937
|
|
|
|
33.6
|
%
|
Printing film
|
|
|
5,289
|
|
|
|
780
|
|
|
|
7.5
|
%
|
|
|
6,649
|
|
|
|
11.2
|
%
|
Metallization film
|
|
|
2,483
|
|
|
|
366
|
|
|
|
3.5
|
%
|
|
|
2,852
|
|
|
|
4.8
|
%
|
Specialty film
|
|
|
25,568
|
|
|
|
3,771
|
|
|
|
36.5
|
%
|
|
|
23,525
|
|
|
|
39.7
|
%
|
Base film for other application
|
|
|
10,347
|
|
|
|
1,527
|
|
|
|
14.8
|
%
|
|
|
6,353
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,066
|
|
|
|
10,335
|
|
|
|
100.0
|
%
|
|
|
59,316
|
|
|
|
100.0
|
%
|
Overseas sales were RMB15.8 million or
US$2.3 million, or 22.5% of total revenues, compared with RMB11.2 million or 18.9% of total revenues in the second quarter of 2016.
The increase of average sales price caused an increase of RMB1.9 million and the increase in sales volume resulted in an increase
of RMB2.7 million.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Three-Month Period Ended
June 30, 2017
|
|
|
% of Total
|
|
|
Three-Month Period Ended
June 30, 2016
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
54,277
|
|
|
|
8,006
|
|
|
|
77.5
|
%
|
|
|
48,106
|
|
|
|
81.1
|
%
|
Sales in other countries
|
|
|
15,789
|
|
|
|
2,329
|
|
|
|
22.5
|
%
|
|
|
11,210
|
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,066
|
|
|
|
10,335
|
|
|
|
100.0
|
%
|
|
|
59,316
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold comprises mainly
of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
Three-Month Period Ended
June 30, 2017
|
|
Three-Month Period Ended
June 30, 2016
|
|
|
% of total
|
|
% of total
|
Materials costs
|
|
69.6%
|
|
69.8%
|
Factory overhead
|
|
9.7%
|
|
9.0%
|
Energy expense
|
|
11.5%
|
|
11.8%
|
Packaging materials
|
|
4.6%
|
|
4.7%
|
Direct labor
|
|
4.6%
|
|
4.7%
|
Cost of goods sold during the second quarter
of 2017 totaled RMB65.0 million (US$9.6 million) as compared to RMB53.7 million in the same period of 2016. This was RMB11.3 million
or 21.0% higher than the same period in 2016. The increase in unit cost of goods sold caused an increase of RMB7.9 million and
the increase in sales volume caused an increase of RMB3.4 million.
Gross Loss
Our gross profit was RMB5.0 million (US$0.7
million) for the second quarter ended June 30, 2017, representing a gross profit rate of 7.2%, as compared to a gross profit rate
of 9.5% for the same period in 2016. Correspondingly, gross profit rate decreased by 2.3 percentage point compared to the same
period in 2016. Our average product sales prices increased by 11.1% compared to the same period last year while the average cost
of goods sold increased by 13.9% compared to the same period last year. Consequently, the amount of increase in cost of goods sold
was larger than that in sales revenue during the second quarter ended June 30, 2017 compared with the same period in 2016, which
resulted in a decrease in our gross profit.
Operating Expenses
Operating expenses for the second quarter
ended June 30, 2017 were RMB14.2 million (US$2.1 million), as compared to RMB14.5 million for the same period in 2016.
Other Income (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,
2017 was RMB2.5 million (US$0.4 million), RMB1.1 million higher than the same period in 2016, which mainly attributed to increased
interest expense.
Income Tax Benefit (Expense)
The income tax benefit was RMB0.05 million
(US$0.01 million) during the second quarter ended June 30, 2017, compared to income tax benefit of RMB0.06 million during the same
period in 2016. This decrease of the income tax benefit was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the second quarter ended June 30, 2017 was RMB11.6 million (US$1.7 million) compared to net loss attributable to the Company of
RMB10.2 million during the same period in 2016, representing an increase of RMB1.4 million for the same period in 2016.
Liquidity and Capital Resources
Our capital expenditures have been primarily
from cash generated from our operations and borrowings from related parties, financial institutions, including through sale-leaseback
transactions. The interest rates of borrowings from financial institutions during the period from the second quarter of 2016 to
the second quarter of 2017 ranged from 4.41% to 7.20%.
On November 20, 2009, we signed a long-term
loan agreement of RMB10.0 million (US$1.475 million) with Weifang Dongfang State-owned Assets Management Co., Ltd., with an eight-year
loan term, which became effective on October 19, 2009 and will expire on October 18, 2017. From 2015 to 2016, we will make principal
installment payments of RMB3.35 million (US$0.494 million) per year with the remaining principal balance of RMB3.30 million (US$0.487
million) due in 2017. The annual interest rate for the loan is the benchmark interest rate for over five-year loans announced by
the People’s Bank of China reduced by 10% and the applicable annual interest rate for the period ended June 30, 2017 is 4.41%.
The loan is guaranteed by Shandong Deqin Investment& Guarantee Co., Ltd. and is used for our projects.
In April 2014, we obtained a loan for a
total amount of RMB105 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”) to
pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate,
plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China.
The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this
loan and the interest have not been paid. In March 2015, we entered into a supplemental agreement with Shandong SNTON pursuant
to which the parties agreed that we will pay off the principal of this loan plus interest upon availability of new loans from banks
or other financial institutions.
As of December 31, 2016, the principal
of this loan from Shandong SNTON was RMB104.7 million and the interest payable was RMB17.4 million.
As of June 30, 2017, the principal of this
loan from Shandong SNTON was RMB104.7 million and the interest payable was RMB20.1 million.
In May 2017, SNTON Group provided us with
a loan for the amount of RMB10.0 million.
As of June 30, 2017, the principal of this
loan from SNTON Group was RMB10.0 million and the interest payable was zero.
As of June 30, 2017, the total balance
of principal of loans from related party was RMB114.7 million and the interest payable was RMB20.1 million.
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, 2017 was RMB0.5 million (US$0.1 million) compared to net cash used in operating activities of
RMB4.7 million for the six months ended June 30, 2016. This increase in cash flows provided by operating activities was primarily
attributable to the change of the accounts receivable.
Investing Activities
Net cash flows provided by investing activities
for the six months ended June 30, 2017 was RMB40.6 million (US$6.0 million) compared to net cash flows used in investing activities
of RMB13.8 million for the six months ended June 30, 2016. This increase in cash flows provided by investing activities was primarily
attributable to change of the restricted cash.
Financing Activities
Net cash flows used in financing activities
for the six months ended June 30, 2017 was RMB37.7 million (US$5.6 million) compared to net cash flows provided by financing activities
of RMB12.6 million for the six months ended June 30, 2016. This increase in cash flows used in financing activities was primarily
attributable to repaying of loans and change of notes payable.
Working Capital
As of June 30, 2017 and December 31, 2016,
we had a working capital deficit of RMB175.1 million (US$25.8 million) and RMB170.1 million, respectively. Working capital deficit
increased by RMB5.0 million (US$0.7 million), or 2.9% compared to the amount as of December 31, 2016. Our main current liability
was a loan from a related party.
Contractual Obligations
The following table is a summary of our contractual
obligations as of June 30, 2017 (in thousands RMB):
|
|
Payments due by period
|
|
|
|
|
|
|
|
|
Less than
|
|
|
|
1-3
|
|
|
|
3-5
|
|
|
|
More than
|
|
Contractual obligations
|
|
|
Total
|
|
|
|
1 year
|
|
|
|
years
|
|
|
|
years
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental obligations
|
|
|
235
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase commitment
|
|
|
1,398
|
|
|
|
1,398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,633
|
|
|
|
1,633
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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 two legal proceedings
in China.
On July 9, 2012, a client filed a lawsuit
in Beijing Daxing District People’s Court against Shandong Fuwei claiming RMB953,113 plus interest over disputes arising
from a Procurement Contract between the parties. Shandong Fuwei raised a jurisdictional objection upon filing its plea, and Beijing
Daxing District People’s Court overruled the objection. Shandong Fuwei filed an appeal against the judgment in the First
Intermediate People’s Court of Beijing. The appeal was dismissed on January 23, 2013. On May 15, 2013, Beijing Daxing District
People’s Court heard the case and adjourned the hearing due to the fact that plaintiff failed to provide sufficient evidence.
On June 25, 2013, the case was heard in Beijing Daxing District People’s Court again and it was further adjourned due to
plaintiff’s failure to provide sufficient evidence. The case was then scheduled to be heard on August 7, 2013. However, on
the day prior to re-scheduled hearing, Shandong Fuwei was informed by Beijing Daxing District People’s Court that the hearing
was adjourned further for the same reason that plaintiff failed to provide sufficient evidence. On April 21, 2014, the case was
heard, and the plaintiff failed to provide sufficient evidence and the hearing was further adjourned. On May 28, 2014, the case
was heard and the plaintiff provided some evidence. On August 25, 2014, the case was heard again. On November 5, 2014, the court
accepted the withdrawal application from the plaintiff. On November 26, 2014, the plaintiff filed a second lawsuit in Beijing Daxing
District People’s Court against Shandong Fuwei over disputes arising from the Procurement Contract between the parties claiming
RMB618,230 plus interest as a result of non- payment. The case was heard on January 26, 2015, where the two parties testified over
the relevant evidence. The case was heard on March 3, 2015, October 26, 2015 and May 11, 2016, respectively. To date, the case
has not been decided.
On January 21, 2014, Shandong Fuwei received
a complaint from Zeng Wenhong, a Hong Kong citizen, against Shandong Fuwei with a claim for a refund of US$500,000 (approximately
RMB4,138,250) and related interest of RMB2,331,784. The plaintiff alleged that Shandong Fuwei has agreed to sell to the plaintiff
ordinary shares of the Company pursuant to an oral agreement between the plaintiff and Shandong Fuwei in June 2005, and as a result
the plaintiff transferred US$500,000 to Wellplus Investments (Hong Kong) Limited to be used for acquiring the ordinary shares of
the Company. However, the plaintiff never received such shares. The case was heard by the Intermediate People's Court of Weifang
on April 3, 2014 and October 28, 2014. On September 25, 2015, Shandong Fuwei received a written judgment issued by the Intermediate
People’s Court of Weifang ordering Shandong Fuwei to refund US$500,000 together with its interest to the plaintiff. Shandong
Fuwei filed for an appeal to the Higher People’s Court of Shandong Province (the “Shandong HPC”) within the appeal
period. On April 29, 2016 and June 7, 2016, the case was heard by the Shandong HPC for the first time. On June 20, 2016, the Shandong
HPC reversed the judgment issued by the Intermediate People’s Court of Weifang and dismissed the lawsuit filed by Zeng Wenhong.
The plaintiff, Zeng Wenhong, became responsible for the court acceptance fees for first and second hearings. This was a final decision
of Shandong HPC. On March 6, 2017, Shandong Fuwei received a notice of application for retrial from The Supreme People’s
Court of The People’s Republic of China
(the “SPC”)
stating that Zeng Wenhong
has filed for an appeal to
the SPC
regarding the decision issued by the Shandong HPC on June
20, 2016 requesting a retrial by
the SPC
. Shandong Fuwei has submitted its written response
to
the SPC
and the case has been under review. On April 19, 2017, Shandong Fuwei received the
civil ruling paper issued by the SPC stating that the application for retrial by Zeng Wenhong was not conforming to stipulations
of The Civil Procedure Law of the People’s Republic of China and was rejected by
the SPC
.
Exhibit Index
Exhibit No.
|
|
Description
|
99.1
|
|
Press Release dated August 17, 2017.
|
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Fuwei Films (Holdings) Co., Ltd.
|
|
|
|
|
|
|
|
By:
|
/s/ Zengyong Wang
|
|
|
Name: Zengyong Wang
|
|
|
Title: Chairman and Chief Executive Officer
|
Dated: August 17, 2017
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