The accompanying notes are an integral
part of these unaudited condensed consolidated statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
NOTE 1 - BACKGROUND
Fuwei Films (Holdings) Co., Ltd. and its
subsidiaries (the “Company” or the “Group”) are principally engaged in the production and distribution
of BOPET film, a high quality plastic film widely used in packaging, imaging, electronics, electrical and magnetic products in
the People’s Republic of China (the “PRC”). The Company is a holding company incorporated in the Cayman Islands,
established on August 9, 2004 under the Cayman Islands Companies Law as an exempted company with limited liability. The Company
was established for the purpose of acquiring shares in Fuwei (BVI) Co., Ltd. (“Fuwei (BVI)”), an intermediate holding
company established for the purpose of acquiring all of the ownership interest in Fuwei Films (Shandong) Co., Ltd. (“Shandong
Fuwei”).
On August 20, 2004, the Company was allotted
and issued one ordinary share of US$1.00 in Fuwei (BVI) (being the entire issued share capital of Fuwei (BVI)), thereby establishing
Fuwei (BVI) as the intermediate investment holding company of the Company.
NOTE 2 - BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company, pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (the “SEC”) as applicable to smaller reporting companies, and generally accepted accounting principles
for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals
and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally presented in annual consolidated financial statements prepared
in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been
omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on
Form 20-F for the year ended December 31, 2019 filed on April 28, 2020 with the SEC. The results of the six-month period ended
June 30, 2020 are not necessarily indicative of the results to be expected for the full year ended December 31, 2020.
Principles of Consolidation
The condensed consolidated financial statements
include the financial statements of the Company and its two subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated
financial statements in accordance with U.S. GAAP requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. On an ongoing basis, management reviews its estimates and assumptions, including those
related to the recoverability of the carrying amount and the estimated useful lives of long-lived assets, valuation allowances
for accounts receivable and realizable values for inventories. Changes in facts and circumstances may result in revised estimates.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
As recommended by the Audit Committee
of the Company and approved by the board of directors of the Company, in order to ensure that the accounting depreciation period
of fixed assets of the Company is in line with the actual usage of assets, it is proposed for the Company to adjust the accounting
depreciation period of fixed assets of the third production line (which includes the main manufacturing equipment of Dornier production
line, auxiliary equipment and testing equipment of Downier production line) from 15 years to 10 years in order to reflect the
actual usage of the aforesaid assets of the Company (the “Changes in Depreciation Period”). The Changes in Depreciation
Period will apply to the financial year of the Company starting from 1 April, 2020.
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 2020 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 = RMB7.0651, on the last trading day of the second quarter of 2020
(June 30, 2020) as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that
the RMB amounts could have been, or could be, converted into U.S. dollar at that rate or at any other certain rate on June 30,
2020, or at any other date.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
Cash and Cash Equivalents and Restricted
Cash
For statements of cash flow purposes,
the Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and
other highly-liquid investments with maturities of three months or less, when purchased, 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 RMB5,000 (US$708) and
RMB25,500 as of June 30, 2020 and December 31, 2019, 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. 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
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
Depreciation of property, plant and equipment
attributable to manufacturing activities is capitalized as part of the inventory, and expensed to cost of goods sold when inventory
is sold. Depreciation related to abnormal amounts from idle capacity is charged to general and administrative expenses for the
period incurred.
Construction in progress represents capital
expenditures with respect to the BOPET production line. No depreciation is provided with respect to construction in progress.
Leased Assets
An arrangement, comprising a transaction
or a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific
asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based
on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
Classification of assets leased to
the Group. Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards
of ownership are classified as being held under capital leases. Leases which do not transfer substantially all the risks and rewards
of ownership to the Group are classified as operating leases.
Assets acquired under capital leases.
Where the Group acquires the use of assets under capital leases, the amounts representing the fair value of the leased asset,
or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and
the corresponding liabilities, net of finance charges, are recorded as obligations under capital leases. Depreciation is provided
at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group
will obtain ownership of the asset, the life of the asset. Finance charges implicit in the lease payments are charged to the consolidated
income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining
balance of the obligations for each accounting period. Contingent rentals are charged to the consolidated income statement in
the accounting period in which they are incurred.
Operating lease charges. Where
the Group has the use of assets held under operating leases, payments made under the leases are charged to the consolidated income
statement in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more
representative of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in the
consolidated income statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to
the consolidated income statement in the accounting period in which they are incurred.
Sale and leaseback transactions. Gains
or losses on equipment sale and leaseback transactions which result in capital leases are deferred and amortized over the terms
of the related leases. Gains or losses on equipment sale and leaseback transactions which result in operating leases are recognized
immediately if the transactions are established at fair value. Any loss on the sale perceived to be a real economic loss is recognized
immediately. However, if a loss is compensated for by future rentals at a below-market price, then the artificial loss is deferred
and amortized over the period that the equipment is expected to be used. If the sale price is above fair value, then any gain
is deferred and amortized over the useful life of the assets.
Lease Prepayments
Lease prepayments represent the costs
of land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The non-current portion and current portion of lease prepayments have been reported in Lease Prepayments,
Prepayments and Other Receivables in the balance sheets, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
Goodwill
Goodwill represents the excess of purchase
price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill
is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment
testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount
of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using
a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the
application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and
projections of realizations and costs to produce. Management considers historical experience and all available information
at the time the fair values of its reporting units are estimated. Goodwill was determined to be fully impaired during the year
ended December 31, 2012.
Impairment of Long-lived Assets
The Company recognizes an impairment loss
when circumstances indicate that the carrying value of long-lived assets with finite lives may not be recoverable. Management’s
policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria
at an asset group level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event,
the Company uses assumptions, which are predominately identified from the Company’s strategic long-range plans, in determining
the impairment amount. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of
the asset group with the estimated future cash flows expected to result from the use of the assets. If the carrying amount of
the asset group exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment
by comparing the carrying amount of the asset group with their estimated fair value. We estimate the fair value of assets based
on market prices (i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market
prices are not available, we estimate the fair value of the asset group using discounted expected future cash flows at the Company’s
weighted-average cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash
flows are based upon estimates that, if not achieved, may result in significantly different results.
Revenue Recognition
Sales of plastic films are reported, net
of value added taxes (“VAT”), sales returns, and trade discounts. The standard terms and conditions under which the
Company generally delivers allow a customer the right to return product for refund only if the product does not conform to product
specifications; the non-conforming product is identified by the customer; and the customer rejects the non-conforming product
and notifies the Company within 30 days of receipt for both PRC and overseas customers. The Company recognizes revenue when products
are delivered and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive
evidence of an arrangement exists and the sales price is fixed or determinable.
In the PRC, VAT of 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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
Income Taxes
Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases
and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date.
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)
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, 2020 and 2019, the Company had a working capital deficiency of RMB66,984
(US$9,481) and RMB134,905. The ability of the Company to operate as a going concern depends upon its ability to obtain loans from
financial institutions and related parties 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
Disclosure Framework
In August
2018, the FASB issued ASU No. 2018-13, "Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement"
("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. ASU 2018-13 is effective
for fiscal years and interim periods beginning after December 15, 2019; early adoption is permitted. As
a result of adoption, this standard did not have a material impact on the Group’s consolidated financial statements.
Financial
Instruments - Credit Losses
In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require
a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected
to be collected. The amendments broaden the information that an entity must consider in developing its expected credit loss estimate
for assets measured either collectively or individually. The use of forecasted information incorporates more timely information
in the estimate of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13
is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal
years. Early adoption is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those
fiscal years. From an evaluation of the Group’s existing credit portfolio, which includes trade receivables from commodity
sales and other receivables, historical credit losses during 90 days have
been de minimis and are expected to remain so in the future assuming no substantial changes to the business. ASU 2016-13 did not
have a significant impact on the Group’s consolidated financial statements upon adoption on January 1, 2020.
Other
pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not
applicable or not significant to the consolidated financial statements of the Company.
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,
2020
|
|
|
December
31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
20,031
|
|
|
|
2,836
|
|
|
|
13,990
|
|
Less: Allowance for doubtful accounts
|
|
|
(993
|
)
|
|
|
(141
|
)
|
|
|
(833
|
)
|
|
|
|
19,038
|
|
|
|
2,695
|
|
|
|
13,157
|
|
Bills receivable
|
|
|
22,791
|
|
|
|
3,226
|
|
|
|
13,803
|
|
|
|
|
41,829
|
|
|
|
5,921
|
|
|
|
26,960
|
|
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,
2020
|
|
|
December
31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
22,773
|
|
|
|
3,223
|
|
|
|
19,108
|
|
Work-in-progress
|
|
|
1,052
|
|
|
|
149
|
|
|
|
1,152
|
|
Finished goods
|
|
|
8,994
|
|
|
|
1,273
|
|
|
|
10,041
|
|
Consumables and spare parts
|
|
|
897
|
|
|
|
127
|
|
|
|
892
|
|
Inventory-reserve
|
|
|
(7,609
|
)
|
|
|
(1,077
|
)
|
|
|
(7,609
|
)
|
|
|
|
26,107
|
|
|
|
3,695
|
|
|
|
23,584
|
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following:
|
|
June 30,
2020
|
|
|
December
31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,903
|
|
|
|
9,753
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
818,187
|
|
|
|
115,807
|
|
|
|
817,715
|
|
Computer equipment
|
|
|
3,175
|
|
|
|
449
|
|
|
|
3,163
|
|
Furniture and fixtures
|
|
|
20,266
|
|
|
|
2,868
|
|
|
|
19,631
|
|
Motor vehicles
|
|
|
1,452
|
|
|
|
206
|
|
|
|
1,452
|
|
|
|
|
911,983
|
|
|
|
129,083
|
|
|
|
910,280
|
|
Less: accumulated depreciation
|
|
|
(618,876
|
)
|
|
|
(87,596
|
)
|
|
|
(600,419
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,022
|
)
|
|
|
(7,219
|
)
|
|
|
|
285,888
|
|
|
|
40,465
|
|
|
|
302,642
|
|
Total depreciation for the six-month periods
ended June 30, 2020 and 2019 was RMB17,986 (US$2,546) and RMB23,892, respectively. For the three-month periods ended June 30,
2020 and 2019, total depreciation was RMB11,139 (US$1,579) and RMB11,848, respectively.
FUWEI FILMS (HOLDINGS)
CO., LTD. AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands
except share and per share value)
(Unaudited)
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB999 (US$141) ended June 30, 2020, and RMB0
ended December 31, 2019, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs
of land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
Lease prepayments consisted of the following:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
15,485
|
|
|
|
2,192
|
|
|
|
15,762
|
|
Lease prepayment - current
|
|
|
534
|
|
|
|
76
|
|
|
|
524
|
|
|
|
|
16,019
|
|
|
|
2,268
|
|
|
|
16,286
|
|
Amortization of land use rights for the
six months ended June 30, 2020 and 2019 was RMB267 (US$38) and RMB267, respectively. Amortization of land use rights for the three
months ended June 30, 2020 and 2019 was RMB133 (US$19) and RMB134, respectively.
Estimated amortization expenses for the
next five years after June 30, 2020 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
534
|
|
|
|
76
|
|
2 years after
|
|
|
534
|
|
|
|
76
|
|
3 years after
|
|
|
534
|
|
|
|
76
|
|
4 years after
|
|
|
534
|
|
|
|
76
|
|
5 years after
|
|
|
534
|
|
|
|
76
|
|
Thereafter
|
|
|
13,349
|
|
|
|
1,888
|
|
As of June 30, 2020, the amount of RMB534
(US$76) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan
consisted of the following:
|
|
Interest
|
|
|
June
30, 2020
|
|
|
December
31, 2019
|
|
Lender
|
|
rate
per
annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- June 19, 2019 to June 18, 2020
|
|
|
6.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
- July 15, 2019 to July 15, 2020
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
2,831
|
|
|
|
20,000
|
|
- July 18, 2019 to July 9, 2020
|
|
|
6.5
|
%
|
|
|
30,000
|
|
|
|
4,246
|
|
|
|
30,000
|
|
- June 18, 2020 to June 15, 2021
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,123
|
|
|
|
-
|
|
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.
As of June 30, 2020, the principal of
this loan from Shandong SNTON was RMB86,796 and the interest payable was RMB34,810.
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 relationship between the Company and Shandong SNTON.
The related accounts payable as of June
30, 2020 and December 31, 2019 was zero and RMB119,297, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and
per share value)
(Unaudited)
NOTE 10 - NOTES PAYABLE
As of June 30, 2020 and December 31, 2019,
Shandong Fuwei had banker’s acceptances opened with a maturity span from three to six months totaling RMB10,000 (US$1,415)
and RMB41,000 for payment in connection with raw materials on a total deposit of RMB5,000(US$708) at Bank of Weifang.
NOTE 11 - INCOME TAX
Income tax benefit was RMB81 (US$11) and
income tax expense was RMB33 for the six months ended June 30, 2020 and 2019, respectively.
Income tax expense was RMB13 (US$2) and RMB16
for the three months ended June 30, 2020 and 2019, respectively.
NOTE 12 - EARNINGS (LOSS) PER SHARE
Basic and diluted net profit per share
was RMB8.27 (US$1.17) and basic and diluted net loss was RMB0.74 for the six months period ended June 30, 2020 and 2019, respectively.
Basic and diluted net profit per share
was RMB4.30 (US$0.61) and RMB0.29 for the three months period ended June 30, 2020 and 2019, 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, 2020 and 2019.
The following are the vendors that supplied
10% or more of our raw materials for June 30, 2020 and 2019:
|
|
|
|
Percentage
of total purchases (%)
|
|
Supplier
|
|
Item
|
|
June
30, 2020
|
|
|
June
30, 2019
|
|
Sinopec Yizheng Chemical
Fibre Company Limited (“Sinopec Yizheng”)
|
|
PET resin and Additives
|
|
|
51.3
|
%
|
|
|
59.8
|
%
|
Jiangyin Branch, Hefei Lucky Science& Technology
Industry Company Ltd. (“Hefei Lucky”)
|
|
PET resin and Additives
|
|
|
10.6
|
%
|
|
|
11.1
|
%
|
Weifang Power Supply Company
|
|
Electric power
|
|
|
10.5
|
%
|
|
|
7.9
|
%
|
The balance of advance to supplier Sinopec
Yizheng and Hefei Lucky, was RMB1,096 (US$155) and RMB2,712 as of June 30, 2020, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to "dollars" and
"US$" 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 2020, 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 2020, 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. As a result, we may continue to witness losses in the future. 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 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.
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 2020 compared to June 30, 2019
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, 2020
|
|
|
June
30, 2019
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
41.6
|
|
|
|
21.1
|
|
Operating expenses
|
|
|
(22.6
|
)
|
|
|
(17.0
|
)
|
Operating income (loss)
|
|
|
18.9
|
|
|
|
4.1
|
|
Other income (expense)
|
|
|
(2.0
|
)
|
|
|
(3.0
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
|
17.0
|
|
|
|
1.1
|
|
Revenue
Net sales during the second quarter ended
June 30, 2020 were RMB82.9 million (US$11.7 million), compared to RMB88.1 million during the same period in 2019, representing
a decrease of RMB5.2 million or 5.9%. The decrease of average sales price caused a decrease of RMB3.6 million and lower sales
volume caused a decrease of RMB1.6 million.
In the second quarter of 2020, sales of
specialty films were RMB48.1 million (US$6.8 million) or 58.0% of our total revenues as compared to RMB42.0 million or 47.6% in
the same period of 2019, which was an increase of RMB6.1 million, or 14.5% as compared to the same period in 2019. The increase
of sales volume caused an increase of RMB8.9 million and the decrease in the average sales price caused a decrease of RMB2.8 million.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Three-Month
Period Ended
June 30, 2020
|
|
|
|
|
|
Three-Month
Period Ended
June 30, 2019
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
%
of Total
|
|
|
RMB
|
|
|
%
of Total
|
|
Stamping and transfer film
|
|
|
25,885
|
|
|
|
3,665
|
|
|
|
31.3
|
%
|
|
|
28,596
|
|
|
|
32.4
|
%
|
Printing film
|
|
|
5,746
|
|
|
|
813
|
|
|
|
6.9
|
%
|
|
|
8,512
|
|
|
|
9.7
|
%
|
Metallization film
|
|
|
1,159
|
|
|
|
164
|
|
|
|
1.4
|
%
|
|
|
1,938
|
|
|
|
2.2
|
%
|
Specialty film
|
|
|
48,088
|
|
|
|
6,806
|
|
|
|
58.0
|
%
|
|
|
41,958
|
|
|
|
47.6
|
%
|
Base film for other application
|
|
|
1,978
|
|
|
|
280
|
|
|
|
2.4
|
%
|
|
|
7,113
|
|
|
|
8.1
|
%
|
|
|
|
82,856
|
|
|
|
11,728
|
|
|
|
100.0
|
%
|
|
|
88,117
|
|
|
|
100.0
|
%
|
Overseas sales were RMB7.5 million or
US$1.1 million, or 9.1% of total revenues, compared with RMB14.3 million or 16.3% of total revenues in the second quarter of 2019.
The increase of average sales price caused an increase of RMB0.5 million and the decrease in sales volume resulted in a decrease
of RMB7.3 million.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Three-Month
Period Ended
June 30, 2020
|
|
|
|
|
|
Three-Month
Period Ended
June 30, 2019
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
% of Total
|
|
|
RMB
|
|
|
% of Total
|
|
Sales in China
|
|
|
75,334
|
|
|
|
10,663
|
|
|
|
90.9
|
%
|
|
|
73,777
|
|
|
|
83.7
|
%
|
Sales
in other countries
|
|
|
7,522
|
|
|
|
1,065
|
|
|
|
9.1
|
%
|
|
|
14,340
|
|
|
|
16.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82,856
|
|
|
|
11,728
|
|
|
|
100.0
|
%
|
|
|
88,117
|
|
|
|
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:
|
|
Three-Month Period Ended
June 30, 2020
|
|
|
Three-Month Period Ended
June
30, 2019
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
71.4
|
%
|
|
|
73.0
|
%
|
Factory overhead
|
|
|
6.3
|
%
|
|
|
10.8
|
%
|
Energy expense
|
|
|
12.9
|
%
|
|
|
8.8
|
%
|
Packaging materials
|
|
|
5.5
|
%
|
|
|
4.0
|
%
|
Direct labor
|
|
|
3.9
|
%
|
|
|
3.4
|
%
|
Cost of goods sold during the second quarter
of 2020 totaled RMB48.4 million (US$6.9 million) as compared to RMB69.5 million in the same period of 2019. This was RMB21.1 million
or 30.4% lower than the same period in 2019. The decrease in unit cost of goods sold caused a decrease of RMB19.8 million and
the decrease in sales volume caused a decrease of RMB1.3 million.
Gross Profit
Gross profit was RMB34.4 million (US$4.9
million) for the second quarter ended June 30, 2020, representing a gross profit rate of 41.6%, as compared to a gross profit
rate of 21.1% for the same period in 2019. Correspondingly, gross profit rate increased by 20.5 percentage point compared to the
same period in 2019. Our average product sales prices decreased by 4.2% compared to the same period last year while the average
cost of goods sold decreased by 29.0% due to the decrease in sales main raw materials compared to the same period last year. Consequently,
it resulted in an increase in our gross profit.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating Expenses
Operating expenses for the second quarter
ended June 30, 2020 were RMB18.7 million (US$2.7 million), as compared to RMB15.0 million for the same period in 2019. This increase
was mainly due to the change of accounting estimate which caused the increase of accrual depreciation of the third production
line.
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,
2020 was RMB1.6 million (US$0.2 million), RMB1.1 million lower than the same period in 2019.
Income Tax Benefit (Expense)
The income tax expense was RMB0.013 million
(US$0.002 million) during the second quarter ended June 30, 2020, compared to income tax expense of RMB0.016 million during the
same period in 2019. 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, 2020 was RMB14.1 million (US$2.0 million) while net profit attributable to the Company
was RMB1.0 million during the same period in 2019.
Results of operations for the six-month
periods ended June 30, 2020 compared to June 30, 2019
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, 2020
|
|
|
June 30, 2019
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
38.7
|
|
|
|
18.3
|
|
Operating expenses
|
|
|
(20.3
|
)
|
|
|
(16.9
|
)
|
Operating income (loss)
|
|
|
18.3
|
|
|
|
1.5
|
|
Other income (expense)
|
|
|
(2.1
|
)
|
|
|
(2.9
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
|
16.3
|
|
|
|
(1.4
|
)
|
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenue
Net sales during the six-month period
ended June 30, 2020 were RMB166.1 million (US$23.5 million), compared to RMB169.2 million in the same period in 2019, representing
a decrease of RMB3.1 million or 1.8%. The increase in average sales price caused an increase of
RMB0.7 million and the decrease in the sales volume caused a decrease of RMB3.8 million.
In the six-month period ended June 30,
2020, sales of specialty films were RMB88.0 million (US$12.5 million) or 53.0% of our total revenues as compared to RMB74.2 million
or 43.8% in the same period of 2019, which was an increase of RMB13.8 million, or 18.6% as compared to the same period in 2019.
The increase in sales volume caused an increase of RMB17.7 million and the decrease in the average sales price caused a decrease
of RMB3.9 million.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Six-Month
Period Ended
June 30, 2020
|
|
|
|
|
|
Six-Month
Period Ended
June 30, 2019
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
% of Total
|
|
|
RMB
|
|
|
% of Total
|
|
Stamping and transfer film
|
|
|
60,406
|
|
|
|
8,548
|
|
|
|
36.3
|
%
|
|
|
60,123
|
|
|
|
35.6
|
%
|
Printing film
|
|
|
11,591
|
|
|
|
1,641
|
|
|
|
7.0
|
%
|
|
|
20,732
|
|
|
|
12.3
|
%
|
Metallization film
|
|
|
2,661
|
|
|
|
377
|
|
|
|
1.6
|
%
|
|
|
2,614
|
|
|
|
1.5
|
%
|
Specialty film
|
|
|
87,965
|
|
|
|
12,451
|
|
|
|
53.0
|
%
|
|
|
74,154
|
|
|
|
43.8
|
%
|
Base film for other application
|
|
|
3,466
|
|
|
|
491
|
|
|
|
2.1
|
%
|
|
|
11,568
|
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,089
|
|
|
|
23,508
|
|
|
|
100.0
|
%
|
|
|
169,191
|
|
|
|
100.0
|
%
|
Overseas sales during the six months ended
June 30, 2020 were RMB13.3 million or US$1.9 million, or 8.0% of total revenues, compared with RMB30.6 million or 18.1% of total
revenues in the same period in 2019. This was RMB17.3 million lower than the same period in 2019. The decrease in sales volume
resulted in a decrease of RMB18.2 million and was mainly due to the antidumping measures while higher average sales price caused
an increase of RMB0.9 million.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands):
|
|
Six-Month
Period Ended
June 30, 2020
|
|
|
|
|
|
Six-Month
Period Ended
June 30, 2019
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
% of Total
|
|
|
RMB
|
|
|
% of Total
|
|
Sales in China
|
|
|
152,783
|
|
|
|
21,625
|
|
|
|
92.0
|
%
|
|
|
138,631
|
|
|
|
81.9
|
%
|
Sales in other countries
|
|
|
13,306
|
|
|
|
1,883
|
|
|
|
8.0
|
%
|
|
|
30,560
|
|
|
|
18.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
166,089
|
|
|
|
23,508
|
|
|
|
100.0
|
%
|
|
|
169,191
|
|
|
|
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:
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Six-Month
Period Ended
June 30, 2020
|
|
|
Six-Month
Period Ended
June 30, 2019
|
|
|
|
|
%
of total
|
|
|
|
%
of total
|
|
Materials costs
|
|
|
72.8
|
%
|
|
|
73.0
|
%
|
Factory overhead
|
|
|
7.3
|
%
|
|
|
10.9
|
%
|
Energy expense
|
|
|
11.3
|
%
|
|
|
8.3
|
%
|
Packaging materials
|
|
|
5.0
|
%
|
|
|
4.1
|
%
|
Direct labor
|
|
|
3.6
|
%
|
|
|
3.7
|
%
|
Cost of goods sold during the first six
months of 2020 totaled RMB101.9 million (US$14.4 million) as compared to RMB138.2 million in the same period of 2019. This was
RMB36.3 million or 26.3% lower than the same period in 2019. The decrease in sales volume resulted in a decrease of RMB3.1 million
and the decrease in average sales cost caused a decrease of RMB33.2 million which was mainly due to the price decrease of main
raw materials.
Gross Profit
Our gross profit was RMB64.2 million (US$9.1
million) for the first six months ended June 30, 2020, representing a gross margin rate of 38.7%, as compared to a gross margin
rate of 18.3% for the same period in 2019. Correspondingly, gross margin rate increased by 20.4 percentage points. Our average
product sales prices increased by 0.4% compared to the same period last year while the average cost of goods sold decreased by
24.6% 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, 2020 were RMB33.8 million (US$4.8 million), compared to RMB28.5 million in the same period in 2019, which was RMB5.3
million or 18.6% higher than the same period in 2019. This increase was mainly due to the change of accounting estimate which
caused the increase of accrual depreciation of the third production line.
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 2020 was RMB3.5
million (US$0.5 million) while total other expense was RMB4.9 million for the same period in 2019.
Income Tax Benefit (Expense)
The income tax benefit was RMB0.08 million
(US$0.01 million) during the six months ended June 30, 2020, compared to income tax expense of RMB0.03 million during the same
period in 2019. This increase of the income tax benefit was due to changes in deferred tax.
Net Income (Loss)
Net income attributable to the Company
during the first half of 2020 was RMB27.0 million (US$3.8 million) compared to net loss attributable to the Company of RMB2.4
million during the same period in 2019, representing an increase of RMB29.4 million from the same period in 2019 due to the factors
described above.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 first quarter of 2019 to the first quarter of 2020 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, 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 June 30, 2020, the principal of
this loan from Shandong SNTON was RMB86.8 million and the interest payable was RMB34.8 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, 2020 was RMB25.9 million (US$3.7 million) compared to net cash provided by operating activities
of RMB25.7 million for the six months ended June 30, 2019.
Investing Activities
Net cash flows used in investing activities
for the six months ended June 30, 2020 was RMB2.2 million (US$0.3 million) compared to net cash flows used in investing activities
of RMB3.5 million for the six months ended June 30, 2019. This decrease in cash flows used in investing activities was primarily
attributable to decreased in purchase of fixed assets.
Financing Activities
Net cash flows used in financing activities
for the six months ended June 30, 2020 was RMB28.7 million (US$4.1 million) compared to net cash flows provided by financing activities
of RMB4.3 million for the six months ended June 30, 2019. This increase in cash flows used in financing activities was primarily
attributable to change of notes payable.
Working Capital
As of June 30, 2020 and December 31, 2019,
we had a working capital deficit of RMB67.0 million (US$9.5 million) and RMB110.0 million, respectively. Working capital deficit
decreased by RMB43.0 million (US$6.1 million), or 39.1% compared to the amount as of December 31, 2019. Our main current liability
is a loan from a related party.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contractual Obligations
The following table is a summary of our contractual
obligations as of June 30, 2020 (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
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other Payables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
86,874
|
|
|
|
86,874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,535
|
|
|
|
4,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Principal
|
|
|
65,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Interest
|
|
|
4,225
|
|
|
|
4,225
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Notes payable
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
69
|
|
|
|
69
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
|
171,713
|
|
|
|
171,713
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Third Production Line Update
The third production line started its
trial operation at the end of January 2013. Our third production line manufactures high-performance electric insulation film,
base film for solar backsheet and TFT-LCD optical film with an annual design capacity of 23,000 metric tons and thickness between
38 and 250µm. It officially started its operation in September 2013. A sample diffusion film (a type of TFT-LCD optical
film) was preliminarily accepted by four customers after being delivered to them for testing. We supplied small batches of products
according to one of the four customer’s purchase order. In addition, a sample base film for solar backsheets was delivered
to a customer for initial testing and we received an initial feedback from this customer and are adjusting the formulas accordingly.
The third production line has not been able to continue its production since April 2015 due to lack of purchase orders. The total
volume of the third production line from January 2015 to March 2015 was 293 Metric Tons.
Legal Proceedings
From time to time, we may be subject to
legal actions and other claims arising in the ordinary course of business. Shandong Fuwei is currently a party to one legal proceeding
in China.
On July 9, 2012, a client filed a lawsuit
in Beijing Daxing District People’s Court against Shandong Fuwei claiming RMB953,113 plus interest over disputes arising
from a Procurement Contract between the parties. Shandong Fuwei raised a jurisdictional objection upon filing its plea, and Beijing
Daxing District People’s Court overruled the objection. Shandong Fuwei filed an appeal against the judgment in the First
Intermediate People’s Court of Beijing. The appeal was dismissed on January 23, 2013. On May 15, 2013, Beijing Daxing District
People’s Court heard the case and adjourned the hearing due to the fact that plaintiff failed to provide sufficient evidence.
On June 25, 2013, the case was heard in Beijing Daxing District People’s Court again and it was further adjourned due to
plaintiff’s failure to provide sufficient evidence. The case was then scheduled to be heard on August 7, 2013. However,
on the day prior to re-scheduled hearing, Shandong Fuwei was informed by Beijing Daxing District People’s Court that the
hearing was adjourned further for the same reason that plaintiff failed to provide sufficient evidence. On April 21, 2014, the
case was heard, and the plaintiff failed to provide sufficient evidence and the hearing was further adjourned. On May 28, 2014,
the case was heard and the plaintiff provided some evidence. On August 25, 2014, the case was heard again. On November 5, 2014,
the court accepted the withdrawal application from the plaintiff. On November 26, 2014, the plaintiff filed a second lawsuit in
Beijing Daxing District People’s Court against Shandong Fuwei over disputes arising from the Procurement Contract between
the parties claiming RMB618,230 plus interest as a result of non- payment. The case was heard on January 26, 2015, where the two
parties testified over the relevant evidence. The case was heard on March 3, 2015, October 26, 2015 and May 11, 2016. To date,
the case has not been decided.
Exhibit Index
Exhibit
No.
|
|
Description
|
99.1
|
|
Press Release
dated September 3, 2020.
|