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 May 19, 2016, the Company announced
its unaudited consolidated financial results for the three-month period ended March 31, 2016.
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.
The accompanying notes are an integral part
of these unaudited condensed consolidated statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per
share value)
(Unaudited)
NOTE 1 – BACKGROUND
Fuwei Films (Holdings) Co., Ltd. and its
subsidiaries (the “Company” or the “Group”) are principally engaged in the production and distribution
of BOPET film, a high quality plastic film widely used in packaging, imaging, electronics, electrical and magnetic products in
the People’s Republic of China (the “PRC”). The Company is a holding company incorporated in the Cayman Islands,
established on August 9, 2004 under the Cayman Islands Companies Law as an exempted company with limited liability. The Company
was established for the purpose of acquiring shares in Fuwei (BVI) Co., Ltd. (“Fuwei (BVI)”), an intermediate holding
company established for the purpose of acquiring all of the ownership interest in Fuwei Films (Shandong) Co., Ltd. (“Shandong
Fuwei”).
On August 20, 2004, the Company was allotted
and issued one ordinary share of US$1.00 in Fuwei (BVI) (being the entire issued share capital of Fuwei (BVI)), thereby establishing
Fuwei (BVI) as the intermediate investment holding company of the Company.
On April 23, 2009, Fuwei Films USA, LLC
was set up and co-invested by the Company and Newell Finance Management Co., Ltd. Fuwei Films USA, LLC 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.
NOTE 2 - BASIS OF PRESENTATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
The accompanying unaudited 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, 2015 filed on April 7, 2016, with the SEC. The results of the three-month period ended March 31, 2016
are not necessarily indicative of the results to be expected for the full year ended December 31, 2016.
Principles of Consolidation
The condensed consolidated financial statements
include the financial statements of the Company and its three subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial
statements in accordance with U.S. GAAP requires management of the Company to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ
from those estimates. On an ongoing basis, management reviews its estimates and assumptions, including those related to the recoverability
of the carrying amount and the estimated useful lives of long-lived assets, valuation allowances for accounts receivable and realizable
values for inventories. Changes in facts and circumstances may result in revised estimates.
Foreign Currency Transactions
The Company’s reporting currency
is Chinese Yuan (Renminbi or “RMB”).
Fuwei Films (Holdings) Co., Ltd. and Fuwei
(BVI) operate in Hong Kong as investment holding companies and their financial records are maintained in Hong Kong dollars,
being the functional currency of these two entities. The financial records of Fuwei Films USA, LLC, a 60% owned subsidiary of the
Company, are maintained in US dollars. Assets and liabilities are translated into RMB at the exchange rates at the balance sheet
date, equity accounts are translated at historical exchange rates and income, expenses, and cash flow items are translated using
the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income in the statements
of equity. The changes in the translation adjustments for the current period were reported as the line items of other comprehensive
income in the consolidated statements of comprehensive income.
Transactions denominated in currencies
other than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”)
prevailing at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into
RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. The resulting exchange differences are recorded
in the consolidated statements of comprehensive income.
RMB is not fully convertible into foreign
currencies. All foreign exchange transactions involving RMB must take place either through the PBOC or other institutions authorized
to buy and sell foreign currency. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted
by the PBOC which are determined largely by supply and demand.
Commencing July 21, 2005, the PRC government
moved the RMB into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.
For the convenience of the readers, the
first quarter of 2016 RMB amounts included in the accompanying consolidated financial statements in our quarterly report have been
translated into U.S. dollars at the rate of US$1.00 = RMB6.4480, on the last trading day of first quarter of 2016 (March 31, 2016)
as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts
could have been, or could be, converted into U.S. dollar at that rate or at any other certain rate on March 31, 2016, 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 RMB46,628 (US$7,231)
and RMB43,215 as of March 31, 2016 and December 31, 2015, 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 expense 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 in respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company; instead,
the amount is recorded as a liability on the consolidated balance sheet until such VAT is paid to the authorities.
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 consolidated financial
statements have been prepared in conformity with generally accepted accounting principles which contemplate continuation of the
company as a going concern. However, as of March 31, 2016, the Company had a working capital deficiency of RMB154,400 (US$23,945)
and accumulated deficit of RMB12,055 (US$1,868) from net losses incurred during the first quarter of 2016. Confronted with the
fierce competition in the BOPET industry in China, the Company may still witness losses over the next twelve months. The ability
of the Company to operate as a going concern depends upon its ability to obtain outside sources of working capital and/or generate
positive cash flow from operations. The Company accordingly has developed an outside financing plan to meet the need of working
capital for our operation or debts. At the same time, the Company will continue implementing cost reductions on both manufacturing
costs and operating expenses to improve profit margins. The accompanying consolidated financial statements do not include any 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
Simplifying the Measurement of Inventory:
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which modifies existing requirements regarding
measuring inventory at the lower of cost or market. Under existing standards, the market amount requires consideration of replacement
cost, net realizable value (NRV), and NRV less an approximately normal profit margin. The new ASU replaces market with NRV, defined
as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring
inventory. This standard is effective prospectively beginning January 1, 2017, with early adoption permitted. The Company is evaluating
the impact that this new guidance will have on its consolidated financial statements.
Simplifying the Presentation of Debt
Issuance Costs:
In April 2015, the FASB issued ASU 2015-03-Simplifying the Presentation of Debt Issuance Costs. This
standard amends existing guidance to require the presentation of debt issuance costs in the balance sheet as a deduction from the
carrying amount of the related debt liability instead of a deferred charge. It is effective for annual reporting periods beginning
after December 15, 2015, but early adoption is permitted. The Company is currently evaluating the effect that the adoption of this
standard will have on its financial statements.
Amendments
to the Consolidation Analysis:
In February 2015,
the FASB issued ASU No. 2015-02, “Consolidation (Topic 810) — Amendments to the Consolidation Analysis.”
ASU No. 2015-02 eliminates the deferral of the requirements of ASU No. 2009-17, “Consolidations (Topic 810)
— Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” for certain interests
in investment funds and provides a scope exception from Topic 810 for certain investments in money market funds. The ASU also
makes several modifications to the consolidation guidance for VIEs and general partners’ investments in limited partnerships,
as well as modifications to the evaluation of whether limited partnerships are VIEs or voting interest entities. ASU No. 2015-02
is effective for interim and annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The
Company is currently evaluating the effect that the adoption of this standard will have on its financial statements.
Income
Statement-Extraordinary and Unusual Items
: In January 2015, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. 2015-01 about Income Statement-Extraordinary and Unusual Items (Subtopic 225-20). ASU 2015-01 addresses
the elimination from U.S. GAAP the concept of extraordinary items. Presently, an event or transaction is presumed to be an ordinary
and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. If an
event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary
item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from
continuing operations. This amended guidance will prohibit separate disclosure of extraordinary items in the income statement.
This amendment is effective for years, and interim periods within those years, beginning after December 15, 2015. Entities
may apply the amendment prospectively or retrospectively to all prior periods presented in the financial statements. Early adoption
is permitted provided that the guidance is applied from the beginning of the year of adoption. The Company intends to adopt the
accounting standard during the first quarter of 2016, as required, with no material impact.
Stock
Based Compensation:
In
June 2014, the FASB issued ASU No. 2014-12 (ASU 2014-12),
Compensation
– Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance
Target Could Be Achieved after the Requisite Service Period.
ASU No. 2014-12 requires
that a performance target that affects vesting and that could be achieved after the requisite service period should be treated
as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance
conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating
the grant-date fair value of the award. ASU 2014-12 is effective for annual periods and interim periods within those annual periods
beginning after December 15, 2015. Earlier adoption is permitted. The Company is currently evaluating the effect that the
adoption of this standard will have on its financial statements.
Disclosure
of Going Concern Uncertainties
: In August 2014, the Financial Accounting Standards Board (FASB)
issued Accounting Standards Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue
as a Going Concern (ASU 2014-15), to provide guidance on management’s responsibility in evaluating whether there is
substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU
2014-15 is effective for us in our fourth quarter of fiscal 2017 with early adoption permitted. We do not believe the impact of
our pending adoption of ASU 2014-15 on the Company’s financial statements will be material.
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.
Other
pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not
applicable or not significant to the consolidated financial statements of the Company.
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts receivables consisted of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
19,656
|
|
|
|
3,048
|
|
|
|
7,861
|
|
Less: Allowance for doubtful accounts
|
|
|
(2,470
|
)
|
|
|
(383
|
)
|
|
|
(747
|
)
|
|
|
|
17,186
|
|
|
|
2,665
|
|
|
|
7,114
|
|
Bills receivable
|
|
|
4,762
|
|
|
|
739
|
|
|
|
2,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,948
|
|
|
|
3,404
|
|
|
|
10,046
|
|
The Group has a credit policy in place
and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit
over a certain amount. These receivables are due within 7 to 90 days from the date of billing. Generally, the Group does not obtain
collateral from customers.
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
15,575
|
|
|
|
2,414
|
|
|
|
16,819
|
|
Work-in-progress
|
|
|
1,772
|
|
|
|
275
|
|
|
|
1,667
|
|
Finished goods
|
|
|
11,210
|
|
|
|
1,739
|
|
|
|
15,483
|
|
Consumables and spare parts
|
|
|
612
|
|
|
|
95
|
|
|
|
611
|
|
Inventory--impairment
|
|
|
(4,780
|
)
|
|
|
(741
|
)
|
|
|
(5,006
|
)
|
|
|
|
24,389
|
|
|
|
3,782
|
|
|
|
29,574
|
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT,
NET
Property, plant and equipment consisted
of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
79,004
|
|
|
|
12,252
|
|
|
|
78,769
|
|
Plant and equipment
|
|
|
776,641
|
|
|
|
120,448
|
|
|
|
764,038
|
|
Computer equipment
|
|
|
2,478
|
|
|
|
384
|
|
|
|
2,449
|
|
Furniture and fixtures
|
|
|
13,994
|
|
|
|
2,170
|
|
|
|
13,730
|
|
Motor vehicles
|
|
|
2,093
|
|
|
|
325
|
|
|
|
2,094
|
|
|
|
|
874,210
|
|
|
|
135,579
|
|
|
|
861,080
|
|
Less: accumulated depreciation
|
|
|
(435,529
|
)
|
|
|
(67,545
|
)
|
|
|
(422,840
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,120
|
)
|
|
|
(7,219
|
)
|
|
|
|
431,462
|
|
|
|
66,914
|
|
|
|
431,021
|
|
For the three-month periods ended March
31, 2016 and 2015, depreciation expenses were RMB10,668 (US$1,654) and RMB11,888, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB3,895 (US$604) as of March 31, 2016, and RMB1,700
as of December 31, 2015, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of
land use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
Lease prepayments consisted of the following:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
17,750
|
|
|
|
2,753
|
|
|
|
17,882
|
|
Lease prepayment – current
|
|
|
524
|
|
|
|
81
|
|
|
|
524
|
|
|
|
|
18,274
|
|
|
|
2,834
|
|
|
|
18,406
|
|
Amortization of land use rights for the
three months ended March 31, 2016 and 2015 was RMB131 (US$20) and RMB132, respectively.
Estimated amortization expenses for the
next five years are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
81
|
|
2 years after
|
|
|
524
|
|
|
|
81
|
|
3 years after
|
|
|
524
|
|
|
|
81
|
|
4 years after
|
|
|
524
|
|
|
|
81
|
|
5 years after
|
|
|
524
|
|
|
|
81
|
|
Thereafter
|
|
|
15,654
|
|
|
|
2,429
|
|
As of March 31, 2016, the amount of RMB524
(US$81) will be charged into amortization expenses within one year, and is classified as current asset under the separate line
item captioned as Prepayments and Other Receivables on balance sheets.
NOTE 8 – OTHER ASSETS
Other assets represent loss on sale-leaseback
arrangement with International Far Eastern Leasing Co., Ltd. The loss is treated as compensation for the future rentals paid by
Shandong Fuwei at a below-market price. The artificial loss should be deferred and amortized in proportion to the amortization
of the related leased assets. As of February 2016, the Company has fulfilled all the obligations under the sale-leaseback arrangement
and related additional supplemental agreements between the Company and International Far Eastern Leasing Co., Ltd. As a result,
International Far Eastern Leasing Co., Ltd. has transferred the ownership of objects under the sale-leaseback arrangement to the
Company. The balance of deferred loss should be reversed based on the facts. As of March 31, 2016 and December 31, 2015, the total
amount of the other assets was zero and RMB11,607, respectively.
NOTE 9 - LONG-TERM LOAN
Long-term loan consisted of the following:
Lender
|
|
Interest rate per annum
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weifang Dongfang State-owned Assets Management Co., Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- October 19, 2009 to October 18, 2017
|
|
|
4.41
|
%
|
|
|
6.650
|
|
|
|
1,032
|
|
|
|
6,650
|
|
|
|
|
|
|
|
|
6,650
|
|
|
|
1,032
|
|
|
|
6,650
|
|
Less: long-term loan, current portion
|
|
|
|
|
|
|
(3,350
|
)
|
|
|
(520
|
)
|
|
|
(3,350
|
)
|
Long-term Loan
|
|
|
|
|
|
|
3,300
|
|
|
|
512
|
|
|
|
3,300
|
|
On November 20, 2009, the Company signed
a long-term loan agreement in the amount of RMB10,000 (US$1,613) 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$540) per year with the remaining principal balance of RMB3,300 (US$533)
due in 2017. The annual interest rate for the loan is the benchmark interest rate for over five-year loans announced by the People’s
Bank of China reduced by 10% and the applicable annual interest rate for the period ended March 31, 2016 is 4.41%. The loan is
guaranteed by Shandong Deqin Investment& Guarantee Co., Ltd. and is used for the Company's projects.
Long-term bank loans maturity for the next
two years after March 31, 2016 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
3,350
|
|
|
|
520
|
|
2 years after
|
|
|
3,300
|
|
|
|
512
|
|
NOTE 10- 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 principle 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 principle of this loan plus interest upon availability of
new loans from banks or other financial institutions.
As of March 31, 2016, the principle of
this loan from Shandong SNTON was RMB104,708 and the interest was RMB13,186.
In May 2014, the Company borrowed RMB15,000
from Shandong SNTON Group Co., Ltd. (the “SNTON Group”) solely to purchase raw materials. 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 shall be paid quarterly and settled in full at the end of the year. The Company has agreed to repay
this loan prior to December 31, 2014. As of December 31, 2014, the principle of this loan and the interest have not been paid.
In March 2015, the Company entered into a supplemental agreement with SNTON Group pursuant to which that we agreed to pay off the
principle of this loan plus interest upon availability of new loans from banks or other financial institutions.
In May 2015, SNTON Group provided the Company
with a loan for the amount of RMB10,000.
As of March 31, 2016, the total principle
of loans from SNTON Group was RMB25,000 and the interest payable was RMB1,770.
As of March 31, 2016, the total balance
of principle of loans from related party was RMB129,708 and the interest payable was RMB14,956.
NOTE 11 - NOTES PAYABLE
As of March 31, 2016, Shandong Fuwei had
banker’s acceptances opened with a maturity from three to six months totaling RMB87,050 (US$13,500) for payment in connection
with raw materials on a total deposits of RMB46,304 (US$7,181) at SPD Bank.
NOTE 12 – OBLIGATIONS UNDER CAPITAL
LEASES
The Group has commitments under capital
lease agreements as for a part of new third production line and associated equipment. The leases have terms of 3 years expiring
by the end of February 2016. As of February 2016, the Company has fulfilled all the obligations under the capital lease arrangements
between the Company and International Far Eastern Leasing Co., Ltd. As a result, International Far Eastern Leasing Co., Ltd. has
transferred the ownership of the leased assets to the Company. As of March 31, 2016, no any future payments under these capital
leases are as follows:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
|
RMB
|
|
|
RMB
|
|
|
|
Present value
of the
minimum
lease
payments
|
|
|
Total
minimum
lease
payments
|
|
|
Interest
|
|
|
Present value
of the
minimum
lease
payments
|
|
|
Total
minimum
lease
payments
|
|
|
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
304
|
|
|
|
2
|
|
After 1 year but within 2
years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
After 2 years but within
3 years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
After
3 years
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
304
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
balance due within one year classified as current liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(302
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Details of obligations under capital leases
are as follows:
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
RMB
|
|
|
RMB
|
|
|
|
|
|
|
|
|
RMB denominated obligations
|
|
|
|
|
|
|
|
|
Fixed interest rate of 6.49% per annum
|
|
|
-
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
302
|
|
Guarantee deposit of RMB800 (US$129) over
the capital leased assets concerned and relevant insurance policies were provided to the lessor as collateral and security. In
addition, as is customary in the case of capital leases, the Group’s obligations are guaranteed by Weifang State-Owned Assets
Operation Administration Company, Beijing Shiweitong Technology Development Co., Ltd., Fuwei Films (Holdings) Co., Ltd., and Fuwei
Films (BVI) Co., Ltd. In August 2014, Shandong SNTON Group Co., Ltd. accepted the responsibility of guarantee for the Group's obligation
from Beijing Shiweitong Technology Development Co., Ltd. As of February 2016, the obligations under related agreements have been
fulfilled, and the related guarantee contracts mentioned above terminated as well.
NOTE 13 - INCOME TAX
Income tax benefit was RMB418 and Income
tax expense RMB1,036 for the three months ended March 31, 2016 and 2015, respectively.
NOTE 14 - LOSS PER SHARE
Basic and diluted net loss per share was
RMB0.92 (US$0.14) and RMB1.15 for the three-month period ended March 31, 2016 and 2015, respectively.
NOTE 15- MAJOR CUSTOMERS AND VENDORS
There were no major customers who accounted
for more than 10% of the total net revenue for the three-month periods ended March 31, 2016 and 2015.
One vendor provided approximately 68.2%
of the Company’s purchases of raw materials, supplies and equipment for the first three months ended March 31, 2016. The
Company had a RMB595 (US$92) advance to that vendor as of March 31, 2016. This vendor provided approximately 63.1% of the Company’s
raw materials for the first three months ended March 31, 2015. Another vendor provided approximately 13.9% of the Company’s
purchases of raw materials, supplies and equipment for the first three months ended March 31, 2016. This vendor provided approximately
14.2% of the Company’s purchases of raw materials, supplies and equipment for the first three months ended March 31, 2015.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
References to "dollars" and "US$"
are to United States Dollars. References to "we", "us", the "Company" or "Fuwei Films"
include Fuwei Films (Holdings) Co., Ltd. and its subsidiaries, except where the context requires otherwise.
In the first quarter of 2016, we continued
to be adversely affected by enhanced competition and increased supply over demand in China’s BOPET market. In addition, decrease
in demand from overseas as well as anti-dumping measures taken by the United States of America and South Korea caused a decrease
in orders from international markets.
We believe that in the coming quarters
of 2016, there will be growing capacity of BOPET films in China and stronger competition in the market. Our ability to retain effective
control over the pricing of our products on a timely basis is limited due to the enhanced competition in the BOPET market. As a
result, we may continue to witness losses in the short to medium term.
On August 14, 2013, we announced that the
receipt of the first notice from the 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 our ordinary share previously owned by the Administration
Company through Apex Glory Holdings Limited, a British Virgin Islands corporation, was bid by Shandong SNTON Optical Materials
Technology Co., Ltd (“Shandong SNTON”) through the public auction. Shandong SNTON got 6,912,503 (or 52.9%) of our outstanding
ordinary shares at a price of RMB101,800,000 (approximately US$16,572,787) or approximately US$2.40 per ordinary share.
On May 12, 2014, we announced that we had
learned that the successful bidder, Shandong SNTON in the fifth public auction of 6,912,503 (or 52.9%) of our outstanding ordinary
shares (the “Shares”) held on March 25, 2014, was entrusted by Hongkong Ruishang International Trade Co., Ltd., a Hong
Kong corporation, (“Hongkong Ruishang”) to handle all the formalities and procedure in connection with the public auction.
As a result of the entrusted arrangement, we believe Hongkong Ruishang is the party controlling the Shares acquired in the fifth
public auction. According to publicly available information in the People’s Republic of China, Shandong SNTON is a wholly
owned subsidiary of Shandong SNTON Group Co., Ltd. (the “SNTON Group”). Mr. Xiusheng Wang, the chairman of the Board
of Directors of SNTON Group is also Hongkong Ruishang’s chairman.
On May 14, 2014, we announced that we had
received a notification from Shandong Fuhua Investment Company Limited. (“Shandong Fuhua”) with respect to an entire
ownership transfer our 12.55% outstanding ordinary shares from the Administration Company to Shandong Fuhua. The Administration
Company originally held these shares indirectly through an intermediate holding company, Easebright Investments Limited (“Easebright”).
As a result of this transfer, Shandong Fuhua indirectly owns 12.55% of our outstanding ordinary shares through Easebright. Mr.
JingangYang has been appointed as the director of Easebright.
Results of operations for the three months
ended March 31, 2016 and March 31, 2015
The table below sets forth certain line items
from our Statement of Operations as a percentage of revenue:
|
|
Three-Month Period Ended
|
|
|
Three-Month Period Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
9.0
|
|
|
|
(14.8
|
)
|
Operating expenses
|
|
|
(24.1
|
)
|
|
|
(16.7
|
)
|
Operating income (loss)
|
|
|
(15.1
|
)
|
|
|
(31.5
|
)
|
Other income (expense)
|
|
|
(4.9
|
)
|
|
|
5.1
|
|
Income tax benefit (expense)
|
|
|
0.7
|
|
|
|
(2.0
|
)
|
Net income (loss)
|
|
|
(19.4
|
)
|
|
|
(28.4
|
)
|
Revenue
Net sales during the first quarter ended
March 31, 2016 were RMB62.1 million (US$9.6 million), compared to RMB52.8 million, during the same period in 2015, representing
an increase of RMB9.3 million or 17.6%, mainly due to the increased sales volume.
In the first quarter of 2016, sales of
specialty films were RMB21.8 million (US$3.4 million) or 35.0% of our total revenues as compared to RMB15.0 million or 28.5% in
the same period of 2015. The increase was largely attributable to the increase in sales volume for dry films and coated films.
The following is a breakdown of commodity
and specialty film sales (amounts in thousands):
|
|
Three-Month
Period Ended
March 31, 2016
|
|
|
% of Total
|
|
|
Three-Month
Period Ended
March 31, 2015
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
23,783
|
|
|
|
3,688
|
|
|
|
38.2
|
%
|
|
|
20,839
|
|
|
|
39.5
|
%
|
Printing film
|
|
|
2,410
|
|
|
|
374
|
|
|
|
3.9
|
%
|
|
|
7,225
|
|
|
|
13.7
|
%
|
Metallization film
|
|
|
794
|
|
|
|
123
|
|
|
|
1.3
|
%
|
|
|
1,686
|
|
|
|
3.2
|
%
|
Specialty film
|
|
|
21,759
|
|
|
|
3,375
|
|
|
|
35.0
|
%
|
|
|
15,043
|
|
|
|
28.5
|
%
|
Base film for other application
|
|
|
13,401
|
|
|
|
2,078
|
|
|
|
21.6
|
%
|
|
|
7,983
|
|
|
|
15.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,147
|
|
|
|
9,638
|
|
|
|
100.0
|
%
|
|
|
52,776
|
|
|
|
100.0
|
%
|
Overseas sales were RMB12.5 million or
US$1.9 million, or 20.1% of total revenues, compared with RMB13.1 million or 24.8% of total revenues in the first quarter of 2015,
representing a decrease of RMB0.6 million or 4.6%. The decrease in overseas sales was mainly due to the reduction of sales price.
The following is a breakdown of PRC domestic
and overseas sales (amounts in thousands except percentages):
|
|
Three-Month
Period Ended
March 31, 2016
|
|
|
% of Total
|
|
|
Three-Month
Period Ended
March 31, 2015
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
49,632
|
|
|
|
7,697
|
|
|
|
79.9
|
%
|
|
|
39,696
|
|
|
|
75.2
|
%
|
Sales in other countries
|
|
|
12,515
|
|
|
|
1,941
|
|
|
|
20.1
|
%
|
|
|
13,080
|
|
|
|
24.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,147
|
|
|
|
9,638
|
|
|
|
100.0
|
%
|
|
|
52,776
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold is mainly comprised
of material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
65.9
|
%
|
|
|
58.8
|
%
|
Factory overhead
|
|
|
10.7
|
%
|
|
|
21.7
|
%
|
Energy expense
|
|
|
13.2
|
%
|
|
|
12.0
|
%
|
Packaging materials
|
|
|
4.5
|
%
|
|
|
3.2
|
%
|
Direct labor
|
|
|
5.7
|
%
|
|
|
4.3
|
%
|
Cost of goods sold during the first quarter
of 2016 totaled RMB56.6 million (US$8.8 million) as compared to RMB60.6 million in the same period of 2015. This was RMB4.0 million
or 6.6% lower than the same period in 2015. The sales volume caused an increase of RMB12.2 million and the reduction of unit price
which was mainly due to the price reduction of main raw materials caused a decrease of RMB16.2 million.
Gross Loss
Cost of goods sold during the first quarter
of 2016 totaled RMB56.6 million (US$8.8 million) as compared to RMB60.6 million in the same period of 2015. This was RMB4.0 million
or 6.6% lower than the same period in 2015. The sales volume caused an increase of RMB12.2 million and the reduction of unit price
which was mainly due to the price reduction of main raw materials, as well as the accounting treatment that allocated certain amount
of fixed overhead from cost of goods sold to general and administrative expense due to the fact that our third production line
has not been able to continue its production since April 2015, caused a decrease of RMB16.2 million.
Operating Expenses
Operating expenses for the first quarter
ended March 31, 2016 were RMB15.0 million (US$2.3 million), which was RMB6.2 million, or 70.5% higher than the same period in 2015.
This increase was mainly due to the accounting treatment that allocated certain amount of fixed overhead from cost of goods sold
to general and administrative expense due to the fact that our third production line has not been able to continue its production
since April 2015, in addition to the increased allowance for doubtful accounts receivable.
Other Income (Expense)
Total other income is a combination result
of interest income, interest expense and others income (expense). Total other expense during the first quarter ended March 31,
2016 was RMB3.1 million (US$0.5 million), while total other income was RMB2.7 million for the same period in 2015. The reduction
of total other income is mainly attributed to the fact that the previously recognized impairment losses relating to the long-term
deposit are reversed as a result of the refund of total long-term deposit from Joyinn last year.
Income Tax Benefit (Expense)
The income tax benefit was RMB0.4 million
(US$0.1 million) during the first quarter ended March 31, 2016, compared to income tax expense of RMB1.0 million during the same
period in 2015. This decrease of income tax expense was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the first quarter ended March 31, 2016 was RMB12.1 million (US$1.9 million) compared to net loss attributable to the Company of
RMB15.0 million during the same period in 2015, representing a decrease of RMB2.9 million.
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 first quarter of 2015 to
the first quarter of 2016 ranged from 4.41% to 7.20%.
On December 21, 2012, Shandong Fuwei signed
a sale-leaseback contract with International Far Eastern Leasing Co., Ltd. (“Far Eastern Leasing”). Far Eastern Leasing
purchased certain equipment included in the third production line, and simultaneously leased them back to Shandong Fuwei. Shandong
Fuwei will pay rent totaling RMB21.94 million (including interest) to Far Eastern Leasing over the three years ended December 26,
2015. In March 2013, Shandong Fuwei signed another sale-leaseback contract with Far Eastern Leasing, pursuant to which it has agreed
to pay total rent of RMB5.48 million (including interest) to Far Eastern Leasing over the three years ended April 9, 2016. The
financed equipment mentioned above is covered by an insurance policy, the premium of which will be paid by Shandong Fuwei. The
contract was guaranteed by the following entities: Weifang State-owned Assets Operation Administration Company, Fuwei Films (Holdings)
Co., Ltd, Fuwei (BVI) Co., Ltd., and Beijing Shiweitong Science and Technology Co., Ltd. In August 2014, Shandong SNTON Group Co.,
Ltd. accepted the responsibility of guarantee for the Group's obligation from Beijing Shiweitong Technology Development Co., Ltd.
As of February 2016, we have
fulfilled all the obligations under the sale-leaseback contracts between us
and Far Eastern Leasing.
On November 20, 2009, we signed a long-term
loan agreement of RMB10.0 million (US$1.613 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$0.54 million) per year with the remaining principal balance of RMB3.30 million (US$0.533
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 March 31, 2016 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 principle 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 principle of this loan plus interest upon availability of
new loans from banks or other financial institutions.
As of March 31, 2016, the principle of
this loan from Shandong SNTON was RMB104.71 million and the interest was RMB13.2 million.
In May 2014, we borrowed RMB15.0 million
from Shandong SNTON Group Co., Ltd. (the “SNTON Group”) solely to purchase raw materials. 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 shall be paid quarterly and settled in full at the end of the year. The Company has agreed to repay
this loan prior to December 31, 2014. As of December 31, 2014, the principle of this loan and the interest have not been paid.
In March 2015, the Company entered into a supplemental agreement with SNTON Group pursuant to which that the Company agreed to
pay off the principle of this loan plus interest upon availability of new loans from banks or other financial institutions.
In May 2015, SNTON Group provided the Company
with a loan for the amount of RMB10.0 million.
As of March 31, 2016, the total principle
of loans from SNTON Group was RMB25.0 million and the interest payable was RMB1.77 million.
As of March 31, 2016, the total balance
of principle of loans from related party was RMB129.71 million and the interest payable was RMB14.96 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 used in operating activities for
the three months ended March 31, 2016 was RMB2.5 million (US$0.4 million) compared to net cash used in operating activities of
RMB7.7 million for the three months ended March 31, 2015. This decrease in net cash flows used in operating activities was primarily
attributable to the decrease in loss.
Working Capital
As of March 31, 2016 and December 31, 2015,
we had a working capital deficit of RMB154.4 million (US$23.9 million) and RMB151.6 million, respectively. Working capital deficit
increased by RMB2.8 million (US$0.4 million), or 1.8% compared to the amount as of December 31, 2015. Our current liability is
mainly loans from related parties.
Contractual Obligations
The following table is a summary of our contractual
obligations as of March 31, 2016 (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
|
|
|
385
|
|
|
|
322
|
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
Purchase obligations
|
|
|
2,121
|
|
|
|
2,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,506
|
|
|
|
2,443
|
|
|
|
63
|
|
|
|
-
|
|
|
|
-
|
|
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 three 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 and October 26, 2015. To date, the case has not been decided.
On January 21, 2014, Shandong Fuwei received
a complaint from Zeng Wenhong, a Hong Kong citizen, plaintiff 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. On October 28, 2014, the case was heard again and the plaintiff submitted additional evidence. On September 25,
2015, Shandong Fuwei received a written judgment issued by the Intermediate People’s Court of Weifang ordering Shandong Fuwei
to refundUS$500,000 together with its interest to the plaintiff. Shandong Fuwei has filed for an appeal to the High People’s
Court’s of Shandong Province within the appeal period. On April 29, 2016, the case was heard the High People’s Court’s
of Shandong Province for the first time. To date, the case has not been decided.
On June 28, 2014, an equipment supplier
filed a lawsuit in Weifang High-Tech District People’s Court against Shandong Fuwei over disputes arising from a Procurement
Contract between the parties with a claim for RMB844,000 plus interest of RMB134,000. The case has been settled between the two
parties. Pursuant to the terms of the settlement, Shandong Fuwei shall pay the plaintiff RMB750,000 through bank acceptance note
prior to February 7, 2015. The remaining balance of RMB94,000 shall be paid within two days of reaching resolution on the eight
remaining disputes between the two parties. Thereafter, neither party will bear any further liability. To date, Shandong Fuwei
has made a payment to the plaintiff in the amount of RMB750,000. The remaining disputes arising from the Procurement Contract are
in the process of being resolved.
Exhibit Index
Exhibit No.
|
|
Description
|
99.1
|
|
Press Release dated May 19, 2016.
|
|
|
|