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, 2018 filed on April 29, 2019 with the SEC. The results of the six-month period ended June 30, 2019
are not necessarily indicative of the results to be expected for the full year ended December 31, 2019.
Principles of Consolidation
The condensed consolidated financial statements
include the financial statements of the Company and its two subsidiaries. All significant inter-company balances and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated
financial statements in accordance with U.S. GAAP requires management of the Company to make a number of estimates and assumptions
relating to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. On an ongoing basis, management reviews its estimates and assumptions, including those related
to the recoverability of the carrying amount and the estimated useful lives of long-lived assets, valuation allowances for accounts
receivable and realizable values for inventories. Changes in facts and circumstances may result in revised estimates.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Foreign Currency Transactions
The Company’s reporting currency is Chinese
Yuan (Renminbi or “RMB”).
Fuwei Films (Holdings) Co., Ltd. and Fuwei
(BVI) operate in Hong Kong as investment holding companies and their financial records are maintained in Hong Kong dollars,
being the functional currency of these two entities. Assets and liabilities are translated into RMB at the exchange rates at the
balance sheet date, equity accounts are translated at historical exchange rates and income, expenses, and cash flow items are translated
using the average rate for the period. The translation adjustments are recorded in accumulated other comprehensive income in the
statements of equity. The changes in the translation adjustments for the current period were reported as the line items of other
comprehensive income in the consolidated statements of comprehensive income.
Transactions denominated in currencies other
than RMB are translated into RMB at the exchange rates quoted by the People’s Bank of China (the “PBOC”) prevailing
at the dates of transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the
applicable exchange rates quoted by the PBOC at the balance sheet dates. The resulting exchange differences are recorded in the
consolidated statements of comprehensive income.
RMB is not fully convertible into foreign currencies.
All foreign exchange transactions involving RMB must take place either through the PBOC or other institutions authorized to buy
and sell foreign currency. The exchange rate adopted for the foreign exchange transactions are the rates of exchange quoted by
the PBOC which are determined largely by supply and demand.
Commencing July 21, 2005, the PRC government
moved the RMB into a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies.
For the convenience of the readers, the second
quarter of 2019 RMB amounts included in the accompanying condensed consolidated financial statements in our quarterly report have
been translated into U.S. dollars at the rate of US$1.00 = RMB6.8650, on the last trading day of second quarter of 2019 (June 30,
2019) 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, 2019, 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 RMB24,990 (US$3,640)
and RMB38,000 as of June 30, 2019 and December 31, 2018, respectively.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Trade Accounts Receivable
Trade accounts receivable are recorded at the
invoiced amount after deduction of trade discounts, value added taxes and allowances, if any, and do not bear interest. The allowance
for doubtful accounts is the Group’s best estimate of the amount of probable credit losses in the Group’s existing
accounts receivable. The Group determines the allowance based on historical write-off experience, customer specific facts and economic
conditions.
The Group reviews its allowance for doubtful
accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. All
other balances are reviewed on a pooled basis by aging of such balances. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
Inventories are stated at the lower of cost
or market value as of balance sheet date. Inventory valuation and cost-flow is determined using Moving Weighted Average Method
basis. The Group estimates excess and slow moving inventory based upon assumptions of future demands and market conditions. If
actual market conditions are less favorable than projected by management, additional inventory write-downs may be required. Cost
of work in progress and finished goods comprises direct material, direct production cost and an allocated portion of production
overheads based on normal operating capacity.
Property, Plant and Equipment
Property, plant and equipment are stated at
cost less accumulated depreciation and impairment. Depreciation on property, plant and equipment is calculated on the straight-line
method (after taking into account their respective estimated residual values) over the estimated useful lives of the assets. They
are as follows:
|
|
Years
|
|
Buildings and improvements
|
|
|
25 - 30
|
|
Plant and equipment
|
|
|
10 - 15
|
|
Computer equipment
|
|
|
5
|
|
Furniture and fixtures
|
|
|
5
|
|
Motor vehicles
|
|
|
5
|
|
Depreciation of property, plant and equipment
attributable to manufacturing activities is capitalized as part of the inventory, and expensed to cost of goods sold when inventory
is sold. Depreciation related to abnormal amounts from idle capacity is charged to general and administrative expenses for the
period incurred.
Construction in progress represents capital
expenditures with respect to the BOPET production line. No depreciation is provided with respect to construction in progress.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Leased Assets
An arrangement, comprising a transaction or
a series of transactions, is or contains a lease if the Group determines that the arrangement conveys a right to use a specific
asset or assets for an agreed period of time in return for a payment or a series of payments. Such a determination is made based
on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
Classification of assets leased to the Group.
Assets that are held by the Group under leases which transfer to the Group substantially all the risks and rewards of ownership
are classified as being held under capital leases. Leases which do not transfer substantially all the risks and rewards of ownership
to the Group are classified as operating leases.
Assets acquired under capital leases.
Where the Group acquires the use of assets under capital leases, the amounts representing the fair value of the leased asset, or,
if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the
corresponding liabilities, net of finance charges, are recorded as obligations under capital leases. Depreciation is provided at
rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group
will obtain ownership of the asset, the life of the asset. Finance charges implicit in the lease payments are charged to the consolidated
income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining
balance of the obligations for each accounting period. Contingent rentals are charged to the consolidated income statement in the
accounting period in which they are incurred.
Operating lease charges. Where the Group
has the use of assets held under operating leases, payments made under the leases are charged to the consolidated income statement
in equal installments over the accounting periods covered by the lease term, except where an alternative basis is more representative
of the pattern of benefits to be derived from the leased asset. Lease incentives received are recognized in the consolidated income
statement as an integral part of the aggregate net lease payments made. Contingent rentals are charged to the consolidated income
statement in the accounting period in which they are incurred.
Sale and leaseback transactions. Gains
or losses on equipment sale and leaseback transactions which result in capital leases are deferred and amortized over the terms
of the related leases. Gains or losses on equipment sale and leaseback transactions which result in operating leases are recognized
immediately if the transactions are established at fair value. Any loss on the sale perceived to be a real economic loss is recognized
immediately. However, if a loss is compensated for by future rentals at a below-market price, then the artificial loss is deferred
and amortized over the period that the equipment is expected to be used. If the sale price is above fair value, then any gain is
deferred and amortized over the useful life of the assets.
Lease Prepayments
Lease prepayments represent the costs of land
use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The non-current portion and current portion of lease prepayments have been reported in Lease Prepayments,
Prepayments and Other Receivables in the balance sheets, respectively.
Goodwill
Goodwill represents the excess of purchase
price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses acquired. Goodwill
is not amortized but is tested for impairment annually, or when circumstances indicate a possible impairment may exist. Impairment
testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount
of the reporting unit exceeds the fair value of the reporting unit, with the fair value of the reporting unit determined using
a discounted cash flow (“DCF”) analysis. A number of significant assumptions and estimates are involved in the
application of the DCF analysis to forecast operating cash flows, including the discount rate, the internal rate of return, and
projections of realizations and costs to produce. Management considers historical experience and all available information
at the time the fair values of its reporting units are estimated. Goodwill was determined to be fully impaired during the year
ended December 31, 2012.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Impairment of Long-lived Assets
The Company recognizes an impairment loss when
circumstances indicate that the carrying value of long-lived assets with finite lives may not be recoverable. Management’s
policy in determining whether an impairment indicator exists, a triggering event, comprises measurable operating performance criteria
at an asset group level as well as qualitative measures. If an analysis is necessitated by the occurrence of a triggering event,
the Company uses assumptions, which are predominately identified from the Company’s strategic long-range plans, in determining
the impairment amount. In the calculation of the fair value of long-lived assets, the Company compares the carrying amount of the
asset group with the estimated future cash flows expected to result from the use of the assets. If the carrying amount of the asset
group exceeds the estimated expected undiscounted future cash flows, the Company measures the amount of the impairment by comparing
the carrying amount of the asset group with their estimated fair value. We estimate the fair value of assets based on market prices
(i.e., the amount for which the asset could be bought by or sold to a third party), when available. When market prices are not
available, we estimate the fair value of the asset group using discounted expected future cash flows at the Company’s weighted-average
cost of capital. Management believes its policy is reasonable and is consistently applied. Future expected cash flows are based
upon estimates that, if not achieved, may result in significantly different results.
Revenue Recognition
Sales of plastic films are reported, net of
value added taxes (“VAT”), sales returns, and trade discounts. The standard terms and conditions under which the Company
generally delivers allow a customer the right to return product for refund only if the product does not conform to product specifications;
the non-conforming product is identified by the customer; and the customer rejects the non-conforming product and notifies the
Company within 30 days of receipt for both PRC and overseas customers. The Company recognizes revenue when products are delivered
and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence
of an arrangement exists and the sales price is fixed or determinable.
In the PRC, VAT of 13% on the invoice amount
is collected with respect to the sales of goods on behalf of tax authorities. The VAT collected is not revenue of the Company;
instead, the amount is recorded as a liability on the consolidated balance sheet until such VAT is paid to the authorities.
Income Taxes
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Earnings Per Share
Basic earnings per share is computed by dividing
net earnings by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share is calculated
by dividing net earnings by the weighted average number of ordinary and dilutive potential ordinary shares outstanding during the
year. Diluted potential ordinary shares consist of shares issuable pursuant to the Company’s stock option plan.
Share-Based Payments
The Company accounts for share based payments
under the modified-prospective transition method, which requires companies to measure and recognize the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value.
Non-controlling interest
Non-controlling interest represents the portion
of equity that is not attributable to the Company. The net income (loss) attributable to non-controlling interests are separately
presented in the accompanying statements of income and other comprehensive income. Losses attributable to non-controlling interests
in a subsidiary may exceed the interest in the subsidiary’s equity. The related non-controlling interest continues to be
attributed its share of losses even if that attribution results in a deficit of the non-controlling interest balance.
Contingencies
In the normal course of business, the Company
is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of
matters, including among others, product liability. The Company recognizes a liability for such contingency if it determines it
is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in
making these assessments including past history and the specifics of each matter.
Reclassification
For comparative purposes, the prior year’s
consolidated financial statements have been reclassified to conform to reporting classifications of the current year periods. These
reclassifications had no effect on net loss or total net cash flows as previously reported.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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, 2019 and 2018, the Company had a working capital deficiency of RMB134,905 (US$19,651)
and RMB171,489 and accumulated deficit of RMB2,422 (US$353) and RMB16,866 from net losses incurred during the first half year of
2019 and 2018. 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 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
Financial
Instrument
In January
2016, the FASB issued ASU No. 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities” (“ASU 2016-01”). The standard addresses certain aspects of recognition,
measurement, presentation, and disclosure of financial instruments. ASU 2016-01 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2017, and early adoption is not permitted. Accordingly, the standard is effective
for us on September 1, 2018. We are currently evaluating the impact that the standard will have on our consolidated financial statements.
Leases
In February
2016, the FASB issued ASU 2016-02,"Leases" to provide a new comprehensive model for lease accounting. Under this guidance,
lessees and lessors should apply a "right-of-use" model in accounting for all leases (including subleases) and eliminate
the concept of operating leases and off-balance sheet leases. This guidance is effective for annual periods and interim periods
within those annual periods beginning after December 15, 2018. Early adoption is permitted. We are evaluating the impact on our
consolidated financial statements.
Financial
Instruments - Credit Losses
In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): The amendments in this Update require a financial
asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected.
The amendments broaden the information that an entity must consider in developing its expected credit loss estimate for assets
measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate
of expected credit loss, which will be more decision useful to users of the financial statements. ASU 2016-13 is effective for
the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption
is allowed as of the fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are
still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Statement
of Cash Flows
In November
2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): “Restricted Cash” (“ASU
2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This update is effective in
fiscal years, including interim periods, beginning after December 15, 2017 and early adoption is permitted. The adoption of this
guidance will result in the inclusion of the restricted cash balances within the overall cash balance and removal of the changes
in restricted cash activity, as a result, the Company no longer presents transfers between cash and cash equivalents and restricted
cash in the statement of cash flows. Furthermore, an additional reconciliation will be required to reconcile Cash, cash equivalents,
and restricted cash reported within the Consolidated Balance Sheets to sum to the total shown in the Consolidated Statement of
Cash Flows. The Company has already disclosed the restricted cash separately on its Consolidated Statements of Financial Position.
Beginning the first quarter of 2018, the Company has adopted and included the restricted cash balances on the Consolidated Statement
of Cash Flows and reconciliation of Cash, cash equivalent, and restricted cash within its Consolidated Statements of Financial
Positions that sum to the total of the same such amounts shown in Consolidated Statement of Cash Flows. This guidance has been
applied retrospectively to the Consolidated Statement of Cash Flows for the year ended December 31, 2016 and 2017 which required
the Company to recast each prior reporting period presented. As a result, the Company no longer discloses transfers between cash
and restricted cash in the consolidated cash flow statements.
Other
pronouncements issued by the FASB or other authoritative accounting standards group with future effective dates are either not
applicable or not significant to the consolidated financial statements of the Company.
NOTE 3 - ACCOUNTS AND BILLS RECEIVABLES
Accounts and bills receivables consisted of the
following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Accounts receivable
|
|
|
17,285
|
|
|
|
2,519
|
|
|
|
17,366
|
|
Less: Allowance for doubtful accounts
|
|
|
(944
|
)
|
|
|
(138
|
)
|
|
|
(1,847
|
)
|
|
|
|
16,341
|
|
|
|
2,381
|
|
|
|
15,519
|
|
Bills receivable
|
|
|
7,410
|
|
|
|
1,079
|
|
|
|
7,108
|
|
|
|
|
23,751
|
|
|
|
3,460
|
|
|
|
22,627
|
|
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.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
NOTE 4 - INVENTORIES
Inventories consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Raw materials
|
|
|
21,788
|
|
|
|
3,175
|
|
|
|
14,154
|
|
Work-in-progress
|
|
|
1,325
|
|
|
|
193
|
|
|
|
1,473
|
|
Finished goods
|
|
|
7,390
|
|
|
|
1,076
|
|
|
|
14,558
|
|
Consumables and spare parts
|
|
|
614
|
|
|
|
89
|
|
|
|
610
|
|
Inventory-reserve
|
|
|
(6,844
|
)
|
|
|
(997
|
)
|
|
|
(6,120
|
)
|
|
|
|
24,273
|
|
|
|
3,536
|
|
|
|
24,675
|
|
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of
the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Buildings
|
|
|
68,319
|
|
|
|
9,952
|
|
|
|
68,319
|
|
Plant and equipment
|
|
|
809,189
|
|
|
|
117,872
|
|
|
|
808,717
|
|
Computer equipment
|
|
|
3,027
|
|
|
|
441
|
|
|
|
3,027
|
|
Furniture and fixtures
|
|
|
18,180
|
|
|
|
2,648
|
|
|
|
14,528
|
|
Motor vehicles
|
|
|
1,744
|
|
|
|
254
|
|
|
|
1,824
|
|
|
|
|
900,459
|
|
|
|
131,167
|
|
|
|
896,415
|
|
Less: accumulated depreciation
|
|
|
(582,390
|
)
|
|
|
(84,835
|
)
|
|
|
(558,028
|
)
|
Less: impairment of plant and equipment
|
|
|
(7,219
|
)
|
|
|
(1,052
|
)
|
|
|
(7,219
|
)
|
|
|
|
310,850
|
|
|
|
45,280
|
|
|
|
331,168
|
|
Total depreciation for the six-month periods
ended June 30, 2019 and 2018 was RMB23,892 (US$3,480) and RMB22,127, respectively. For the three-month periods ended June 30, 2019
and 2018, total depreciation was RMB11,848 (US$1,685) and RMB10,972, respectively.
NOTE 6 - CONSTRUCTION IN PROGRESS
Construction-in-progress represents capital
expenditure in respect to the BOPET production line. Construction in progress was RMB283 (US$41) ended June 30, 2019, and RMB366
ended December 31, 2018, respectively.
NOTE 7 - LEASE PREPAYMENTS
Lease prepayments represent the costs of land
use rights in the PRC. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective
periods of rights of 30 years. The current portion of lease prepayments has been included in prepayments and other receivables
in the balance sheet.
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
Lease prepayments consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
Lease prepayment - non current
|
|
|
16,029
|
|
|
|
2,335
|
|
|
|
16,296
|
|
Lease prepayment - current
|
|
|
524
|
|
|
|
76
|
|
|
|
524
|
|
|
|
|
16,553
|
|
|
|
2,411
|
|
|
|
16,820
|
|
Amortization of land use rights for the six
months ended June 30, 2019 and 2018 was RMB267 (US$39) and RMB266, respectively. Amortization of land use rights for the three
months ended June 30, 2019 and 2018 was RMB134 (US$19) and RMB132, respectively.
Estimated amortization expenses for the next
five years after June 30, 2019 are as follows:
|
|
RMB
|
|
|
US$
|
|
1 year after
|
|
|
524
|
|
|
|
76
|
|
2 years after
|
|
|
524
|
|
|
|
76
|
|
3 years after
|
|
|
524
|
|
|
|
76
|
|
4 years after
|
|
|
524
|
|
|
|
76
|
|
5 years after
|
|
|
524
|
|
|
|
76
|
|
Thereafter
|
|
|
13,933
|
|
|
|
2,031
|
|
As of June 30, 2019, the amount of RMB524 (US$76)
will be charged into amortization expenses within one year, and is classified as current asset under the separate line item captioned
as Prepayments and Other Receivables on balance sheets.
NOTE 8 - SHORT-TERM BORROWINGS AND LONG-TERM
LOAN
Short-term borrowings and long-term loan consisted
of the following:
|
|
Interest
|
|
|
|
|
|
|
|
|
|
rate per
|
|
|
June
30, 2019
|
|
|
December
31, 2018
|
|
Lender
|
|
annum
|
|
|
RMB
|
|
|
US$
|
|
|
RMB
|
|
BANK LOANS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of Weifang.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- July 17, 2018 to July 15, 2019
|
|
|
6.5
|
%
|
|
|
20,000
|
|
|
|
2,913
|
|
|
|
20,000
|
|
- July 17, 2018 to July 17, 2019
|
|
|
6.5
|
%
|
|
|
29,950
|
|
|
|
4,363
|
|
|
|
29,950
|
|
- June 21, 2018 to June 19, 2019
|
|
|
6.5
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
15,000
|
|
- June 19, 2019 to June 18, 2020
|
|
|
6.5
|
%
|
|
|
15,000
|
|
|
|
2,185
|
|
|
|
-
|
|
FUWEI FILMS (HOLDINGS) CO., LTD. AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(amounts in thousands except share and per share
value)
(Unaudited)
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, 2019, the principal of this
loan from Shandong SNTON was RMB86,796 and the interest payable was RMB30,192.
The related accounts payable as of June 30,
2019 and December 31, 2018 was RMB116,988 and RMB114,692, respectively.
NOTE 10 - NOTES PAYABLE
As of June 30, 2019 and December 31, 2018,
Shandong Fuwei had banker’s acceptances opened with a maturity span from three to six months totaling RMB49,980 (US$7,280)
and RMB48,000 for payment in connection with raw materials on a total deposit of RMB24,990(US$3,640) at Bank of Weifang.
NOTE 11 - INCOME TAX
Income tax expense was RMB33 (US$5) and income
tax benefit was RMB34 for the six months ended June 30, 2019 and 2018, respectively.
Income tax expense was RMB16 (US$2) and RMB176
for the three months ended June 30, 2019 and 2018, respectively.
NOTE 12 - LOSS PER SHARE
Basic and diluted net loss per share was RMB0.74
(US$0.11) and RMB5.16 for the six months period ended June 30, 2019 and 2018, respectively.
Basic and diluted net profit per share was
RMB0.29 (US$0.04) and basic and diluted net loss per share was RMB2.65 for the three months period ended June 30, 2019 and 2018,
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 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, 2019 and 2018.
The following are the vendors that supplied
10% or more of our raw materials for June 30, 2019 and 2018:
|
|
|
|
Percentage of total purchases (%)
|
|
Supplier
|
|
Item
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Sinopec Yizheng Chemical Fibre Company Limited
(“Sinopec Yizheng”)
|
|
PET resin and
Additives
|
|
|
59.8
|
%
|
|
|
32.6
|
%
|
Jiangyin Branch, Hefei Lucky Science& Technology Industry Company
Ltd. (“Hefei Lucky”)
|
|
PET resin and Additives
|
|
|
11.1
|
%
|
|
|
-
|
|
PetroChina Company Limited Chemicals Sales North China Branch (“PetroChina”)
|
|
PET resin and Additives
|
|
|
-
|
|
|
|
40.1
|
%
|
The balance of advance to supplier to Sinopec
Yizheng and Hefei Lucky was RMB1,475 (US$215) and RMB98 as of June 30, 2019, respectively.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to "dollars" and "US$"
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 2019, 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 2019,
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 believe it may be difficult to achieve ideal level of profitability in the short run.
On August 14, 2013, we announced the receipt
of the first notice from our controlling shareholder, the Weifang State-owned Assets Operation Administration Company, a wholly-owned
subsidiary of Weifang State-owned Asset Management and Supervision Committee (collectively, the “Administration Company”)
indicating that the Administration Company had determined to place control over 6,912,503 (or 52.9%) of its outstanding ordinary
shares up for sale at a public auction to be held in China. Four public auctions were held in Jinan, Shandong Province, China.
We learned that they failed due to a lack of bidders registered for the auction. On March 25, 2014, the fifth public auction was
held in Jinan, Shandong Province, China .The beneficial ownership of 6,912,503 of our ordinary shares previously owned by the Administration
Company through Apex Glory Holdings Limited, a British Virgin Islands corporation, was bid on by Shandong SNTON Optical Materials
Technology Co., Ltd (“Shandong SNTON”) through the public auction. Shandong SNTON received 6,912,503 (or 52.9%) of
our outstanding ordinary shares at a price of RMB101,800,000 (approximately US$16,572,787) or approximately US$2.40 per ordinary
share.
On May 12, 2014, we announced that we had learned
that the successful bidder, Shandong SNTON in the fifth public auction of 6,912,503 (or 52.9%) of our outstanding ordinary shares
(the “Shares”) held on March 25, 2014, was entrusted by Hongkong Ruishang International Trade Co., Ltd., a Hong Kong
corporation, (“Hongkong Ruishang”) to handle all the formalities and procedure in connection with the public auction.
As a result of the entrusted arrangement, we believe Hongkong Ruishang is the party controlling the Shares acquired in the fifth
public auction. According to publicly available information in the People’s Republic of China, Shandong SNTON is a wholly
owned subsidiary of Shandong SNTON Group Co., Ltd. (the “SNTON Group”). Mr. Xiusheng Wang, the chairman of the Board
of Directors of SNTON Group is also Hongkong Ruishang’s chairman.
On May 14, 2014, we announced that we received
a notification from Shandong Fuhua Investment Company Limited. (“Shandong Fuhua”) with respect to an entire ownership
transfer of our 12.55% outstanding ordinary shares from the Administration Company to Shandong Fuhua. The Administration Company
originally held these shares indirectly through an intermediate holding company, Easebright Investments Limited (“Easebright”).
As a result of this transfer, Shandong Fuhua indirectly owns 12.55% of our outstanding ordinary shares through Easebright.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of operations for the three-month periods
ended June 30, 2019 compared to June 30, 2018
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, 2019
|
|
|
June 30, 2018
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
21.1
|
|
|
|
8.5
|
|
Operating expenses
|
|
|
(17.0
|
)
|
|
|
(16.7
|
)
|
Operating income (loss)
|
|
|
4.1
|
|
|
|
(8.2
|
)
|
Other income (expense)
|
|
|
(3.0
|
)
|
|
|
(2.5
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
(0.2
|
)
|
Net income (loss)
|
|
|
1.1
|
|
|
|
(10.9
|
)
|
Revenue
Net sales during the second quarter ended June
30, 2019 were RMB88.1 million (US$12.8 million), compared to RMB79.6 million during the same period in 2018, representing an increase
of RMB8.5 million or 10.7%. The increase of average sales price caused an increase of RMB7.4 million and higher sales volume caused
an increase of RMB1.1 million.
In the second quarter of 2019, sales of specialty
films were RMB42.0 million (US$6.1 million) or 47.6% of our total revenues as compared to RMB30.7 million or 38.6% in the same
period of 2018, which was an increase of RMB11.3 million, or 36.8% as compared to the same period in 2018. The increase of average
sales price caused an increase of RMB1.2 million and the increase in the sales volume caused an increase of RMB10.1 million. The
increase was largely attributable to the increase in sales volume.
The following is a breakdown of commodity and
specialty film sales (amounts in thousands):
|
|
Three-Month Period Ended
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
June 30, 2019
|
|
|
% of Total
|
|
|
June 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
28,596
|
|
|
|
4,165
|
|
|
|
32.4
|
%
|
|
|
29,428
|
|
|
|
37.0
|
%
|
Printing film
|
|
|
8,512
|
|
|
|
1,240
|
|
|
|
9.7
|
%
|
|
|
11,713
|
|
|
|
14.7
|
%
|
Metallization film
|
|
|
1,938
|
|
|
|
282
|
|
|
|
2.2
|
%
|
|
|
622
|
|
|
|
0.8
|
%
|
Specialty film
|
|
|
41,958
|
|
|
|
6,112
|
|
|
|
47.6
|
%
|
|
|
30,748
|
|
|
|
38.6
|
%
|
Base film for other application
|
|
|
7,113
|
|
|
|
1,037
|
|
|
|
8.1
|
%
|
|
|
7,088
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,117
|
|
|
|
12,836
|
|
|
|
100.0
|
%
|
|
|
79,599
|
|
|
|
100.0
|
%
|
Overseas sales were RMB14.3 million or US$2.1
million, or 16.3% of total revenues, compared with RMB16.6 million or 20.9% of total revenues in the second quarter of 2018. The
increase of average sales price caused an increase of RMB0.8 million and the decrease in sales volume resulted in a decrease of
RMB3.1 million.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a breakdown of PRC domestic and
overseas sales (amounts in thousands):
|
|
Three-Month Period Ended
|
|
|
|
|
|
Three-Month Period Ended
|
|
|
|
|
|
|
June 30, 2019
|
|
|
% of Total
|
|
|
June 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
73,777
|
|
|
|
10,747
|
|
|
|
83.7
|
%
|
|
|
62,994
|
|
|
|
79.1
|
%
|
Sales in other countries
|
|
|
14,340
|
|
|
|
2,089
|
|
|
|
16.3
|
%
|
|
|
16,605
|
|
|
|
20.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,117
|
|
|
|
12,836
|
|
|
|
100.0
|
%
|
|
|
79,599
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold comprises mainly of
material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
Three-Month Period Ended
June 30, 2019
|
|
|
Three-Month Period Ended
June 30, 2018
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
73.0
|
%
|
|
|
71.9
|
%
|
Factory overhead
|
|
|
10.8
|
%
|
|
|
9.6
|
%
|
Energy expense
|
|
|
8.8
|
%
|
|
|
9.1
|
%
|
Packaging materials
|
|
|
4.0
|
%
|
|
|
4.6
|
%
|
Direct labor
|
|
|
3.4
|
%
|
|
|
4.8
|
%
|
Cost of goods sold during the second quarter
of 2019 totaled RMB69.5 million (US$10.1 million) as compared to RMB72.8 million in the same period of 2018. This was RMB3.3 million
or 4.5% lower than the same period in 2018. The decrease in unit cost of goods sold caused a decrease of RMB4.4 million and the
increase in sales volume caused an increase of RMB1.1 million.
Gross Profit
Our gross profit was RMB18.6 million (US$2.7
million) for the second quarter ended June 30, 2019, representing a gross profit rate of 21.1%, as compared to a gross profit rate
of 8.5% for the same period in 2018. Correspondingly, gross profit rate increased by 12.6 percentage point compared to the same
period in 2018. Our average product sales prices increased by 9.1% compared to the same period last year while the average cost
of goods sold decreased by 5.9% compared to the same period last year. Consequently, it resulted in an increase in our gross profit.
Operating Expenses
Operating expenses for the second quarter ended
June 30, 2019 were RMB15.0 million (US$2.2 million), as compared to RMB13.3 million for the same period in 2018.
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,
2019 was RMB2.7 million (US$0.4 million), RMB0.7 million higher than the same period in 2018.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Income Tax Benefit (Expense)
The income tax expense was RMB0.016 million
(US$0.002 million) during the second quarter ended June 30, 2019, compared to income tax expense of RMB0.18 million during the
same period in 2018. 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, 2019 was RMB1.0 million (US$0.1 million) while net loss attributable to the Company was RMB8.7
million during the same period in 2018.
Results of operations for the six-month periods
ended June 30, 2019 compared to June 30, 2018
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, 2019
|
|
|
June 30, 2018
|
|
|
|
(as % of Revenue)
|
|
Gross profit
|
|
|
18.3
|
|
|
|
10.4
|
|
Operating expenses
|
|
|
(16.9
|
)
|
|
|
(18.6
|
)
|
Operating income (loss)
|
|
|
1.5
|
|
|
|
(8.2
|
)
|
Other income (expense)
|
|
|
(2.9
|
)
|
|
|
(2.6
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
Net income (loss)
|
|
|
(1.4
|
)
|
|
|
(10.8
|
)
|
Revenue
Our revenue is primarily derived from the manufacture
and sale of plastic films.
Net sales during the six-month period ended
June 30, 2019 were RMB169.2 million (US$24.6 million), compared to RMB156.5 million in the same period in 2018, representing an
increase of RMB12.7 million or 8.1%. The increase in average sales price caused an increase of RMB10.4 million and the increase
in the sales volume caused an increase of RMB2.3 million.
In the six-month period ended June 30, 2019,
sales of specialty films were RMB74.2 million (US$10.8 million) or 43.8% of our total revenues as compared to RMB63.7 million or
40.7% in the same period of 2018, which was an increase of RMB10.5 million, or 16.5% as compared to the same period in 2018. The
increase in average sales price caused an increase of RMB3.4 million and the increase in the sales volume caused an increase of
RMB7.1 million.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a breakdown of commodity and
specialty film sales (amounts in thousands):
|
|
Six-Month Period Ended
June
30, 2019
|
|
|
% of Total
|
|
|
Six-Month Period Ended
June 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Stamping and transfer film
|
|
|
60,123
|
|
|
|
8,757
|
|
|
|
35.6
|
%
|
|
|
60,281
|
|
|
|
38.6
|
%
|
Printing film
|
|
|
20,732
|
|
|
|
3,020
|
|
|
|
12.3
|
%
|
|
|
17,581
|
|
|
|
11.2
|
%
|
Metallization film
|
|
|
2,614
|
|
|
|
381
|
|
|
|
1.5
|
%
|
|
|
1,795
|
|
|
|
1.1
|
%
|
Specialty film
|
|
|
74,154
|
|
|
|
10,802
|
|
|
|
43.8
|
%
|
|
|
63,695
|
|
|
|
40.7
|
%
|
Base film for other application
|
|
|
11,568
|
|
|
|
1,685
|
|
|
|
6.8
|
%
|
|
|
13,174
|
|
|
|
8.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,191
|
|
|
|
24,645
|
|
|
|
100.0
|
%
|
|
|
156,526
|
|
|
|
100.0
|
%
|
Overseas sales during the six months ended
June 30, 2019 were RMB30.6 million or US$4.5 million, or 18.1% of total revenues, compared with RMB27.6 million or 17.6% of total
revenues in the same period in 2018. This was RMB3.0 million higher than the same period in 2018. The increase in sales volume
resulted in an increase of RMB1.2 million and higher average sales price caused an increase of RMB1.8 million.
The following is a breakdown of PRC domestic and
overseas sales (amounts in thousands):
|
|
Six-Month Period Ended
|
|
|
|
|
|
Six-Month Period Ended
|
|
|
|
|
|
|
June 30, 2019
|
|
|
% of Total
|
|
|
June 30, 2018
|
|
|
% of Total
|
|
|
|
RMB
|
|
|
US$
|
|
|
|
|
|
RMB
|
|
|
|
|
Sales in China
|
|
|
138,631
|
|
|
|
20,193
|
|
|
|
81.9
|
%
|
|
|
128,922
|
|
|
|
82.4
|
%
|
Sales in other countries
|
|
|
30,560
|
|
|
|
4,452
|
|
|
|
18.1
|
%
|
|
|
27,604
|
|
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169,191
|
|
|
|
24,645
|
|
|
|
100.0
|
%
|
|
|
156,526
|
|
|
|
100.0
|
%
|
Cost of Goods Sold
Our cost of goods sold comprises mainly of
material costs, factory overhead, power, packaging materials and direct labor. The breakdown of our cost of goods sold in percentage
is as follows:
|
|
Six-Month Period Ended
June 30, 2019
|
|
|
Six-Month Period Ended
June 30, 2018
|
|
|
|
% of total
|
|
|
% of total
|
|
Materials costs
|
|
|
73.0
|
%
|
|
|
72.2
|
%
|
Factory overhead
|
|
|
10.9
|
%
|
|
|
9.2
|
%
|
Energy expense
|
|
|
8.3
|
%
|
|
|
9.2
|
%
|
Packaging materials
|
|
|
4.1
|
%
|
|
|
4.8
|
%
|
Direct labor
|
|
|
3.7
|
%
|
|
|
4.6
|
%
|
Cost of goods sold during the first six months
of 2019 totaled RMB138.2 million (US$20.1 million) as compared to RMB140.2 million in the same period of 2018. This was RMB2.0
million or 1.4% lower than the same period in 2018. The increase in sales volume resulted in an increase of RMB2.1 million and
the decrease in average sales cost caused a decrease of RMB4.1 million which was mainly due to the price decrease of main raw materials.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Gross Profit
Our gross profit was RMB31.0 million (US$4.5
million) for the first six months ended June 30, 2019, representing a gross margin rate of 18.3%, as compared to a gross margin
rate of 10.4% for the same period in 2018. Correspondingly, gross margin rate increased by 7.9 percentage points. Our average product
sales prices increased by 6.5% compared to the same period last year while the average cost of goods sold decreased by 2.9% 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, 2019 were RMB28.5 million (US$4.2 million), compared to RMB29.2 million in the same period in 2018, which was RMB0.7 million
or 2.4% lower than the same period in 2018. This decrease was mainly due to decreased allowances.
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 2019 was RMB4.9
million (US$0.7 million) while total other expense was RMB4.0 million for the same period in 2018.
Income Tax Benefit (Expense)
The income tax expense was RMB0.03 million
(US$0.005 million) during the six months ended June 30, 2019, compared to income tax benefit of RMB0.03 million during the same
period in 2018. This decrease of the income tax benefit was due to changes in deferred tax.
Net Loss
Net loss attributable to the Company during
the first half of 2019 was RMB2.4 million (US$0.4 million) compared to net loss attributable to the Company of RMB16.9 million
during the same period in 2018, representing a decrease of RMB14.5 million from the same period in 2018 due to the factors described
above.
Liquidity and Capital Resources
Our capital expenditures have been primarily
from cash generated from our operations and borrowings from related parties, financial institutions. The interest rates of borrowings
from financial institutions during the period from the first quarter of 2018 to the first quarter of 2019 ranged from 6.5% to 6.5%.
In April 2014, the Company obtained a loan
for a total amount of RMB105.0 million from Shandong SNTON Optical Materials Technology Co., Ltd. (the “Shandong SNTON”)
to pay off certain short-term loans due to Bank of Communications Co., Ltd. The interest shall be calculated at the benchmark rate,
plus an additional 20% of the said benchmark rate, for the loan of the same term announced by the People’s Bank of China.
The interest must be paid quarterly and settled in full at the end of the year. As of December 31, 2014, the principal of this
loan and the interest have not been paid. In March 2015, the Company entered into a supplemental agreement with Shandong SNTON
pursuant to which the parties agreed that the Company will pay off the principal of this loan plus interest upon availability of
new loans from banks or other financial institutions.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of June 30, 2019, the principal of this
loan from Shandong SNTON was RMB86.80 million and the interest payable was RMB30.19 million.
The related accounts payable as of June 30,
2019 and December 31, 2018 was RMB116.99 million and RMB114.70 million, respectively.
The main source of cash inflow for the next
twelve months will come from sales of products, and the estimated inflow is RMB368.8 million. The estimated cash outflow is RMB283.8
million. The amount of cash used in the purchase of raw materials and packaging materials is estimated to be RMB187.7 million and
RMB10.6 million, respectively. Cash used for power costs, labor costs, maintenance and renovation expenses is estimated to be RMB27.7
million, RMB17.0 million and RMB9.8 million, respectively. Total cash used in sales expenses, financial expenses and administrative
expenses is estimated to be RMB31.0 million. The foregoing description has been prepared based on the information available to
us as of the date of this report on Form 6-K and there are numerous factors that could contribute to a different result such as
risks inherent in, the BOPET film industry in China; uncertainty as to future profitability and competition in the BOPET film industry;
growth of, and risks inherent in, the BOPET film industry in China and numerous other factors as more fully disclosed in our reports
filed with the U.S. Securities and Exchange Commission.
We believe that, after taking into consideration
our present and potential future loans from related parties and banking facilities, existing cash and the expected cash flows to
be generated from our operations, we will have adequate sources of liquidity to meet our short-term obligations and our working
capital requirements.
Operating Activities
Net cash provided by operating activities for
the six months ended June 30, 2019 was RMB25.7 million (US$3.7 million) compared to net cash provided by operating activities of
RMB20.5 million for the six months ended June 30, 2018. This increase in cash flows provided by operating activities was primarily
attributable to decrease in net loss.
Investing Activities
Net cash flows used in investing activities
for the six months ended June 30, 2019 was RMB3.5 million (US$0.5 million) compared to net cash flows used in investing activities
of RMB2.0 million for the six months ended June 30, 2018. This increase in cash flows used in investing activities was primarily
attributable to purchase of fixed assets.
Financing Activities
Net cash flows provided by financing activities
for the six months ended June 30, 2019 was RMB4.3 million (US$0.6 million) compared to net cash flows used in financing activities
of RMB23.1 million for the six months ended June 30, 2018. This increase in cash flows provided by financing activities was primarily
attributable to change of loans from a related party.
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Working Capital
As of June 30, 2019 and December 31, 2018,
we had a working capital deficit of RMB134.9 million (US$19.7 million) and RMB153.2 million, respectively. Working capital deficit
decreased by RMB18.3 million (US$2.7 million), or11.9% compared to the amount as of December 31, 2018. Our main current liability
is a loan from a related party.
Contractual Obligations
The following table is a summary of our contractual
obligations as of June 30, 2019 (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
|
|
|
99
|
|
|
|
99
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Purchase commitment
|
|
|
1,010
|
|
|
|
1,010
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,109
|
|
|
|
1,109
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
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 August 22, 2019.
|